Planning Forum - Strategic cost analysis for planners

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  • We are a company that helps organisations improve their financial sustainability. We have been going since 1988 and in that time we have worked in all sectors. XeP3Patents: 2002333035 & 531819 Bevington Process Management Tools Pty Ltd Develin & Partners Ltd Ash House, Fairfield Avenue Staines, Middx, TW18 4AB, UK 01784 224207 [email_address] www.develin.co.uk www.develinbevington.com DEVELIN BEVINGTON
  • … Relatively recently we have worked within the HE sector. The purpose behind today’s workshop is best summed up by the conversation that Ian and I had within one of the scottish universities a couple of weeks ago. Ahead of the meeting with them I asked what a successful meeting would look like for them. The response was that they have not been idle, there is much they have been doing to drive up financial sustainability in particular with an acute look at their cost base. There is much that they can do for themselves but the size and scope of the changes that they know to be necessary have presented challenges that they have put in the ‘too difficult’ box. They need to know how to unlock that box and make the necessary changes. What are the challenges? To be able to function more efficiently and effectively – and in doing so free up a significant amount of resource and reduce cost. Today’s workshop attempts to take us beyond the point at which analysis has shown that a change in the way of working should free resource and look at how it actually happens
  • I don’t want to dwell on what you already know but as a starting point we have had a chance to see a number of strategy documents and without exception, and despite the current position, they track a path to greater financial sustainability. Common to many is that they are very well written, tough, uncompromising and grounded in the realities ahead. There are some common threads – placing the onus with the local business units, looking at support costs wherever they are incurred, centrally especially, and seeking possible structural changes. Also, the significance of the change – which is what catches the eye. The challenges are clearly stated but how they are to be addressed often isn’t. For example ..
  • I think these requirements are part of the reason for attempts to significantly change sustainability being put into the too difficult box. The FIRST part of the story that we want to tell today relates to change management. It sounds relatively easy to cut costs but to do so in a way that meets requirements like this suggests that a change management task is required that possibly spans the whole University. That can seem like a monumental uphill task. We would like to suggest that it is something of an uphill task but it is achievable. The first thing to emphasise is that there is good news ..
  • As with any forcefield analysis the question that is begged is how the forces for change on the left can be strengthened and those against can be weakened – and that relates to point no 2. The relevance of data.
  • How do we respond to those challenges? Question: What are the new behaviours that we need? Entrepreneurial leadership – from the top Are institutional and financial strategies fit for purpose, robust? Communication of changes is Key (eg Bob/IiP) (2-way) We’ve created a culture of financial awareness and understanding in our business leaders (eg regular performance reporting/meetings at faculty/service level; regular outturn forecasting from budget holders) – so we can react quickly to any changes Policy development can drive culture ie financial models can drive entrepreneurial behaviour (eg RAM eat what kill, keep surpluses, breeds growth motivation and careful husbandry. Alternatively, taking underspends -> centre breeds lack of motivation and spend culture. Contingency planning (central) drives contingency planning (devolved) CSE, Competition, Marketing : Key Messages Growth strategy? Efficiency and Modernisation
