Examining National Data on HEIs Finance Andrew McConnell Director of Finance, University of...
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Transcript of Examining National Data on HEIs Finance Andrew McConnell Director of Finance, University of...
Examining National Data on HEIs Finance
Andrew McConnellDirector of Finance,
University of Huddersfield
Appendix A(iv)
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%)
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13Total income £19,146M £20,777M £21,439M £21,905M £22,418M £22,948MOperating surplus £395M £296M £170M £249M £254M £215M
as % of total income 2.10% 1.40% 0.80% 1.10% 1.10% 0.90%
Historical cost surplus £709M £524M £199M £390M £327M £329M
as % of total income 3.70% 2.50% 0.90% 1.80% 1.50% 1.40%
TRAC operating deficit (£1,056M) (£1,267M) n/a n/a n/a n/a
as % of total income -5.50% -6.10%Cash flow from operating activities as % of total income
6.00% 6.90% 3.60% 4.10% 4.90% 4.70%
Net liquidity as number of days’ expenditure
84 83 68 57 51 49
External borrowings as % of total income
21.20% 21.20% 23.10% 24.30% 24.80% 24.00%
Discretionary reserves exc. FRS17, as % of total income
44.40% 44.00% 43.50% 44.80% 45.70% 46.50%
Actual Forecast
Financial ContextDec 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?
2008-09: Pattern Chart 24 - The Security Index
Huddersfield 2007-08, 349.5
Huddersfield, 439.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
Lower Quartile Mid Section Upper Quartile Delegates' Institutions
Lower Quartile 265.00Median 335.00Upper Quartile 408.00
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?
Cash Flow Required for Strategic Investment and Contingency
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
£kActual
Target
Historical Average
Forecast Average
2008-09: Percentage of Historical Cost Surplus to Total Income (excluding FRS17)
University of Huddersfield 2009-10, 14.48
University of Huddersfield, 8.02
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
Lower Quartile Mid Range Upper Quartile Delegates' Institutions
Lower Quartile 0.58%Median 2.47%Upper Quartile 5.13%
Vulnerability to downturn risks
Qu: Where are we vulnerable?
Income
Teaching Funding
2008-09: HEFCE T Grant as a percentage of Total Income
Huddersfield (2009-10), 38.92
Huddersfield, 42.03
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
Lower Quartile Mid Range Upper Quartile Delegates' Institutions
Lower Quartile 19.05%Mean 29.33%Upper Quartile 39.44%
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
2008-09: Percentage of Staff Costs (excluding FRS17 adjustments) to Total Income
The University of Huddersfield, 58.79
The University of Huddersfield 2009-10, 54.50
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
Lower Quartile Mid Range Upper Quartile Delegates' Institutions
Lower Quartile 53.36% Mean 55.79% Upper Quartile 60.24%
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
2008-09: Days of Net Liquidity to Total Expenditure (excluding depreciation and FRS17 adjustments)
The University of Huddersfield 92.26
The University of Huddersfield 2009-10 115.22
-50.00
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
Lower Quartile Mid Range Upper Quartile Delegates' Institutions
Lower Quartile 45.50 Mean 83.90 Upper Quartile 113.26
Liquidity Risks
Qu: Do we have a borrowings strategy?
Reduced income from investmentsInvestment risk v returnTreasury Management Policy – Audit CommitteeDebtors (in a downturn)Creditors – 10 day payment initiative
2008-09: Percentage of Long Term Borrowings to Total Income
The University of Huddersfield 2009-10 9.01
The University of Huddersfield 10.57
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
Lower Quartile Mid Range Upper Quartile Delegates' Institutions
Lower Quartile 4.53% Mean 19.05% Upper Quartile 29.74%
Borrowings Risks
Absolute borrowings/debt servicingCosts (margin and LIBOR)Availability of lendingPressure on Borrowings StrategyEstate StrategyTeaching and Research Infrastructure planningIT investment
2008-09: Total ratio of Estate falling in condition A or B (non-residential)
Huddersfield 2010-11 (forecast), 85%Huddersfield 2009-10, 82%
Huddersfield, 77%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Lower Quartile Mid Section Upper Quartile Delegates' Institutions
Lower Quartile 61% Mean 72% Upper Quartile 87%
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 InvestmentMarket positioningPortfolio reviewDownside planning Budget managementWorking practicesValue for MoneyRestructuringPerformance issuesManagement structures and leadershipManagement informationFraud