Understanding Full Economic Costing: Insights from John Newton, JCPSG National Coordinator

1. Full Economic Costing and Pricing – Latest developments John Newton - National Co-ordinator for Costing and Pricing JCPSG

2. JCPSG What is fEC? • TRAC methodology • “The full economic cost of a project/activity • incorporates all direct and indirect costs, • including the cost adjustments, required • under TRAC” (a definition) • Direct costs • Indirect costs • Cost adjustments- Infrastructure • - COCE Joint Costing and Pricing Steering Group

3. JCPSG Background • TR • TRAC • Investing in Innovation • Cross-Cutting Review of Science and • Research • CSR 2002 • Government expectations/commitment • JCPSG Strategy - cost/market-based pricing • DSR - new funding arrangements • OGDs/Treasury letter • HEFCE Financial Memorandum • Long-term strategy for science/CSR 2004 Joint Costing and Pricing Steering Group

4. Why is fEC important? JCPSG • Sustainability • “ An institution is being managed on a • sustainable basis if, taking one year with • another, it is recovering its full economic • costs across its activities as a whole, and is • investing in its infrastructure (physical, • human, and intellectual) at a rate adequate to • maintain its future productive capacity • appropriate to the needs of its strategic plan and students, sponsors and other customer requirements.”(Definition in TRAC Volume III) • Issues - fEC, strategic, pricing, project management/cost recovery, investment Joint Costing and Pricing Steering Group

5. TRAC requirements JCPSG • Definitions • Accounting/costing principles and • conventions • Time allocation - now every 3 years • Sampling • Cost drivers • T, R,O, S • PGRs • T, R, O /dept • R by research sponsor • Library/learning resources and estates • robust • Testing • Internal Audit • Audit Committee • Approval of figures - to Funding Councils Joint Costing and Pricing Steering Group

6. fEC requirements JCPSG • Estates - direct cost (by FTE or sq m) • 1650 hours • Indirect cost rate calculations - £/FTE • RC projects - time estimates, pay • bandings, monitoring, check on total RC • time, direct costs • QA process • Default indirect cost rates • Dispensations • Income reporting (January 2006) Joint Costing and Pricing Steering Group

7. fEC research project calculation JCPSG • Directly Incurred costs • Researcher salary costs - names, time (hours) • PGR salary costs - names, time • Technical/clerical salary costs • Direct non-staff costs, exc. Estates • Directly Allocated costs • PI/Co-investigators - names, time (hours) • Charges for lab. technicians • Directly allocated Estates costs (Inc. infrastructure adjustment) • Equipment • Indirect costs, inc. COCE adjustment • calculated for PI/researcher and PGR • FTEs • Exceptional items Joint Costing and Pricing Steering Group

8. fEC data requirements JCPSG • FTEs • Costing schedules for salary costs (note standard time), estates, charge-out rates for equipment, indirect cost rates/FTE • Verification of costs • Recording of actual costs • Recording of estimated costs and • matching with other records • Comparison • No double-charging • Indexation Joint Costing and Pricing Steering Group

9. Use of fEC JCPSG • Pre-award estimates • fEC for cost-based pricing • Funding of project • Difference – to be subsidised from other • income streams • Review of processes • Post-award reporting Joint Costing and Pricing Steering Group

10. Pricing publications JCPSG • Pricing toolkit (JCPSG) • Financial strategy in higher education institutions (HEFCE) • Developing a pricing strategy in higher education institutions (JCPSG) • OST guidance on the pricing of competitive and non-competitive contracts • OST guidance on the pricing of non-Research Council projects Joint Costing and Pricing Steering Group

11. JCPSG Pricing tips • Don’t disclose costs • Have clear pricing policy guidelines • Clarify ownership over IPR • Target appropriate markets • Be aware of market position and competition • Beware of Risk • Use Lambert Model Agreements • Negotiate for win-win Joint Costing and Pricing Steering Group

12. Implementation issues JCPSG • Control/systems processes • Project management • Cultural change • Communication • Resources • Performance measurement • Training • Planning for Sustainability Joint Costing and Pricing Steering Group

13. Future developments JCPSG • Funders Forum – Public Good Funding • Principles • Public sector acceptance – Treasury letter • Cost recovery on Framework Programmes • Eligible/ineligible costs - charities, EU, etc • HEFCE Review of Teaching • Shortfall on Research, European and • Public Good projects – use of QR or…? Joint Costing and Pricing Steering Group

14. Performance Indicators JCPSG • % of full economic costs recovered/project or activity. • This could also be stated by sub-category of activity (e.g. research sponsor, client, customer, etc) and category of activity (e.g. PFT, NPFT, PFR, NPFR, and O) • Contribution (being the difference between income and full economic cost) by project or activity, sub-category and category (as above) • Total of indirect costs recovered annually (which may be compared annually) • Total of estates costs recovered annually (which may be compared annually) • % of S time to time spent on T, R, O by department or school annually Joint Costing and Pricing Steering Group

15. Performance Indicators JCPSG • Surplus/deficit for major categories of activity (i.e., NPFT, PFR, NPFR, O) annually • % of surplus /deficit for major categories of activity to full economic costs annually • % of surplus/deficit for major categories of activity to income annually • % of surplus/deficit to COCE by category of activity annually • Review of backlog in investment in infrastructure annually • Success rate of bids to research sponsors and clients annually – to indicate competitiveness Joint Costing and Pricing Steering Group

16. Performance Indicators JCPSG • Number of customers/sponsors/clients for R and O • Income growth by category of activity annually • Comparison of forecast to actual of surplus/deficit by category of activity and surplus/deficit for competitor institutions year on year • Quality reviews of performance from customers, clients, students, sponsors – comparing trends Joint Costing and Pricing Steering Group

17. Strategic issues JCPSG • Shortfall on Research, European and • Public Good projects – use of QR or…? • Pricing implications - contribution/project, • negotiation. • Research strategy - portfolio, mix by • sponsor by dept Joint Costing and Pricing Steering Group

18. Future JCPSG • JCPSG website - www.jcpsg.ac.uk • Self-help groups • BUFDG group • Sector bodies – AURIL,ARMA, etc Joint Costing and Pricing Steering Group