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Managing budget deficits in higher education: the experience of the University of Edinburgh

This monograph, directed by Bikas C. Sanyal, HEP, is part of the Institute's research on "Improving the managerial effectiveness of higher education

institutions"

Managing budget deficits in higher education: the

experience of the University of Edinburgh

by

M . D . Cornish Deputy Secretary and Director of Planning

University of Edinburgh, Scotland

Paris 1994

U N E S C O : International Institute for Educational Planning

The views and opinions expressed in this booklet are those of the author and do not necessarily represent neither the views of U N E S C O nor of the 1 Ш Р and the University of Edinburgh. The designations employed and the presentation of material throughout this paper do not imply the expression of any opinion whatsoever on the part of U N E S C O or IIEP concerning the legal status of any country, territory, city or area or its authorities, or concerning its frontiers or boundaries.

The publication costs of this booklet have been covered through a grant-in-aid offered by U N E S C O and by voluntary contributions m a d e by several M e m b e r States of U N E S C O , the list of which will be found at the end of the report.

This volume has been typeset using IIEP's computer facilities and has been printed in IIEP's printshop

International Institute for Educational Planning 7 - 9 rue Eugène-Delacroix, 75116 Paris

© U N E S C O 1994 nEPsko'f

Preface

Over the last decade, as a result of financial stringency, combined with demands for expansion of enrolments and improved efficiency, higher educational institutions have been forced to reduce expenditure, seek n e w sources of funding and improve the utilization of existing resources. This has necessitated changes in the mechanisms, techniques and styles of institutional management. At the same time, higher education has had to cope with increased diversification and n e w types of students, including adult learners, so as to meet the changing needs of the labour market and foster closer links with industry as well as widen participation through the introduction of distance learning.

The implementation of innovation and change in institutional management, however, often faces obstacles and problems, including internal resistance, inadequate staffing or financial resources to m a k e the change effective, or insufficient time devoted to preparing and planning for change.

It is against this background that in 1990 the H E P launched a research programme on 'Improving the effectiveness of higher educational institutions' whose purpose was to increase understanding of the process of planning, introducing and implementing management changes in higher education institutions, in order to improve utilization of resources. The project aimed at identifying factors associated with success or failure, exploring ways of overcoming obstacles or problems, and suggesting methods to improve institutional management and increase the responsiveness of higher education institutions to changing financial, economic and social pressures.

The research programme has several components, i.e. an information base, case-studies and training materials and workshops. The case-studies

v

Preface

were a particularly important element since they were designed to identify the factors and strategies associated with successful innovation and change, and show the obstacles and problems to be overcome. This information was then subsequently used for the training materials and as a major input to the synthesis of the research programme.

Several types of innovation and change were pinpointed for particular study:

(i) Change in the organization of institutions:

° N e w forms of decision-making structures and information flows.

° The merger of separate institutions, departments or units.

(ii) Changes in financial management and resource allocation:

Devolved budgeting. Resource generation.

(iii) Changes in educational delivery systems:

° From semester to trimester, from block to credit system, rationalization of curricula, double intakes.

(iv) Changes in staff management, including staff development and appraisal.

In total, 14 case-studies and one desk-study were carried out, three each in Africa, Asia and Latin America and five in developed countries.

The study published in this volume falls under category (ii) above and has contributed to experiences of implementing improved financial management and control. It shows h o w , in a period of financial constraint, and even in some years, contraction, an old university with a long tradition of collegiality and of faculty autonomy, took steps to modernize its management processes. From the first small investigative task force in 1990 after which a freeze on staff and capital expenditure and monthly reports on salaries and staff numbers were instituted, the university went on in 1991 to draw up its Recover}' Plan which set scheduled financial targets as regards increases in income generation and

vi

Preface

reductions in expenditure. These were the short-term measures. The future wellbeing of the university is safeguarded by a more streamlined structure of central management group and devolved planning and budgeting process whereby Faculty managers prioritize and cost their activities before passing them to the central group. The latter takes its decisions in accordance with the strategic aims of the university. The change from general lack of financial control to a more managerial approach and cost consciousness, within 2-3 years has been quite radical. The approach taken will interest m a n y universities wishing to improve their financial management.

