Full Economic Costing in the UK

1
(No Transcript)
2
Funding the full economic costs of research
International Symposium on university costs and
compacts 14-15 July Canberra
Steve Egan Deputy Chief Executive
3

• Origins and purpose
• The Dual Support Reform project
• Practical issues
• Policy issues
• Lessons from UK experience

4

• The Problem
• Increasing volume at marginal rates
• Result
• Deteriorating Infrastructure

5
DfES publicly planned unit of funding (teaching)
(real terms 2006-07100)
9,000
grant
grant public fee
8,500
grant public fee private regulated fee
grant public fee private regulated fee
capital
8,000
7,500
7,000
6,500
per FTE student
6,000
5,500
5,000
4,500
4,000
1989-
1990-
1991-
1992-
1993-
1994-
1995-
1996-
1997-
1998-
1999-
2000-
2001-
2002-
2003-
2004-
2005-
2006-
2007-
2008-
2009-
2010-
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
6
HEI Research Income(position in 2002)
2500

2000

1500

1000


500

0
7
Transparency Review and TRAC (Transparent
approach to costing)

• Transparency review 1999
• Phased implementation of annual TRAC 2000-04
• Annual return giving fEC of publicly-funded and
  non-publicly funded Teaching, Research and Other
  activities
• Bns public investment

8
How did TRAC phase 1 work?
Annual TRAC reporting (surplus
identification by activity)
TRAC Cost Adjustments
Cost allocation to activities
Infrastructure adjustment
Time allocation -academic costs
Publicly-funded Research
Financial Accounts
TRAC full economic costs
Non-publicly funded Research
Return for financing and investment (RFI)
Publicly-funded Teaching
Other cost drivers e.g.sq metres,student
numbers, staff numbers
Non-publicly funded Teaching
Other
9
TRAC phase 2

• Dual Support Reform Project
• An institution is financially sustainable if,
  taking one year with another, it recovers its fEC
  across its activities as a whole, and invests in
  its infrastructure (physical, human,
  intellectual) at a rate adequate to maintain its
  future productive capacity, appropriate to its
  needs.(10 year Research and Innovation Framework)

10
What was involved

• Additional funding for research
• Public sector sponsors pay 80-100 of fEC
  (Research Councils 200M pa)
• Funding councils support through QR (block
  grant- 90M pa)
• Charities supported by additional dual support
  funding (180M pa)
• More money in capital streams (4.5bn)

11
Institutions required to

• Understand costs and manage sustainably
• Inform infrastructure needs and investment
• Price and improve cost recovery
• Improve project management
• So needed proper costing of research projects

12
TRAC fEC 2004-09

• Forecasting full economic cost of research
  projects
• estimating academic staff time/cost
• estimating other direct costs (researchers,
  consumables)
• clarification and stricter rules on claiming
  direct costs (e.g. research facilities,
  technicians)
• applying estates and indirect cost rates to FTEs
• many project costs funded on estimate to minimise
  burden
• external QA process to assure funders of
  accountability and value for money

13
Stakeholders in these changes

• 1. Funding Councils (and DIUS/Treasury)
  institutional sustainability and good financial
  management. Information for policy and funding
• 2. DIUS/OSI - sustainability of the research
  base and good value for science budget
• 3. Research Councils (and NAO) good research,
  value for money and can show that funds are well
  spent
• 4. Other sponsors (charities, OGDs, NHS, EC
  etc) want best value
• 5. HEIs pilots and then the sector -
• Can we implement and afford the changes? Are
  they reasonable? Changes to pricing, resource
  allocation, management information systems.

14
How does TRAC work?
TRAC annual return (surplus/deficit by activity)
Financial accounts
TRAC fEC cost of research projects
Student numbers HESA
Special investigations based on TRAC e.g.
research cost weights, sustainable T
calculate charge-out rates
15
Formula capital allocations
16
Research income from Funding Councils and
Research Councils 1999-2000 to 2006-07
Source HESA finance record, HEFCE funded HEIs
17
Benefits

• Research more sustainable
• Academics aware of full, long-term costs of their
  research
• Proper basis for pricing
• UK research universities were the only price
• cartel that kept prices low they can now (in
  theory) price at sustainable level

18
But-different funding policies

• Other Government departments
• Charities
• EC (FP7)- 75 of full cost
• Industry

19
Differences TRAC-OMB A21

• TRAC is about full economic cost of all
  university activities, in context of a Dual
  Support system.
• So it supports improved business awareness by
  universities and all their funders.
• It is a flexible approach but institutions must
  meet a detailed set of minimum requirements (no
  negotiation).
• OMB A-21 is about calculating allowable costs on
  research projects (only), and cost sharing.
• It requires significant negotiation.
• Fundamentally different aims and processes.
• OMB process is less visible to academics all UK
  academics are aware of TRAC!

20
Issues about TRAC

• Government and HE funders believe in TRAC (and it
  has delivered over 1bn per year to the sector)
• It has facilitated a cultural change, BUT
• Is it becoming too burdensome is it too driven
  by funding bodies (e.g. RCUK, EC)?
• Do institutions believe the data they produce
  (validated, used internally, creditable?)
• Are institutions allowing TRAC to overstate the
  costs of research and understate the costs of
  teaching (peer pressure to show research-active)?

21
To take these forward

• External quality assurance
• Recording scholarship as being an important part
  of teaching
• Ensuring VCs and FDs support and review figures
  (take it away from the accountants)

22
Policy Issues
Is UK research more sustainable yes Have all
funders bought into the policy no Are there
risks in the situation yes Is it all perfect
in the UK no Are we moving in the right
direction - yes
23
Lessons from the UK experience

• Costing is not the hard part
• Tension rigour/detail/burden vs. simplicity
• Needs to be holistic equal focus on Teaching
• With parallel initiatives on capital investment
  and balance sheet issues
• Engagement of VCs and FDs is critical
• Acceptance by all sponsors as robust
• Need for national project management and support

24
Funding the full economic costs of research
International Symposium on university costs and
compacts 14-15 July Canberra
Steve Egan Deputy Chief Executive