Chapter 5 – Mutual accountability: resources, costs and services
- Strategy Sixteen: Refine and apply the new University Economic Model to ensure greater transparency in resource and cost allocation and support strategic decision-making
- Strategy Seventeen: Systematically review arrangements for the provision of administrative and professional services
In the introduction to Chapter 2, we described how the University’s planning and decision-making structures had not only given rise to unnecessary complexity in the organisation of our programs of education and research, but had also led to waste and duplication in our professional and support services.
After a period of expansion, not only in our activities but also in our income, the University is facing a period in which our resources are considerably more constrained. In particular, while we have no existing debt and, with some discipline, could meet our annual operating expenses from recurrent income, we face enormous capital needs and the challenge of meeting the salary demands of an increasingly competitive labour market. Of course we must pursue every opportunity for growth in our income compatible with maintaining the academic standards entailed in our statement of purpose. But we must also ensure that we are operating our systems of resource and cost allocation, are maintaining professional and administrative services, and are planning digital and physical infrastructure, in as prudent and efficient a way as possible. It is not simply that the taxpayer and the philanthropist have a right to demand that not a penny is wasted; it is also that we have not a penny to waste!
There are two parts to our strategy for improving the efficiency of our operations and maximising return on our expenditure. First, the new University Economic Model (UEM) is designed to make resource and cost allocation as transparent as possible to both faculties and divisions, so that incentives are maximised to increase income and reduce costs. Of course, a University that made decisions only on such a basis would be academically impoverished, and the new economic model assumes that there will be cross-subsidies, most notably from teaching to research, but also from one faculty or division to another. We should note that a cross-subsidy from teaching to research is in turn an investment in research-enhanced teaching and, by maintaining the quality of our research, has significant reputational effects that help attract the most able students. Both these types of cross-subsidy already exist, but under the economic model they will be made more explicit and the basis for them agreed. With greater transparency at the faculty, divisional and University-wide level, individual academic and service units will be able to understand more openly where the University’s income is earned and where it is spent, and make decisions about our resources to maximise academic return.
Second, ongoing reform to the delivery of professional and administrative services, picking up from the ‘shared’ or ‘distributed’ services project, should deliver greater economies of scale and coordination without losing local responsiveness. While the faculties’ experience of shared services has not always been happy, as is almost inevitable in a time of transition, the logic of greater coordination is compelling and the case for it was made in the Green Paper.
Of course, it is not only important that we have greater financial transparency and efficient services, it is also important that when we spend the resources of the University, particularly on capital projects, we do so wisely. SEG has recently seen the introduction of a new process for prioritising capital works (though it is still in the process of maturing), and, with the business case for the Centre for Obesity, Diabetes and Cardiovascular Disease, a new approach to planning for them. It is hoped that each of these developments, together with the creation of a coherent master plan for at least the Camperdown/Darlington Campus (bringing together the strategic planning of the University and divisions with the work already done for the Campus 2020 project), will lead to a closer alignment of our academic, environmental and capital plans, and therefore a more efficient pattern of capital spending.
Strategy Sixteen: Refine and apply the new University Economic Model to ensure greater transparency in resource and cost allocation and support strategic decision-making
Education and research are the core business of universities and the source of the bulk of their funding. Thus there are obvious financial incentives to teach more students, to teach them well, and to generate research income. As a consequence university funding formulae generally construct a strong correlation between these activities and the funds they distribute to academic units such as divisions, faculties, schools, departments and centres. Financial allocations, however, are also a major mechanism for driving university strategy. Thus many universities modify the allocation formulae to achieve particular outcomes – improved research performance, better teaching performance, increased intake of international students and so on. The fundamental weakness of these formulae based on revenue growth and particular strategies is the absence of transparency about the costs of these activities. Many university funding formulae lack a clear line of sight between revenue and the expenditure required to generate it. Without transparency on both sides of the ledger, important decisions run the risk of being based more on guesswork than informed strategy.
For many years, the University of Sydney funding formula has exhibited this common weakness. While it has deployed the obvious revenue engines of student numbers, discipline costs and research, it has also driven strategy by significant additional allocations based on research performance and more favourable taxation rates for faculties with significant numbers of international students. In this allocation framework, the relationship between the revenue generated by faculties and the costs of supporting University-wide services, for example, was at best opaque. Moreover faculties were encouraged to compete with each other for the annual fixed pool of funds allocated on the basis of teaching and research performance.
The strength of the former funding formula was that it unleashed a great deal of creative effort to increase research performance and grow international student numbers (and in this the budget allocation strategy succeeded). As the Green Paper outlined, however, the funding formula was arguably one factor driving the increasing overlap and duplication of courses, programs, disciplines and administrative services. Moreover, there were numerous forms of hidden cross-subsidy in the old formula that obscured the real financial circumstances of particular academic units and made it very difficult for faculties (and the University more generally) to see the precise connections between revenue and expenditure in their operation.
