Analysis of value for money annual reports submitted to HEFCE by English higher education institutions for the academic year 2014/15

Transcription

1 Higher Education Funding Council for England Analysis of value for money annual reports submitted to HEFCE by English higher education institutions for the academic year 2014/15 February 2016 Sockmonkey Consulting

2 Executive summary Introduction This report sets out our analysis of the value for money annual reports for the academic year 2014/15 submitted to the Higher Education Funding Council for England by English higher education institutions. The submission of these reports is optional and there is no prescribed format. Reports were received from a total of 96 institutions, which represents a significant increase on previous years. Analysis of cost and efficiency savings The nature and content of the value for money reports vary from institution to institution. However, many of the reports set out details of the savings that institutions have achieved over the course of the year, either in aggregate or in detail. These savings can be categorised as cost savings, efficiency savings or income generation measures. Total savings reported by institutions amounted to 151m. However, reports were received from only 74% of institutions. Furthermore, not all of the institutions reporting savings put a specific value to those savings. By assuming, firstly, that savings with no given financial value have the same average value as those for which a value is given and, secondly, that the average saving of those institutions not submitting value for money reports is the same as that of the institutions that did submit reports, we can extrapolate the reported savings across the English higher education sector as a whole. This approach yields an estimated annual saving of 268m. This is equal to approximately 0.9% of sector expenditure for the period. It is likely, however, that institutions will also be operating value for money initiatives that are not mentioned in their reports. Such initiatives, and any resulting savings, will not have been captured by our analysis. Consequently, the volume of savings set out in this report is likely to be understated. Furthermore, many of the reports set out initiatives that have predominantly qualitative aims, such as the improvement of the student experience or of research capacity. While such initiatives will help to improve an institution s strategic, operational and financial performance and sustainability, they will not necessarily result in financial savings and, so, will not be captured within this report. Areas and activities contributing to savings Using the information given in the value for money reports submitted by institutions, we have categorised each of the savings reported by the functional area of the institution to which they relate and by the approach taken to realising the savings. The most common areas for saving are estates and cross-cutting activities, which have an impact on all areas of the institution, followed by procurement and ICT. The most popular approach to realising savings is the use of competitive tendering, followed by the use of purchasing consortia or framework contracts, the streamlining of processes and the use of IT-based processes. It is notable, however, that the savings initiatives reported by institutions cover a broad range of areas, impacting on most if not all areas of institutional activity. The range of approaches adopted to realise these savings is similarly diverse.

3 Contents 1 Introduction The aim of this assignment The value for money annual reports The structure of this report Value for money savings reported The nature of the savings reported The volume of savings reported Extrapolating these savings across the sector Areas and activities contributing to savings Categorising savings Functional areas contributing to savings Approaches to achieving savings Some common examples of activities leading to savings... 8

4 1 Introduction 1.1 The aim of this assignment This purpose of this assignment is to review and analyse the value for money annual reports for the academic year 2014/15 submitted to the Higher Education Funding Council for England by English higher education institutions. 1.2 The value for money annual reports The Council requires all higher education institutions to submit a suite of accountability information in December of each year. This includes the institution s annual monitoring statement, the audit committee annual report and the audited financial statements. This submission is referred to as the annual accountability return. As part of this return, the Council has given institutions the option of submitting relevant reports in respect of value for money. There is no prescribed format for these reports. Indeed, the Council has confirmed that it is willing to accept an annual report produced for internal purposes, provided this is reviewed by the institution s governing body. We have reviewed each of the reports submitted by the 96 English higher education institutions that chose to include them within their annual accountability return. These institutions represent 74% of the total number of institutions and were broadly representative of the sector as a whole in terms of size, geography and mission type. The number of institutions submitting value for money annual reports has increased significantly year-on-year, as shown in the table below. Academic year 1.3 The structure of this report Number of institutions submitting reports 2011/ / / /15 96 This report sets out our analysis of the value for money reports submitted to the Council. It includes: an analysis of the value for money savings identified in the reports; and a summary of the main areas and activities contributing to these savings; and This report is underpinned by detailed analysis of the individual submissions, which has been reported separately. 1

