HE Financial Wellbeing: the Big Picture David Clarke, Deputy Vice-Chancellor University of Bristol

Universities are not Business - but must be run in a business manner Not Public Sector Books must be balanced Cash Flow vital Sustainability central – in all its aspects Survival is not guaranteed

Position pre 1979 – a golden age? Government provided – teaching funds – research grants – capital grants – student grants No major political agendas or micro management But ‘small’ sector Less than 10% went to University

– cuts and lack of investment The “Thatcher” revolution Squeezing income Little capital investment Maintenance backlog grew Growth of other income streams BUT culture change slow

– a new sector emerges Ending of “binary divide” End of grants Beginning of the fee debate Diminishing public funding Growing regulation

Increasing unit of resource Substantial increase in research and science budgets 50% target, 42% actual and growth Stable predictable public funding Capital Funding Large staff cost increases HEIs grow in number and size The Good Years –

Factors underlying this improving trend included: The introduction of student top up fees An increase in student numbers in Higher Education, including an increase in foreign student numbers Returns from financial markets and investments Increasing research grants and other income

The Current Climate Austerity begins in 2008 Fees (up to £9k pa) take over from 2012 Substantial deregulation of student intake – for highly qualified students BUT ‘core & margin’ reduction The squeezed middle? Significant uncertainty for October 2012

Income Streams less certain Can home students be recruited in expected numbers? Will overseas student intakes be maintained (Visa regulations) Research Councils have less available ‘Third Stream’ sources impacted Philanthropic gifts hard to get

Cost pressures HEI Costs are forecast to increase by a compound annual growth rate of 6.9% which is slightly ahead of the RPI (5.4%) and CPI (5.0%) and a predicted annual growth rate of c.1% in GDP.

The particular cost pressure Staff costs – 50-60% of budget Pension liabilities in defined schemes Regulatory Requirements Carbon Emission Reduction Targets

“There are undoubtedly going to be increased pressures on the sector, and the assumptions within the financial forecasts look optimistic, with HEIs’ anticipation of risks unclear. We are planning on the basis that the number of institutions at risk will increase over the forecast period, unless HEIs can mitigate some of the risks they are undoubtedly going to face.” (HEFCE)

Public funding - dire Private income - reduced Endowments - down Finance availability? Asset sales difficult Lower staff turn over Union militancy/IR Climate Risk averse ossification Vicarious vulnerability (e.g. Family incomes, HEFCE, NHS, TDA, commercial income, overseas students context) For HE- ‘Horrendous Environment’?

The New Environment Honesty and awareness of the size of the challenge Strong effective leadership Need to engage with the whole organisation and external stakeholders Realistic and detailed plans to resolve the situation Rigorous implementation (programme management arrangements and monitoring) Financial control and discipline Understanding the “business” and its dynamics

The Way of Financial Health Sound Finances Absolute surplus of 3% (minimum) of turnover Relative surplus of 5% (plus) Cost control Accurate and timely information systems Contingency planning Planned capital allocations & maintenance Operational headroom CASH IS KING

Capital Investment Programme Learning infrastructure – Research labs & equipment – Maintenance & improvement Residential accommodation Sweating the assets Financed by – Grants – Cash Generated – Borrowings

Information needs for Governors Annual Accounts & External Auditors commentary Monthly accounts with any variances explained Budget, assumptions and sensitivity analysis Evidence of the effectiveness of the University External independent benchmarks Awareness of risks and opportunities Simple core KPIs to contextualise finance metrics that do not require detailed interpretation of data

Your Institutions Academic Mission? It needs a sound financial base