How can we ensure the financial stability of the UK’s universities?

June 04, 2018

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The economic landscape in higher education is set to change again. In October 2017, the Prime Minister announced that her Government will undertake a major review of university funding and student financing", which was subsequently launched on in February.

While this tertiary review is going to take twelve months to complete, and the sector is not anticipating wholescale change, it is expecting to see a reduction in revenue driven by fee cap adjustments. This is a potentially worrying development for a growing number of Higher Education Institutions (HEIs) whose medium to long-term financial sustainability is already being challenged by increasing market competitiveness driving recruitment shortfalls.

It is therefore unsurprising that some sector commentators are questioning whether the financial future of some HEIs.

We recently produced a report on what HEIs need to be doing to ensure financial stability in uncertain times.  Universities need to actively challenge the value of the activities they deliver.  Many HEIs do not  formally detail, quantify or cost their service offering. Even when budget savings take place, often the only requirement is to remain in budget and/or deliver a savings target rather than measuring the impact these efficiencies may have.

We believe institutions can no longer afford to operate in this way and therefore we have developed 8 principles to align costs with their strategy instead:

  1. Prioritise services - evaluate the relative importance of individual services rather than entire departments;
  2. Question past patterns of spending decisions - encourage more creative conversations about service delivery;
  3. Do important things well - identify services that offer the highest value and continue to provide funding for them, while reducing service levels, divesting, or potentially eliminating lower value services;
  4. Spend within the university’s means - start with the revenue available, rather than last year’s expenditures, as the basis for decision making;
  5. Know the true cost of doing business - focus on full costs ensures funding decisions are based on the true cost of providing a service;
  6. Provide transparency of organisation priorities - when budget decisions are based on a well-defined set of priorities, the university’s aims are not left open to interpretation;
  7. Provide transparency of service impact - focus on the results the service produces for achieving organisational priorities; and
  8. Demand accountability for results - demand accountability for the service’s budget allocation as well as for staying within spending limits.

These principles are supported by a structured approach that demonstrates what individual universities do and what they cost. This provides the basis for informed cost decision making, supported by strategic prioritisation to achieve a balanced budget.

Unless universities can get to grips with these principles then their financial stability will only become more uncertain. Student demographics, technology and the expectations of students have been changing for some time; and now with the tertiary review leading to further potential revenue reductions, the pace of change is only increasing. Universities must re-prioritise their service offerings and spending habits to match this changing landscape. Otherwise, for some, the inevitable outcome of this new landscape will be market exit.

You can download a copy of ‘Align in Higher Education: Financial stability in uncertain times’ here

Caitroina McCusker | Education Partner
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