Thomas Estermann
Head of Unit Governance, Autonomy and Funding
EUA
19.11.2009
UNICA Meeting for EU Research Liaison Officers
University of Ljubljana

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

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
…3…

Legal status
Size
Profile
Ownership of property
Governance structure
Funding structure
Costing structure
Level of autonomy
Impact on the development, design and implementation of full costing
Analysis of these elements helps benchmarking and finding similar universities for exchange
…4…

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
…5…

Universities National level
.
• 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
…6…
European level
• Stronger/more competitive universities =
Stronger ERA & EHEA
• Enhanced accountability + trust with European
Commission = simpler/less costly procedures

Institutional obstacles
• Resistance towards change
• Resistance towards managerial approach
• Concerns over time accounting
• Lack of leadership commitment
External 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
…7…

• Development
• Implementation
• Funding on a full cost basis
• From different sources
At different stages
From different sources
• National agencies responsible for the funding and/or organisation of universities
• Organisations representing universities (Rectors’
Conferences)
• International organisations and other external funding bodies
• Financial support
• Human resources
• Advisory/consulting activities
In different forms
…8…

Both financial and advisory support Financial support only Advisory support only
Full costing system not implemented 23% 77%
No support
Process of implementation has begun 8% 8% 42% 42%
Full implementation of full costing 56% 11% 33%
0% 10% 20% 30%
…9…
40% 50% 60% 70% 80% 90% 100%

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
…10…

Europe
•Recognise the diversity of context and development of full costing
•Simplify the rules for Framework programmes and other funding schemes
National
•Provide financial, technical, advisory and
Human Resource support in implementing costing systems
•Grant universities the necessary autonomy
Universities
•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
…11…

Move towards funding on a full cost basis
Work on coherent conditions for external funding requirements!
…12…

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
…13…

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…

27 participating countries
140 universities
 Over 2 million students (around 800,000 FTE)
 156,000 academic staff & 110,000 administrative staff
 260,000 degrees awarded
 Close to € 20 billion (all types of funding)
 € 13 billion public funding (national & regional)
…15…

The sources that are most widely expected to increase are:
80%
70%
60%
50%
40%
30%
20%
10%
0%
74,07%
European Union funding
67,31%
Philanthropic income from alumni
65,00%
62,82%
61,25%
56,92%
Contracts with business sector
…16…
Contributions
(fees) from
International students
Income generated by lifelong learning activities
Philanthropic income from foundations / charities
(including competitive grants)

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…

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…

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…