5 2 Value for money savings reported 2.1 The nature of the savings reported The nature and content of the value for money reports vary from institution to institution. However, many of the reports set out details of the savings that institutions have achieved over the course of the year, either in aggregate or in detail. These savings can generally be allocated to one of three categories: cost savings where the institution has reduced costs by reducing activity, such as discontinuing a particular course or closing down a department; efficiency savings where the institution has delivered the same or greater activity with fewer resources, such as by streamlining processes or making better use of information technology; and income generation where the institution has offset the costs of an activity though charges or other income generation measures, such as by charging students for printing or by letting spare office space to external organisations. We set out in the figure below a summary of the nature of the savings reported by institutions. Figure 1: The nature of the savings reported by institutions It can be seen that over 90% of the savings reported relate to cost savings, with most of the remainder relating to efficiency savings. Reported savings from income generation were minimal. This is likely to be because institutions did not include income generation activities in their value for money reports, though, rather than because such activities do not exist. In should be noted that the allocation of savings to these categories was, in some cases, difficult to determine from the information given in the reports. Consequently, the allocation inevitably involves a certain element of judgement. 2

6 Furthermore, savings have only been included within the analysis when they were mentioned explicitly within the reports submitted by institutions. 2.2 The volume of savings reported The total savings reported by institutions were as follows: Category of saving Total savings reported 000 Proportion of total Cost savings 141,599 94% Efficiency savings 9,357 6% Income generation 240 0% Total 151, % However, not all of the institutions reporting savings put a specific value to those savings. Furthermore, others put values to some savings but not to others. We set out in the table below an analysis of the proportion of identified savings for which specific financial values were given. Category of savings Number of institutions reporting savings Instances of savings reported Instances of savings with a financial value Proportion of savings where a financial value is given Cost savings % Efficiency savings % Income generation % Total * % * Institutions generally reported savings in more than one category, so this figure is not the sum total of the figures in the column above. As can be seen, just over two thirds of reported instances of savings were accompanied by an indication of their financial value. 2.3 Extrapolating these savings across the sector It would be helpful to use these figures to estimate overall savings figures for the English higher education sector as a whole. In order to do this, we need to make two broad assumptions: a) that instances of savings with no financial value given have the same average value as those for which a value is given; and b) that the average saving of those institutions not submitting value for money reports is the same as that of the institutions that did submit reports. 3

7 We can then use the data from the value for money reports to estimate overall savings figures for the English higher education sector as follows: Category of saving Estimated total savings 000 Cost savings 240,437 Efficiency savings 27,605 Income generation 325 Total 268,367 The HE Finance Plus report from the Higher Education Statistics Agency (HESA) reports total expenditure by English higher education institutions for 2013/14 as 29,406,176,000. Using this figure as a proxy for total expenditure in 2014/15 (as the 2014/15 data is not yet available), the total savings shown above represent 0.9% of total expenditure. It should be emphasised that these estimates are just that. Their accuracy depends heavily on the quality of the data contained in the value for money reports and their calculation involves a number of assumptions and judgements. They should not be used for anything other than broad informational purposes. 4

8 3 Areas and activities contributing to savings 3.1 Categorising savings Using the information given in the value for money reports submitted by institutions, we have categorised each of the savings reported by (a) the functional area of the institution to which they relate and (b) the approach taken to realising the savings. We have sought to be as specific as possible when categorising savings. However, the level of information given in the reports varies from institution to institution. Consequently, the categorisation of savings in functional areas and approaches should be viewed as indicative rather than exact. The analysis in this section includes all three types of savings, i.e. efficiency savings, cost savings and income generation measures. 3.2 Functional areas contributing to savings We set out in the figure below an overview of the different functional areas upon which savings initiatives have focused, together with the number of initiatives reported in each area. Figure 2: Areas in which savings have been achieved 5

