VCEG/12/94b
Annexe 3: Frequently Asked Questions with Answers
Listed below are questions raised by members of the Review Group, Deans, VCEG and PSMG with regard
to the proposals in our paper to Council. We have tried to address all queries in our detailed answers.
Operation of the Planning Process
Q
How will the overall aims/strategy be cascaded down to plans successfully?
A
Through the Planning Framework, through close partnership working between Colleges,
Professional Services and students and through an iterative process. VCEG and SMG residential
planning meetings will formulate the Vision. High level targets will be communicated widely
afterwards with an indication of the overall direction of travel (i.e. where they expect key growth /
changes to occur). PRG, with assistance from SPC, Finance Services and others, will be responsible
for ensuring we have in place a means of monitoring performance against targets and that
strategies are implemented.
Q
A
How do we plan in Professional Services?
Exactly the same way as in Colleges. True, the PS will need to plan in parallel with the Colleges but
the planning framework should help, as will the five-year planning horizon. The overall size and
shape and key policies/strategies will remain fairly stable. Details might change but not the overall
direction of travel, enabling PS to plan with more certainty than hitherto.
Q
A
The proposals are significant cultural changes- how will the change be managed?
Through partnership working, good communications, involvement of key stakeholders, high-level
project schedule with clear milestones, but above all by Senior Mangers, Deans, College Managers
and Directors of Professional Services ‘buying in’ to the objectives and requirements of the new
process. We recognise that it will take considerable effort and careful planning to communicate
the changes and their benefits widely throughout the University. There will also be the need to
support the whole process through better, more bespoke management information for reviewing
progress against agreed targets and a greater commitment to proper self assessment.
Q
A
Will the proposed changes make the University operate in a more risk averse way?
Not necessarily. It depends on how we manage the whole process. Risk appetite can be decided by
Council and form part of the planning guidance. Risk appetite can be set at as a high a level as
Council feels comfortable with. Investment Budgets to support innovation and respond rapidly to
emerging opportunities can be as small or as large as VCEG decides. That also applies to the
University’s Investment Budget.
The current system is focused on next year’s budget so this dominates the planning process. Next
year’s budget for example includes total budgeted contingencies of nearly £6m per year –
resources that cannot be deployed strategically because they are tied-up. As the financial year
proceeds these contingencies can be spent but with the year-end date very much in mind. Aside
from stopping things happening this approach has also contributed to year-end performance
exceeding budgeted performance, which in turn undermines the credibility of budgets and plans in
the eyes of VCEG and Council. Plans which are not credible require an increasingly risk-averse
approach to the future management of the University. Without believable financial plans the
University cannot invest with confidence. This will curtail Council’s appetite to approve new capital
financing which in turn will curtail new investment. A key goal of the new proposals is to achieve
believable, credible budgeting and planning, fostering confidence to underpin future investment.
Q
A
Is there a need to build a staffing strategy into the planning process?
This could mean two things. If a University-wide HR strategy is meant then that would need to be
determined centrally and led by HR. The outcome could form part of the planning framework. If a
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local HR strategy is meant then that is precisely what we mean in the paper when we say each
College/PS will need to construct its own cost base working in partnership with SPC and Finance
Services. The planning of staff posts would be a natural and essential component of those costs.
Q
A
What is the relationship between PRG, a very powerful group, and the Colleges and Professional
Services?
The prime role of PRG is to ‘quality assure’ the outputs of the planning process, providing
assurance to VCEG that the plans/budgets are in line with the agreed Vision, which in turn will aid
VCEG in proposing plans/budgets to Council for approval. PRG will also provide oversight across
Colleges and Professional Services (since currently there are different people on each group so
there is a lack of parity). PRG is not an approval body and nor will it make any decisions; it will
make recommendations to VCEG. No, or little, scrutiny and challenge of plans and budgets of the
size we have in our budget units is likely to result in waste, as well as unplanned and uncoordinated activities.
