Implementing Full Cost
A new way of thinking and acting
Ljubljana November 19, 2009
Bea Krenn PhD. Adviser EU research funding
Pieter-Jan Aartsen, Corporate controller
Universiteit van Amsterdam
Agenda
I.
Introduction
II.
Preliminary considerations
III.
Relevant environment - external and internal
IV.
Basic steps in preparation Full Cost
V.
Ways to implement Full Cost
VI.
Provisional conclusions
VII.
Questions
Knowledge Transfer Office UvA-AMC
http://www.english.uva.nl/knowledgetransfer
Funding team
EU research
EU education
NL research
Legal advisers
Business Developers
Corporate Control
Project controllers at Faculty level
3
II.
Preliminary considerations
Full Cost: a matter of transparency
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Accountability towards national and European tax payers
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Common reporting language
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Inevitably: reflecting national setting individual universities
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Main objective: showing value for money
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Showing the need for university contribution to externally
funded research projects
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Creating a sound basis for negotiations about covering costs
III.
Relevant environment
external and internal
National setting universities
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Ties universities - national government
Control and management structure
Funding principles
Boundaries financial responsibility
Accounting principles
Setting Dutch universities
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“Withdrawing” national government
Development towards private enterprise structure:
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National funding principles (output oriented):
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Final responsibility: executive board
Limited influence on decision-making by employees / students
Also exploiting private activities (sometimes in separate legal entities)
Education: # students, # Ba/Ma degrees
(weighting factors per discipline)
Research: # PhD, % of Education budget
Tendency to increase competition based funding (quality assesments)
to shrink fixed amounts
Financial responsibility
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1997: abolishment cash-based system
2008: Obligation to apply general (national) accounting principles
Developments in NL
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All public Dutch universities: intention to implement FC
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Phasing is different
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Empowered by Dutch Association of Universities
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Voluntarily (no requirement ministry of Education)
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Dutch ministeries have adopted FC in contract conditions (SISA)
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Trying to pull on board Dutch Research Council!
Internal environment
Organizational conditions (UvA)
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Strong support for transparency by board / management (2006)
Establishing climate for cost-(recovery) related decisions
Full scope responsibility Faculty deans
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Rationalizing internal budget allocation
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Tendency to relate costs to performance
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awarding “preferred behaviour”
Budgeting is about numbers, not (in first place) about €
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Concentrating financial and academic policy in one hand
€ is derivate: university heart pulses elsewhere
Sound information system to accommodate
principles of cost and budget allocation
IV.
Basic steps in preparation Full Cost
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Denominate primary activities in university
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Analyze cost drivers (primary and secondary)
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Design cost allocation scheme
Denominate main activities
Reason of existence universities:
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Teaching
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Research
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Valorisation (Intellectual Property)
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Other activities
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Care for patients (hospitals – faculty of medicine)
Guardianship cultural heritage (museums)
Consultancies
Analyze cost drivers
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Teaching & Research: Primary cost driver
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Time spent by academic staff (# hrs / # fte)
Support and facilities: Secondary cost drivers
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Time spent by support staff (# hrs / # fte)
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Use of space and housing facilities (# sqm)
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Use of ICT-facilities (# workstations)
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Administrative support (k€ revenue, k€ costs, # headcount, # used)
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Use of university library (# fte academic staff)
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Student support and facilities (# students)
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Use of dedicated research facilities (time used / % cost increase )
Design cost allocation methodology - I
1) Separate all direct costs
a) Direct project costs
b) Exclusively (directly) teaching- or research-related costs
2) Allocate remaining overhead costs:
a) Collect these costs in cost pools;
representing separate support tasks / departments;
b) Allocate them via appropriate keys / indicators / cost drivers;
(sqm / fte / income / total budget);
c) in one (“simplified model”) or in more steps;
d) mainly to available productive time of all academic staff.
(per department / faculty)
Design cost allocation methodology - II
3)
4)
Calculate hourly rates of academic staff, taking into account available
“productive time”, discerning two components:
a)
Direct personnel costs - one rate per homogeneous salary group (UvA: 18)
b)
Indirect overhead costs - different rates (in €, not in % sal. increase), depending on
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Cost structure academic discipline α, β, γ, medicine, etc.)
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Specific cost structure research institute (laboratories, equipment etc.)
Finally allocate full costs by time recording
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Hours recorded multiplied with hourly rates (in different components)
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To individual research projects (+ teaching programs / evt. other activities)
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Final step: exclusively education or research related overhead costs on the basis of
time spent (FP7 requirement: not mixing costs by nature)
N.B. Applied to all activities: either governmentally or externally funded, i.a. FP7- research
V.
Ways to implement Full Cost
Necessary preconditions
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Apply cost allocation model to figures from Annual Report
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or from annual budget, provided regularly adjusted from post calculation
Decide:
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Implementing cost settlement procedures in Financial Information System
(making full cost base of management accounting throughout organisation)
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Keep model compatible (Excel)
(making full cost a tool of controllers especially for reporting FP7-projects)
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Communicate tariffs / rates / procedures in organization
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Offer a reliable time-recording system
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Preferably computerised (and integrated with Financial Information System)
Zooming in: Time recording
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Active day-to-day time recording (Employee Self Service):
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only by those who are employed in contract activities (if required)
Instructions for active time-recording:
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In principle: record all real hours spent
(avoid mystification / simplification / copying plan)
Take into account off-time due to illness and holidays
Way of recording overtime (at FC-rate or zero-rate) depending on contract conditions:
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if overtime will be paid for (in NL not)
if time spent will be compensated (saving for taking sabbatical)
if external contract party is willing to pay for it (E.U.-FP7: not)
Passive “background” recording (periodically updated timetables)
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for all other personnel: “detailed” distribution of available time to various activities /
project (as planned – taking into account illness and holidays)
timesheets are “automatically” generated
Other aspects of time recording
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Emphasize:
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Sometimes “misunderstanding”:
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Academic activity is highly “personnel consuming”
Appointments / salaries of academic personnel are expressed
in hours per week,- due to this:
Measuring academic effort in time spent is the best cost
indicator
In any case as long as external funding is not output-related
“No cure no pay” is conflicting with academic
“code of conduct”
Nor brain activity (probably continuous),
nor presence is measured
Accept the necessity as an economic fact of life
Management reporting
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Knowledge about time available and time spent can refine
and deepen the conception of academic activity
VI.
Provisional conclusions
Added value of Full Cost
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Full Cost: the only clear base for management decisions
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Relating costs to cost driver and in the meanwhile budgets to performance
indicators can replace the cheese slicer
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In the long run: FC necessary precondition for sustainability
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Explicitly co-funding, matching and cross-subsidizing is better
than hollowing out government budgets implicitly
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Matching expresses bi-lateral interest in research outcome
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Showing poverty: the beginning of political awareness
VII.
Questions
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FP7 and different national settings: One size fits all?
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Is the price of Full Cost acceptable?
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FP7 Consortia: Market principle or Quality Selection?
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Academic manager: contradictio in terminis?
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FP7-regulations: Crowbar to increase transparency?