Higher Education Funding Council for England

Title Value for Money reporting

To Heads of HEFCE-funded higher education institutions

Of interest to those

responsible for

Finance; Governance

Reference Circular letter 23/2016

Publication date 17 August 2016

Enquiries to Will Dent, tel 0117 931 7437, email w.dent@hefce.ac.uk

Matthew Davey, tel 0117 931 7013, email m.davey@hefce.ac.uk

Dear Vice-Chancellor or Principal

Value for Money reporting

1. This letter sets out our requirements for the submission of a Value for Money (VFM) report

as part of the Annual Accountability Return due in December 2016, and our plans for next year’s

submission. In summary, the changes are as follows:

all institutions are required to submit a VFM report in 2016, with no prescribed format

the VFM report in 2016 must be presented to an institution’s governing body, or to a

delegated subcommittee responsible for assurance on VFM

we are asking for feedback from the sector on VFM reporting guidance

for the December 2017 submission, guidance on VFM reporting will be issued.

Background to the redevelopment of VFM reporting

2. HEFCE’s grant letter received in March 2016 from the Department for Business, Innovation

and Skills (www.hefce.ac.uk/news/newsarchive/2016/Name,107598,en.html) asks us to collect

annual reports from institutions on how they are becoming more efficient and productive over

time. The intention is that these reports become a useful tool for institutions to monitor their

efficiency performance. We have since been in discussion with Universities UK (UUK), GuildHE,

the British Universities Finance Directors Group, and other professional bodies in the sector

about how this requirement should be met.

3. There is an increasing expectation for the sector to provide more evidence to demonstrate

how value for money in higher education is being achieved. Reporting from institutions is

fundamental to supporting any case for investment in English higher education. HEFCE requires

information to produce a forthcoming annual report on the aggregate efficiency of the sector (a

further requirement of our recent grant letter and in keeping with the recommendations of the

2015 UUK review of efficiency, effectiveness and value for money led by Professor Sir Ian

Diamond, available at www.universitiesuk.ac.uk/policy-and-analysis/reports/Pages/efficiency-

effectiveness-and-value-for-money.aspx).

4. Furthermore, the consideration of value for money is a necessary and central part of

institutional governance. Governors and trustees across the sector (including student

representatives) should be presented with information that will allow them to understand VFM at

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their institution, to set a VFM strategy that is appropriate for that institution and its stakeholders,

and to drive change that will lead to improved VFM.

5. In previous years HEFCE has asked higher education institutions to submit reports on

VFM as part of their Annual Accountability Returns. Submission of these reports was optional

and there was no prescribed format or standard content. Last year over 90 institutions submitted

reports, though our review of these identified an understandable lack of consistency and

comprehensive information.

6. Through discussions with sector representatives we have established the need for firmer

guidance on the information that should be included in VFM reports. This will need to recognise

the changing landscape for higher education regulation and policy.

7. We are redeveloping the VFM reporting process to address the requirements above. Our

approach aligns with the Diamond review, which called for a common framework of key

information on efficiency that institutions can use to inform their own VFM reports. We are

implementing these changes over the next two years, giving institutions time to adjust to the

revised requirements.

Changes to VFM reporting

8. The submission of a VFM report in December 2016, as part of the Annual Accountability

Return covering the academic year 2015-16, is required of all HEFCE-funded higher education

institutions. In recognition of the important role of governance in this area, it will be a requirement

that the 2016 VFM report is received by an institution’s governing body or a delegated

subcommittee responsible for seeking assurance on VFM and for driving VFM activity.

9. For this year, the format and content of VFM reports is not prescribed and we are not

issuing formal guidance. However, in Annex A we set out a commonly accepted definition of

VFM and identify some sources of evidence that might be used, the majority of which are existing

data collections that are already available to institutions.

10. We are interested in views from the sector on this suggested approach to VFM reporting

and would welcome any feedback on what guidance would be useful. This can be directed to

Matt Davey (tel 0117 931 7013, email m.davey@hefce.ac.uk). We will use this feedback, along

with the submitted VFM reports, to develop more specific guidance that will be issued for the

Annual Accountability Return due in December 2017.

11. Regardless of any HEFCE requirements, we would encourage each institution to continue

with or further develop its own approach to value for money reporting, aligned with its strategic

plan and meeting the requirements of its students and other stakeholders.

Other initiatives

12. We recognise that, beyond reporting, up-to-date guidance on value for money strategy and

practice for higher education institutions is currently limited. We are looking to the sector to

develop guidance that reflects the changing environment in which it operates and the changing

stakeholder interests, and have asked UUK and the Committee of University Chairs to take

forward this work with HEFCE support.

