2010/11 to 2012/13 REVENUE BUDGET
GUIDANCE NOTES
1.
INTRODUCTION
1.1
The enclosed notes give guidance to Heads of Colleges & Schools on the budget
process for 2010/11 to 2012/13 and the construction of the revenue budgets.
Throughout the budget process, further discussions will be held with the Senior
College Accountant and College Accountancy teams to finalise the budgets for
presentation to the University Court on 29 June.
1.2
The timetable for the various drafts of the budget was approved by UMG on 14
December, and a copy is included at Appendix 1. The initial draft budget will be
prepared by Finance. A second draft, which incorporates the provisions within the
SFC funding letter and changes advised by Colleges will be prepared in April, and
submitted to UMG.
1.3
All budgets will be presented at School level and aggregated into College and
University summaries. There may be occasions when information below the School
level is required and where practical, the College Accountancy teams will be happy to
assist with this. It is good practice for budgets to be built up from the lowest practical
level. For some areas this will be the school level, but some budgets, for example,
Direct Cost Recovery, will require to be built up on an individual grant basis.
2.
BUDGET ASSUMPTIONS
2.1
To enable the first draft of the budgets to be prepared by Finance, planning
assumptions have been drafted and agreed by the Operating Board. A copy of the
assumptions used is included as Appendix 2.
2.2
These assumptions form the basis for the consistent preparation of the first draft of
the budgets. These first draft budgets will then be used to inform the discussions with
the Heads of School/College, to establish more detailed budgets. Any changes to the
assumptions on costs or income should only be made on the basis of supporting
evidence and agreed with Finance, the target performance indicators should reflect
the revised assumptions.
2.3
On receipt of the SFC funding letter the income projections for the Colleges will need
to be refined, however a working estimate of funding should be possible before the
letter is available.
3.
RESOURCE ALLOCATION MODEL (RAM)
3.1
The University’s Resource Allocation Model (RAM) is used to allocate SFC funding to
Schools/Colleges and also allows for the attribution of costs incurred in providing
central services and corporate costs. The items included within the RAM are
disclosed below.
3.2
Teaching or “T” grant
3.2.1
Approximately £47M of resources has been allocated to the University in 2009/10
through Teaching or “T” grant. Each discipline is given a Unit of resource by SFC,
per full time equivalent (FTE) student, which incorporates both the T grant and fee.
There are 12 categories of Units of Resource, and these vary from £16k for a Medical
Student to £4k for a Social Science student.
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3.2.2
The home/EU FTE student numbers are derived from the Student Loads figures
based on reports dated 23 February 2010. These FTEs form the basis of the income
distribution for the financial year ahead. Generally the student numbers for Home/EU
will not be varied unless circumstances dictate a material change in funding i.e.
additional funded places.
3.2.3
However, there will be the opportunity to vary the non-fundable fees as it is
recognised that student numbers have the potential to change significantly. Any
material change to the non-fundable numbers should be supportable, through
historical trends, application data or the development and promotion of a new course.
3.3
Research or “R” grant
3.3.1
The Research Excellence Grant is distributed primarily according to performance in
the Research Assessment Exercise 2008. The performance of the University is fed
into the RAE results across Scotland to give an annual financial sum allocated by
SFC, using a revised funding model that places greater emphasis on other activity
indicators. A grant of £19M was distributed through the R Grant in 2009/10.
3.4
Contribution to University Surplus
3.4.1
The University’s Strategic Plan includes a commitment to generate a surplus
increasing in increments of £0.5M each year to 3% of turnover.
3.4.2
The budget assumptions include a surplus of £5.5M for 2010/11 rising to £6.15M in
2012/13. All Colleges make a contribution to surplus apportioned on the basis of
income.
3.5
Contribution to Capital programme
3.5.1
The University sets aside £4m each year as a contribution towards the annual
recurrent capital programme, to maintain the current infrastructure of the University.
The budget of £3M per annum for Estates is spent based on an indicative allocation
of £1M per annum for Health and Safety/ statutory compliance taking into account the
views of the University Safety Advisor, £1M per annum for functionality/
modernisation improvements as requested by the colleges and central administration
to pick up small projects identified within the school academic planning process, and
£1M for condition improvements and sustainability initiatives based on the estate
condition survey and the views of the Environmental Forum.
3.5.2
The budget of £1M per annum for DIT is spent as £0.65M per annum on maintaining
existing capacity by the renewal of existing infrastructure with the increased spend of
£0.35M being allocated in line with the IT strategy presented to the Information
Management Committee for tactical investment in small to medium sized projects as
requested by the colleges and central administration, typically these projects will be
£50-£100k. Institutional capital investment in IT of a more strategic nature would
seek funding from the provision made for additional projects as referred to above.
3.6
Contribution to the Strategic Investment Fund
3.6.1
In addition to the University Surplus an additional amount assumed to be £2.5M per
annum is set aside for strategic investment purposes. All Colleges make a
contribution to this fund apportioned on the basis of income.