The overall results of the research programme will be published shortly in a synthesis of wide-ranging scope which covers the most important domains of university management.

Jacques Hallak Director

vn

Preface v

I. Summary 1

II. The University of Edinburgh: an introduction 1

III. T h e University 's b u d g e t crisis 6

IV. The initial response to the crisis 9

V . T h e longer-term response: preparation o f a financial

recovery p lan 11

VI. Actions considered but not taken 18

VII. Implementation of the recovery plan 20

VIII. Changes to the University's management processes and organization 24

XI. S o m e reflections on the University of Edinburgh's

experience in handling its budget deficit 28

X . Conclusion 32

Appendices 33

IX

Managing budget deficits in higher education: the experience of the University

of Edinburgh

by M . D . Cornish

I. Summary

This monograph recounts the experience of a major European university in coping with an unexpected and very serious budget deficit. It sets out the short- and longer-term steps taken in order to eliminate the deficit and reviews their effectiveness as far as is practicable at the present time. It goes on to review changes in the management structure and processes recently adopted by the University, and concludes with some reflections on various aspects of the matters discussed. Attention is focused primarily on the actions taken to address the University's problems, and the process by which they were determined. It is too soon to fully analyze their effects, but current indications are that they are being successful, at least in financial terms. It is earnestly hoped that the content will be of interest and value to participants in the conference, but it is for individuals to consider whether, and if so to what extent, the information conveyed in this paper, and the comments m a d e , are relevant to their o w n universities.

II. T h e University of Edinburgh: an introduction

The University was founded in 1583 as the 'Tounis [Town's] College'; it was the fourth university to be established in Scotland and the sixth in the United Kingdom. It remained the youngest of the six universities for the next 250 years, until the formation of the Universities of London and Durham. It thus has a long history, with some buildings

1


of considerable age, fine collections in its m u s e u m s and galleries, a library with over 2.5 million volumes, and close connections with the institutions (including the Church, the legal profession, government offices, the financial services and computer industries) located in and around Edinburgh, the capital city of Scotland.

The University is large by United Kingdom standards, with 11,500 full-time students, sub-divided as follows:

Undergraduates 9,700 (84 per cent) Male 6,230 (54 per cent) Postgraduates 1,800 (16 per cent) Female 5,270 (46 per cent) Students from the United Kingdom 10,000 (87 per cent) Students from overseas 1,500 (13 per cent) (including other E C countries)

It is divided into eight Faculties - arts, divinity, law, medicine, music, science and engineering, social sciences, and veterinary medicine - each comprising one or more departments, and offers as wide a range of academic subjects as any university in the United Kingdom. Its mission is research-led, and it has a strong academic reputation across the whole range of the faculties, with particular strengths in computer science/artificial intelligence/electrical engineering; medicine; biological sciences; social sciences; law; philosophy; divinity. There is a strong institutional commitment to interdisciplinary teaching and research. The eight Faculties are ven,' different in size, ranging from science and engineering with 3,800 full-time students to music with 90.

The University is one of the largest employers in the city of Edinburgh (5,000 staff; whose composition is as follows:

Academic staff (i.e. University-funded teaching and research staff) Research staff, externally funded Senior support staff (library; computing services; administration etc.) Junior support staff (technical, secretarial, manual) University-funded Externally funded Total, all staff

1 150 (23 per cent)

750 (15 per cent)

500 (10 per cent)

2 030 (41 per cent) 530 (11 percent)

4 960(100 per cent)

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Like virtually all United K i n g d o m universities, Edinburgh's income is derived largely from public funds. In 1990/91, income was subdivided as set out in Table 1. The academic year runs from 1 August to 31 July.

Table 1. Income from public funds, 1990/1991

% £000s

Government grants : via the Universities Funding Council* : via the Computer Board *

Student fees United Kingdom students* overseas students short courses

38

1 A 10 5 5 3 7 12 12

58 863 2 118

18 943 5 130 2 577

7 711 7 414 4 161 11 028 19 107 19 529

Endowments and donations Student residences Other general income Income for specific services rendered to external bodies+ Research grants and contracts : from Research Councils*

: from other sources+

Total 156 581

*These items are met from public funds, as are a part of the items marked +. In total, approximately 70 per cent of the University's income comes from public funds.

