Council Meeting 12 December 2011 PRANAY LODHIYA

1. BUDGET2012-2014 Council Meeting 12 December 2011 PRANAY LODHIYA

2. Agenda • key budget issues • key budget risks (external) • financial position • productivity savings • financial sustainability - KPIs • key budget risks (internal) • key budget issues (specific to 2012) • key budget principles • key budget assumptions • 2012 budget initiatives • future requirements • research carry forward expenditure

3. Key Budget Issues now competitive market little growth of revenue in 2012 dampening international market increase cost not covered by revenue increase cost pressures for eg: EBA , non controllable costs challenges: Maintain long term financial sustainability upgrade facilities generate enough to: reinvest in core activities of teaching and research

4. Key Budget Risks (external) Regulatory reform Changing customer expectations Changing employer expectations Changing Government expectations Changing Council expectations Changing industry/technology Changing demographics Increasing international/domestic competitiveness on price Economic volatility Increasing international/domestic competitiveness on product Increasing consequence Foreign exchange volatility Increasing likelihood

5. Financial Position

6. 2012 – 2014 budget position 2009-2011 operating margin includes capital grants. In 2012- 2014 no capital grants. Adjustment only for debt redemption. underlying margin 2012 3.0% 2013 5.2% 2014 6.3% Note: The operating margin for 2012 to 2014 has been revised to reflect carry forward research expenditure. This and other revisions to the budget booklet is provided below.

7. Productivity Savings- by budget unit

8. Free Cash Flow - 3% & 5%

9. Income – Commonwealth Supported Places 6.8% 8.4% 11.8% 3.0% 4.6% 5.0%

10. Income – International Onshore -8.5% 3.6% 6.4% -12.2% -2.8% 0.4%

11. Expenditure – Academic Salary 5.7% 5.9% 6.6% Standard growth in EBA . Values may change and are dependant on how the productivity target is managed.

12. Expenditure – General Salary 5.6% 3.5% 6.2% Standard growth in EBA . Values may change and are dependant on how the productivity target is managed.

13. Financial Sustainability – KPI Significant boost thorough capital funding underlying revenue (excl. capital funds) Depends on revenue growth (international income, staffing profiles and the management of productivity target).

14. Financial Sustainability – KPI

15. Financial Sustainability – KPI

16. Financial Sustainability – KPI • In 2012 and 2013 our Free Cash Flow tracks into negative territory but recovers in 2014. The negative balances are due to the high EIF capital expenditure for those years. The EIF funding for these projects are received in advance of the expenditure.

17. Key Budget Risks (internal) • productivity targets; plans do not achieve the savings required to achieve the University’s target • responsive curriculum, student attraction, student retention • ability to increase domestic & international and research income & profile (refer to graph) • understanding the market • demand for core teaching and research infrastructure • free cash flows - • improve productivity • containing fixed cost in a comparative environment; • new technology costs, salary cost increases,

18. Key Budget Issues (cont.) • Specific to the 2012 budget • marginal revenue growth (222 EFTSL from 2011 forecast) • expenditure growth; EBA, non controllable costs • productivity savings target • principles based; • new contribution margin methodology • funding University’s Operational Plan $4m • research Support (reallocation of $5m) • Controllable cost – discretional expenditure reduction of 5% (travel 10%) • Low enrolments – fines from 2ndsemester • Student amenities levy offset by expenditure $6m • Facilitation and Reward Funding offset by expenditure $4.8m & $0.9m • Unspent Research impact on underlying result. Recent decision from CGAC to report outside underlying margin in the management accounts of $4.9m.

19. Key Budget Principles • Support the implementation of the University’s strategic plan and operational plan • Contribution margin methodology is an agreed ‘future’ margin based on a differential margin to projected student fees: CSP, international and domestic post graduate revenue, excluding externally funded research and specific special purpose funding • Research incentive methodology to drive research excellence • Mandatory discretionary expenditure cuts (excluding research) of 5%, 10% for travel to control administration growth and drive efficiencies • Administration charge policy for courses with low enrolments • Allowance for contingencies, strategic initiatives and risk • Greater transparency of central cost allocations

20. Budget Principles (cont.) • Budget aims to place the University on a more viable and long term sustainable position • Budget unit manager responsible for the monitoring and performance of their budget against target • Budget is based on achievement of a positive underlying margin of minimum 3% with the aim to achieve 5% in 2012, 5.2% in 2013 and 6.3% in 2014. • Budget units encouraged to improve efficiencies & activities that will contribute to the University’s strategic direction & continuous improvement approach