9 It can be seen that the most common areas for saving are estates (such as construction projects, building maintenance and cleaning services) and cross-cutting activities, which have an impact on all areas of the institution. After this, the most common areas for savings are ICT and procurement. It is notable, however, that the savings initiatives reported cover a broad range of areas. 3.3 Approaches to achieving savings We set out here an overview of the different approaches taken by institutions to realising savings, together with the number of initiatives reported against each approach. Figure 3: Approaches to achieving savings The most popular approach to realising savings is the use of competitive tendering, followed the use of framework contracts and purchasing consortia, the streamlining of processes and the use of IT-based processes. However, once again the number of different approaches adopted by institutions is notably diverse. 6

10 The average savings yielded by different approaches are set out in the table below. Approach to savings Total reported savings, '000 Number of initiatives reporting savings Average reported savings per initiative, '000 Changes to staff terms and conditions Competitive tendering 20, Energy efficiency measures 2, Introduction of charges Negotiation with suppliers 1, Not specified 38, Organisational restructuring 12, Other 2, Reduction in activity / usage 1, Review of existing contracts and purchasing arrangements 5, Shared services 1, Staff redundancies 12, ,122 Streamlining of processes 11, Use of IT-based processes 2, Use of online / electronic media Use of purchasing consortium / framework contract 37, TOTAL 151, As is perhaps to be expected, large scale staff redundancy programmes represent the highest average reported savings per initiative. If we disregard the category of not specified, which includes aggregate savings that were not broken down by institutions into specific approaches, the next highest-yielding approaches to savings are both procurement-related the use of purchasing consortia/framework contracts and the use of competitive tendering. There are also, however, a number of other approaches that have proven themselves capable of yielding considerable savings. 7

11 3.4 Some common examples of activities leading to savings We set out here some common examples of initiatives used by institutions to realise savings, grouped by the approaches to which they relate. Changes to staff terms and conditions Competitive tendering Changes to contracted hours Restructure of staffing to avoid overtime Reduction in mileage rates used for staff expense claims Energy efficiency measures Tenders for goods and services, e.g. insurance, energy supplies and internal audit services Consolidation of smaller procurement exercises into larger contracts Greater involvement of procurement team in contract negotiations Installation of LED lighting Installation of district heating schemes Initiatives to turn off electrical items when not in use Installation of photovoltaic arrays Negotiation with suppliers Renegotiation of pricing structures Negotiation of contract extensions at favourable terms Organisational restructuring Consolidation of professional services departments Restructuring of academic departments Consolidation of roles within professional services teams Reduction in activity / usage Removal of catering provision for internal meetings Rationalisation of licenses and subscriptions Discontinuation of unsustainable programmes and activities Other Holding vacant posts Delaying start dates of new members of staff Managing payment of contracts in foreign currencies Review of existing contracts and purchasing arrangements Greater us of in-house expertise rather than contractors/consultants Bringing outsourced functions in-house Rationalisation of contracts to benefit from economies of scale Staff redundancies Voluntary severance and redundancy Shared services Use of shared legal services Use of shared internal audit services Sharing of back office services with other organisations 8

12 Streamlining of processes Use of IT-based processes Redesign of back office processes Introduction of managed print services Greater use of purchasing cards Improved collaboration between academic support teams Introduction of e-procurement systems Implementation of online admissions and registration systems Improved automation of back-office processes Use of online / electronic media Use of Skype to interview overseas job applicants Greater use of webinars to reduce staff travel costs Introduction of charges Charging employers for confirmation of student qualifications Introduction of fee for payment by credit card Use of purchasing consortium / framework contract Procurement through universities purchasing consortia Use of Crown Commercial Service framework contracts Membership of other purchasing consortia 9