1. USING TRANSPARENCY TO SUPPORT THE PRICING (AND COST RECOVERY) STRATEGY Jim Port J M Consulting Ltd

2. But we have no freedom to set prices

3. Some implicit strategies Type of work Research of high academic value and prestige (RAE benefits, IPR etc) Applied research (little addition to HE knowledge base or IPR) Consultancy (knowledge activity, but no IPR) Commercial (no academic benefit) Pricing Direct cost only (loss-leader) Direct plus contribution Full economic cost Surplus (covers all costs plus opportunity cost, plus a margin for investment)

4. What freedom do we have? BUSINESSSTRATEGY PFTCannot set prices, but can determine specification MANAGE COSTS AND RECOVERY PFRSome influence on pricing MANAGE COSTS AND NEGOTIATE TO MAXIMISE INCOME NPF T, R, O Contract research Nursing contracts Consultancy etc PRICING (But still need to manage costs and recovery)

5. Conditions for effective pricing and cost recovery strategy 1. Clear academic strategy not excellent and expanding in every field 2. Linked to a financial/business strategy (why are we doing these activities; what balance of academic and other benefits do we want; what can the market support; what investment do we need?) 3. Supported by good information on costs (to set and manage minimum recovery levels) 4. Communication and support to academics 5. And knowledge of the market

6. How can Transparency help? 1. Institution finance/business strategy: High-level costs will show surplus/deficit position u By department u By activity (note TR gives better commercial info than accounts) 2. Information to inform, pricing and recovery at project level u Staff utilisation u Charges for indirect costs 3. At national level, TR should impact on market through policy on dual support, charities, infrastructure funding etc (and EU)

7. Commercial pricing Should be market based Get away from cost-recovery Consultants use a bundled day rate (e.g. £x for professor; £y for Lecturer etc) Transparency can help to show cost per day Should then factor up for: n Utilisation n Indirect costs n margin Simple caclulation – Finance could do once a year

8. Public sector pricing Cost-based Complex because public funds and sponsors varying rules TRAC indirect cost rates improve on historic approach: u Include all costs u Matrix rather than single rate u Standard classification as direct/indirect Have to discount i/c rate for some sponsors/contracts (paying support costs as direct Hence calculate a rate card Need to encourage all public sponsors to accept this basis

9. Clinical full rate a. technicians b. Clerical c. Support Research X% -a% -b% -c% Other Y% -p% -q% -r% Laboratory full rateetc Classroom full rateetc

10. Challenges for HEIs n Cost recovery can be significantly affected by action of academic departments n Non-commercial sponsors will often contribute more if relationship is managed n The low price culture depresses pricing even when it should not (e.g. consultancy) These are management challenges not costing ones Need strategy; communication; policies that give consistent messages