PRG will conduct meetings with Colleges and the Professional Services in the spirit of dialogue and
open discussion. At the point at which VCEG makes decisions about the allocation of resource,
which on occasions will inevitably involve the ‘moving’ of resource from one part of the University
to another, we are recommending that they involve the Deans. Ultimately a University based on
collegiality requires consensus to effect change. The involvement of a wide-group of stakeholders
involved in framing the Vision and the involvement of Deans in the PRG dialogue is an essential
component of brokering any consensus for change.
Q
A
In what way will students be involved in the process?
Firstly, through the involvement of the Budget Scrutiny Group which will continue. This provides for
a wider student input into Vision setting. Secondly, the Chief Executive of the Guild of Students will
be a member of PRG providing visibility of how Budget Scrutiny Group input is fed into more
detailed plans and budgets.
Growth
Q
Will the process and new financial strategy give us the access to the capital needed to fund
expansion?
A
The proposed model allocates resource strategically, frees up resource currently held in multiple
contingencies, introduces rigorous scrutiny of all budgets to help drive efficiencies and sets a ceiling
for Professional Services expenditure. There are also Investment Budgets in Colleges, Professional
Services and at University level which could also be used for capital projects. All of these features
should help ensure we have resource for capital investment, or indeed whatever else VCEG and
Council consider to be the highest priority.
The financial model is focused on cash generation – cash that is used to fund capital investment
and debt. The financial strategy, due to be presented in October, will focus on the capability of the
University to service new debt in order to invest in additional capacity to deliver growth.
However, it should be recognised that the ability to generate cash for capital investment is also
dependent on other key factors, not the planning process alone. There are signs, for example, that
we are beginning to reach the limits of our ability to attract the very brightest students (ABB+) in
many disciplines so that further growth may have to be at the expense of the quality of our intake.
The University therefore needs to consider very carefully whether further growth of this kind to fuel
capital investment is the right strategy. Those disciplines where we might want to grow (subjects
allied to medicine, the physical and life science) are costly. Growth in home/EU students in these
disciplines may well mean less money for capital, rather than more, whereas growth in less costly
subjects such as the humanities where the ‘margins’ are larger would most likely generate the
greatest EBITDA for reinvestment. These tensions require analysis, careful consideration and high
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quality strategic decision-making if we want to maximise funding for capital investment. That is
why we are proposing a new set of processes based on a clear Vision for the future and a new
planning system based on dialogue, co-ordination and integration.
Q
A
Can the system help us to deliver 20,000 students and £100m research income, and control
financial risk? (i.e. there’s no appetite for a deficit position at year end, especially when we’ve
been used to large surpluses).
There is no reason at all why the proposed planning and budgeting system cannot deliver growth.
Growth by itself is not difficult to achieve. What is difficult is to grow, maintain and preferably
enhance the quality of our education and research, while at the same time generate surpluses to
finance a major capital investment programme. There are inherent tensions which make the
achievement of all of these things simultaneously very challenging. We cannot manage to do
them all over a sustained period without a genuinely strategic decision-making process which is
precisely what these proposals are intending to introduce. The alternative is mechanistic,
formulaic and while it might deliver on one or the other of these objectives (i.e. growth), it is too
simplistic to deliver on all of them in the environment we are now entering.
Having said that, when considering the cost base of each budget unit, VCEG will operate under a
general assumption in favour of any College or Professional Service which has robust plans to
enhance the quality and volume of academic activity and/or generate significant income. It is
therefore in the interests of any budget unit which wants to attract increased investment in its cost
base to be successful in those activities which contribute to our strategic objectives.
With regard to financial risk, the holding of contingencies centrally which are proportionate and
carefully calculated will help mitigate the risk of under-achievement of targets while also freeing
up resource for reinvestment. Sitting on multiple contingencies which constrain investment
capacity is surely a high risk strategy when our competitors are investing in the student experience
and in research so aggressively.
Of prime importance is the shift from what is a 1-year budgeting processes to a planning process
supported by meaningful five-year financial projections. The financial position in any one particular
year is less important providing we can be confident that budget managers will deliver their
medium-term financial trajectories. Establishing this confidence, underpinned by real budgetary
accountability for delivery, will enable Council to become comfortable with planned short-term
surpluses that are below its medium-term target – as another tool of investment – provided these
genuinely deliver the medium term goals it has set.