Government grants via the Universities Funding Council are in respect of teaching and research. All the academic staff of the University are expected to pursue both activities.

It should be noted that income for specific services rendered and for research grants and contracts is not freely disposable. It has to be applied to the purposes (i.e. the services and research projects) for which it is given. The research councils are government-funded bodies which in turn fund specific research projects at universities, under specified financial conditions. The University is expected to try to recover both

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direct and indirect costs from the other bodies which provide such income, but in practice those bodies can be very resistant to meeting indirect costs.

Table 2 . Expenditure in 1990/1991

% £000s

Academic departments : salaries and wages 47 996 : other items 7 527

Academic services: salaries and wages 6 215 : other items 2 410

General educational expenditure 42 3 134

Administration : salaries and wages : other items

Premises running costs and maintenance : salaries and wages : other items

Staff and student services Student residences Pensions and severance costs Equipment and furniture Miscellaneous

Research grants and contracts : salaries and wages : other items

Services rendered to external bodies

Total 160 302

4

9

2 5 2 7

23 5

4 771 1 984

4 933 8 977

3 040 7 991 3 490 10 676 2 689

20 559 16 640

7 270

4


Staff costs (i.e. salaries and wages) accounted for almost 60 per cent of expenditure in 1990/91. It will be observed that expenditure exceeded income by £3.7 million. A s will be explained below, this was the first year of recovery following recognition of the University's financial difficulties.

At the beginning of 1990/91, the principal bodies responsible for the University's affairs were as shown below.

* The dotted lines m e a n transmission of information/submission of recommendation and the straight lines m e a n formal reporting routes.

The chief academic and administrative officer of the University is the Principal. This office is usually filled from outside the University, and is not held for a fixed term, but rather until retirement at age 65. The Principal chaired Senate, Educational Policy Committee and Planning and Resources Committee, and is a m e m b e r of Court, the University's

5


governing body. There are four Vice-Principals appointed from within the University, each performing that role on a part-time basis, with some departmental academic duties also. They usually serve for three to five years. Each Faculty is headed by a Dean, elected from within the Faculty. The head of the University administration is the Secretary, and all other administrative staff, including the Director of Finance, report to the Secretary. The Estates and Buildings Committee and Staff Committee are chaired by Vice-Principals, and the Finance Committee by an external m e m b e r of Court (a person from outside the University with substantial experience in business and commerce), and is the only committee (apart from the Court itself) with a large proportion of external members.

It is important to note that the University has operated on a highly devolved basis, with as m u c h responsibility for decision-making as possible being delegated downwards. This has resulted in the eight Faculties having considerable autonomy, and the Deans of the Faculties are powerful individuals. Resource allocations from the centre are to the Faculties, w h o in turn allocate resources downwards. A Vice-Principal plays an equivalent role in respect of the Library and the Computing Service, and the Secretary to the University does so in respect of Administration, Student Services, and Premises running costs.

III. T h e University's b u d g e t crisis

Throughout the 1980s the University had financial difficulties resulting from reductions in government funding, which had been applied disproportionately across different universities. It is n o w evident that these were compounded by the University's policy of trying to combine excellence with breadth. Government funding policy was not conducive to such an institutional policy: it required greater selectivity on the part of universities. For most of the years in the latter part of the decade, the University had operated at a deficit despite annual rounds of budget reductions expressed as savings targets. Because Edinburgh had quite large private endowments and substantial reserves (built up from surpluses in earlier years), it had approached the need to bring income and expenditure into balance more slowly than had most other universities. A phased programme of staff reductions was intended to bring the University out of deficit and to achieve a balance of income and expenditure in the 1989/90 academic year. A s a result of a nationally

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negotiated salary increase for academic staff agreed during that year, it was accepted late in 1989/90 that a deficit was again likely, probably rather more than £1 million. It remained the intention to break even in 1990/91.

The fundamental reason for the University's problem was that it had in fact not reduced its expenditure on the scale necessary to match its current and prospective future income, and did not have in place adequate financial reporting arrangements to ensure that this position was clear to senior managers.