In our work to reform the financial administration of the University, we have focused on two things. First, we have focused on greater transparency in reporting and increased budgetary monitoring. We regard transparency and greater monitoring for both faculties and portfolios as a correlative of our commitment to mutual accountability. This has involved a program of gradual revisions and refinements to the format of our finance reports, making them easier to analyse and adding more detailed information on key aspects of performance. We will continue to work on further improvements in our reporting capacity over the planning period. We have also strengthened the formal annual budget-setting process, instituted a system of quarterly finance meetings to strengthen budget oversight, and ensured wider distribution of our monthly financial reports.
Second, as highlighted in the introduction to this chapter, we have developed a new model for the allocation of resources and costs to organisational units. This new University Economic Model operates on the assumption that academic units are the key revenue generators for the institution and that both resources and costs should be transparently allocated to them. Thus it begins with a commitment to returning to an academic unit (a division, faculty or school), 100 percent of the income that it generates, less the direct costs that it incurs and a number of levies. (Surplus income remains, in principle, available to the division, faculty or school.)
These levies are six in number. First, each unit will be charged for the provision of University-wide services on a series of cost drivers appropriate to each service. Second, there will be a levy for the use of space based on the cost of maintaining space of the relevant type. Third, there will be a levy for agreed University-wide academic projects and programs (though of course much of this money will be returned to the academic units as scholarships and the like). Fourth, there will be a compulsory capital charge, designed to accumulate capital funds to meet the University’s growing needs for digital and physical infrastructure renewal. Fifth – because it is now clear, as outlined in the Cutler and Bradley reports, that government funding does not cover the full costs of research – as a research-intensive university we will have to levy academic units to create a fund to redistribute money back to faculties on the basis of research performance. Only in this way can we ensure that research-intensive parts of the University are not disadvantaged by the new model of distribution. Sixth, and finally, there will be a levy to cross-subsidise loss-making faculties during a transition phase, and beyond that if they merit sustained cross-subsidy for a demonstrably justifiable academic reason.
We have undertaken sustained benchmarking analysis and detailed trialling of the new allocation model with a view to introducing it for 2011, aware that we will require a significant transition period for faculties and portfolios to adjust to the impact of these budget changes. Thus, for 2011, we propose that there will be no substantial changes to allocations to our organisational units (in general the 2010 allocations will operate). At the same time we will undertake a comprehensive audit of the circumstances of each faculty seriously affected by the new formula to determine what strategies might be put in place to ensure that they are in surplus in five years. If our audit determines that the fundamental circumstances of a unit make it impossible for it to be in surplus (for example because of the nature of Commonwealth funding in this discipline or market constraints on its capacity to generate fee income) then we will, through SEG, determine whether there should be an appropriate level of cross-subsidy from other organisational units and, if so, on what basis.
As a further measure to cultivate more strategic decision-making informed by our financial circumstances we propose that the divisional boards would be responsible for financial oversight of the faculties within each division. We propose that, through the University Economic Model, we make clear the precise allocations for each faculty. The boards, however, will be charged with making the constituent faculties mutually accountable for the financial health of their division. This could include faculties providing practical assistance to one another to meet their financial challenges, or in specific cases supporting requests to SEG for ongoing cross-subsidy of specific faculties. We will also need to monitor the effects of these processes and ensure that those faculties and divisions that do sacrifice immediate self-interest for greater efficiency are not further penalised.
Through these mechanisms – a new economic model, mutual accountability for faculties at the divisional level in the development of budget strategies, more transparent financial reporting, and more regular budgetary reviews – we aim to establish a firm foundation for financial analysis and the development of University-wide strategies over the term of the planning cycle. Our aspiration is to ground University strategies in the actual financial circumstances of the University and its constituent academic units.
In order to achieve this strategy we will:
16(a) Introduce the new University Economic Model for the allocation of budgets to academic units and central portfolios.
16(b) Align the budget allocation models with the new divisional structure and charge each divisional board with accountability to SEG for budget allocations to faculties in the division.
16(c) Introduce a transitional process in the five-year planning cycle to ease the adjustment of academic units to the implications of the University Economic Model.
16(d) Review the financial circumstances of those academic units where revenue does not meet costs under the economic model, and determine appropriate strategies for moving those units into budget surplus or ensuring their continuation through cross-subsidy.
Strategy Seventeen: Systematically review arrangements for the provision of administrative and professional services
Efficient, cost-effective and coordinated administrative services are an essential foundation for the realisation of our aspirations in education and research. Poor service delivery usually means the diversion of scarce resources from education and research to prop up antiquated processes and systems. It commonly leads to increased effort in administration, duplication, time-consuming work to plug gaps in service delivery, a lack of coordination across the University and difficulties providing timely and accurate reporting on a wide range of activities. Many of these problems were identified and analysed in the Green Paper. Indeed we concluded that University operations, given the complexity of the systems, platforms and processes that had evolved over many years, had largely been sustained by the inventiveness, commitment and ability to work around inherent service constraints of numerous dedicated professional staff in the University. This is not a sustainable basis for service delivery. If we are to sustain a University that seeks to achieve our purpose, it is imperative that we support our staff and students through an effective and efficient system of service delivery.