  • Where is Finance in this new world of change? What has changed significantly is constant change/uncertainty – permanent state? Drives scenario planning and agility in decision making Never central. But touches everything – and needs to do so. So the FD will be involved at the highest level; you will see him/her as part of Vice-Chancellor’s leadership team; and you will probably see him/her (presenting) at every Governors’ meeting? This leads to engagement with the academic agenda (T and R) eg costing/pricing (2 different things!) Planning – particularly student numbers Knowledge transfer (HEFCE Strategic Plan – “Our long term objective is to embed knowledge exchange activity, drawing on excellence in L & T & R”) Is that your long term objective? Financial impact ) Entrepreneurial behaviours ) eg EIC Industry/commerce relationships ) Risk management -> risk appetite? (facilitation, with boundaries)
  • Planning Forum - Strategic cost analysis for planners

    1. 1. Strategic cost analysis for planners Paul Clarke, Director, Develin Phil Harding, Chief Financial Officer, City University London Develin Consulting Ltd Cedar House, Thurning Northants, PE8 5RA, UK Tel: 01784 224207 Mob: 07710 466567 [email_address] www.develin.co.uk City University London Northampton Square London EC1V 0HB Tel: 020 7040 3109 [email_address] www.city.ac.uk
    2. 2. Who we are <ul><li>Develin has worked with 15 UK Universities </li></ul><ul><li>We have also worked within the following sectors: </li></ul><ul><ul><li>Financial Services </li></ul></ul><ul><ul><li>Utilities </li></ul></ul><ul><ul><li>Logistics </li></ul></ul><ul><ul><li>Retail and Wholesale </li></ul></ul><ul><ul><li>Manufacturing </li></ul></ul>
    3. 3. Sustainability is the challenge <ul><li>Targets for School / Programme contribution : Perhaps 30% or greater: </li></ul><ul><ul><li>Consideration of the mix of outputs, removing outputs with little or no margin and seeking growth opportunities in higher margin areas. </li></ul></ul><ul><ul><li>Also focusing also upon unproductive areas of Research. </li></ul></ul><ul><ul><li>But assume removal of unprofitable activities will also impact school and central support costs. </li></ul></ul><ul><li>Support cost reductions. </li></ul><ul><li>Structural changes – e.g. merging schools / depts plus different support models. </li></ul>Financial and academic plans are in place that define a path to financial sustainability. Responses include:
    4. 4. Key assumptions <ul><li>Whilst also delivering: </li></ul><ul><li>Attractive study methods; </li></ul><ul><li>The right courses; </li></ul><ul><li>Quality in everything that the student experiences; </li></ul><ul><li>Clarity about brand; </li></ul><ul><li>Upward progress in the rankings; </li></ul>
    5. 5. It is a change management task that cannot be left to chance In support of change Status quo is not an option – all agreed Little dispute about what has to be done Staff surveys often show willingness for change Wide agreement there is much that can be improved Resisting change Conflicts of interest in the senior management team Staff express fear of being personally impacted by change process Power is devolved Academic autonomies and freedoms Inadequate management skills Scepticism about ability to change Poor communications Fear of the future Decision making difficult
    6. 6. Planners are central to providing a clear direction Structures Subjects / Courses Partnerships Staff complement Methods technologies Scenario black box Market intelligence Innovative ideas Benchmarking Financial targets Changes in legislation Data Data Investment return Affordability Sustainability Student / staff satisfaction KIS metrics League table progress Income Employer satisfaction Finance kpis Non finance kpis
    7. 7. What is cost analysis? <ul><li>Defining what key activities cost and how costs behave within your organisation in a manner that helps you decide future courses of action i.e. </li></ul><ul><li>Influence thinking about scenarios </li></ul><ul><li>Guide choices </li></ul><ul><li>Build consensus </li></ul><ul><li>Test hypotheses </li></ul><ul><li>Win resources </li></ul>A shared understanding is vital - imagery rather than detailed numbers work best
    8. 8. Key elements <ul><li>An hour of module teaching costs ??? </li></ul><ul><li>For every x% change in student numbers this changes by ??? </li></ul><ul><li>This varies by ??? if the course is new </li></ul><ul><li>Quality costs for every programme change are ??? </li></ul><ul><li>For every % increase in new student numbers Student Services costs increase by ??? </li></ul>Each area develop ‘rules of thumb’ that are shared and challenged e.g. Finance territory? - yes, but the choice of activity and ‘driver’ combination needs to be focused on the key questions raised through scenario planning.
