Full economic costing of research: an institutional view from King’s College London

Ian Creagh Head of Administration & College Secretary

International symposium on university costs and compacts Canberra, 14 and 15 July

King’s and FEC

• The College and its context; including the (undeniable) benefits of full economic costing to King’s

• The innards of FEC – as viewed from an institutional perspective

• Issues and challenges of FEC and what the future might hold

Staff numbers (hcount) 2007/08

School grouping UG PG Total %

Bio-med and health total 7385 2188 9573 49%

Arts and Sciences Total 5688 4263 9951 51%

Grand Total 13,073 6,451 19,524 100%

Student numbers 2007/08

Org grouping Academic & Research Prof & support Total %Bio-med and Health 2065 1167 3232 58%

Arts and Sciences 913 276 1189 21%

Central prof.& support 27 1095 1122 20%

COLLEGE TOTAL 3005 2538 5543 100%

Financial snapshot 2006-07INCOME £m %Teaching/studentsFunding Council "T" grants 68.1UK/EU fees and education contracts 47.1Other international 22.7Total teaching/student income 137.9 34ResearchPGR UK/EU/other international Income 6.4Funding Council "R" grants 54.7Research grants and contracts 109.9Total research income 171.0 42OtherSpecific FC grants & dfrd cap. Grants 14.9Other income 75.4Endowment income & interest received 8.9Total other income 99.1 24

Total income 408.1 100EXPENDITUREStaff costs 251.3 62Depreciation 19.1 5Other operating expenses 125.6 31Interest payable 9.9 2

Total expenditure 405.9 100

• Four Thames-side Campuses• King’s Denmark Hill Campus, south London• Joint Services Command, Staff College, Shrivenham• a gross floor area of approximately 410,000 sqm • 43% is freehold; 28% is leasehold; 18% is within PPP

developments; 11% of the floor area is embedded space within partner NHS Trusts

• Valuation for insurance purposes is £1.7b • Need to be reinvesting around 4-5% pa in

infrastructure and refurbishment for sustainability

Location and real estate

Perceived benefits of TRAC/FEC to King’s • Has led to direct increases in public funding for research and

infrastructure• Approximately £25m pa in capital: Science Research

Investment Fund & its successor programme • About £4m pa in FEC generated increased research

overhead recoveries• About £6m pa in Charities' top up funding to HEFCE “R”

grants• FEC has helped develop more “business-like” culture, • Definitely improved awareness of hidden costs among PIs &

senior academic managers

Full economic costing

“HEI’s operate in a low price culture, over-trading…neglecting long-term investment in infrastructure.….aim is to make HEI’s responsible for the sustainability of their research.”

Department of Trade and Industry Consultation Paper on sustainability of UK research, 2003

TRAC & FEC – getting the relationships clear

• TRAC -- Activity Based Costing (ABC) methodology • Annual TRAC return is a retrospective accounting for costs

of publicly-funded Teaching, Research & Other Activity• Conversely, whilst FEC is reliant on TRAC, is a

methodology for forecasting the full economic cost of research projects

TRAC process & impact on academics

• Most of annual TRAC is invisible to most academic staff apart from academic managers who validate data

• One-third of academic staff need to complete a Time Allocation Survey once every three years

• A sample of staff required to time-sheet activity • Finance professionals tend to dominate the process

TRAC & Full Economic CostingKing’s TRAC Outcome -- 2006-07

Income

£m

Expenditure

£m

Surplus/(Deficit)

£m %

PF Teaching 125.4 132.0 (6.6) (5.3)

NPF Teaching 28.8 18.1 10.7 37.2

PF Research 123.2 147.0 (23.8) (19.3)

NPF Research 63.2 101.3 (38.1) (60.3)

Other 67.6 44.4 23.2 (34.3)

Total 408.2 442.8 (34.7) (8.5)

FEC Grant Costing – a worked example

One Year Laboratory based projectDirectly incurred costs £’000

Recruited staff: 1X RA£42 42.0Consumables & Travel 10.0

Equipment 15.0Equipment & Maintenance 5.0

Recruitment costs 4.0TOTAL 76.0

Directly Allocated costs  

PI & Co-I time 9.0Technical, clerical and nursing time 5.0 Charge out costs for major facilities 7.0

Estates costs 28.0TOTAL 49.0

Indirect costs 47.0

TOTAL 172.0

FEC impact on King’s academic staff• FEC is significantly more visible and taken seriously by

PIs, their heads of school and senior academic leaders• Vast majority of PIs understand the process, methodology• Very little resistance to the process• Professional & systems support provided by school based

support staff and those located in King’s Business • PIs need to monitor how resources are used and projects

progress with King’s Business support• All commercial research is fully FEC’d although not

necessarily priced

Pre-FEC cost recovery on research projects

PItime

RAsother staffequipment

consumables

General Academic Department costsAcademic Services

central costsInvestment/infrastructure etc.

