The Iron Triangle

At a recent Shared Services conference in Philadelphia, Louise Stoney of the Alliance for Early Childhood Finance, presented the concept of the "iron triangle of ECE."  Here are a few excerpts from the paper on the Alliance website, "The Iron Triangle: A Simple Formula for Financial Policy in ECE Programs"

"When seeking to balance their budgets, early childhood program directors typically focus on their rate — the price charged to parents or received as reimbursement from government.  Rates are indeed important;  however early care and education program income is also profoundly influenced by two other factors: enrollment and fee collection.  These three factors form the “iron triangle” of early care and education (ECE) finance.  Paying close attention to the three sides of the iron triangle is key to sound fiscal management....

"Both enrollment and fee collection impact actual per-child costs. If a program is not fully enrolled, the per-child cost increases.  If bad debts go up (fees are not being collected), the per-child cost increases.  In some cases, a budget gap can be addressed by boosting enrollment and/or lowering bad debt rather than raising fees.  The three factors are interrelated.  In tough fiscal times, when third-party funders are cutting budgets and parents are squeezed financially, ECE programs often face a difficult choice: keep fees high and risk increased vacancy rates and higher bad debt, or lower fees to boost cash flow.  Unfortunately, the right answer is not simple or obvious, and it may vary from center to center based on the services offered and the families served.

"The iron triangle is a simple formula for a complex issue.  It can be a helpful way to stay on track, to remember what’s important, but should not replace the many steps involved in sound fiscal management.  Gwen Morgan and Bess Emmanuel have co-authored an excellent handbook, The Bottom Line for Children’s Programs:  What You Need to Know to Manage the Money, which should be an essential text for any program director involved in the business side of early care and education."

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