21. Key Budget Assumptions • student revenue projections based on Load Plan coordinated by Course and Load Planning Subcommittee of PRC • general assumption that all new budgeted research income is expended in the same year however recognise that there may be a need to carry forward research expenditure • increases in expenditure have been aligned to the rate increases as per EBA and growth in student and grant funded activity, where applicable • the capital budget and associated operating costs approved by Estate Planning Committee and Communications Technology Strategy Committee • an allowance for anticipated increases in non controllable expenditure, eg occupancy costs, leases, depreciation, insurance factored in the budget • non discretional expenditure has been reduced by 5%, travel reduced by 10%

22. 2012 Budget Initiatives & Funding Pool • a transitional arrangement to the faculty with the greatest variance in the contribution margin methodology - FHS $2.7m • allowance to FBEL of $1.5m allowing the faculty to restructure and reshape its operations • university downturn allowance of $5.0m will support shortfall or if student numbers exceed target will support the council university target of 5% • Funding pool • University’s Operational Plan $4m • SOSI $4.1m • VC Strategic Research Support $1m • VC & DVCs pools $1m • Research incentive methodology - $5m redistributed

23. Future Requirement • each faculty to develop a scenario for a potential revenue/ EFTSL decline and corresponding expenditure alignment plan • establishment of formal forecasting/monitoring framework for 2012 • all business units must sign off on their individual 2012 established budget and commitment to the council 3% - 5% target • student revenue is to be allocated at the cost centre level across all faculties

24. Future Requirement -Productivity Savings– Key actions • reviewing face to face teaching time by staff members, identifying those with loads well below expected standard • identifying and reviewing low enrolment subjects • reducing casual staffing by utilising permanent staff to take tutorials • running reports at cost centre level which identify problem areas which can be targeted for review

25. Future Requirement - Productivity Savings – Key actions (cont.) • setting up financial performance measures at cost centre level: • tracking leave entitlements • salary profiles • budget vs actual FTE • salaries as % of revenue • revenue per staff • cost per staff • student staff ratios • revenue per staff $ • profit per staff • Administrative Change Functional Reviews – while some improvements have been achieved in process and systems there is still much to be done and will require an ongoing structured and planned exercise, with regular monitoring and review

26. Research Carry Forward Expenditure • estimated research expenditure carried forward - $4.6m in 2012, $5m in 2013 & 2014 • adjusted for underlying result • Reasons for: • Gives a more accurate view of the financial performance of the University and research grant fund sources • It also gives a more accurate view of the University’s financial position by recognising the liability existing as at the end of the year • By matching revenue with the expenses it is a more conservative approach than the current treatment

27. Thank You

28. Key Budget Issues • Revenue • domestic revenue - now competitive • dampening international market • Marginal revenue growth in 2012 • Expenditure • relatively high fixed costs; • 60% total cost - staffing; • Cost pressures eg EBA, increases in other non controllable cost - depreciation, leases, clinical placements • poor utilisation of assets; and • significant capital maintenance/ replacement issues • generating enough to reinvest into core activity of teaching & research- estimating negative free cash flow in 2012 & 2013 • Challenge • maintain reputation • maintain quality • ability to reinvest in core activity • programmes responding to student needs • upgrade facilities • maintain long term financial sustainability

29. Adjustments to the budget booklet • Changes from FRC to Council • Expansion to the Vice Chancellor’s Introduction to include commentary on the challenges faced around increases in salary expenditure and the EBA. • Inclusion of an “ At a Glance – Executive Summary” that provides a summary on the key issues, key graphs and tables • Inclusion of unspent research carry forward expenditure and the impact on the underlying result • Changes arising from minor amendments made to the commentary and tables to improve presentation, typographical errors and rounding errors. • Changes from Council prior to being published • Faculty budgets to include carry forward research expenditure • Budget risks • Central cost allocation movement from between I&O and residential services

30. Predicted impact Catastrophic infrastructure loss Domestic income reduction Major Ineffective major project mgt International income reduction Unforseen expenditure Investment loss Major supplier collapse Moderate Strategy implementation costs Salary cost increase Major fraud New technology costs Minor Major litigation Unlikely Possible Likely Likelihood