The system is designed to provide opportunity to control cost in a way that we have not had before
with considerably increased budget scrutiny. Any waste and unnecessary expenditure stripped out
of our cost base will help either the bottom line or increase our capacity for investment.
Incentives
Q
Our current system of differential tax rates for different activities has served us extremely well and
incentivised colleges to grow rapidly. A lower tax on international students for example has made
them much more attractive to Colleges than home/EU students. What will be the incentive to
recruit international students under these proposals since there will be no taxes at all?
A
There are some major drawbacks with the current system. Firstly, while it works perfectly well
when the University wants all disciplines to grow, it becomes much more difficult to temper growth
when it is no longer required since the ‘reward’ is automatic for any college that recruits more
students. For example, how does the University use the tax system to achieve its desired objective
of capping the international student body at 4,000 – without adding further complexity to the
current 10 tax rates? Secondly, the tax system needs to be applied across all disciplines in the same
way for reasons of equity; while this might incentivise the recruitment of one category of student
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(e.g. international), it is not so easy to adjust between disciplines. For example, the University
wants to reduce international recruitment in the Business School with compensating growth in
other Colleges. The current tax system cannot help steer this change.
In the new system, student recruitment targets will be set for each discipline as part of a
negotiated process between the College, PRG and the appropriate Professional Services, taking into
account the overall academic strategy for the College. When rapid growth in international
students is no longer desirable (for example with the Business School at the present time) a
levelling off of targets will be agreed as part of the strategic dialogue. If there is compelling
evidence that there is a market for high quality international students in the discipline, if the
college has capacity to accommodate them and if the University wants more such students, targets
will be set at an appropriately challenging level in agreement with the College. From that point
onwards, responsibility for making enough offers to deliver the target intakes falls to central
Admissions.
In our view it would be inconceivable to plan academic activity strategically, but continue to
allocate resource mechanistically using formulae and taxes.
Q
A
Is there a perverse incentive to under-shoot on student recruitment?
No. If a College undershoots it will still need to deliver its contribution target so will need to cut
expenditure accordingly.
Accountability for the delivery of academic and financial plans is essential. Without accountability
the University cannot have confidence in investing planned surpluses before they are actually
achieved. A budget manager who builds up a successful track record for delivering his or her
academic and financial plans is much more likely to command the confidence of PRG and hence
VCEG and will find it considerably easier to secure future investment. It is intended that future
academic and financial reporting to VCEG and Council throughout the year will focus attention on
which budget centres have, and have not, delivered their agreed performance targets as the
foundation of the University’s overall performance - not only in financial but also reputational
terms. Thus under-performance across the board will be visible and exposed.
Q
A
What would be the incentive under the proposed model to give up space?
In our proposed model, directly allocated costs such as those for space, form part of a College’s
direct costs. In the year in which the saving is made, the College would have the option of recycling
the saving in any way it wished, applying the normal rules of devolved financial management.
However, in subsequent years, to retain the saving permanently the College would have to affect a
permanent budget virement in the College baseline – from space charges to the new proposed area
of spend. This virement would be transparent and subject to PRG scrutiny, to ensure that the
proposal was sound and in-line with strategy. This process is not meant to put up barriers; it is an
accountability mechanism for managers managing multiple millions of University resource.
Room to Manoeuvre
Q
The Dean’s role would become very ‘dull’ if he or she had no room for manoeuvre after they have
made the required contribution.
A
Deans would still be responsible for managing the full array of College resources and budgets of
c£40-50m under a system of devolved financial management. It is true the new processes would
place Colleges plans under far greater scrutiny than is currently the case, but with two potential
prizes. Firstly, Deans would have greater input into framing the Vision and how resources are
allocated between recurrent activities and capital priorities. Secondly, in presenting a rational plan,
in line with the agreed Vision and University strategy, Deans would have the opportunity to secure
the backing of VCEG through PRG to deliver a five-year rounded plan, rather than approving next
year’s financial budget. Budget scrutiny is also essential to deliver accountability for the
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management of huge resources but it also forms a key part in establishing confidence – confidence
that allows Colleges freedom to manage, and for VCEG/Council to invest.
