Full economic costing of research: an institutional view from King’s College London

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

2. 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

3. Staff numbers (hcount) 2007/08 Student numbers 2007/08

4. Financial snapshot 2006-07

5. 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 £1.7b • Need to be reinvesting around 4-5% pa in infrastructure and refurbishment for sustainability

6. Perceived benefits of TRAC/FEC to King’s • Has led to direct increases in public funding for research and infrastructure • Approximately £25m pa in capital: Science Research Investment Fund & its successor programme • About £4m pa in FEC generated increased research overhead recoveries • About £6m 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

7. 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

8. 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 for forecasting the full economic cost of research projects

9. 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

10. TRAC & Full Economic Costing King’s TRAC Outcome -- 2006-07

11. FEC Grant Costing – a worked example

12. 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

13. Pre-FEC cost recovery on research projects PI time RAs other staff equipment consumables 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

14. Post-FEC cost recovery on Research Project Administration Support time of academic staff RAs, T&S Consumables new equipment Academic staff pool technicians major facilities space Indirect Directly incurred + Directly allocated + 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

15. Investigators’ time • All academic staff – PIs, C0 - 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?

16. Estates costs • Derived from actual data reported in annual TRAC • High-lab, £24k; low-lab, £8k; classroom, £9k 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

17. 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 -- £38k per/academic FTE • Based on historic TRAC costs • Quality assurance achieved through benchmarking of indirect costs

18. 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)

19. 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

20. 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?

21. Direct costs of implementing and maintaining FEC capacity Direct implementation costs: approximately £0.5m Direct ongoing costs: approximately £0.5m 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

22. 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

23. 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

24. Reliability of TRAC/FEC 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

25. 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