Appendix A(iv) Examining National Data on HEIs Finance Andrew McConnell Director of Finance, University of Huddersfield
Financial Health & Sustainability How can a governing body ensure financial health and sustainability whilst maintaining institutional morale and performance? What questions should governors be asking? [Especially in a downturn] in order to reassure themselves that the institution is monitoring the risks? What are the strategic opportunities in a challenging climate? _____________ Leadership Foundation/CUC Guide: Getting to Grips with Finance
Reasons to be Cheerful! Demand (too?) strong Borrowing costs low – good credit risk Export competitiveness – weak currency Low dependence on investment returns Opportunity to make efficiencies Opportunity for modernisation
Strategy Map and KPIs Overall context – not just financial challenges Is the Strategic Plan fit for purpose in a Downturn? Are the Key Performance Indicators still relevant?
Strategy Map and KPIs Monitoring and Risk Management - Audit Committee role Full Council responsibilities
Financial Context HEFCE : Annual Accountability Returns for 2009 (July 2010) • “Fairly sound financial position” • “Marginal deterioration on previous year” • “Strong cash balances and reserves” • “Cushion for likely risks” • Total income growth of 8.5% • Operating surplus of 1.4% • Staff costs at 55.3% of income (up 7.9%)
Financial Context Dec 2009 : £600m reduction in funding for 2011/12 and 2012/13 • Science and research. • Student support. • Efficiency savings. Feb 2010 : £449m reduction in funding for 2010/11 (compared with original CSR announced in Jan 08) ie • 5.75% of 09/10 allocation of £7.8bn. • Actual cash increase of 0.9% for T, R and HEIF compared with 09/10. • 14.9% reduction in capital funding. June 2010 : £200m further reduction for 2010/11 • Mod Fund now £152m (from £270m). • £52m T; £30m capital. (Including proportionate in-year cut wef April 2010) Oct 2010 : CSR savings of XX% over 4 years? In-year cut wef April 2011? Capital grants? Browne?
Financial Strategy and KPIs Qu: Do we have a financial strategy? Qu: Is it robust enough in a downturn? Annual Report on KFIs (HEFCE Metrics) Sector/Peer Group averages (HEIDI) Full Council monitoring
Financial Strength Qu: How are we positioned to meet an economic/funding downturn? Qu: How financially strong are we?
Financial Sustainability Qu: Are we making a surplus? • Scenario planning Qu: Why do we need a surplus? Is it enough? How much should it be?
TRAC data Surplus may not be enough: • Economic costs – backlog maintenance? • Infrastructure Adjustment/Return on Financing and Investment 2009 surplus of £5662k = adjusted deficit of (£1936k) “Many institutions’ surpluses appear too low for sustainability – are they sacrificing the long term?” HEFCE Sustainability Metrics
Surplus does not equal Cash Qu: Why do we need cash? • Reserves – Liabilities/Risk/Downturns • Working capital – Cash flows • Sustainability – Infrastructure and Strategic Investment Qu: How much cash do we need? • Strategy for Surplus and Reinvestment • Contingency Qu: Are we making enough cash?
Vulnerability to downturn risks Qu: Where are we vulnerable? Income Teaching Funding
Vulnerability to downturn risks Qu: Where are we vulnerable? Income Tuition Fees Research (and Enterprise) Funding
Vulnerability to downturn risks Qu: What should be our mitigating actions? • Strategic focus/growth • Portfolio planning/review • Scenario planning – where could we be? • Contingency funds
Vulnerability to downturn risks Qu: Where are we vulnerable? Expenditure • Pay • Non-Pay
Pay cost risks Qu: What should be our mitigating actions? • Rigorous planning process • Squeeze devolved allocations • Monitoring procedure • Extend turnover period • Process improvements • Rationalisation (voluntary/retirements/compulsory) • Severance costs – without enhancement? • Pension benefits • Reputation/morale/performance
Non Pay Costs Qu: What should be our mitigating actions? • Squeeze devolved allocations • Question specific areas eg maintenance, IT investment • VFM - Procurement - Reporting • Shared Services
Liquidity Risks Qu: Do we have a borrowings strategy? Reduced income from investments Investment risk v return Treasury Management Policy – Audit Committee Debtors (in a downturn) Creditors – 10 day payment initiative
Borrowings Risks Absolute borrowings/debt servicing Costs (margin and LIBOR) Availability of lending Pressure on Borrowings Strategy Estate Strategy Teaching and Research Infrastructure planning IT investment
Infrastructure Investment Risks Qu: What is the current condition of our estate? Academic space per student IT strategy (Qu?) NSS scores Funding Council grants (in a downturn) Qu: Can we afford to do it? Can we afford not to do it?
Strategic Opportunities? Fit for purpose? Focus and Investment Market positioning Portfolio review Downside planning Budget management Working practices Value for Money Restructuring Performance issues Management structures and leadership Management information Fraud