ANU by 2020 identifies that to achieve excellence in its core activities and to remain a world class university, ANU needs to invest in its future. This investment will be in outstanding people, world class equipment and more efficient processes. The plan also recognises that such an investment will require resources to be available for such activities and that ANU requires efficient and effective administrative systems to underpin its operations. In addition, as ANU is not a large university by world standards, ANU by 2020 also identifies that the University must remained focused in its activities.
If ANU does not, or cannot, invest in this way, then the future will be one of gradual decline in quality and international recognition. Such a scenario is not one that any member of the ANU community would find appealing. Possible ways to address these issues formed a key part of the discussions at the 2012 University Senior Managers' Retreat.
Investment in excellence requires resources, achieved either through revenue growth or by reprioritising existing spending. This document identifies immediate challenges facing ANU and proposes a possible way forward. The paper is a draft for discussion and consultation.
External financial factors
Like most universities, ANU receives funding from a variety of sources: student revenue, research grants, block grants to support research, trading revenue, investment income etc.
ANU is unusual in Australia in that it has a large investment portfolio for the size of the University budget. Annual University revenue is $0.9B, while funds in investments total $1.1B. This investment portfolio serves a number of purposes.
- Provides revenue to support the ANU liability to current and former staff covered by the Commonwealth Superannuation Scheme (CSS) - approx. $450M.
- Invests the funds within the Endowment for Excellence which funds some staff salaries, scholarships etc.
- Invests the cash reserves of the University, whether held centrally or by Colleges.
National and international issues mean that investment returns have declined in recent years and the expectations are that markets may have now entered a period where investment returns may be below 5 per cent for an extended period. This decline in investment income will have a significant impact on the University budget. The 2012 budget indicates investment returns will be $30M less than in 2011. Within this, the total funds required to support CSS pensions will be $10M more than the return on the CSS investment sum. This is a shortfall which must be met from other University funding sources.
In addition, the significant capital investments made in recent years, means that depreciation costs have increased by approximately $10M compared to 2011.
These external factors, together with substantial wage increases (4.5 per cent in 2012) and services expenses (increase of $26M in 2012) have meant that the 2012 budget has a projected surplus of only $14M, or less than 1.5 per cent of total revenue. The sector average is four per cent, a figure which the Commonwealth monitors as a measure of financial health.
In addition, all Colleges and Service Divisions report that they have very little discretionary funding available for new projects or investment.
For ANU to achieve its aims as specified in ANU by 2020, action needs to be taken to re-position the University in this new financial environment. To take no action would mean that the University would slowly decline, in the face of continued spending constraints.
In order to address the issues, action is proposed.
- Reposition the budget, such that the projected annual surplus is approximately $35M (four per cent of revenue).
- Free up funds within Colleges and Service Divisions for re-investments and growth.
These will be challenging requirements but are important to ensure the ongoing strength of the University.
Noting that the 2012 budget has a surplus of $14M, it is proposed that savings are found such that:
- $20M can be applied to the budget surplus, bringing the total to approximately $35M
- $20M can be retained by Colleges and Service Divisions for operations and re-investment.
It is proposed that this total saving of $40M is achieved in two broad ways:
- Up to $15M through enhanced/changed business practices
- Up to $25M through strategic and planned reduction in staffing expenses across the University.
These approaches are discussed below.
Savings in business practices
It is proposed that a major management consulting company be engaged to work with the University and in conjunction with the present Administrative Review team to identify changed business practices which could reasonably be expected to achieve savings of the proposed magnitude.
Strategic reduction in staff expenses
Salary expenses at ANU represent 59 per cent of total revenue, compared to 56.32 per cent for the Group of Eight. Reduction of staff costs to the Go8 average would represent a saving of approximately $25M, as proposed above.
Any such reduction must be achieved in a strategic manner. Therefore the following steps are proposed for discussion.
- Proposed salary savings are identified as a percentage of total budget for each College/Service Division.
- An attempt would be made to initially achieve such savings by strategic decisions on discipline/functional and related activities which could be dispensed with so that work is removed as resources are reduced.The possible criteria (indicative only) for determining discipline areas which could no longer be retained could include:
- academic performance (ERA, student demand and evaluation)
- financial viability
- national role/importance
- importance to the institution.
Should it not be possible to achieve all the desired savings by such strategic reductions, then a second phase of across-the-board reductions would be required. The criteria to be used for such reductions would be broadly consistent with those which have been used at other Go8 Universities. These criteria would be of relative performance.
Committees would advise each of the Deans and Administrative Heads in these decisions. Typically, criteria might include:
- General staff:
- achievement of role, as indicated in the Statement of Expectations.
- Academic staff:
- grant performance
- publication quality and quantity (ERA criteria)
- teaching quality and quantity.
Professor Ian Young
26 March 2012