13. We also appreciate that governing bodies can require help to fulfil their role in monitoring

VFM. The Leadership Foundation for Higher Education will be including publications and events

that address these needs in its Governor Development Programme.

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Yours sincerely

Professor Madeleine Atkins

Chief Executive

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Annex A: Value for Money reports – definition and possible content

Definition of value for money

1. When developing their value for money (VFM) reports it may be appropriate for institutions

to consider a broad definition of value for money, based on the three elements considered by the

National Audit Office when assessing the value for money of government spending:

a. Economy – minimising the cost of resources used or required (inputs) (‘spending

less’)

b. Efficiency – the relationship between the output from goods or services and the

resources to produce them (‘spending well’)

c. Effectiveness – the relationship between the intended and actual results of

spending (outcomes) (‘spending wisely’).

2. As shown in Figure 1, these three Es, taken as a whole, encompass a definition of value

for money that is about the optimal use of resources to achieve intended outcomes, also

described as cost-effectiveness. An institution’s value for money report should include

information on all three Es. It is important to note that achieving value for money is not simply

about cutting costs or reducing inputs but also about improving the volume and quality of outputs

and outcomes.

3. In addition, a fourth E is sometimes considered:

d. Equity – the extent to which services are available to and reach all people for which

they are intended (‘spending fairly’).

If an institution wishes to include this element in the definition of value for money, then it may feel

it is appropriate to report progress with widening participation and fair access.

Figure 1: The three Es of value for money

Source: National Audit Office

VFM report content

4. VFM can be considered across a broad range of institutional activity. The following

headings might be included in the report:

Teaching

Research

Knowledge exchange

Workforce

Estates

Procurement

Financial performance

Collaboration and sharing

Information technology

Learning resources.

5. Not all these headings will be appropriate for every institution, and some will be more

relevant than others depending on the type and mission of the institution in question. Institutions

may also wish to include additional headings of their choosing.

6. There is a wealth of quantitative and qualitative information that could potentially be used

as evidence in an institution’s VFM report. Table 1 provides an overview.

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Table 1: Types of information that can be used in VFM reports

Quantitative information Qualitative information

Statistics from national data collections (such

as the Higher Education Statistics Agency

(HESA), the Transparent Approach to Costing

(TRAC) or the National Student Survey).

Efficiencies (expressed in terms of cost, time,

space or energy) or other benefits realised

through value for money initiatives, business

process improvements, and approved business

cases reported to management committees

and governors1.

Data from surveys run by professional bodies

in the sector (such as the Universities and

Colleges Employers Association sickness

absence survey or Society of College, National

and University Libraries statistics).

Institution-specific quantitative data (such as

performance against budget or detailed

benchmarking studies).

Contextual narrative explaining the results of

the quantitative information.

Description of the institution’s value for money

activities and initiatives.

Information about the institution’s value for

money strategy and future plans2.

Institution-specific qualitative information (such

as results from staff and student surveys).

7. Table 2 notes some questions to consider when thinking about VFM and lists the possible

sources of evidence, mainly quantitative, that most institutions could present in a VFM report

under each of the suggested headings given above. For this year, each institution must decide

what information is appropriate for its context.

8. We recommend that, where possible, an institution’s performance is either benchmarked

against the results for a comparative group of other institutions, or compared to the institution’s

own prior performance.

9. The list of possible sources of evidence has been developed in discussion with

representative organisations and contacts in the sector. We are keen hear further views on what

is useful for VFM reporting so that we can develop more specific guidance. Please contact Matt

Davey (tel 0117 931 7013, email m.davey@hefce.ac.uk) with your feedback.

1 For this year we are not providing a detailed methodology of how efficiencies resulting from value for money initiatives or business process improvement should be calculated, but institutions may wish to refer to guidance developed and published by the University of Strathclyde on his matter (available online at www.strath.ac.uk/hr/businessimprovementteam/aguidetoevidencingthebenefitsofbusinessprocessimprovementinhighereducation/). Further help in realising the benefits of strategic change in higher education is available in guidance produced by Provelio Strategic Management Consultancy (available online at www.provelio.com/ResearchAndDownloads/Show/2?title=Guide-to-the-Realisation-of-Strategic-Change-and-Benefits-A-challenge-to-current-thinking-and-practice) 2 We have asked Universities UK and the Committee of University Chairs to prepare good practice guidance on developing and implementing value for money strategies in institutions.