In designing systems for support service delivery, it is important to remember that there are essentially two possible relationships between an academic unit and a support service. First, an academic unit can be the client of a service provided by a University-wide service unit. In this scenario, the academic unit pays for the service on a basis determined by the cost drivers of the University Economic Model and should usually benefit from the economies of scale that are entailed in such an arrangement. The service is delivered by staff who are physically located either in many localities (such as those collocated with schools or faculties), in a few geographical precincts (such as those on a campus), or in one central location. They can have responsibility for servicing the needs of one, or several, academic units (such as a faculty or group of faculties forming a division). Those staff formally report to the University-wide service unit but, on a day-to-day basis, they work with, and are answerable to, the client group whose needs they serve. It is in this way that many of our professional services in the fields of human resources, finance, ICT, campus infrastructure services and (to some extent) development and alumni relations are currently structured. We have also agreed that student administration will be delivered in this way as a part of the Sydney Student project. This is the arrangement for which we have tended to use the terms ‘shared’ or ‘distributed’ services, although the differences between these terms outlined in the Green Paper was not widely accepted. Second, an academic unit can itself employ staff to meet its own support service needs. We might term this the owner-operator system. In this scenario, the academic unit wholly meets the cost of the professional service; the relevant staff are always physically collocated with the unit; and they are line-managed by the academic unit itself. It is in this way that many of our professional services in general academic support are currently structured.
If the first of these systems of support service delivery is working well, it should have the advantage of increasing coordination between different parts of the University, improving effectiveness and reducing the cost of the service. It should be responsive to the needs of the client: there should also be no difference between the accountability of the service provider employed through a University-wide service unit (whether or not locally located), and a service provider wholly employed within the local academic unit. This type of system should also make it easier for staff and students who work across academic units by establishing commonalities of practice, and enable the University to create career paths for support staff in University-wide services. The challenge of such a system, however, is to keep the service fully accountable to the client academic unit, to ensure that it responds to local needs. If the second of these systems of support service delivery is working well, it should have the advantage of local responsiveness. The challenge of this second system is the impact that it has on the University as a whole by increasing costs and reducing coordination.
During the period of the Strategic Plan, we intend systematically to move the majority of support services to a client-service provider relationship with the academic units of the University, developing and refining the work that we have undertaken in areas such as finance, and introducing a client-service provider model to areas such as marketing, student recruitment and research support. Our major project in this regard is already underway, with the fundamental reform of the delivery of student administration services that is entailed in the Sydney Student Lifecycle Management project outlined in Chapter 3. The next areas to be addressed are those of marketing and student recruitment.
Our working assumption is that services should only be provided by staff employed by academic units themselves where doing so is either necessary to assist the academic unit to interface with University-wide services; where the relevant service is of a nature such that it is distinctive to the needs of an individual academic unit and no other; or where the relevant service is generically clerical. For each service, the relevant questions will be: (i) Should the staff providing this service to an academic unit be employed by the academic unit or by a University-wide service? (ii) If they are to be employed by a University-wide unit, should the relevant staff be servicing the needs of just one or more academic units? and (iii) Should the staff providing the service be physically located within an academic unit, within a precinct location, or in a central location? These questions flow from the position of the Green Paper that there is no necessary nexus between the units of academic organisation of the University and its units of administrative organisation.
This is not a process without its challenges, as responses to the Green Paper made clear. On the one hand, responses to the Green Paper revealed that there was considerable scepticism about the capacity of the University-wide service units to deliver support services on the first model. While there was praise for some aspects of the currently shared services (and some services were seen as higher in quality than others) there remained a strong culture of suspicion about the University-wide services and a deep conviction that only locally run services would respond to the real needs of staff and students. For their part, many involved in the University-wide services have pointed out that academic units are far more tolerant of the failings of locally run services than they are of services provided on a University-wide basis. They emphasised that this was the case even when the failings of the service result from existing problems with a locally run service that has been taken into a University-wide one. On the other hand, many agreed with the Green Paper that the University could not afford the luxury of a plethora of locally run services, with its tendency to duplication and expense. The challenge of moving to more client-service provider arrangements is therefore to ensure that there exists no difference between the local responsiveness of services provided on the two models.
In order to achieve this strategy we will:
17(a) Establish a Services Reform Steering Committee of SEG systematically to review arrangements for the provision of professional services, including mechanisms for ensuring client responsiveness, and beginning with marketing and student recruitment.
17(b) Refine existing arrangements for location and management of services in relation to finance, human resources and ICT.
Other relevant initiatives:
4(f) Complete the Sydney Student Lifecycle Management project to create a seamless student experience of the University’s administration, from first enquiry to alumni engagement.