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1 1 Full Economic Costs (fEC) of Research Projects An Introduction Presented by:

2 2 Objective of Presentation To introduce academics and administration managers to fEC as a basis for costing Research projects. To emphasize the support provided by Research Administration during and after project implementation. To introduce a short summary of the costing requirement including changes to existing methodology.

3 3 Topics of Discussion Background - where did fEC come from ? Why is fEC important ? How is fEC calculated ? Budgeting academic time. Admin. support & implementation timescale. Research Council Costing Requirement.

4 4 Background - where did fEC come from ? (1) Transparency Review (TRAC) introduced 1998 in response to JIF and SRIF1. HEIs more transparent about how they spend between Teaching (T), Research (R) and Other Activities (O). Figures reported to Funding Councils and consolidated for UK sector. UK sector figures showed big losses in R. Treasury accepted conclusions: SRIF2

5 5 Background - where did fEC come from ? (2) R project costs on a fEC basis (from TRAC). Government emphasised HEIs should recover fEC to ensure sustainability of R. Extra £120M pa for current volume of Research Council (RC) projects from 2005/06. RCs will fund 80% of fEC - balance from institutions funds and /or dual support (RAE). Govt.depts.should fund 100% of fEC. Charities ? Lots of info at: http//www.jcpsg.ac.uk

6 6 Why is fEC important? Sustainability An institution is being managed on a sustainable basis if, taking one year with another, it is recovering its full economic costs across its activities as a whole, and is investing in its infrastructure (physical, human, and intellectual) at a rate adequate to maintain its future productive capacity appropriate to the needs of its strategic plan and students, sponsors and other customer requirements. (Definition in TRAC Volume III) Issues - fEC, strategic, pricing, project management/cost recovery, investment

7 7 A Point to Remember ! fEC is the methodology used to cost projects to ensure sustainability etc of Research. Research proposals contain a PRICE for the Research which may be different to the cost.

8 8 How is fEC calculated ? (1) Current Costing Method RA costs Technician costs Non-staff direct costs O/H recovery (if applic.) eg.46% for RCs fEC RA costs Technician costs Non-staff direct costs Estates costs as direct Indirect costs PI costs Replacement cost of departmental equipment Estates now includes Infrastructure costs, Indirect costs now include COCE, both previously not included in College costs.

9 9 How is FEC calculated ? (2) Estates costs as direct: - RCs will fund. Other sponsors may follow. - Charge on basis of £X / acad.staff member (FTE) Indirect costs: - Charge on basis of £X / acad.staff member (FTE) PI costs: - PIs to estimate time spent on projects (actual hrs) - Apply cost according to grade of staff. Research Councils will fund 80% of all of this on ESTIMATE. No need to record actual time by project for RCs. Sponsored PGRs and equipment costs over £50,000 are exceptions to the rule.

10 10 Budgeting academic time (PI costs) (1) Time should be estimated in actual hours. Include time for project mgmt., writing papers, dissemination, etc. Exclude PGR training/supervision unless it is a studentship included in the sponsors project. PIs to keep simple records to verify time eg.notes/log book of events, meetings, etc.

11 11 Budgeting academic time (2) No prescribed methods for estimating time. Could base on hours required each month over project life; or on standard proxy e.g. [2 hours] a week per RA plus [2 hours] a week per project (more if more complex project) Research Councils will be comparing estimates Overall reconciliation (at institutional level) of estimated time with actual time spent (from annual TRAC time allocation schedule data)

12 12 Administration Support Usual one to one support provided by Research Admin through application process. All costing done within RACE 2 by authorized staff. Database of estimated PI time on awarded projects will be kept to verify commitment of time. RA contacts: Unresolved Issues:

13 13 Implementation Timetable (1) January 2005: fEC rates calculated XXXXX: Institutional systems for fEC established. XXXXX: Training on new processes provided. Costing/managing projects on fEC basis begins.

14 14 July 2005: Release of RC forms Training on new forms provided September 2005: All RC applications made (and funded) on fEC basis. Projects will start April-Dec Implementation Timetable (2)

15 15 Summary Introduction to costing R projects on FEC basis. Involvement of academics (budgeting time). Central support from RAdmin.

16 16 Conclusion Potential increase in net R income from RCs (pa) c.£XX for (Institution name) in Opportunity to improve cost recovery from other funders. Improved resource will directly benefit R active academics.

17 17 Open Discussion ! ANY QUESTIONS ?

