1. Setting the context: Full costing and the financial sustainability of universities Country Workshop: POLAND EUIMA – Full Costing Project University of Warsaw 13 May 2011 Thomas Estermann Head of Governance, Autonomy and Funding Unit European University Association

2. …2… Overview Financial sustainability Funding Trends 3 challenges Full Costing Key issues Recommendations

3. Financial Sustainability Identifying costs of all activities and projects - EUIMA - Full Costing -FS1 “Towards full costing..” Diversification of income streams - FS2 “EUDIS” Sufficient and sustainable public funding - Monitoring of the crisis - FS3 Universities Funders Public authorities

4. Funding context Challenging environment Globalisation (global markets for HE and Research) Growing competition for talent, resources, excellence Need to do “more”…. Growing participation rate Contributions to economic growth and innovation Social outreach activities Focus on excellence and global competitiveness … with “less” GROWING COSTS OF TEACHING AND RESEARCH REDUCED PUBLIC FUNDING

5. Funding Challenge 1: Reliance on Public Funding Sources On average, almost ¾ of universities’ funding comes from public funding sources Impact of the economic crisis Reduced public funding Uneven impact on teaching and research Increase in competitive and targeted funding Private funds are also affected

6. Funding challenge 2: Increasing number of funding sources  Increasing number of funding sources  Some universities have more than a 100 funding sources!  Tendency for further increase in the future!  New funding sources represent a small % of overall budget  Different accountability regimes – high costs of compliance!

7. Funding challenge 3: Increasing co-funding Increase in competitive funding sources with co-funding requirements Do not cover the full costs of an activity Widens the FUNDING GAP!! Universities need to fill the gap using other vital sources

8. Full Costing To respond to these challenges and improve their financial sustainability......universities need to develop the right tools to identify the full costs of all their activities and projects.

9. Diverse terminology Lack of a commonly understood terminology in accounting and of financial terms in the HE 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 FULL COSTING ability to identify and calculate all direct and indirect costs of an institution’s activities including projects

10. Diversity of approaches to full costing in universities Variety of models to respect institutional diversity of: System Missions Profiles Funding and governance structures Different costing models: Activity based costing (ABC) is one model Other models available ABC offers framework but allows identifying different options for: Activities Cost drivers Cost objects Use of cost bases Different Time Allocation Mechanisms Timesheets Surveys Profile creation Staff interviews Workshops

11. Drivers of full costing implementation Institutional Strategic tool for management European funding schemes In particular, FP7 Depending on cost recovery of scheme National regulation Obligation to implement full costing National external competitive funding schemes Depending on their cost recovery Pressures from stakeholders/ accountability

12. Key issue 1: Full costing to support strategic management Improved Financial Sustainability Improved strategic decision making More efficient internal resource allocation Systematic approach to activity analysis and costing Bench- marking with other universities Increased ability to negotiate and set prices!

13. Key issue 2: Leadership commitment to implementation Set clear objectives: have a clear vision and work on removing obstacles to implementation Internal communication: promote the development of full costing at all institutional levels External coordinated approach: engage with other universities, funders and government Ownership of implementation: Ensure the implementation and use remain relevant Role model for strategic use: promote university- wide use in faculties and departments

14. Key issue 3: Coordinated approach ADVANTAGES Increases efficiency of the implementation process Increases cost efficiency Improved transparency and accountability Improves mutual trust Opportunity for simplification of funding rules and procedures Coherent approach among funders Potential for improving the funding system Universities Relevant ministries Funding bodies NRCs

15. The role of external support

17. State of play in full costing development No universities One university Some universities All universities individually Coordinated approach Implementation started Implementation underway Implementation advanced Implementation completed Full use in strategic management Total share of universities Progress in the implementation of full costing

18. Recommendations Universities Move towards funding on a full cost basis Streamline funding conditions Funders Provide financial, technical, advisory and HR support in implementing full costing Governments Understand the complexity and multiple purposes of full costing and take this into account in its design and strategic use Universities All stakeholders should work together for a coordinated approach!

19. THANK YOU! For more information please contact: Thomas.estermann@eua.be or Euima-fullcosting@eua.be