1. 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

2. …2… Provide evidence to debate on universities’ financial sustainability through analysis of institutional data and funding patterns from institutional perspective 1 Identification of costs of activities and projects Diversified income structure Sufficient & sustainable public funding Financial sustainability

3. …3… 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

4. …4… Diversity Impact on the development, design and implementation of full costing Analysis of these elements helps benchmarking and finding similar universities for exchange Legal statusSizeProfileOwnership of propertyGovernance structureFunding structureCosting structureLevel of autonomy

5. …5… 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

6. …6… Benefits. 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 UniversitiesNational levelEuropean level

7. …7… 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

8. …8… 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

9. …9… The role of external support

10. …10… 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

11. …11… 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

12. …12… Recommendations to all funders Work on coherent conditions for external funding requirements! Move towards funding on a full cost basis

13. …13… Financial Sustainability 2 nd 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

14. 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…

15. 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 …15… Close to € 20 billion (all types of funding) € 13 billion public funding (national & regional) 27 participating countries

16. Expectations on income streams evolution …16… The sources that are most widely expected to increase are:

17. 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…

18. 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…

19. 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…

20. …20… For further information : thomas.estermann@eua.be