18 18

19 19 fEC COSTING

20 20 Under fEC there is a subtle reclassification of certain categories of cost. Direct costs remain. Indirect costs are analysed and identified as either Directly Allocated or Indirect costs. fEC Costing - a

21 21 Direct Costs Research Staff Salaries Researchers Technicians (inc animal techs) Other Direct administration Computing/computing support staff Casual staff etc Travel & Subsistence Consumables Equipment Large Capital fEC Costing - b

22 22 fEC Costing - c Directly Allocated charges Principal Investigator Other Academic staff Other staff subject to Time Allocation excluded from Indirect Cost calculation Replacement Cost of Departmental Equipment Estates/Premises Costs ( as £/FTE Academic Staff & PGRs)

23 23 fEC Costing - d Indirect costs (as £/FTE Academic Staff & PGRs)

24 24 fEC Costing - e Under fEC the main changes relate to an analysis of Overhead charges. This identifies - PI and Associates time. Equipment. Estates/Premises Costs. Indirect Costs (All other overheads)

25 25 New costs are introduced. - Infrastructure and Cost of Capital Employed. Infrastructure cost is added to Estates/Premises cost to reflect the full long-term maintenance of College Infrastructure. Cost of Capital Employed is added to Indirect costs to reflect the legitimate costs of running and financing the business. fEC Costing - f

26 26 PI and Associates Time - 1 All Academic time to be identified and costed. (Includes Research Fellows). Expressed as hours/day/week/year (not %). £ per hour based on national fEC standard hours of 1650 pa ( hrs per day). fEC Costing – g.1

27 27 PI and Associates Time - 2 Includes ALL estimated time dedicated to project. Time spent training/supervising PGR students to be separately identified. These costs are charged to Directly Allocated Charges fEC Costing – g.2

28 28 Other Staff Non-academic staff subject to time allocation (principally Pool Technicians) will be charged to Directly Allocated Charges and their costs excluded from the Indirect Cost calculation in TRAC fEC Costing - h

29 29 Equipment - New All new equipment purchased for the project to be charged as Direct Cost. fEC Costing - i

30 30 Equipment – Departmental etc. Replacement cost charged to Directly Allocated Charges. Formulated cost based on use/depreciation. fEC Costing - j

31 31 Estates/Premises Cost TRAC produces a £/FTE cost. Based on total annual E/P cost adjusted for estimated use of existing equipment. Relates to Academic R staff and PGR student FTE. Nationally imposed and locally derived weighting. [Academic 1.0x fte, PGR Lab 0.8x fte, PGR other 0.5x fte] These costs are charged to Directly Allocated Charges. fEC Costing - k

32 32 Indirect Costs TRAC produces a £/FTE cost. Relates to Academic R staff and PGR student FTE. Nationally imposed weightings. [Academic 1.0x fte, 0.2x fte] Calculated from all central costs. (College + school + department). fEC Costing - l

33 33 Infrastructure Costs Part of the TRAC basic calculation, additional to statutory accounts figures. NOT identified separately for fEC. fEC Costing - m

34 34 ANY QUESTIONS ? Open Discussion !

35 35

36 36

37 37 Simple Case Study Group Work 45 Minutes for Consideration

38 38 CASE STUDY – 0.1 Question: Calculate the fEC of the project based on the specific data. Show the split of costs as follows: Directly Incurred costs, Directly Allocated costs, Indirect costs..

39 39 CASE STUDY – 0.1a

40 40 CASE STUDY – 0.1b

41 41 Simple Case Study Model Answer

42 42 Note 1: PI – to Directly Allocated Annual cost = 750/5 x £60,000/1650 Annual PGR student support = 215 x £60,000/1650 CASE STUDY – 1.0

43 43 Note 2: Co-Investigator to Directly Allocated Annual cost = 200 x £40,000/1650 year 1 Annual cost = 200 x £41,000/1650 year 2 Annual cost = 200 x £42,000/1650 year 3 Annual cost = 200 x £43,000/1650 year 4 Annual cost = 200 x £44,000/1650 year 5 CASE STUDY – 1.1

44 44 Note 3: Research Assistant – to Direct Annual cost = 1650 x £25,000/1650 year 1 Annual cost = 1650 x £26,000/1650 year 2 Note: Years only CASE STUDY – 1.2

45 45 Note 4: Research Assistant – to Direct Annual cost = 1650 x £30,000/1650 CASE STUDY – 1.3

46 46 Note 5: 2 x Technicians – to Direct (1) £20,000 each year (1 – 5) (2) £15,000 year 1 (2) £15,500 year 2 (2) £16,000 year 3 (2) £16,500 year 4 (2) £16,500 year 5 CASE STUDY – 1.4

