1. Implementing Full Cost A 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 I. Introduction II. Preliminary considerations III. Relevant environment - external and internal IV. Basic steps in preparation Full Cost V. Ways to implement Full Cost VI. Provisional conclusions VII. Questions

3. 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 environment external 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: a) Direct personnel costs - one rate per homogeneous salary group (UvA: 18) b) 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?