    9. 9. Examples of images that have helped build a common view of the world £ per student FTE for front line support activities
    10. 10. Relationship between NSS scores and support activities £ per student FTE for front line support activities compared with mean NSS scores for Schools
    11. 11. Further images that have mattered Annual hours for one Law Lecturer Which can be compared with a threshold of: 52 weeks minus (annual leave plus bank holidays plus any discretionary days): less = hours in deficit
    12. 12. Further images that have mattered Hours in surplus Hours in deficit Individual members of Academic staff Range of hours in surplus / deficit for academic members of staff within the departments within one School
    13. 13. Further embedding of relationships Balance (Hours) Average balance of hours by academic department as related to mean NSS scores per department NSS
    14. 14. Categorisation of activities also opens eyes when planning change Student appeals Student complaints Student withdrawals course changes VL recruitment Teaching cover Remedial teaching Distraction Student recruitment Bid preparation Research grant application Development Teaching Marking Teaching preparation Research PG student supervision Feedback Tutorials Core Publications Moderation Partner meetings Quality assurance process Conferences Appraisals Invigilation New staff mentoring Discretionary
    15. 15. Planning and innovating collaboratively <ul><li>Based upon all areas knowing ‘rules of thumb’ about drivers of cost and capacity usage </li></ul><ul><li>Standard planning and scenario templates include reference to impact upon drivers </li></ul><ul><li>Proposals for change are reviewed collaboratively by each area impacted for their impact upon the key drivers </li></ul><ul><li>Permits activity that will drive non financial kpis in the right direction to be assessed for impact on income and cost. </li></ul><ul><li>Requires close collaboration between Planners and Finance. </li></ul>
    16. 16. <ul><li>Current profile by income stream </li></ul>City University Income Profile -5 -15 -25 5 15 25 35 2012-13 2013-14 2014-15 Tuition fees NHS HEFCE Total income Forecast changes in £M to 2014-15 £M
    17. 17. City University Financial Strategy <ul><li>Definition of Financial Sustainability: </li></ul>“ being able to continue to generate surpluses and to invest over the long term to deliver the mission of the institution” JNCHES Review of higher education pay and finance data (December 2008) <ul><li>To resource a significant scale of investment </li></ul><ul><li>To achieve sufficient financial health (reserves, liquidity) </li></ul><ul><li>To meet future risks and investment needs </li></ul><ul><li>Where 6% = £11m surplus </li></ul><ul><li>City’s financial strategy: </li></ul>To achieve financial sustainability – i.e. a surplus of 6% pa required in 5 years
    18. 18. Elements of financial strategy <ul><li>Surplus generation and reinvestment </li></ul><ul><ul><li>cash generated/capital expenditure plans </li></ul></ul><ul><li>Resource allocation model </li></ul><ul><ul><li>transparent and equitable </li></ul></ul><ul><ul><li>incentivise performance </li></ul></ul><ul><li>Strong controls </li></ul><ul><ul><li>staff recruitment </li></ul></ul><ul><ul><li>material non-pay expenditure </li></ul></ul><ul><li>Liquidity, borrowings & treasury management </li></ul><ul><li>VFM, including procurement </li></ul><ul><li>KFIs and key financial risks </li></ul>
    19. 19. Where Finance & Strategy Planners are working together <ul><li>Assessment of financial performance </li></ul><ul><li>Market repositioning </li></ul><ul><li>Scenario planning </li></ul><ul><li>Major decision appraisal </li></ul><ul><li>Pricing </li></ul>Leading to the development of shared and adaptive capacity: <ul><li>Common systems, tools, datasets, formats, performance measures </li></ul><ul><li>Identification of core variables – student and staff numbers/mix; tuition fees/scholarships/bursaries; Research income; FEC recovery rate; space requirements </li></ul>
    20. 20. <ul><li>Course costing improving in credibility & value </li></ul><ul><li>Used to set student number targets </li></ul><ul><li>Starting to be used in pricing </li></ul><ul><li>Major challenge remains in allocation of academic staff time ( and cost) </li></ul><ul><li>Relationship with TRAC </li></ul>Subject/course/module - assessment of financial performance
    21. 21. Market repositioning Current university sector Traditional sector New universities City Highest perceived quality Lowest perceived quality High degree of specialisation Diverse portfolio of courses Likely future university sector Broader base institutions Complete providers Specialists Aspirational cohort Focused research and education universities Highest perceived quality Lowest perceived quality High degree of specialisation Diverse portfolio of courses The new elite Squeezed middle Price focused City New insurgents
