FULL ECONOMIC COSTING fEC FOR SUSTAINABILITY

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FULL ECONOMIC COSTING (fEC) FOR SUSTAINABILITY

• Selby Knox
• Heads of Department Forum
• 20 May 2004

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BACKGROUND

• 1998 CSR additional funds for HE but
  transparent costing required
• JCPSG established Transparent Approach to
  Costing (TRAC), a light-touch methodology,
  implemented 1999-2004
• TRAC showed research under-funded when fEC
  calculated and a particular problem with
  infrastructure
• Treasury and OST commissioned infrastructure
  reviews
• showed 8 billion investment backlog
• and no possibility of catching up while research
  funded below cost

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ADDITIONAL FUNDS FOR RESEARCH IN 2002 CSR

• 500 million p.a. for capital (SRIF2) from
  2004-05 (90 funded)
• 244 million p.a. for QR from 2005-06
• 120 million p.a. to enhance level (not volume)
  of Research Council grants from 2005-06

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BUT A REQUIREMENT INTRODUCE fEC AND MOVE TO
SUSTAINABILITY

• OST 2002 HEIs have a responsibility for
  ensuring the long term sustainability of their
  research enterprise
• CSR 2002 The Government will expect
  universities to manage their activities in a
  sustainable way
• HEFCE Financial Memorandum 2003 HEIs required to
  identify and recover the fEC of their activities
  and integrate transparent costing and pricing
  into decision-making processes
• In our interests - must know the fEC of our
  activities, price accordingly and change the low
  price culture. All US universities price their
  research on an fEC basis.

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WHAT IS SUSTAINABILITY?

• JCPSG Guidance Manual An institution is being
  managed on a sustainable basis if it is
  recovering its full economic costs across its
  activities as a whole, and is investing in its
  infrastructure (physical and human) at a rate
  adequate to maintain its future productive
  capacity.
• Professor David Westbury, chair of JCPSG
  Resources must be identified to meet the full
  costs in the long run. It is no longer
  sufficient simply to balance the books.
• Not a new concept at Bristol. A long term
  policy. The surplus! The strategic investment
  fund.

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SUSTAINABILITY ACHIEVED BY

• Establishing and recognising the fEC of
  activities
• Securing better prices
• Improving project management and cost recovery
• Investing in the institutional infrastructure
• Managing activity strategically
• increased emphasis on management of research and
  teaching portfolios

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THE JCPSG STUDY

• JCPSG and JM Consulting commissioned by OST/HEFCE
  to extend TRAC to cost research projects on an
  fEC basis
• Tested methods with 10 university pilots
• Identified methodology that satisfies Research
  Councils
• Issued Guidance Manual February 2004

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TIMETABLE FOR ACCESSING THE RESEARCH COUNCILS
120 MILLION

• Autumn 2004
• New forms and instructions from Research
  Councils. 
• April 2005
• First 120 million allocated pro rata to
  universities.
• Bristols share estimated at ca. 4 million in a
  full year, 1.25 million in 2004-05. 
• September 2005
• Applications to Research Councils on an fEC
  basis. 
• April 2006
• Research Council grants funded on an fEC basis. 

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NOT JUST A RESEARCH COUNCIL ISSUE

• From January 2005 can apply to Government
  Departments on an fEC basis.
• target date for having processes and systems in
  place.
• Can apply to other funders (industry, charities)
  from then also.
• So much more than just 4 million p.a. at stake.

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BUT WILL FUNDERS PAY?

• Research Councils will pay 60-70 of fEC (rest
  from QR and institutions funds)
• NHS treated as a Research Council, i.e. 60-70
• Govt Depts should expect to pay 100 of fEC of
  research commissioned from universities -
  Treasury
• Charities more likely to pay costs that can be
  identified as direct (staff time, space)
• Industry pricing is market-based not cost-based
  but introduction of fEC across sector will exert
  upward pressure on pricing and cost recovery
• Lower volume of better-funded research projects?

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fEC THE MAIN CHANGES

• Estimating and charging for academic staff time
• RA and technical staff direct costs chargeable as
  now
• Identifying and charging more costs as direct
• especially estates/space costs
• direct consumables, equipment and services costs
  etc chargeable as now
• Smaller residual indirect costs
• closer to central support service costs
• Improved verification and audit processes
• including QA

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CALCULATING fEC

• Academic Staff
• cost calculated on basis of standard working week
  and year and each academics actual salary or
  salary band
• Estates/Space Costs
• by January 2005 charge as /FTE academic staff
• by August 2007 charge as /m2 using at least 4
  space categories
• Residual Indirect Costs
• charge as /FTE academic staff
• not /salary cost as now

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IMPLICATIONS FOR ACADEMIC STAFF

• Estimate time on project in actual hours
• Include time for project management, writing
  papers, dissemination, etc.
• Exclude time for research student supervision
  unless it is a student funded by the project
• Keep simple records to verify time
• e.g. log book of main events, meetings etc.
• awaiting confirmation from research councils

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HELP WILL BE AVAILABLE

• fEC website established this week
• www.bris.ac.uk/fec
• contains this presentation
• Communication and Training
• termly Heads of Department forums
• termly training programmes by Staff Development
• JCPSG advice on communication and training
  strategy released May 2004
• Costing done by appropriate trained staff using
  effective systems
• Advice on pricing

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fEC PROJECT IMPLEMENTATION

• A complex and demanding project.
• A variety of new processes and systems required
• e.g. pre-application estimating, post-application
  cost recording, invoicing, verification
• requires input from a wide range of academic and
  support service staff. 
• Must make as straightforward and burden-free as
  possible for all staff.
• Must operate in a more business-like way
• but not threaten the conditions that have made us
  successful.

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PROJECT STRUCTURE

• Steering Group
• to oversee project, ensure timely delivery and
  that communications and change are managed
  properly
• will sit for several years, monthly for first two
• Project Management Group
• to make recommendations to Steering Group and to
  coordinate activities of Sub-Groups charged with
  detailed aspects, also meets monthly
• Sub-Groups
• 3 so far (staff time, space, costing)
• 3 to come (pricing, financial info,
  communications)

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STEERING GROUP MEMBERSHIP

• Selby Knox PVC(Resources) Designate - Chair
• Bill Boyd Dean of Science
• Len Hall Dean of Med Vet Sciences Elect
• Bob Fowler Dean of Arts Elect
• Ian Crawford Finance Director
• Guy Gregory HR Director
• Sian Thomas Director of RED
• Alison Allden Director of Information Services
• Project Manager to be appointed
• Helen Galbraith Admin support

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PROJECT MANAGEMENT GROUP MEMBERSHIP

• Project Manager Chair (Ian Crawford interim)
• Finance Office (3)
• RED (2)
• Estates (1)
• Information Services (1)
• Personnel (1)
• Departmental Manager (1)
• Academic representation on Sub-Groups
• 3 nominations requested from each Dean

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TEACHING

• We can use the same fEC methods to ensure
• fees reflect the costs of delivering courses
• the management of teaching portfolios is
  properly informed.
• Note that HEFCE is considering introducing a
  cost-based approach to the funding of subjects
  (for 2007-08?).
• Sustainability relevant here also
• infrastructure reviews also found history of
  under-investment in teaching facilities
• needs to be addressed in the new fee-setting era
  with students as demanding customers
• to attract students to less popular courses