Full economic costing of research an institutional view

Full economic costing of research: an institutional view from King’s College London International symposium on university costs and compacts Canberra, 14 and 15 July Ian Creagh Head of Administration & College Secretary

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

Student numbers 2007/08 School grouping UG PG Total % Bio-med and health total 7385 2188 9573 49% Arts and Sciences Total 5688 4263 9951 51% 13, 073 6, 451 19, 524 100% Grand Total Staff numbers (hcount) 2007/08 Org grouping Bio-med and Health Arts and Sciences Central prof. & support COLLEGE TOTAL Academic & Research Prof & support Total % 2065 1167 3232 58% 913 276 1189 21% 27 1095 1122 20% 3005 2538 5543 100%

Financial snapshot 2006 -07

Location and real estate • • • 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. 7 b • Need to be reinvesting around 4 -5% pa in infrastructure and refurbishment for sustainability

Perceived benefits of TRAC/FEC to King’s • Has led to direct increases in public funding for research and infrastructure • Approximately £ 25 m pa in capital: Science Research Investment Fund & its successor programme • About £ 4 m pa in FEC generated increased research overhead recoveries • About £ 6 m 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 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 Costing King’s TRAC Outcome -- 2006 -07 Income £m PF Teaching Expenditure Surplus/ (Deficit) £m £m % 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 project £’ 000 Directly incurred costs Recruited staff: 1 X RA£ 42 42. 0 Consumables & Travel 10. 0 Equipment 15. 0 Equipment & Maintenance 5. 0 Recruitment costs 4. 0 TOTAL 76. 0 Directly Allocated costs PI & Co-I time 9. 0 Technical, clerical and nursing time 5. 0 Charge out costs for major facilities 7. 0 Estates costs 28. 0 TOTAL 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 RAs other staff equipment consumables PI time General Academic Department costs Academic Services central costs Investment/infrastructure etc. Direct costs Indirect costs FEC 46% RC’s 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 RAs, T&S Consumables new equipment Directly incurred + Academic staff pool technicians major facilities space Directly allocated + Administration Support time of academic staff Indirect Full economic cost of a research project 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, C 0 - 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, £ 24 k; low-lab, £ 8 k; classroom, £ 9 k 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 -- £ 38 k 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 regime Research 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 reconciliation HEFCE • 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. 5 m • Direct ongoing costs: approximately £ 0. 5 m 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/FEC • 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