There were not detailed budgets for all parts of the University, with planning and resource allocation largely being conducted and expressed on an incremental basis, that is by reference to changes to the existing allocation (e.g. a requirement to reduce expenditure on staff by a specified figure). Financial control and monitoring were poor, and not consistently applied. Too little account was taken of actual financial performance and too m u c h attention paid to forecasts of income and expenditure. The information provided by the Finance Office to those areas with budgets was of very limited help to them in keeping their expenditure within those budgets. The following narrative sets out h o w the budget crisis unfolded. Appendix 1 summarizes this and subsequent events for ease of reference.

Towards the end of the 1989/90 academic year, in July 1990, after the appointment of a n e w Director of Finance, it became evident that the financial position was considerably worse than had been thought. Within a few weeks it was apparent that instead of a deficit of over £1 million in 1989/90, a deficit of over £3 million was likely. The position was reported to senior officers and to relevant committees. In view of the major change which this n e w information represented, it was decided to ask the firm of commercial accountants w h o act as the University's Internal Auditors to review the position. They were able to indicate h o w earlier forecasts had been in error, and they confirmed the deficit then forecast for 1990/91.

However, over the next few months, in the light of emerging information, the position progressively worsened. Eventually the formal accounts for 1989/90 showed an operating deficit of £6.3 million when published in January 1991. At the same time, the forecast position for the then current year, 1990/91, became substantially worse, mainly as a result of serious underestimation of salary costs; by January 1991, an

7


operating deficit of £5.4 million seemed to be in prospect for that year. The reasons for the worsening of the position in each of these two years were not totally the same. The difference between the forecast £1 million deficit and the actual £6.3 million in 1989/90 is mainly accounted for by the inclusion of a major item of capital expenditure (on a new telephone system), underestimation of salary costs and non-salary expenditure, overestimation of investment income, and a different treatment of some endowment funds and inclusion of the full deficit arising from the student residences account reflecting the professional views of the n e w Director of Finance. The prospective deficit for 1990/91 arose largely from different factors, mainly recurrent, such as the result of nationally agreed salary settlements being higher than the modest assumptions previously m a d e by the University, adoption of more realistic assumptions about future salary increases, loss of investment income on cash balances, the appointment of n e w staff, including several full Professors which had been authorised previously because it was then believed that the University was emerging from its financial problems, bank interest charges, and also inclusion of the residences deficit.

At the same time, i.e. from mid-1990 onwards, the cash held in the University's bank account declined rapidly, reflecting the large budget deficit. B y early 1990/91, the University's account was operating in overdraft, by arrangement with the University's bankers, w h o needed to be convinced that the University had sound plans for recovery.

The 1989/90 deficit wiped out the University's accumulated surplus (i.e. its reserves) which had been running d o w n in the late 1980s as explained above. The reserves were minus £6.9 million at the end of the 1989/90 academic year. The forecast 1990/91 deficit would have taken the reserves to almost minus £10 million.

This initial period of discovery of a serious financial problem, and then a growing realization that it was m u c h worse than initially thought, was traumatic for the University collectively and for individual officers responsible for dealing with the situation. The situation was m a d e worse by the leaking of information to the press. Being located in the capital of Scotland, the University's affairs tend to c o m e under close scrutiny from the Scottish press - certainly more so than most other universities.

T o summarize: in late 1990 the University found itself with a budget deficit of £6.3 million for the year which had just ended, a forecast deficit of over £3 million for the current year, which seemed to increase

8


every time it was reassessed, no cash in the bank, and with staff demanding to k n o w what had gone wrong and what the senior management were going to do to retrieve the situation.

IV. The Initial response to the crisis

A s soon as it was evident that the University faced severe financial problems, in early October 1990, the Principal established a small task force comprising the Senior Vice-Principal, the Secretary to the University, the Director of Finance and the Director of Planning, aided by the Senior Management Accountant and the Director of Planning's deputy. It was charged with:

(i) investigating the background to and reasons for the situation; (ii) recommending action to deal with it.

The task force reported regularly to the Principal and through him to the Planning and Resources Committee, Finance Committee and Court.

B y mid-October the task force had secured approval for a package of emergency measures intended to arrest the decline in the University's finances and to allow some time for investigation of the reason and formulation of more structured proposals. It was intended to defer preparation of a more detailed recovery plan until March 1991, by which time the University was due to be notified of the outcome of a major planning exercise conducted by the Universities Funding Council (the body which allocates government funding to universities) covering the period 1991/92 to 1994/95.

