HUMANE

Heads of University Management & Administration Network in Europe

SEMINAR

Finance and Funding

London, 6-7 November 1998

ABSTRACTS AND SUMMARIES

Creating Alternative Sources of Revenue for Universities

Michael Shattock, University of Warwick (UK)

Abstract

The fall in the unit costs of higher education across Europe is a demonstrable phenomenon. In spite of election promises it is unlikely that politicians will reverse the trend because the pressures from other parts of the public sector are so great. The rising cost of the health services, the ageing of the population and the demands of the social security budget are such that higher education cannot be deemed a priority even though student numbers continue to grow. Even within education budgets as a whole, Governments are more likely, as in the UK, to give higher priority to the compulsory than to the post-compulsory sector, and to increasing the skills base rather than to university-based higher education.

Approaches to generating non-government funding for higher education vary between government-led policies, e.g. passing some element of the cost to the consumer in the form of tuition fees, and efforts by institutions themselves. This address will concentrate on the latter although the tuition fee issue represents a major element in considering non-government funding, not least because of the way it emphasises the differentiation of institutions and increases competition between them.

The address will compare what might be described as the traditional methods of generating non-government funding with the approach that is adopted in some modern universities. It will describe the structures that need to be put into place and it will draw on the success that the University of Warwick has had to illustrate how these structures have worked.

Finally the address will consider the implications of the process for an institution that attempts it. What are the down-sides? It will emphasise that for the most part, financial success is linked to academic success and that the process of generating non-government funding is likely in the longer term to increase the differentiation between universities and particularly between the 'successful' and the less 'successful' institutions.

Summary and Discussion

MS reviewed the traditional sources of non-governmental income in HE, and contrasted the varying situations in the UK, USA and mainland Europe. He analysed the reasons for a decline in such funding:

· the decline in the number of private fortunes

· more accountability on the part of businesses to shareholders

· globalisation

· the inexorable rise in costs for HE (salaries, equipment, buildings, etc)

Alternative methods had become popular:

· student fees (with an emphasis on overseas students, or specialist Masters)

· research (overhead income; patents, etc)

· Continuing Education (short courses for industry)

· internal privatisation (charging for services) or retailing (deriving profit from shops)

The advantages of such methods of fund-raising were seen as an improvement in academic performance, the provision of better facilities, improved quality ratings and less dependence on government funding. Such policies also extend the influence of the university into the community, increasing its social relevance and economic impact. MS provided a range of statistical tables to illustrate the success of this strategy at Warwick. The key principles in such an approach would be:

· investment and a willingness to borrow funds

· (external) marketing and good (internal) management

Questions raised during discussion concerned the relationship of the university to its local region, the attitudes of government and trade unions, and the nature of the profits generated. MS explained that English universitites were not as closely bound to their region as those in many countries in Europe, although this did not preclude fierce competition with other local HEIs. Expansion had been selective - some departments had indeed been closed - but it was perfectly possible to have a small department which generated profit. Profit was far more important than the actual income figure for any activity. The new approach had generated some opposition from trade unions, although the academic opposition had faded as the advantages became more obvious.

Finance and funding of an entrepreneurial University: the facts of life

Michiel van Buchem, University of Twente (NL)

Abstract

The University of Twente was founded in 1961 as a State university typical of those found in continental Europe. Funding was provided by government. Academic and support staff had and mostly still have tenure, the funding was input-oriented. All expenditure is checked for legitimacy by government, with the same rules and procedures as the Ministry of Education, and often with the same rather defensive attitudes and culture as a State organisation.

In the last decade the university has changed from a State-oriented institution to a more market-oriented institution. That includes output orientation, more attention is paid to the effectiveness of expenditure: what is the contribution to the overall goals? More universities are changing in the same direction.

I would like to present some of the problems we had to solve during this transition, including some facts of life we had to learn when academics meet the market place. What mistakes did we make in this regard? I will comment on themes like accountability, the need for new skills and tools, administration and procedures. Managerial risks in an academic environment and the interesting clash of cultures. How to teach academic staff what money is worth and how to prevent the idea that money is the only thing that matters in the institution?

Summary and Discussion

MvB outlined the way in which entrepreneurship had become a necessary fact of life at the University of Twente as it turned itself into a market-oriented (as opposed to a task-oriented) university. Entrepreneurship was obvious at all levels, but always in the service of quality. It required new skills, such as information systems to permit local decisions, a more responsive and knowledgeable local administration, and an awareness of local units as clients. The pursuit of improved quality throughout the institution had been based on

· a commitment to business standards

· respect for university values and financial procedures (a major challenge)

· concentration of core competence (teaching and research)

· a change from a defensive to an offensive approach

· a use of external expertise

· analysis of financial risks.

In response to questions on acceptance of the enterprise culture MvB admitted that it took perhaps five years to change attitudes, and even longer to change procedures. Even after 15 years changes were still in progress. Michael Shattock drew attention to the natural obstacle often provided by the Finance Office, and the need to have that part of the organisation in tune with the new regime. It also helped enormously if academics could be seen as “champions” (MvB agreed that it was difficult to train people in this) but it was also pointed out that such staff often felt that they were under too much pressure.

Student-based funding in Sweden

John Furstenbach, University College of South Stockholm (SE)

Abstract

Sweden has moved from an input to an output related funding system for undergraduate teaching. I will try to indicate some management implications of this shift. The formal situation after 1 July 1994 is described in the memorandum of 31.3.94 from the Swedish Ministry for Education and Science. I have included some comments to bring that memorandum up to date.

