Universities’ expenditure profiles – moving towards transparency and consistency

Posted by Phil Moseley

In Jim Dickinson’s recent article, transparency and consistency were themes highlighted as challenges faced by universities when trying to draw evidence-based and reliable conclusions regarding how universities compare with regards to their expenditure profile.

This is something that feels very close to our heart given we have been supporting universities for over 25-years in enabling universities to access this much needed insight. We are fortunate to have very clear sightlines of “where the money goes”, but I think of equal importance is understanding how much services should (or could) cost, and possibly even more importantly, are universities spending money on the stuff that makes a difference?

For example, our most recent data shows that universities on average tend to generate an 11% core margin; that is the margin made collectively on teaching and research, professional services, and estates. This is an important figure as universities generally return an annual deficit overall, and the core margin acts to offset the non-core financial burden of debt-servicing, depreciation, pension liabilities, restructuring etc. Even accounting for associated activities (residences, catering, conferencing etc.) which may account for over 10% of a university’s total annual revenue and generates a substantial contribution, an 11% core margin is commonly not enough to return an overall in-year surplus.

Our data shows that universities on average spent £3,700 on teaching per taught Equivalent Full-Time Student (EFTS), and 95% of this was a pay cost.

A fair question here would be is that enough; or is this one lever that could be pulled to “make higher education cheaper to run”?

A typical student-to-staff ratio (SSR) is 23.5, and from our experience, that’s been the going rate for some time, although noticeably, the range of SSR values recorded across projects has narrowed which speaks to the delivery homogeneity that Jim references. To reduce the cost of teaching delivery, universities either need to increase the SSR, adjust the cost profile of delivery mix, or increase revenue per EFTS.

The importance of consistency within data gathering to sidestep definitional problems that Jim flags is key. Different organisational structures make it very hard for everyone to draw comparisons between universities with a strong sense of confidence, which is why our benchmarking model that focuses on activity, irrespective of where it sits organisationally, offers universities this ability, made attainable because it’s our team that do the ‘heavy lifting’ of allocating time and cost and removes the concern associated with inconsistent allocation.

We categorise on average 79% of teaching pay costs as teaching delivery, with the costliest role being Senior Lecturers, which most recently has accounted for about 40% of the teaching delivery pay cost.

For Russell Group universities, we see a different teaching delivery cost profile more weighted towards Professors and Principal Lecturers. Those universities that choose to access our benchmarking insight benefit from not just comparing to the average, but construct peer groups from our dataset to draw focus on and contextualise high-level messages with access to the detail; for example, our most recent data shows about a £1,000 difference in Teaching Delivery cost per EFTS between the universities with the lowest and highest spend ratio. Most importantly it’s the narrative that accompanies a set of benchmark results that offers the greatest value. Storytelling is a key part of a benchmarking project that helps us collectively understand why there are differences, indicates the impact of those differences, and informs the dialogue around can we do anything about those differences?  or do we want to do anything about those differences? Benchmarking without a story is reduced to comparing numbers, and those universities benchmarking with us have a better feel for the impact of their story and what levers are available to affect change.

The cost of teaching administration was £253 per EFTS and offers an opportunity again to highlight the importance of consistent and independent data gathering as we account for the different operational structures and allocate cost and time on an activity-basis, i.e. if teaching administrators are genuinely also performing registry or marketing tasks, then we allocate accordingly.

Generally, we find Research and Enterprise (R&E) costing a university 137% of the income associated with this activity. It’s commonly accepted that universities subsidise R&E activity, (and some universities continue to aspire to grow R&E volume), although we’ve found this subsidisation trend to be bucked by Russell Group universities in particular.

Away from academia, we have most recently found that universities are on average spending a relatively similar collective amount to teaching on activity that we would broadly categorise as Library, IT, Student Services, Registry, Marketing, Finance, Human Resources, Corporate Administration, and Facilities on a per EFTS basis. Within these broad headings sits a wide range of activities, but universities appear most likely to spend on IT Services and Marketing.

Estates costs were almost a third of Teaching expenditure per EFTS and collectively highlights that universities are most likely to spend money on recruitment, teaching, and physical, and digital infrastructure, than anything else.

Jim rightly highlights pressures on students regarding the timely completion of studies and the link this may have with an increase in Student Services costs. That said, it may be worth considering that universities, on a per EFTS basis, spend more on accountancy, than they do on counselling or careers.

Another useful reference are the results of our global student experience survey. Those universities that ran the 2023 International Student Barometer (ISB) before Christmas benefited from 123,000 global responses from international students, but it would be fair to assume that views recorded relating to student’s experience of non-international focused services would be a reasonable representation of the wider student population. Given our reference to Student Counselling, it’s worth noting that over a quarter of ISB respondents felt somewhat or very uncomfortable with asking for mental health support from their institution, and one-in-five are unsure how to access the service. The question might be, are students uncomfortable asking about, or unaware of the service because of a lack of investment?  Despite this, our results report that UK universities generally fare better in terms of student satisfaction in this area than global peers. A further challenge for universities is derived importance and what factors are most likely to contribute to a propensity to recommend the institution. Course Organisation, and Quality of Lecturers feature significantly, but Employability continues to be of most significance, which speaks to another article produced by Jim. There is a lot to consider for universities when co-ordinating where and where not to spend money.

Given there appears to be conflicting opinions regarding the cost of UK HE and what universities can do to affect this, it’s worth reflecting on the importance of the two themes: transparency and consistency, and the value of thoughtful, independent, and evidence-based benchmarking to strengthen the sector’s voice and provide a clearer narrative. Before we can confidently assume that UK HE could be “cheaper to run”, we need to have a shared understanding of what universities actually spend their money on, and where will expenditure offer the biggest return on investment, and have the biggest impact?


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