The immediate emergency action taken in October 1990 was

e a freeze on all n e w appointments: thus any post which fell vacant could not be filled;

° reductions in budgetary allocations for non-staff expenditure to academic departments and support services; a freeze on capital expenditure (building work) except in cases of inescapable commitments; a freeze on expenditure from balances accumulated by departments and other units under the then existing financial procedures.

9


The freeze on appointments and on expenditure from balances, which was contrary to the University's devolved system of decision-making, was subject to appeal. The Appeals Group comprised the Principal and Vice-Principals. It considered proposals put forward by Deans of Faculties on the basis of stringent criteria related to academic damage, fulfilment of external commitments and obligations to students, and damage to the University's capability to generate external income.

Immediate steps were taken to inform the University community of the situation and the action to be taken. Unfortunately, as indicated above, the situation was leaked to the press twenty-four hours before the internal newsletter was due to be circulated to staff. A series of meetings was arranged across the University at which the Principal, accompanied by senior colleagues, explained the position to staff and students and responded to questions.

At a very early stage, the situation was reported to the Universities Funding Council. That body is not responsible for the management of individual universities, but is required to satisfy itself that the universities to which it provides public funding are able to deliver the teaching and research for which that funding is intended. It is empowered to require specific actions to secure this objective if it believes a university is not doing all it can on its o w n initiative. The Council's officers visited the University immediately, and subsequently have visited on five further occasions. The University was required, and is still required, to submit quarterly reports to the U F C on its position, and the progress being m a d e with recovery. The U F C s officers have invariably been helpful and constructive in their dealings with the University, whilst leaving responsibility for solving the problems with it. They have not been able to suggest any significant action which the University had not already taken or was actually considering. The U F C did not use its powers to require the University to take any specific actions. The University did not seek, and was not offered, any special financial assistance from the U F C .

In view of the obvious failings of previous programmes to reduce expenditure and of associated financial control arrangements, simplified control and monitoring arrangements were put in place based on monthly reports of numbers of staff and expenditure on salaries and wages. Investigations began of ways of making radical improvements to the University's financial information systems.

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It was recognized that these initial actions would not impact uniformly across the University, because the pattern of staff losses would be random, with higher turnover in some areas than others. Therefore, a clear commitment was m a d e to rebalancing the pattern of the University's activities once financial stability had been achieved.

The final initial response to the crisis was for the Principal to initiate a reappraisal of the University's management structure and the roles of individual officers and committees. A n earlier review, carried out under the previous Principal in the mid-1980s as part of a national study of the efficiency of university administration and management (the Jarratt report) had been critical of Edinburgh's structure, but little action had been taken by the University in response to those adverse comments. The reappraisal initiated in late 1990 was initially confined to senior officers, and only subsequently involved wider consultation. W e return to this topic later in this paper.

Vo The longer-term response: preparation of a financial recovery plan

The actions described above were all taken in the autumn of 1990. This stringent series of measures allowed some time for more considered steps to be planned. It was decided that a more detailed and carefully constructed recovery plan should be finalized once the outcome of the major planning exercise being conducted by the U F C was k n o w n in February or March 1991. It was possible that this could offer substantial relief of the University's problems, or m a k e them even worse.

Meanwhile, over the period from October 1990 to February 1991, it became evident that the financial situation was m u c h worse than previously recognized. The full extent of weaknesses in the financial and personnel information systems and salary forecasting became apparent. In February 1991, despite the emergency action taken in October 1990, a revised deficit budget for the then current year, 1990/91, of £5.4 million was forecast unless further remedial actions were taken. It was recognized that the deficit which should have been forecast at the beginning of the year, before the emergency action had been taken, was approaching £7 million, rather than the actual forecast at that time of £3 million.

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W h e n the outcome of the U F C ' s national planning and funding exercise became k n o w n in late February 1991, it was recognized that the result for Edinburgh was a little worse than the average for the United Kingdom as a whole. This m a d e the University's problems a little more difficult, but not dramatically so. There was n o w an urgent need for the University to prepare a full recovery plan, setting out h o w it would achieve financial stability. Because it was necessary to rebuild the University's reserves, which were expected to be minus £10 million by the end of 1990/91, it would be necessary to operate at a surplus for several years.

