Provost's Long View: Planning to prosper

Given the size and complexity of UCL, it is essential for us to plan carefully.

We are, after all, a community of nearly 10,000 staff and more than 28,000 (25,000 FTE) students with a turnover of greater than £1bn per annum. You certainly wouldn't want to get the planning process wrong - there is simply too much at stake.

For those of you wondering - quite legitimately - "what has this got to do with me?", I would point out that the way in which we plan our activity has a direct influence on how we deliver teaching, research, innovation and engagement throughout the year, as well as ensuring that we have a sustainable and successful future as an organisation.

For this year, we have augmented the annual planning process, introduced more academic input, and have pursued the concept of 'integrated planning' for each faculty (and their constituent departments) as well as the Professional Services and Vice-Provost offices.

The planning review group for the faculty meetings thus included myself, all the Vice-Provosts, including Rex Knight, VP (Operations), and Phil Harding, Director of Finance and Business Affairs. For the services and VP office review meetings, a selection of Deans also participated, replacing the VPs.

Integrate planning

The idea is to integrate our academic strategy and new academic developments with planning of student numbers, intended staffing levels, research funding, activity and overheads, with space requirements and, of course, the overall funding envelope and faculty 'contribution' to central costs and the target surplus.

The planning process culminates in setting the annual budget for review by the Finance Committee and our Council over the next few weeks.

It doesn't need me to tell you that university finances have changed a lot in recent years. In the good old days, we also used to get significant capital funds from HEFCE, in the order of £40m per annum, but that has dropped in recent times to around £10m per annum and is subject to competitive bids and substantial matched-funding - so we now have to self-fund our capital requirements from our income.

Although there are opportunities to bid for research funding for specific initiatives, they tend to require matched funding from UCL and/or collaborators or philanthropy.

Against that background, it is essential that we make a significant surplus each year or we will have insufficient funds to cope with unexpected variations in income or to re-invest in our future.

Surplus, not profit

I have said this before, but please do not think of the surplus as a 'profit' - think of it as an essential safety margin and reinvestment fund. Without a surplus, there would be no development or refurbishment of the estate and equipment, and no significant capital plan and our cash position would eventually fall dangerously low.

Initiatives such as the Grand Challenges and many other initiatives pump-primed through the Provost's Strategic Development Fund would be impossible without surpluses generating funds for investment.

Our Finance Committee and our Council have indicated that we need to make a surplus of six per cent of income per annum.

That is now a very common figure in the sector and is exactly the same figure that we were working to in Leeds. I think it is spot on and, to be clear, that is a surplus in the order of £60m per annum, in due course. Our intention is to build up to that level of surplus over the next three years, i.e. by 2017-18.

This year (as of quarter three) we are on course to make our target surplus of £30m at year end and that is very encouraging.

Over the year, we have also been reviewing in depth our proposed 10-year capital plan - now totalling £1.2bn of top priority projects - and how we will fund it.

As well as doing so from our surplus each year, we will use other capital receipts, philanthropic donations and government capital project funding (e.g. RPIF). It is also our intention to borrow a significant sum (perhaps as high as £300m), but, of course, we need to persuade Finance Committee and Council that borrowing at that sort of level is a good idea and that we can afford it.

It is certainly my view that our estate problems are so serious that we must do something quite dramatic in order to get us moving into a much better place and quickly.

The need to borrow

UCL currently has virtually no borrowing and £300m would be a relatively modest sum by comparison with many of our competitors. Many of our estate needs are pressing, and accumulating cash through surpluses is a lengthy process, so we have concluded that borrowing to enable us to accelerate the capital programme is a sensible strategy.

Over the course of this year, I have gradually understood more about the financial performance of UCL in recent years and the impact of student and staff expansion. The figures are quite remarkable.

Over the past three years, student numbers have grown from 24,859 to 28,859, total full time equivalent staff numbers have grown from 7,238 to 9,250 (an increase of 28%); academic full-time equivalent staff numbers (including research, teaching and NHS-related staff) have grown from 4,196 to 5,405 (an increase of 29%); and the financial turnover of the institution has grown from £802m to £1,005m (25%).

Staff growth

We did not, however, grow our surplus as much as perhaps we should have done, increasing it by less than 10% from £28.9m to £31.7m. One way to summarise this period is that most of the income from increased student numbers was spent on staff, particularly academic staff.

The purpose of such an expansion was not only to gear up to teach increased student numbers, but also an investment in high-quality, research-active staff ahead of the REF.

This latter aspect of the plan definitely worked as we submitted an additional 600 staff (30% increase) under REF compared to RAE 2008, whereas there has apparently been no significant growth in staff submitted in the REF across the rest of the sector.

We have yet to see if that differential outcome delivers significant increases in HEFCE QR income, but hopefully it will have quite a positive impact. My natural response, however, is to be quite cautious about putting too much store on such post-REF financial outcomes at this point in time.

Underinvestment in other areas

Over this period, there was little equivalent counter-balancing investment in essential infrastructure such as the estate, IT, student services or facilities. It is also clear that there was limited growth in staff numbers across the Professional Services or VP offices, despite huge increases in workload and expectation.

All of this has led to the current intense pressure on our estate and the inevitable frustration that can cause. Even I got a bit exasperated about it last week, with an email inbox full of seemingly insoluble estate conflicts and concerns.

We will, of course, solve them because we have to, but there will need to be a willingness by all of us to compromise in the short and medium term.

So, how do we sort this all out and gain greater balance and control of our future? Part of the answer is to avoid repeating the same cycle in the future.

We cannot simply keep expanding student numbers forever and we have agreed now that any further increase (beyond that already built into the system) will only take place for sound academic reasons and with thoughtful planning and recognition of the full economic, especially estate, costs.

Sensible recruitment

Secondly, we will need to control expenditure and that is best achieved by being really sensible (perhaps erring on the side of caution) in terms of the recruitment of further new posts (i.e. those beyond current staffing levels).

I am talking about a gentle application of the brakes and a slowing of further (excessive) growth, while keeping a close eye on affordability as we progress through the next period.

To be clear, I am not talking about 'cuts' and there is no risk to existing staffing levels.

As we progressed through the integrated planning process this year and went about setting next year's provisional budget - together with looking ahead for three years - it became apparent that there was an ongoing appetite for significant staff growth that looked relatively unaffordable.

With a lot of extra work and some further detailed discussion, I am pleased to say that we have turned that around over recent weeks, and very pleased that we now have a good working plan that includes reaching our financial targets, but that still allows immediate growth of essential new posts and some further growth of staff in the latter half of the financial year 2014-2015.

Empowering Deans

At the same time, we have managed to respect, and, in fact, have probably strengthened, the role of the Deans and their faculty executive committees in keeping this more measured approach under close review. In particular, we have avoided the temptation to pull too much control back to the 'centre'.

The good news is that subsequent years look encouraging in financial terms and if all goes well there may be some financial 'upside' from the REF outcome.

If you think this sounds like the Provost taking a firmer grip on UCL's finances, then you are correct.

I can assure you that the entire Senior Management Team understand the importance of this approach and has signed up to delivering on their revised budgets and contributions for next year.

My motivation for so doing is the long-term academic and financial sustainability of the institution, with UCL Strategy 2034 in mind. An ounce or two of grip now will contribute massively to our long-term academic and financial health.

Professor Michael Arthur

UCL President & Provost

Comments? Please provide your thoughts on this form.