Q
A
Would there be any incentive under the new proposals for Colleges to take on an unplanned
activity if they were unsure whether resources to underpin it would be available?
There are two aspects to this. Firstly as is the case under the current system, Colleges earn all the
income they generate, which can be used to support the costs of undertaking those activities. One
key difference is that in future income will not be taxed, removing one disincentive to earn.
Colleges and Professional Services would also have Investment Budgets providing Deans and the
Registrar with the means of funding new initiatives. However if these budgets proved insufficient to
fund a new College/PS activity that involved substantial up-front costs with a return generated in
later years, then Deans or the Registrar would need to seek VCEG approval on a business-case
basis. If this was approved College/PS financial targets would be adjusted – both for the in-year
extra costs but also for the later year returns. Such variations would have to be compelling and
material as in the normal course of events Budget Centres would be expected to manage within
their total approved resource envelope. At c£40-50m these should provide sufficient flexibility for
creative managers to fund new ideas and initiatives.
Q
A
Budget Centres need some discretionary spend, otherwise they will ‘gum up’ the system with
minor extra demands in-year.
Agreed – that’s the reason for Investment Budgets. They will need to be set at a level that is
sufficiently large to accommodate this level of discretion, but not so large that we are constrained
from doing what we want strategically because significant sums are ‘squirreled away’ in case they
might be needed for some undefined purpose. Where that is necessary it should be done centrally
as part of the University Investment Budget. The precise level at which Investment Budgets are set
will depend on a number of factors, including the University’s overall financial position. However,
we anticipate initially that they will be set at approximately £200K for each College.
Efficiencies
Q
Will PRG be able to assess whether expenditure plans are efficient or ‘gold-plated’?
A
It is precisely to undertake such scrutiny that we have proposed the establishment of the PRG. We
acknowledge that starting with the historic baseline has the disadvantage of entrenching cost-base
inefficiencies, but we are convinced that the appraisal stage of the planning process, coupled with
effective ongoing scrutiny and review mechanisms, will expose relative inefficiencies and
inequalities in a far more transparent way than the current process does. It is important to note
that PRG will need to be well-briefed by Professional Services staff when scrutinising budgets.
Q
A
It is important to cost the planning and budgetary process and ensure that an additional overhead
has not been inadvertently built in.
The planning and budgeting process must happen; that is indisputable because of the size of the
University’s turnover and the enormous risks we would carry if we don’t plan and budget
appropriately. Whether trying to cost the process is the best use of time and effort at this time
given the long list of more urgent priorities, is questionable. However, in designing the process we
will do all we can to ensure it is as non-bureaucratic and efficient as possible. It might be possible,
once the process has bedded in, to make it the subject of a future, LEAN review.
Infrastructure/Capital Planning
Q
Is it envisaged that the infrastructure/capital programme plan itself is formulated in detail at Stage
3 or just the overall amount of spend that goes into the capital infrastructure fund?
A
The infrastructure/capital plan will be dynamic and will need be refreshed and updated regularly as
part of an on-going process throughout the year. At Stage 3 in the planning process we are
recommending the establishment of a new group, the Infrastructure Advisory Group (IAG), which
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will do much of the preparatory work on behalf of PRG (see below for more detail on the IAG).
Informed by the work carried out by IAG, PRG will make recommendations to VCEG who will
determine the level of resource available for capital alongside the need for other, recurrent
expenditure. Those decisions will be informed by College and Professional Services plans and the
modelling done centrally to gauge the size and location of any new build or major refurbishment.
Q
A
Q
A
Why can we not have a six- rather than five-year business plan? Capital projects can take this long
to plan and build.
There is no reason why capital projects can’t be planned that far ahead. Any capital plans will
need to assume that the size and shape parameters set by VCEG and contained in the Planning
Framework are absolute and apply beyond the five-year planning horizon unless VCEG specifically
provides any guidance on a longer timescale.
How will College/Professional Service capital proposals be taken forward? Will ICG and ISG be
retained, and if they are replaced by similar groups what will be their membership?
