Lea Patterson

SRE 2010 Transparent Costing (TC)

On Posted on by Lea Patterson to Activity-Based Cost Model

SRE 2010 Transparent Costing (TC)

As promised, posted below is the start of our discussion on research costing developed by Andrew Faulkner. We would like to start an open debate / discussion on this topic which seems to be of interest to all Universities in Australia at the moment, so please add your comments / suggestions below.

Cheers,

Lea

SRE 2010 Transparent Costing (TC)

The funding available for the indirect costs of research is designed to be calculated on two key components
  1. A set of allowable indirect costs, falling into one of four indirect cost categories; and
  2. A single indirect cost driver to support the calculation of the proportion of indirect costs incurred by universities attributable to ACGs.

Four categories of indirect costs will be adopted in the 2010 trial TC framework:

  1. non-academic salaries and on-costs;
  2. costs of maintaining physical university infrastructure;
  3. finance and insurance costs;
  4. other costs indirectly associated with research.

One of two cost drivers will be adopted in the 2010 trial TC framework relating to the relative effort of academic staff on ACG research. The preferred method, takes the universities research related indirect costs (derived from a cost model or comprehensive financial systems) and allocates them to ACG based upon the percentage of staff time performing ACG research.

% time spent on ACG research * FTE ACG associated staff / total Research Active staff FTE

The second method allocates the universities total indirect costs to ACG.

% time spent on ACG research * FTE ACG associated staff / Total staff FTE

The methodology is simple enough to use and most universities should not have any issues calculating this indirect ACG costs once the Active ACG FTE Percentage is known. The major issue facing universities is collecting this data through staff surveys which will be a burden on the academics to accurately describe how they spend their time. Surveying has its own traditional issues such as adequate response rates as well encountering political/sensitivity issues.
Universities are expected to undertake two full surveys of academic time in semester one of 2010, it is unknown how frequently they will be expected to repeat them.
If the university has a comprehensive cost model in place (like an ACE Management Model) then the model can calculate these figures for the university (a small advantage) as well as improving the cost methodology used and possibly reducing the survey burden on the university. Some of the areas where the costing process can be improved are outlined below.
One issue with the second method is that FTE ACG/Total Staff FTE will calculate ACG as a percentage of Total staff, which includes all the corporate support staff that are supposed to be allocated via these methods. These FTE which often support each other in reciprocal relationships should end up being allocated to either research, teaching or other products based upon the direct effort being expended upon the products. What you effectively want to achieve is:
FTE ACG/(Total Staff FTE-Indirect Staff FTE).

Otherwise, ACG is receiving a smaller indirect portion than it really should.

Similar issues arise if attempting to define the total research related indirect costs and the Total Research Active Staff FTE for the first method without the use of a cost model.

If a cost model is used that calculates ACG Research as one of its product lines then this has the advantage of isolating the direct ACG Research and FTE, calculating the relative FTE ratios between ACG and the rest of the university and apportioning the indirect costs according to a suitable driver (FTE). The key to making such a model accurate and usable from a SRE reporting viewpoint is having an accurate allocation of staff time to ACG Research. If the model is already fully allocating academic (and research staff) time according to workloads, payroll data and faculty/school business rules then the only piece of information required to complete the model for ACG research costing is the time spent by staff on ACG Research. This means that rather than a full survey of all staff, only a partial survey of research involved staff is required covering their research time.

Because this would reduce the survey burden it seems more likely to receive willing input from the academics than a full staff survey, especially as the results of it relate to the research funding received by the university. One issue is that the survey responses could be skewed towards too much time spent on ACG research. This should be countered by the fact that the results will be used to calculate the direct research costs as well as the indirect research costs, thus showing up as an over-expense in relation to direct funding if they over-estimate their time.

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