Direct costs Indirect costs

FEC

RC’s46%

Charities

Many other sponsors tended to pay same as RC’s (direct + 40-50%)

Adapted from JM Consulting

Post-FEC cost recovery on Research Project

Full economic cost of a research project

RAs, T&SConsumablesnew equipment

Academic staffpool techniciansmajor facilitiesspace

AdministrationSupport time ofacademic staff

Directly incurred + Directly allocated + Indirect

RC’s will pay 80% of the FEC

Note that proportion of indirect costs is much smaller Adapted from JM Consulting

Investigators’ time

• All academic staff – PIs, C0 - Is, visiting academics, clinical etc, regardless of who pays their salary

• Time is estimated – using standard charge-out rate based on salary costs and 1650 hours per year (220 days)

• No current requirement to account for academic actual time spent

• BUT, laboratory technicians now completing time sheets• Time sheeting for PIs – hard to see how it can be

avoided?

Estates costs

• Derived from actual data reported in annual TRAC• High-lab, £24k; low-lab, £8k; classroom, £9k per annum,

calculated and attributed on a per FTE basis• Various rules for off-campus work, visiting academics,

collaborative projects, interdisciplinary work.• TRAC (internal and some external) audits for QA purposes

Indirect costs

• Based on £/FTE academic staff formula assuming 220 days/1650 hours per annum worked

• Finance Department works out the King’s institutional rate -- £38k per/academic FTE

• Based on historic TRAC costs

• Quality assurance achieved through benchmarking of indirect costs

Major research facilities & equipment• Major research facilities charged as DA costs – eg.,

animal houses, dedicated IT systems

• Finance/research services within King’s Business calculate charge-out rates for PIs to use, based on

- Estimated utilisation

- Estimate total annual costs (capital costs - using replacement costs - and running costs)

QA regimeResearch Councils UK:• Project level “dip-stick testing” as part of “Funding

Assurance Programme” • Quality Assurance Validation audits • Internal audits for Council’s Audit & Compliance

Committee• The future? Probable whole-of-institution reconciliationHEFCE• TRAC audits (institutional internal audits)• With TRAC(T) on the way, the visibility and impact of QA

must inevitably increase

QA process• Essentially seeking to test the reasonableness of

assumptions, processes, management and validation• Are good cost drivers being used? • Are estates costs being allocated on good usage data?• Are equipment charge-out rates being calculated robustly?• Are appropriate costs being allocated to PGR students?• Are the response rates on the annual TRAC time

allocation exercise adequate?• Is management doing effective reasonableness checks?• Is the Audit Committee involved? Internal audit?

Direct costs of implementing and maintaining FEC capacity

• Direct implementation costs: approximately £0.5m• Direct ongoing costs: approximately £0.5m pa. • Most of the costs associated with ongoing costs borne in

Finance, research management units, located at the centre and in schools

• Compliance costs not trivial and must increase over time

FEC & resource allocation (RA) & investment

• FEC funding NOT differentiated from any other income in terms of RA

• Created pressure for greater clarity/priority setting concerning maintenance of deep research infrastructure – a good thing

• Incentives for emphasising RC research grant applications and thinking about volume of different types of research that may be supported/invested in

• In most financially literate schools must now justify financing of work where the sponsor funding is below FEC

• But not straightforward. Long term relationships with Charities such as the Wellcome, not trivial

Challenges associated with TRAC & FEC• Time analysis – at the heart of any ABC methodology. Only

as good as underlying assumptions• Must be an “issue” when recording academic time, but hard

to see how time sheeting can be avoided in the future• In common with application of ABC methodologies in most

not-for-profit sectors: an aura of sophistication, but…• University accounting systems: designed to control

expenditure, not forensic activity cost recording/analysis• Special issues – eg. NHS Trust partners -- will be more

complex with the advent of Academic Medical Centres

Reliability of TRAC/FECFEC• Institutional comprehension of FEC: good• EU appears to want greater assurance of reliability if FEC is to

be accepted for full economic costing of Framework 7 Grants• Reliance on historical costs – with adjustments for cost of

capital and infrastructure – must be an issue given that we exist on some of the most expensive real estate on the planet

TRAC• Acceptable at the aggregate level, much less reliable at the

level of a small academic unit• Very variable levels of trust internally• TRAC seen as a Finance “black box” with insufficient top table

buy-in

The future? • Last 10 years: a relatively benign funding environment for UK

HE• Business cycle has now turned as has the political cycle• Top up fees – must be off the agenda until after the general

election, which will take place later rather than sooner• Emphasis on accountability in HE can only increase• RCUK – concerned they’re being “overcharged”• HEIs, HEFCE and RCUK all share a general interest in making

TRAC and FEC work, even if their specific interests are subtly different

• Pragmatic view: until there is a “better” alternative, emerging consensus is that stakeholders have to make it work for all concerned