This document discusses financial planning and resource allocation models at universities. It provides an overview of devolved financial management in higher education and different approaches to allocating resources, including top slicing, taxation, and contractual models. The key risks of resource allocation include inefficiency and institutional fragmentation. Effective resource allocation requires transparency, incentives for quality, and clear lines of accountability between budget centers and the central administration.

1. Financial planning, resource
allocation, systems and structures
Brendan Fawcett
Head of Planning
University of Leicester
www.le.ac.uk

2. In this session you will:
• Gain an understanding of why and how devolved
financial management works in universities
• Develop an understanding of the opportunities and
risks associated with a devolved financial model
• Gain an appreciation of the strengths and
weaknesses of particular resource allocation models

4. http://www.flickr.com/photos/sebastiagiralt/3145908450/

5. Physics laboratory: female student in pink jumper uses large shiny apparatus equipment
© University of Leicester

6. Photo published in Life Magazine, 1959
22 male students at Saint Mary's College in Moraga,
California take part in telephone-booth stuffing

7. The constraint of money
http://www.vectorportal.com/subcategory/168/MONEYSLAVE-VECTOR-ILLUSTRATION.eps/ifile/8815/detailtest.asp

8. Hyperinflation in Zimbabwe, 2008. Source: http://greatblogabout.com/?p=1425

10. Planning Timetable 2010-11

11. Resource Allocation
“A methodology which provides the greatest overall
satisfaction in meeting objectives while
simultaneously constraining the use of resources
exactly to those which are available.”
p49, Chapter 3, Allocating Resources in the HE Sector
Financial Management Control in Higher Education (2005)
Malcolm Prowle, Eric Morgan

12. “The distribution of
power, authority and
esteem.”
“Creation of
relationships based
on trust and
accountability.”
Dave Hall
The Accolade: http://en.wikipedia.org/wiki/File:Edmund_blair_leighton_accolade.jpg

13. What beyond the strategic aims of the
institution might influence the nature of a
resource allocation process?

14. Your institutional landscape
• Structure • Geography
– Reporting lines
• History
– Dist of prof services staff
– Size of depts • Culture
– Academic range • Leadership
(profile / structure)
• Systems
• External environment

16. Why Allocate Resources (1)?
• Too complicated not too
• Better informed decisions; therefore better decisions
• Increase the speed of decision making
• Greater flexibility and responsiveness
• More efficient and effective deployment of
resources

17. Why Allocate Resources (2)?
• Improved record keeping so costs monitored and
controlled more effectively
• Demonstrable articulation of institutional priorities
• Increased understanding of workings of the
institution
• Sense of identity and purpose
• Motivation and morale
• Mitigates risk of financial impropriety

18. There are of course problems….
What do you think are the key risks when
allocating resources?
How would you mitigate against these?

19. Risks
• Ineffective and inefficient
• Increase costs / Diseconomies of scale
• Institutional fragmentation - departments pulling in
different directions
• Increased internal tension - tension of paying for
indirect costs
• Increased risk of financial failure or impropriety
• Focus on figures not service

20. Mitigations
• Expenditure based on an • Institution-wide processes and
institution-approved plan procedures
• Clarity as to what authority is • Central IT system and support
being devolved and why
• Unify the administration
• Procedure for accountability (devolve and centralise)
• Strong central finance • Incentives and rewards with the
function, institutional oversight model for allocation
and monitoring, provision of
• Devolve to units which have
comprehensive financial and
critical mass
other management information
• Don’t “over-allocate”

21. Resource Allocation Models (RAMs)
“A RAM is a model by means of which institutional
funds are distributed according to pre-set criteria
represented by a number of formulas and variables”
“A RAM is not neutral. It contains a number of basic
assumptions regarding what is important and what is
not … a RAM does not decide on budgets, decision-
makers do … a Resource Allocation Model does not
eliminate the politics of the budgetary process”

22. http://www.leeds.ac.uk/forstaff/news/article/1403/senate_discussion_of_resource_allocation_model_ram

23. Oxford’s JRAM and JRAAB
• Joint Resource Allocation Advisory Board makes recommendation, to
Council through PRAC, and to the Conference of Colleges on:
– The annual resource allocation exercise.
– Identification and proposed treatment of funding streams within the
http://www.admin.ox.ac.uk/pras/resource/jraab/
JRAM, including those from HEFCE.
– Assessment of the alignment of the model with academic strategy.
Assessment of whether change in academic strategy and policy
requires changes in the JRAM to support collegiate University
objectives and if so the mechanisms which would enable these to be
achieved.
– Proposals on how changes in external funding should be incorporated
within the core mechanism transparently and on whether such
changes then require an over-riding mechanism to align the JRAM
with University academic strategy.
– Recommendations on related issues concerning the management of

24. http://en.wikipedia.org/wiki/File:Ravi_Varma-Lady_Giving_Alms_at_the_Temple.jpg

25. Features of a RAM
• Strategic fit
– In the service of the institution
– Devolution not autonomy
• Transparency
– How funds are earned and allocated must be clear
• Incentives & Rewards
– For quality and rational behaviour, not egalitarian
• Reliability & Predictability
– Ability to plan, evolution rather than revolution

26. What and How to Allocate
Income Expenditure
• Sources for Dept • Direct costs
– State funding – Pay and non-pay
– Student fees
– Research
– Commercial activities • Indirect costs
• Other Inst. Income

27. http://www.flickr.com/photos/trimreaper/1456011762

28. The Problem of Indirect Costs
• Space • Institutional costs
– Charge direct – pensions, insurance, main
tenance
• Utilities
– Incorporate with space • Central administration
– Charge direct – Finance, HR, Marketing, IT
, Student and Academic
• Capital Services
– Top slice
– Tax – Top slice
– Allocate – Tax
– Charge direct – Charge direct

29. Top Slice Model
££££££££££
• Top slice funds support units, ££££££££££
££££££££££
capital investment and central ££££££££££
££££££££££
institutional costs, e.g. pensions ££££££££££
££££££££££
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• Each academic unit receives a ££££££££££
££££££££££
share of the balance of income ££££££££££
££££££££££
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30. Issues with Top Slicing
• Protects the institution
• Simple to manage
• Reduced transparency
– Weakens financial awareness?
– Top down, reduces central accountability?
– Increased internal tension?

31. Taxation Model
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32. Issues with Taxation Model
• Transparent • Inaccurate?
• Increased financial • Reduced collegiality?
awareness
• Strategic investment?
• Accountability of
administration/support
services
• Potentially simple to
manage

33. Contractual Model
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34. Issues with Contract Model
• Similar to taxation model
• Drives perverse expectations?
• Complicated – inefficient?
• “Playing shops”
• Reduced collegiality?

35. The University of Bath RAM
• allocates central costs to all of its academic activities
on the basis of a number of cost drivers:
• UG FTEs • Overseas FTEs
http://www.bath.ac.uk/vc/strategy/cost-pricing.htm
• PG FTEs • All FTEs
• Sited FTEs • Space utilisation
• Non-pay expenditure • T income
• R income • OSR income
• Weighted employee
numbers

36. Accountability: The Budget Centres
to the University
• Defined roles and responsibilities
• Common processes, procedures, regulations
• Good management information
• System for oversight
– Plans
– Monitoring of financial performance / transactions
• Shared goals
• System of rewards and sanctions

37. Accountability: The Administration
to the Budget Centres
• Transparent financial reporting
• Published service and financial plans
• Service level statements ?
• Balanced scorecard ?
• KPIs and performance targets ?
• Benchmarking ?
• Service reviews led by senior academics
• Central units bid for additional resources