Transcript Towards full costing

Financially sustainable universities
through full costing
and income diversification
Thomas Estermann
Head of Unit Governance, Autonomy and Funding
EUA
19.11.2009
UNICA Meeting for EU Research Liaison Officers
University of Ljubljana
Financial
sustainability
1
•Identification
of costs of
activities and
projects
• Diversified
income
structure
• Sufficient &
sustainable
public
funding
Provide evidence to debate on universities’ financial
sustainability through analysis of institutional data and
funding patterns from institutional perspective
…2…
Terminology
Lack of a commonly understood terminology in accounting
and of financial terms in the Higher education sector in
Europe
Diverging interpretation and adaptation influenced by:
 EU FPs
 Management accounting theory (ABC)
 TRAC in the UK
 National context
 Ability to define costs as direct, define cost objects and allocate them
Full costing – ability to identify and calculate all direct and
indirect costs of an institution’s activities including projects
…3…
Diversity
Legal status
Size
Profile
Ownership of property
Governance structure
Funding structure
Impact on the development, design
and implementation of full costing
Analysis of these elements helps
benchmarking and finding similar
universities for exchange
Costing structure
Level of autonomy
…4…
Development of full costing
Huge diversity in development both in countries and
universities:
 No or only preliminary development of full costing (CZ, PL, Estonia)
 Development/implementation process started (SE, IE, FI)
 Full costing implemented (UK, NL)
 All 3 stages comprise a broad spectrum
Partly conditional on
 information systems
 types of costing models already existing
 External support received
=> National coordinated initiatives & financial support from
government = faster development
…5…
Benefits
Universities
• Improved strategic
decision-making
• More efficient internal
resource allocation
system
• Systematic approach to
activity analysis &
costing
• Enhanced ability to
negotiate & price
activities => higher cost
recovery
• Benchmarking
possibilities
National level
European level
.
• Better
accountability =>
improves mutual
trust => helps
transition towards
enhanced
autonomy
…6…
• Stronger/more
competitive
universities =
Stronger ERA & EHEA
• Enhanced
accountability + trust
with European
Commission =
simpler/less costly
procedures
Obstacles to implementation of full costing
Institutional
obstacles
• Resistance towards change
• Resistance towards managerial approach
• Concerns over time accounting
• Lack of leadership commitment
External
obstacles
• Lack of autonomy and other legal barriers
• Lack of trust between stakeholders
• Strain on financial, technical and human
resources
• Risk of complexity
• Competitive funding is not covering full
costs
…7…
The role of external support
From different
sources
• Development
• Implementation
• Funding on a full
cost basis
• From different
sources
At different
stages
• National agencies
responsible for the funding
and/or organisation of
universities
• Organisations representing
universities (Rectors’
Conferences)
• International organisations
and other external funding
bodies
…8…
• Financial support
• Human resources
• Advisory/consulting
activities
In different
forms
The role of external support
Both financial and advisory support
Full costing system not implemented
Financial support only
Advisory support only
23%
Process of implementation has begun
8%
77%
8%
42%
Full implementation of full costing
42%
56%
0%
10%
No support
20%
11%
30%
…9…
40%
50%
60%
33%
70%
80%
90%
100%
The role of European funding schemes
A driver but also a potential obstacle
Forms for cost recovery need to allow for wider scope of
different methods and respect diversity
Need to simplify full funding cycle from application over
reporting to audit
Unclear rules and regulations
External funding only partly covers costs = endangers
financial sustainability => potential reduced participation
…10…
Multi-level recommendations
Europe
•Recognise the diversity of context and
development of full costing
•Simplify the rules for Framework programmes
and other funding schemes
National
•Provide financial, technical, advisory and
Human Resource support in implementing
costing systems
•Grant universities the necessary autonomy
Universities
•Use costing system as an integrated strategic
tool for planning and decision-making
•Understand complexity and multiple purposes
of costing systems and take account of these
factors in the design
…11…
Recommendations to all funders
Move towards funding
on a full cost basis
Work on coherent
conditions for external
funding requirements!
…12…
Financial Sustainability
2nd pillar: Diversified funding structure
Top priority: how to increase and diversify funding
How to mitigate risk?
How to achieve more autonomy?
Challenges:
 Increase of co-funding sources endangers financial
sustainability
 More and diverse income sources add to complexity
…13…
EUDIS –
European Universities Diversifying Income Streams
 explores how universities with different missions
and profiles are diversifying their income streams
 identifies the essential external conditions for this,
the incentives, obstacles and pitfalls involved
 Analyses the effect of economic crisis on
universities
 investigates the challenges that diversified funding
brings for managing and governing institutions and
the impact of autonomy
…14…
Questionnaire results: A few key figures
27 participating countries
140 universities
 Over 2 million students (around 800,000 FTE)
 156,000 academic staff & 110,000 administrative staff
 260,000 degrees awarded
 Close to € 20 billion (all types of funding)
 € 13 billion public funding (national & regional)
…15…
Expectations on income streams evolution
The sources that are most widely expected to increase are:
80%
70%
74.07%
67.31%
60%
65.00%
62.82%
61.25%
50%
56.92%
40%
30%
20%
10%
0%
European Union
funding
Philanthropic
income from
alumni
Contracts with
business sector
…16…
Contributions
(fees) from
International
students
Income generated
by lifelong
learning activities
Philanthropic
income from
foundations /
charities
(including
competitive
grants)
Number of funding sources & complexity
Some universities have over 600 public funding sources
Requirements differ with smaller public funders, especially
regarding targeted / project-based funding.
Variations include the use of different accounting systems,
reporting frequency, auditing requirements, amount of
documentation needed
Competitive funding often co funding
High costs to secure additional funding
Increase in funding gap through co funding endangers financial sustainability
…17…
Next steps by EUA
Full costing take-up activities
 Promoting the implementation of full costing in
universities
 Funded by the European Commission under FP7
 National / regional events
 Study visits
EUA to join Funders Platform for Common Funding
principles
Work with EC and Parliament to design appropriate
funding mechanisms
…18…
Discussion& Questions
Where are your in then process of implementation of
full costing?
What are the challenges you are facing in respect to
FP7?
Suggestions for FP8 rules and regulations
…19…
For further information :
[email protected]
…20…