Implementing Full Cost A new way of thinking and acting

1. Implementing Full CostA new way of thinking and acting Ljubljana November 19, 2009 Bea Krenn PhD. Adviser EU research funding Pieter-Jan Aartsen, Corporate controller Universiteit van Amsterdam

2. Agenda • Introduction • Preliminary considerations • Relevant environment - external and internal • Basic steps in preparation Full Cost • Ways to implement Full Cost • Provisional conclusions • Questions

3. Knowledge Transfer Office UvA-AMC http://www.english.uva.nl/knowledgetransfer Funding team EU research EU education NL research Legal advisers Business Developers Corporate Control Project controllers at Faculty level

4. II.Preliminary considerations

5. Full Cost: a matter of transparency • Accountability towards national and European tax payers • Common reporting language • Inevitably: reflecting national setting individual universities • Main objective: showing value for money • Showing the need for university contribution to externally funded research projects • Creating a sound basis for negotiations about covering costs

6. III.Relevant environmentexternal and internal

7. National setting universities • Ties universities - national government • Control and management structure • Funding principles • Boundaries financial responsibility • Accounting principles

8. Setting Dutch universities • “Withdrawing” national government • Development towards private enterprise structure: • Final responsibility: executive board • Limited influence on decision-making by employees / students • Also exploiting private activities (sometimes in separate legal entities) • National funding principles (output oriented): • Education: # students, # Ba/Ma degrees (weighting factors per discipline) • Research: # PhD, % of Education budget Tendency to increase competition based funding (quality assesments) to shrink fixed amounts • Financial responsibility • 1997: abolishment cash-based system • 2008: Obligation to apply general (national) accounting principles

9. Developments in NL • All public Dutch universities: intention to implement FC • Phasing is different • Empowered by Dutch Association of Universities • Voluntarily (no requirement ministry of Education) • Dutch ministeries have adopted FC in contract conditions (SISA) • Trying to pull on board Dutch Research Council!

10. Internal environment Organizational conditions (UvA) • Strong support for transparency by board / management (2006) • Establishing climate for cost-(recovery) related decisions • Full scope responsibility Faculty deans • Concentrating financial and academic policy in one hand • Rationalizing internal budget allocation • Tendency to relate costs to performance • awarding “preferred behaviour” • Budgeting is about numbers, not (in first place) about € • € is derivate: university heart pulses elsewhere • Sound information system to accommodate principles of cost and budget allocation

11. IV.Basic steps in preparation Full Cost

12. Denominate primary activities in university • Analyze cost drivers (primary and secondary) • Design cost allocation scheme

13. Denominate main activities Reason of existence universities: • Teaching • Research • Valorisation (Intellectual Property) • Other activities • Care for patients (hospitals – faculty of medicine) • Guardianship cultural heritage (museums) • Consultancies

14. Analyze cost drivers • Teaching & Research: Primary cost driver • Time spent by academic staff (# hrs / # fte) • Support and facilities: Secondary cost drivers • Time spent by support staff (# hrs / # fte) • Use of space and housing facilities (# sqm) • Use of ICT-facilities (# workstations) • Administrative support (k€ revenue, k€ costs, # headcount, # used) • Use of university library (# fte academic staff) • Student support and facilities (# students) • Use of dedicated research facilities (time used / % cost increase )

15. Design cost allocation methodology - I 1) Separate all direct costs a) Direct project costs b) Exclusively (directly) teaching- or research-related costs 2) Allocate remaining overhead costs: a) Collect these costs in cost pools; representing separate support tasks / departments; b) Allocate them via appropriate keys / indicators / cost drivers; (sqm / fte / income / total budget); c) in one (“simplified model”) or in more steps; d) mainly to available productive time of all academic staff. (per department / faculty)

16. Design cost allocation methodology - II 3) Calculate hourly rates of academic staff, taking into account available “productive time”, discerning two components: • Direct personnel costs - one rate per homogeneous salary group (UvA: 18) • Indirect overhead costs - different rates (in €, not in % sal. increase), depending on • Cost structure academic discipline α, β, γ, medicine, etc.) • Specific cost structure research institute (laboratories, equipment etc.) 4) Finally allocate full costs by time recording • Hours recorded multiplied with hourly rates (in different components) • To individual research projects (+ teaching programs / evt. other activities) • Final step: exclusively education or research related overhead costs on the basis of time spent (FP7 requirement: not mixing costs by nature) N.B. Applied to all activities: either governmentally or externally funded, i.a. FP7- research

17. V.Ways to implement Full Cost

18. Necessary preconditions • Apply cost allocation model to figures from Annual Report • or from annual budget, provided regularly adjusted from post calculation • Decide: • Implementing cost settlement procedures in Financial Information System (making full cost base of management accounting throughout organisation) • Keep model compatible (Excel)(making full cost a tool of controllers especially for reporting FP7-projects) • Communicate tariffs / rates / procedures in organization • Offer a reliable time-recording system • Preferably computerised (and integrated with Financial Information System)

19. Zooming in: Time recording • Active day-to-day time recording (Employee Self Service): • only by those who are employed in contract activities (if required) • Instructions for active time-recording: • In principle: record all real hours spent (avoid mystification / simplification / copying plan) • Take into account off-time due to illness and holidays • Way of recording overtime (at FC-rate or zero-rate) depending on contract conditions: • if overtime will be paid for (in NL not) • if time spent will be compensated (saving for taking sabbatical) • if external contract party is willing to pay for it (E.U.-FP7: not) • Passive “background” recording (periodically updated timetables) • for all other personnel: “detailed” distribution of available time to various activities / project (as planned – taking into account illness and holidays) • timesheets are “automatically” generated

20. Other aspects of time recording • Emphasize: • Academic activity is highly “personnel consuming” • Appointments / salaries of academic personnel are expressed in hours per week,- due to this: • Measuring academic effort in time spent is the best cost indicator • In any case as long as external funding is not output-related • “No cure no pay” is conflicting with academic “code of conduct” • Sometimes “misunderstanding”: • Nor brain activity (probably continuous), nor presence is measured • Accept the necessity as an economic fact of life • Management reporting • Knowledge about time available and time spent can refine and deepen the conception of academic activity

21. VI.Provisional conclusions

22. Added value of Full Cost • Full Cost: the only clear base for management decisions • Relating costs to cost driver and in the meanwhile budgets to performance indicators can replace the cheese slicer • In the long run: FC necessary precondition for sustainability • Explicitly co-funding, matching and cross-subsidizing is better than hollowing out government budgets implicitly • Matching expresses bi-lateral interest in research outcome • Showing poverty: the beginning of political awareness

23. VII.Questions

24. FP7 and different national settings: One size fits all? • Is the price of Full Cost acceptable? • FP7 Consortia: Market principle or Quality Selection? • Academic manager: contradictio in terminis? • FP7-regulations: Crowbar to increase transparency?