financially sustainable universities through full costing and income diversification thomas...
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Financially sustainable universities through full
costing and income diversification
Thomas EstermannHead of Unit Governance, Autonomy and Funding
EUA
19.11.2009UNICA Meeting for EU Research Liaison Officers
University of Ljubljana
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Provide evidence to debate on universities’ financial sustainability through analysis of institutional data and funding patterns from institutional perspective
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• Identification of costs of activities and projects
• Diversified income structure
• Sufficient & sustainable public funding
Financial sustainability
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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
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Diversity
Impact on the development, design and implementation of full costing
Analysis of these elements helps benchmarking and finding similar universities for exchange
Legal status
Size
Profile
Ownership of property
Governance structure
Funding structure
Costing structure
Level of autonomy
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Development of full costingHuge 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)Þ 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
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Benefits
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•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
•Better accountability => improves mutual trust => helps transition towards enhanced autonomy
•Stronger/more competitive universities = Stronger ERA & EHEA
•Enhanced accountability + trust with European Commission = simpler/less costly procedures
Universities National level European level
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Obstacles to implementation of full costing
•Resistance towards change
•Resistance towards managerial approach
•Concerns over time accounting
•Lack of leadership commitment
Institutional 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
External obstacles
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The role of external support
• 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
From different sources
• Financial support• Human resources• Advisory/consulting
activities
In different forms
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The role of external support
Full implementation of full costing
Process of implementation has begun
Full costing system not implemented
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
56%
8%
11%
8%
33%
42%
77%
42%
23%
Both financial and advisory support Financial support only Advisory support only No support
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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
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Multi-level recommendations
Europe
National
Universities
• Recognise the diversity of context and development of full costing
• Simplify the rules for Framework programmes and other funding schemes
• Provide financial, technical, advisory and Human Resource support in implementing costing systems
• Grant universities the necessary autonomy
• 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
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Recommendations to all funders
Work on coherent conditions for external funding requirements!
Move towards funding on a full cost basis
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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
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
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Questionnaire results: A few key figures
140 universities
Over 2 million students (around 800,000 FTE)
156,000 academic staff & 110,000 administrative staff
260,000 degrees awarded
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Close to € 20 billion (all types of funding)
€ 13 billion public funding (national & regional)
27 participating countries
Expectations on income streams evolution
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0%10%20%30%40%50%60%70%80%
74.07%67.31% 65.00% 62.82% 61.25% 56.92%
The sources that are most widely expected to increase are:
Number of funding sources & complexity
Some universities have over 600 public funding sourcesRequirements 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 neededCompetitive funding often co funding
High costs to secure additional fundingIncrease in funding gap through co funding -endangers financial sustainability
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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 principlesWork with EC and Parliament to design appropriate funding mechanisms
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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
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