An Infrastructure Advisory Group (IAG) will be established. Because PRG and eventually VCEG will
provide high level consideration of any recommendations from this group, the IAG will be an
‘engine room’ type group which can work up detailed plans for recommendation to the more senior
groups.
The IAG will comprise academic and Professional Services staff at the level of Associate
Dean/College Manager and/or Directors of service. It will have representation from Colleges,
Campus Services, IT, Academic Services, Finance and Planning.
Its task will be to consider any high level modelling of space requirements, requests coming from
Colleges and Professional Services through the planning round and the existing
capital/infrastructure plans in the light of the planning framework set out by VCEG. This will give
the IAG clear priorities and guidance against which its members can test any proposed projects.
The IAG will submit a report to PRG at the same time as Colleges and Professional Services submit
their plans. IAG will recommend projects for approval with a brief rationale. It will be PRG’s job to
tension these against recurrent expenditure plans within the available resource envelope and make
recommendations to VCEG.
It may be necessary for the IAG to meet two or three times during the year to recommend
amendments or updates to PRG in relation to the infrastructure plan.
Once VCEG have agreed the resource envelope for investment in capital and infrastructure, it will
be overseen and deployed by a newly constituted Infrastructure Strategy Group, working within the
Dual Assurance framework.
Decision-making
Q
Could we avoid PRG acting like a star chamber by embedding the Deans into the process, thereby
ensuring better ownership of the corporate challenges and decision-making?
A
Deans are part of the vision setting, the decision-making process when budgets are eventually
allocated and will contribute to decisions re contingency and any income from over-recruitment.
However, PRG also has a key scrutiny role in order to achieve the optimal allocation of resources to
meet the Vision and strategy of the University. In addition it has a key role in assuring VCEG and
hence Council, that budgets have been sufficiently scrutinised. That said, PRG will be based on a
spirit of dialogue and engagement, promoting collegiality and consensus, especially where change
is concerned.
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Q
A
Can PRG use data and benchmarking wherever possible so they can make informed decisions
regarding relative levels of resource?
Agreed. The paper mentions the need to provide such data several times.
Dual Assurance
Q
How will the new process impact on dual assurance mechanisms?
A
Dual assurance will work as it currently does, with a lay lead and management lead for finance and
infrastructure. Dual assurance meetings will take place throughout the planning and budget
process, as they currently do, enabling the lay lead to question, challenge, provide input and
ultimately to gain assurance that the outputs of the planning and budgeting process are in line
with strategies and targets approved by Council.
Finances & Budgets
Q
How do the proposals solve the problem of the differential surpluses generated by the Colleges?
A
They don’t – but in some ways that is the whole point of these proposals. We should accept that
there are different levels of surplus because the cost base varies so much between Colleges (as
evidenced by the TRAC data) while for home/EU students the level at which we can set fees is
regulated, leading to inevitable differences between the two. Under our proposed model, there
will need to be a mature debate between the Senior Management, Colleges, Professional Services
and students about the deployment of resource to underpin academic activities and income
streams. In our view this will lead to much better decision-making.
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Q
A
If there is central contingency then the link with Colleges owning and quantifying risk should not
be broken to ensure Colleges don’t just expect to be bailed out by the centre.
Yes. The level at which central contingency is set should be informed by bottom-up risk
assessments.
Will the system be flexible enough to allow earmarked income (e.g. grants) to be used for the
correct purpose?
There is no reason why these should be treated any differently under our proposals than they are
currently. Earmarked grants will remain precisely that. External earmarked grants would also be
carried-forward via normal accounting mechanisms (i.e. accrued at year-end and income ‘rolled
forward’). Such accounting mechanisms are budget neutral in that they do not affect Contribution
targets.
Where Professional Services can generate income, should they look to generate income from
students or sacrifice income generation for a better student experience?
That is a question of priorities and could be a debate that took place at SMG and VCEG. The
decision could form part of the Planning Framework.
Could there be a need for some staff to be trained in financial management to work effectively
within the new system? Is there a capability issue?
Quite possibly. Some of this training could be undertaken by Finance Services staff but there could
also be a need for further training. This is something we will need to consider as part of the
implementation plan.
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