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Table 2: Suggested headings and possible sources of evidence for VFM reports

Teaching

Questions to consider

To what extent does the institution make optimal use of its resources in delivering high-quality

teaching and outcomes for its students?

Can an assessment of the volume and quality of teaching, considered alongside the level of

resources invested, give some indication of the institution’s efficiency in teaching?

Is it also relevant to consider progress with widening participation and fair access?

How are better management and use of technology enhancing teaching efficiency and

effectiveness?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to teaching.

TRAC for Teaching return (www.hefce.ac.uk/funding/finsustain/trac/), particularly Subject-related

Full Average Costs of Teaching a Student (www.hefce.ac.uk/data/famd/other/ftetract/)

benchmarked against peer group.

National Student Survey scores (www.hefce.ac.uk/lt/nss/results/), including results for the

question on overall satisfaction against published benchmark.

Results of other student surveys, such as those run by the Higher Education Academy

(www.heacademy.ac.uk/research/surveys).

Information on the teaching qualifications held by staff.

Results of the UK Performance Indicator (UKPI) on student non-continuation

(www.hesa.ac.uk/pis/noncon) against published benchmark.

Results of the UKPI on employment of leavers (www.hesa.ac.uk/pis/emp) against published

benchmark.

Results of the UKPIs on widening participation of under-represented groups

(www.hesa.ac.uk/pis/urg), and of students in receipt of Disabled Students Allowance

(www.hesa.ac.uk/pis/dsa), against published benchmarks.

Results of course-costing projects.

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Research

Questions to consider

To what extent does the institution make optimal use of its resources in creating and

disseminating new knowledge?

Can data on the volume and quality of research outputs, when considered against the resources

invested to produce them, provide an indication of the institution’s efficiency in research?

Is it also relevant to consider the impact of the institution’s research?

How are better management and use of technology enhancing research efficiency and

effectiveness?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to research.

Annual TRAC return (www.hefce.ac.uk/funding/finsustain/trac/), particularly the recovery of costs

against research activity by sponsor benchmarked against peer group.

Total research income per total academic full-time equivalent (FTE), from HESA finance and staff

records3.

REF 2014 results (http://results.ref.ac.uk/), and comparison with RAE 2008

(www.rae.ac.uk/results/).

Journal article publication and citation statistics4.

Research Council grant application success rates.

3 There are differences between disciplines in terms of both the cost of research and the availability of funding, and it is essential that these differences are reflected in the presentation of research income per FTE data. 4 In the use of journal article and citation data, we strongly recommend the adoption of the principles of responsible research metrics as set out in 2015 in ‘The metric tide: Report of the independent review of the role of metrics in research assessment and management’ (www.hefce.ac.uk/pubs/rereports/Year/2015/metrictide/).

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Knowledge exchange

Questions to consider

To what extent does the institution capitalise on its intellectual assets to deliver impact to the

economy and society through Knowledge Exchange (KE)?

Can KE income, as a proxy measure of KE activity and impact, when considered alongside the

level of resources invested, give some indication of the institution’s efficiency in KE?

How are better management and use of technology enhancing KE efficiency and effectiveness?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to KE.

Results of the Higher Education – Business and Community Interaction survey

(www.hefce.ac.uk/kess/hebci/), particularly the level of KE income per academic staff FTE and

information on levels of academic and student entrepreneurship (formation and success of spin-

out and start-up companies).

Results of efficiency and effectiveness measures in the institution’s long-term KE strategy.

Monitoring information and evaluation of KE activities including feedback from external partners.

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Workforce

Questions to consider

How engaged and productive is the institution’s workforce?

Can data on staff costs and pay, when considered alongside the volume and quality of work

carried out, provide an indication of workforce efficiency?

How are staff management practices and enabling technology enhancing workforce efficiency

and effectiveness?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to workforce

management.

Staff survey outcomes and measures of staff engagement.

Number of working days lost to sickness absence per employee, from the Universities and

Colleges Employers Association sickness absence survey

(www.ucea.ac.uk/en/empres/rs/sickness-absence-survey/).

Total staff costs as a percentage of total income, from the HESA finance and staff records.

Growth in total staff costs per staff FTE, from the HESA finance and staff records, compared to

inflation.

Growth in median staff salary, from the HESA staff record, compared to inflation.

Recruitment cost per hire.

The results of workload planning projects.

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Estates

Questions to consider

How efficient is the institution’s estate in terms of space, energy, utilisation and cost?