    22. 22. Scenario planning <ul><li>Major focus of work in Planning and Finance </li></ul><ul><li>Undertaken at School and University level </li></ul><ul><li>Seeking to achieve both academic aspiration and financial sustainability </li></ul><ul><li>Developed excel based planning model </li></ul><ul><li>Used by Schools with corporate consolidation </li></ul><ul><li>Multiple scenarios and sensitivities </li></ul>
    23. 23. Analysis and appraisal for major decisions <ul><li>Course/subject development </li></ul><ul><li>Contraction/withdrawal </li></ul><ul><li>Infrastructure investment </li></ul><ul><li>M&A </li></ul><ul><li>Overseas ventures </li></ul>
    24. 24. Pricing strategies <ul><li>Market research and competitor analysis </li></ul><ul><li>Developing use of course costing model </li></ul><ul><li>Pricing to support market repositioning </li></ul><ul><li>More sophisticated use of scholarships and bursaries </li></ul><ul><li>Some flexibility for ‘non standard’ pricing, eg market entry </li></ul><ul><li>Overseas vs home fees comparison becoming more acute </li></ul>
    25. 25. How will we know we are succeeding? <ul><li>Research </li></ul><ul><li>Proportion of academic staff producing 3 and 4 star outputs (%) </li></ul><ul><li>RCG income (£k)/academic FTE </li></ul><ul><li>Quality-related (QR) research income (£k)/academic FTE </li></ul><ul><li>Citations/academic FTE </li></ul><ul><li>PGR students per academic FTE </li></ul><ul><li>PGR completions in 5 years (%) </li></ul><ul><li>Academic staff with a doctorate (%) </li></ul><ul><li>Proportion of full economic cost recovered (%) </li></ul><ul><li>Enterprise </li></ul><ul><li>Enterprise income (£k)/ academic FTE </li></ul><ul><li>Proportion of full economic cost recovered (%) </li></ul>University KPIs, for example: <ul><li>Education </li></ul><ul><li>National Student Survey (average of Qs 1-21) (%) </li></ul><ul><li>Post-graduate student satisfaction (source and units to be identified and agreed) </li></ul><ul><li>Student:staff ratio </li></ul><ul><li>Good honours degree (1st or 2:1) (%) </li></ul><ul><li>Student progression and completion (%) (by level, domicile and mode of study) </li></ul><ul><li>Entry tariffs (UG) </li></ul><ul><li>Student numbers (by level and domicile) with proportion of overseas (non EU) students </li></ul><ul><li>Proportion of UG students with entry grades of AAB or higher (%) </li></ul><ul><li>Proportion of students in graduate-level employment after 6 months of graduating (%) </li></ul><ul><li>Widening participation targets (4 measures per OFFA agreement targets) </li></ul>(Plus ‘Enabling’ KPIs not shown here)
    26. 26. Further examples of collaborative work City City comparator group Other UK HEIs Proportion of research-excellent staff Median spend amongst aspirational comparator set Average annual capital expenditure (5 year average per student FTE): all UK HEIs
    27. 27. Portfolio Analysis Intellectual capital (relative research performance) Execution capability (ability to deliver other elements of the Vision) Relatively strong within top half of performers in RAE08 Unit of Assessment Relatively weak within bottom half of performers in RAE08 Unit of Assessment Weak Strong Current proportion of staff assessed to have a GPA of 3 or more 50% and above 25%-49% 0-24%
    28. 28. Changing environment demands new behaviours <ul><li>Entrepreneurial leadership </li></ul><ul><li>Strategies to reposition </li></ul><ul><li>Integrated institutional and financial planning </li></ul><ul><li>Customer service excellence </li></ul><ul><li>Competition and marketing </li></ul><ul><li>Financial awareness </li></ul><ul><li>Communication </li></ul><ul><li>Efficiency and effectiveness </li></ul>“ We’ve got no money so we’ve got to think” Ernest Rutherford
    29. 29. Implications for Finance <ul><li>Ongoing scenario planning </li></ul><ul><li>Supporting academic aspirations, whilst.. </li></ul><ul><ul><li>Delivering financial sustainability </li></ul></ul><ul><ul><li>Performance monitoring </li></ul></ul><ul><ul><li>Propagating key skills </li></ul></ul><ul><ul><li>Risk management </li></ul></ul>“ top performing finance functions spend between 15 and 20% of their time on compliance and control” PWC ‘Finance at the crossroads’ 2009
    30. 30. Thank you <ul><li>We would now like to seek your views about some elements of this presentation. </li></ul>
    31. 31. Key points <ul><li>Achieving better outcomes that will matter to students and other Stakeholders – plus better financial performance is a change management task. Planners and Finance both play a central role. </li></ul><ul><li>Scenario planning that will drive innovation is vital but outcomes more likely to drive change if they reflect shared understanding of cost and income. </li></ul><ul><li>Building widespread knowledge and understanding of cost is not easy. It’s about numbers but finding influential images helps. </li></ul><ul><li>Close collaboration between Planners and Finance seems to be important. </li></ul><ul><li>As City has shown, where this is taking place, the Scenario black box starts to have real and lasting impact. </li></ul>
    32. 32. <ul><li>Thank you for coming </li></ul>

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