47 47 Note 6: Dedicated Clerical post – to Direct £20,000 year 1 £20,500 year 2 £21,000 year 3 £21,500 year 4 £22,000 year 5 CASE STUDY – 1.5

48 48 Note 7: Travel – to Direct Annual cost = £10,000 CASE STUDY – 1.6

49 49 Note 8: Consumables – to Direct Annual cost = £20,000 CASE STUDY – 1.7

50 50 Note 9: Equipment – to Direct £51,000 charged at start of project £150,000 charged at start of project CASE STUDY – 1.8a

51 51 Note 9: Equipment – to Directly Allocated £49,000 across the 5 years = £9,800 pa. Adjustment required to reduce Estates/Premises cost (double counted) CASE STUDY – 1.8b

52 52 Note 10: Use of Major Research facilities – to Directly Allocated Annual cost = 50/10 x £10,000 CASE STUDY – 1.9

53 53 Note 11: Computing Costs – to Direct Annual cost = £2,000 CASE STUDY – 1.10

54 54 Note 12: Project Studentship costs/fees – to Direct Annual cost = £12,000 stipend Annual cost = £4,000 tuition fees Annual cost = £1,000 training allowance CASE STUDY – 1.11

55 55 CASE STUDY – 1.12 Supporting Calculations - 1

56 56 CASE STUDY – 1.13 Supporting Calculations - 2

57 57 CASE STUDY – 1.14 Supporting Calculations - 3

58 58 CASE STUDY – 1.15 Supporting Calculations - 4

59 59 CASE STUDY – 1.16 Supporting Calculations - 5 £23,000,000/1,030 FTE (SC3) =

60 60 CASE STUDY – 1.17a

61 61 CASE STUDY – 1.17b

62 62 SHORT SUMMARY OF RESEARCH COUNCIL COSTING REQUIREMENT

63 63 Direct Charges [Can be vired during the life of the project, actual costs charged to sponsor. Note: possibly cash limited across life of project] Research Staff Salaries Researchers Technicians (inc animal techs) Other Direct administration Computing/computing support staff Casual staff etc Travel & Subsistence Consumables Exceptional Items Equipment Large Capital TRAC: full economic cost of projects (fEC) (1)

64 64 TRAC: full economic cost of projects (fEC) (2) Directly allocated charges [Cannot be vired during the life of the project, original allocated value only charged to the sponsor] Principal Investigator Other Academic staff Major Facilities & External Facilities/labs Replacement Cost of Departmental Equip Other laboratory support staff Estates/Premises Costs ( as £/FTE Academic Staff & PGRs, or net £m2)

65 65 Indirect costs Indirect costs (as % of Direct Salary Costs) Indirect costs (as £/FTE Academic Staff & PGRs) TRAC: full economic cost of projects (fEC) (3)

66 66 General changes to practice PI and other academic staff time now a direct cost (attributed) – attribution base is standard working year – 220days = 1650 hours [7.5 hrs per day, 37.5 hr week] Estates/Premises now a direct cost (attributed) – by driver. TR produced driver cost table – inflation indexed. Estates/Premises now include depreciation & an infrastructure charge. Estates/Premises rate based on £/FTE (minimum requirement) - £/m2 (weighted) per project (best). Estates/Premises will use £/FTE basis in majority of instances. All major facilities costs are now a direct cost (attributed) where possible – by driver. Costed. Laboratory support staff (technicians) not directly charged to the project are now a direct cost (attributed). Indirect costs now expressed in £/FTE (academic staff & PGRs) FTE numbers exclude PGRs funded by Research Councils as part of the grant. TRAC: full economic cost of projects (fEC) (4)

67 67 Cost Drivers The annual estates/premises and indirect cost drivers must be generated through the Transparency process. Once produced and satisfying the QA process these cost rates will be accepted without question by Government Departments and Research Councils. TRAC: full economic cost of projects (fEC) (5)

68 68 Costing & Pricing Projects Government departments will normally fund 100% fEC. (HM Treasury letter 13/2/2004.) Research Councils will fund a proportion of 80%. (Vol III p:20 Q+A.) (Major equipment purchases – value over £50k - and student stipend etc are to be excluded from the % recovery formulae – 100% of allowable costs to be charged) Research Councils are expected to increase the % of fEC to 100% by 2009/2010. For other sponsors the fEC calculated will form the basis for the cost based pricing of the project. TRAC: full economic cost of projects (fEC) (6)

69 69 ANY QUESTIONS ?


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