How effective is the institution’s estate in terms of condition and functionality?

Do the institution’s construction projects represent value for money?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to estates.

The eight performance indicators recommended by the Association of University Directors of

Estates (www.efficiencyexchange.ac.uk/7899/delivering-value-from-the-education-estate/). 1 to 4

are considered key:

1. Non-residential gross internal area (GIA) per staff and student FTE (excluding ‘residential’

staff).

2. Income per m² of non-residential GIA.

3. Maintenance and capital expenditure as percentage of insurance replacement value.

4. Percentage of non-residential GIA in condition grades A and B.

5. Property costs (excluding rateable value) per m² of non-residential GIA.

6. Insurance replacement value as a percentage of total income.

7. Percentage of non-residential GIA in functional suitability grades 1 and 2.

8. Carbon emissions scope 1 and 2 in tonnes per m².

Comparison of space utilisation performance against benchmarks produced using the tools

developed by the Space Management Group (www.smg.ac.uk/).

Comparison of construction performance using the Building Cost Information Service provided by

Royal Institution of Chartered Surveyors.

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Procurement

Questions to consider

Does the institution purchase its goods and services at the best price, taking in to account the

quality of the goods and services in question?

To what extent have costs been lowered through collaborative purchasing arrangements, such

as regional higher education purchasing consortia or the Energy Consortium?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to procurement.

Results from the Efficiency Measurement Model survey (http://emm.org.uk/), including savings

and performance against Best Practice Indicators.

Savings associated with membership of consortia frameworks.

The results of any Procurement Maturity Assessment (www.supc.ac.uk/enhance/procurement-

maturity-assessments) carried out by the Southern Universities Purchasing Consortium.

Assessment of performance against the Diamond review target (www.universitiesuk.ac.uk/policy-

and-analysis/Pages/efficiency-and-modernisation.aspx) of 30 per cent of non-pay spending

through collaborative mechanisms.

Results of expenditure analysis.

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Financial performance

Questions to consider

Can the institution’s financial performance and sustainability give some indication of an

institution’s VFM?

Is it also relevant to consider the institution’s ability to use its assets, both physical and

intellectual, to diversify its income?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to finance.

TRAC returns (www.hefce.ac.uk/funding/finsustain/trac/), particularly the recovery of costs on

publicly funded teaching, non-publicly funded teaching, research, and other activities.

Aggregate surplus or deficit for the past three years as a percentage of income.

Return on assets (insured asset value over income).

Key financial indicators used in HEFCE’s Annual Accountability Return

(www.hefce.ac.uk/reg/ha/aar/) or Annual Sustainability Assurance report

(www.hefce.ac.uk/funding/finsustain/current/).

Performance against budget, for instance the number of departments achieving or exceeding

their planned income or surplus.

Results of the Ross-CASE survey (www.rosscasesurvey.org.uk/) or other information on

fundraising and philanthropic giving.

Income generation through residences and catering.

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Collaboration and Sharing

Questions to consider

How have collaborative arrangements with other organisations reduced costs or allowed access

to otherwise unavailable resources?

Is the institution involved with shared services or the sharing of assets and facilities?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to collaboration.

Cost savings and other benefits resulting from involvement in shared service arrangements,

perhaps calculated using the Higher Education Realisation of Benefits interactive tool

(www.herbi.ac.uk/).

Utilisation rate of large-scale assets and facilities.

Tax savings resulting from any involvement in Value Added Tax cost sharing groups.

Information technology

Questions to consider

To what extent is the institution making the best use of available information technology (IT) to

deliver its outputs?

How is IT being used to improve the speed and efficiency of processes and the quality of

services?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements that are related to IT.

Results of the Higher Education Information Technology Statistics survey and IT service desk

benchmarking survey, both run by the Universities and Colleges Information Systems

Association (www.ucisa.ac.uk/bestpractice/surveys.aspx).

Benefits achieved through digitising services and business processes.

Improvement in student outcomes resulting from use of learning analytics

(www.jisc.ac.uk/reports/learning-analytics-in-higher-education).

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Learning resources

Questions to consider

How efficient and effective are the institution’s learning resources in terms of access, utilisation

and cost?

Possible sources of evidence

Efficiencies (expressed in terms of cost, time, space or energy) or other benefits realised through

value for money initiatives and business process improvements related to learning resources.

Society of College, National and University Libraries statistics (www.sconul.ac.uk/page/sconul-

statistics-reports).

Data from the Journal Usage Statistics Portal (www.jisc.ac.uk/journal-usage-statistics-portal).