Before 1977 Sweden had a Centralised higher education system with line item budgets, an "Automatic" teaching hour allocation system which was well suited to the student growth in the late 1960´s. The resulting overload on the state budget and unemployment among university leavers made the introduction of a “numerus clausus” (entry quota) politically feasible. Technical prerequisites for the reform were also given through the introduction of an industry-style computerised accounting system in the Swedish civil service.

The 1977 reform was inspired by the American program planning budget ideas. It introduced devolved decision-making in universities and the then newly established university colleges. Lump sum budgets were introduced. The Higher Education Ordinance prescribed organisation and decision-making processes. To provide for true planning opportunities and to reduce the financial strain, a quota system was introduced. University capacity was described in terms of beginners in programmes and FTE students in separate courses. In the following years, allocations were recalculated on marginal basis. This eventually lead to costs varying per capita between universities.

The 1993 reform has seen various local implementations, all (except mine) appear to have been successful. One experience, expected by some of us, is that less profitable courses, such as evening courses for adults, have been cut back. The same has been true for expensive subjects, i.e. archeology, and subjects which require considerable amounts of proficiency training. Other tactical adaptions have also been observed.

We have also observed effects that were not expected in growing institutions. Curriculum development costs, cost for space and facilities and other increasing costs have been difficult to cover. During the recent increase of Swedish higher education, a number of university colleges have had financial difficulties.

The 1993 reform aimed at increasing competition between HEIs. Due to the increase in demand and funding during the last years this competition did not materialise. We are now facing an improved labour market, and smaller cohorts of students also change the situation. But what will competition mean - perhaps marketing efforts outside the home region, curriculum adjustments and efforts to identify and meet student demand?

Summary and Discussion

Discussion of the change to a formula-based funding system included reflections on the way in which emphasis on student numbers might increase tensions in terms of quality, since there might be pressure to reduce the number of failures. With respect to recruitment, there were several questions about the way in which Swedish universities had needed to expand the area from which they drew new students, and at least one person commented on the need to see the whole of Europe as a potential market (with corresponding implications for improved quality). As in the earlier discussion of an enterprise culture, several participants queried whether staff felt part of the institution’s emphasis on quality - JF was sure that in Sweden at least this was true. It was suggested that an emphasis on full-time equivalent students might damage the university’s interest in lifelong learning and responsibility to the general public, but JF felt that as long as there was a good explanation to the general public these issues would not be confused.

Student Residential Accommodation and the Private Finance Initiative (PFI): Selling the Family Silver?

Alan Strang, University of Westminster (UK)

Abstract

The presentation covers the progress of the University of Westminster’s innovative PFI project. The project involves the disposal of the entire existing student residence portfolio to a private sector partner. The sole planned involvement of the University in provision of student residences will be the notification to new and prospective students of the partnership. The partner will operate the accommodation with the freedom to develop, dispose of and build new provision and will be obliged to meet 95% of student demand for residential accommodation. The presentation will describe the stages of the process:

1. The current situation and its difficulties

2. The reasons for embarking on the project

3. Tendering and negotiations

4. Conditions and advantages

5. Quality of provision and its guarantee

6. Portfolio development

7. Problems and sticking points

8. The result

9.

At the time of preparing this synopsis, agreement has been reached on the service delivery elements of the agreement. An externally commissioned financial evaluation is nearing completion. By the time of the seminar, the University will have made its go/no-go decision.

Summary and Discussion

AS explained the background of the University of Westminster, and the extremely complex system of property ownership which had developed over previous decades. The University had had to devise a rational and practical solution to these problems. The presentation was illustrated by Powerpoint slides which made the technicalities much simpler to follow. It became clear that the financial argument had not been black and white, but that many different criteria had needed consideration.

AS explained the shift in risk and responsibility to private ownership of property, but also noted the minimum conditions (including location and internal facilities) which the University would insist on in order to ensure proper quality. The financial safeguards for the University’s position were also noted, and also the very real improvements in the immediate financial situation. The big problem had been what to do if service levels proved themselves to be not as good as stipulated.

Like some of the other presentations this one provoked several comments on the differing cultural expectations of different parts of Europe - for instance the way in which some Scandinavian universities with no tradition of student housing found themselves having to consider providing it for foreign students who expected it even for short-term visits. It was also pointed out that universities with student residences had never been able to make realistic maintenance charges in the way that the private sector would. This led to a discussion of the whole notion of outsourcing.

The EU Framework Five Research Programme

Artemis Kourtessis (Senior Official, DG12)

Summary and Discussion

AK introduced the main features and changes of emphasis in Framework 5 (due to run from 1999 to 2002). He noted that the main priorities were on research and development as part of socio-economic changes, with employment, quality of life and the environment as priorities. The number of programmes had been reduced to 7 (four thematic and three horizontal).

AK went over the Key Actions and Generic Technologies for each of the four Thematic Programmes (Quality of Life, User-friendly information society, competition and growth, and Energy/sustainable development). He outlined also the horizontal programmes based on improving human potential, training and mobility, and improved access to the research infrastructure.

He was able to give a reassurance that there would be no major changes in implementation, but warned that the budget was not yet finalised. The Framework would be launched in January 1999, with some 10% of funds distributed by direct funding (Thematic Networks, etc) and 90% allocated for shared-cost budgets. In response to questions he stressed that the allocation process (peer review and the outcome of bids) would be transparent.

(Summary prepared by Trevor Field)