Full Economic Costing 14 April 2005 ARTS Kate Hughes – Director, Research Support Services

1. Full Economic Costing 14 April 2005 ARTS Kate Hughes – Director, Research Support Services Penny Thurston – Management Accountant Trevor Brown – Interim Head of Finance (Research)

2. Full Economic Costing (fEC) • Background – where did fEC come from? • Government strategy and vision • How is fEC calculated – key changes • New cost categories • Other funders • Issues to be resolved • Practical example – current AHRC proposal re-costed under fEC • Questions and further dialogue/support

3. Full Economic Cost (fEC) – a definition • A price which, if recovered across an institution’s full programme, would recover the total cost (direct, indirect and total overhead) of the institution, including an adequate recurring investment in the institution’s infrastructure

4. Background – where did fEC come from? • Stagnating Funding Council support alongside increasing project costs • Increased pressure on staff to conduct and publish research • Poor understanding of the cost base • Neglect of long-run costs/infrastructure • Low price culture

5. Government Strategy – key documents • Science and Innovation Investment Framework 2004-2014 http://www.hm-treasury.gov.uk/spending_review/spend_sr04/associated_documents/spending_sr04_science.cfm • Investing in Innovation http://www.hm-treasury.gov.uk/spending_review/spend_sr02/spend_sr02_science.cfm

6. Government Strategy – key points • Research in HEIs must be sustainable • HEIs must understand and recover fEC overall • Dual support system remains • Government to contribute significant sums for sustainability • Must be improved cost recovery from others

7. How significant a contribution? • Science Research Investment Fund (SRIF) increasing to a permanent stream of £500m per year • Extra quality-related research funding (QR) (£244m + SR2004) • Additional allocations to Research Councils (£120m + £80m)

8. The Vision • Know your full economic cost • Price appropriately for sustainability • Secure adequate re-investment • Apply to all activities, not just research

9. Calculating fEC • TRansparent Approach to Costing • Activity-based costing • Sector-wide ownership • Introduced at a high level • Cost not income • Accepted by HM Treasury

10. TRAC Methodology • Extend to project level • Robust, consistent • Balance accuracy and bureaucracy • Timesheets not required by RCs • Roll-out in 2005 (RC grant applications from September 2005) • QA process & benchmarking exercise

11. Project Costing – key changes

12. Other changes • No distinction between eligible & ineligible costs • All costs that contribute to the fEC should be included – e.g. advertising costs • Proposals to RCs must show 100% fEC • RCs will pay 80% of fEC (rising to 100% by beginning of next decade) • HEIs must cover remaining 20% from other sources

13. New Cost Categories/Headings • Directly Incurred • Directly Allocated • Estates Costs (Space Charges) • Indirect Costs • Exceptions

14. Direct Costs 2 types of Direct Cost: • Directly Incurred – actually charged to projects, based on cash amount actually spent • Directly Allocated – charged on the basis of estimates, not actual costs NB. DI costs can be vired, DA cost budgets cannot

15. Directly Incurred Costs • Staff – research staff, technicians, fellows, visiting researchers, other staff directly attributable to the project • Equipment – purchases for the project, up to the first £50,000 (> £50,000 incl. in Exceptions) • Travel and subsistence • Other – consumables, books, hire of vehicles, recruitment and advertising costs

16. Directly Allocated Costs • Staff – investigators costs and costs of pooled staff e.g. technicians • Estates costs – charge per FTE • Other – usage of research facilities (shared equipment/facility charge-out rates – equipment already owned)

17. Estates Cost Rate Directly allocated, appears as a single figure but calculated annually to include: Rates, insurance, maintenance, cleaning, services, depreciation & infrastructure adjustment Current rates: Lab-based £18,653 per FTE Classroom-based £ 8,587 per FTE

18. Indirect Cost Rate Appears as a single figure but calculated annually to include: • Support costs/central services (excl. estates costs) – library & learning resources, IT, etc. • Support time of academic staff (drawn from data in Diary Exercise) • Cost of Capital Employed (COCE) adjustment e.g. maternity/paternity for investigators • Current rate: c.£31,000 per FTE

19. Estimating investigator time • RCs will ask for estimated total hours for the whole project (not profiled) – not percentages Guidance suggests 3 possible methods: • Month-by-month build up of time • Estimate number of hours on average across a year • Use proxy of hours per week per RA, plus writing-up time at the end of the project

20. Estimating investigator time • Important – include time for project management • Investigators to keep simple records to verify time on project – no timesheets required (unless Directly Incurred) • Overall reconciliation of estimated time with actual time

21. FTE – Full Time Equivalent • Convert project hours of each investigator into hours per annum by dividing by the life of the project e.g 990 hours ÷ 3 years = 330 hours pa • These hours per annum are divided by 1,650 (standard hours in the working year – fixed by TRAC methodology) 330 hours ÷ 1,650 • This gives an FTE = 0.2 FTE