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3.7
Attributing the costs of delivering Central Services
3.7.1
The cost of delivering central services is attributed to the Schools/Colleges based on
pre-defined criteria. All criteria are objective, transparent and intended to reflect
activity The basis of attributing the services provided centrally for each component of
is listed below;
Central Service
Basis of Attributing Costs
Registry
Human Resources
Student Association
Research & Innovation
Student Numbers
Staff Numbers
Student Numbers
Information from R&I on time spent per
school
Combination of basis i.e. Payroll attributed on
staff, Systems Administration based on
system users
Student Numbers
Combination of basis depending upon the
nature of the service but largely attributed on
student and staff numbers
Space Occupied
Student Numbers
Student Numbers
Finance
Student Support Services
DIT & Library
Estates
External Affairs
Life Long Learning
4.
INDICATIVE RESOURCE FRAMEWORKS
4.1
Once all the expenditure and income has been attributed using the RAM, the income
and expenditure is then summarised into an Indicative Resource Framework (IRF) for
each School. These IRFs are then summarised into Colleges and into a University
IRF.
4.2
The staff costs are taken from the Payroll models as at February 2010. These
include all staff in post, vacancies and known replacements. Each pay line includes
allowances for increments, superannuation and National Insurance.
4.3
The operating budgets will be based on the current year operating budgets plus an
allowance for inflation, after taking account of changes in activity levels.
4.4
The discretionary budgets are based on the agreed percentage of research grant
indirect cost contribution, direct cost recovery, consultancies and knowledge transfer
partnerships forecast to be earned in the year. Section 5 includes more detailed
guidance on the operation of discretionary accounts.
4.5
Once the final budgets have been agreed, the figures from the IRFs are then taken
and uploaded into the financial systems as budgets for the forthcoming financial year.
5.
DISCRETIONARY ACCOUNTS DISCRETIONARY BUDGETS – OPERATION &
PLANNING
5.1
Introduction
5.1.1
The following is an extract from the University’s Financial Regulations. “Discretionary
Accounts are agreed annually at College level and it is a matter for the Head of
College to decide the allocation of the College’s budget. Where permission to spend
is not obtained through the granting of an allocation, the money held in a
Discretionary Account is not lost, but is made available to spend in subsequent years
subject to a successful bid being made.”
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5.1.2
Discretionary Accounts should only be held at school/college/institute or theme level.
There should be no individual discretionary accounts as this can result in the
discretionary income being considered as taxable income.
5.2
Income & Expenditure from Discretionary Accounts
5.2.1
Discretionary income is generated from a percentage of indirect cost contribution
earned on Research Grants & Contracts, Direct Cost Recovery, Consultancies and
Knowledge Transfer Partnerships.
5.2.3
These discretionary resources can be accessed, as long as they are used in the
furtherance of the objectives of the College.
5.3
Unused Balances
5.3.1
If at the end of the financial year, the discretionary income exceeds discretionary
expenditure, the unused balance on the account is transferred to a discretionary
reserve. This reserve is not lost, but is held for the use of the school/theme/institute,
per the financial regulations above.
5.3.2
It is recommended that significant balances are not built up on discretionary
accounts. Reserves should be at a level that allows commitments on expenditure to
be maintained during a downturn in discretionary income.
5.4
Planning & Budgeting
5.4.1
As with any other income or expenditure item within the University, we require to plan
for discretionary income and expenditure. Discretionary budgets are the same as all
other budgets and when we have expenditure which exceeds budget this will directly
affect the bottom line of the University.
5.4.2
This is perhaps best explained through an example. In this example School A has £1
million in the discretionary reserves, but a budget is not set up to use this reserve. If
all of the discretionary reserve were used for revenue expenditure, the University
would have £1 million of expenditure with no matching income and which is
unbudgeted. As the University budgets are set with little margin for overspend,
£1million could be the difference between an operating surplus and deficit.
5.4.3
An estimate of the discretionary income for the forthcoming financial year will be
made, as part of the budget process based on the estimated percentage derived from
Research Indirect cost contribution, DCR, Consultancies and Knowledge Transfer
Partnerships. Using this income estimate budgets, expenditure will be constructed.
5.4.4
As a general principal, expenditure from the discretionary account should equal the
income generated during the course of the year. When this occurs there is no effect
on the University’s profit and loss account.
5.4.5
However, it is recognised that this is not always the case with regard to the
discretionary accounts and often access to discretionary reserves is required.
Therefore any access to discretionary reserves requires to be planned, to ensure that
this does not have a destabilising effect upon the University.
5.4.6
This planning should take place in the budgeting period (Feb –May) each year.
5.4.7
Over the course of the three year planning period all themes and schools should have
access to their reserves
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5.5
Commitments on Discretionary Reserves
5.5.1
It has been found that often there have been significant commitments on
discretionary reserves to the extent that all the income is committed to staff posts.
When this happens there is no flexibility either to respond to new opportunities, or if
the income falls, there is an over commitment on the discretionary account which will
mean that expenditure exceeds income.
5.5.2
It is recommended that no more than 75% of annual discretionary income is
committed in advance, either on staff or operating costs.
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