22. FTE – Full Time Equivalent • Add all investigator FTEs to the RA FTEs to give total FTEs for each year of the project • Indirect costs rates and estates cost are then applied to that total figure NB indirect costs and estates charges notapplied to other staff and project students

23. Staff Costs funded by Research Councils

24. Technicians Currently there are 3 ways to charge technician costs to a research project: • Directly incurred – dedicated to a project or can complete project-level timesheets • Directly allocated – support a number of projects (without timesheets) or provide infrastructure support (H&S, maintenance, etc) • Part of estates costs - charge-out rates of major research facilities

25. Equipment • If purchased through a project – Directly Incurred • RCs will fund up to £50,000 at 80% and 100% of remainder • If already in the University – Directly Allocated, either as: • Separate charge for a major research facility (on calculated charge-out rates), or • Included in the estates cost rate

26. Exceptions Costs that will be supported in full, rather than at 80%: • Staff – project students: fees and stipend • Equipment costs > £50,000 threshold • Other costs Virement allowed in this category

27. Procedural Changes • Harmonisation of terms and conditions • One electronic application form – not available until June 2005 • No applications in August 2005 • All applications using fEC from 1 Sept 2005 • 10-day iteration for re-calculation if DI staff reduced by RCs • Last date for award of pre-fEC grants – 31 March 2006

28. Other points to note • Fellowships that currently do not attract overheads will be included - indirect costs & estates costs will be payable • Start date for a project may now be when investigator time deployed, e.g. prior to recruitment of a research assistant • Value-limited schemes – to be announced • Research Leave scheme – actual salaries • Cash-limiting – costings on proposal forms will continue to be at current costs (no inflation). No maternity/paternity pay for investigators

29. AHRC Applications • Deadlines from 1 September 2005 – largely unchanged • Queries: • Research leave Kate Dunmowk.durmow@ahrb.ac.uk • Research Grants & Resource enhancement Ian Broadbridgei.broadbridge@ahrb.ac.uk • Small Grants & Fellowships in Creative & Performing Arts Jane Parsonsj.parson@ahrb.ac.uk • General Question about fEC & Je-S Catherine Nixon c.nixon@ahrb.ac.uk

30. Other Funders – Funders’ Forum • OGDs (incl. DoH) – 100% • NHS – 80% • EU - ? Full cost vs. additional cost model • Industry – 100% • Charities – more but <100% http://www.ost.gov.uk/fundersforum/ • fEC statement for all proposals from Sept 05

31. Some issues arising • Salary costings – use of actual salaries and/or by pay bandings • Standard hours in the working week - 37.5 or 36.5 • High estates charges cf. Russell Group • Clarity on investigator supervision of research students required • Unpick central charges maximise identifiable direct costs in departments • New resource allocation models at Warwick

32. Support • Initial briefing sessions (organised through CAP) March – April 2005 • Further tailored sessions from May 2005 • Research Support Services staff to provide assistance with new costing methods, electronic submission and post-award administration • On-line costing tool

33. Support • Research Development Managers: • Liese Perrin • Grants and Contracts Officer – Tom Evans • Research Funding Officers – Marcus Gough and Rachel Corke • Deputy Director, Grants and Contracts – Jane Prewett • Interim Head of Finance (Research) – Trevor Brown http://www2.warwick.ac.uk/services/rss/about/staff/

34. Other resources • RSS website http://www2.warwick.ac.uk/services/rss/fec/ • Research Councils website http://www.pparc.ac.uk/jes/DSR_FAQv1.0.htm • Arts and Humanities Research Council website http://www.ahrb.ac.uk/ • OST website FAQs http://www.ost.gov.uk/research/FAQ_on_FEQ_Oct_2004.doc • JCPSG website http://www.jcpsg.ac.uk/download/costingpricing/JanFAQs.doc

35. Comparison of traditional funding to Full Economic Costing funding for ‘typical’ AHRC projects Trevor Brown Interim Head of Finance (Research) Research Support Services 14th April 2005

36. Build-up of costing • Researcher and direct staffing as before • Add Investigator time • Actual costs for research leave • T&S, consumables and other costs, equipment as before • Calculate Estates and ‘new’ Indirect Costs instead of ‘old’ indirect costs

37. Staffing schedule (research leave)

38. Summary fEC costing and pricing

39. Compare before and after

40. Staffing schedule (subcontract)

41. Staffing analysis (subcontract)

42. Other costs

43. Summary fEC costing and pricing

44. Compare before and after

45. Costing – summary • Research leave based on actual/fEC • Higher price • Salaries transparent • Subcontract/collaboration • All participants should be included • Use relevant institution Estates and Indirect Costs rates where known