The recovery plan was drawn up over the period M a r c h - M a y 1991 by the task force established by the Principal. It reported regularly to him, and consulted Deans individually and collectively. The Finance Committee approved the overall financial objectives and, subsequently, the final plan, which was also formally approved by the Court.

In preparing the recovery plan, the University adopted the following policy statement:

"The fundamental priority must be to preserve and protect the core of the University's academic reputation in teaching and research. This will have the following consequences: activities not related to the University's main-line academic purposes will need stringent review, evaluation of costs, and dispassionate assessment of their real value; w e must be prepared to cease supporting areas of weakness in teaching and research if our areas of strength are being put at risk - breadth is academically unsound if it is synonymous with shallowness. The implication of such an approach is that the University would seek to remain a high-quality institution with particular research strengths, but would accept a reduction in the range of its academic activities to secure a higher overall level of achievement."

The process of setting specific financial targets was iterative: realistic assessments had to be m a d e of the scale of income increases and expenditure reductions which were possible and the rate at which they could be achieved. Prospects for selling some major assets to raise capital were also assessed. The outcomes then had to be tested to examine the impact on cash flow and on the accumulated deficit. The

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University was anxious to set targets which were achievable but aimed at recovery in the m i n i m u m possible time. The overall financial targets eventually adopted were:

° to break even, i.e. for the operating budget to be balanced, or better, in 1993/94;

• to reduce the accumulated deficit to no more than £4 million by the end of 1993/94;

a to maintain an operating surplus of £1.5-£2 million in 1994/95 and thereafter and to be on course to rebuilding reserves to £10 million by the end of the decade.

Taking account of (i) a recent government decision to increase Value Added Tax by one-sixth at a cost of £0.5 million per annum to the University; and (ii) planned reductions in future government expenditure on universities of about 1.5 per cent per annum measured in real terms (i.e. allowing for inflation), which if applied uniformly would cost Edinburgh approximately £1.05 million per annum, cumulatively; the broad conclusion was reached that if those targets were to be met, the balance between annual income and expenditure needed to be improved by almost £11 million by 1994/95. This figure was so large because of the combination of the University's current budget deficit, the prospect of future reductions in government spending on universities, and the need to have budget surpluses for several years in the future in order to rebuild reserves. T o achieve this objective would be a major challenge indeed. The detailed operating targets, year by year, are given in Appendix 1.

In setting these targets, the approach taken was to make cautious assumptions about the University 's capacity to increase its income, for example by increasing student numbers, and about its capacity to reduce non-staff expenditure. The remaining gap would then need to be filled by staffing reductions, over the m i n i m u m practicable period. Then once the plan was operating, if the actual increase in income or reduction in non-staff costs were to be greater than the assumptions made , it should be possible to consider reducing the number of staff losses.

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The main specific elements of the recovery plan were:

(i) Increases in income

Intakes of students from the United Kingdom were to be increased by 15 per cent over previous levels. This would result in an increase of fee income of £2.85 million by 1994/95. There were sound reasons to expect that this increase in intakes and therefore in income could be achieved because demand for entry was high. Government policy had recently changed, and it was n o w actively promoting increased participation in higher education, at marginal costs. The University had not increased recruitment of students as rapidly as m a n y others in the United Kingdom, and for this reason its funding from the Universities Funding Council had fallen behind. In other words, it had failed to recognize the competitive nature of U F C funding.

Intakes of students from overseas (non-EC countries) were also to be increased, by 80 per cent if possible. The University has historically attracted far fewer students from overseas than most other United Kingdom universities, and an increase of 80 per cent would take Edinburgh only to the national average level of recruitment. These students pay m u c h higher fees than United Kingdom students, but because recruitment is highly competitive, difficult and uncertain, the recovery plan m a d e no advance assumption about financial benefit from this source.

Similarly, it was recognized that the University should generate more income from short courses (post-experience vocational education), from research contracts placed by industry, commerce and government agencies, and from staff consultancies. Whilst a substantial volume of activity took place in these areas, the attitudes of funding bodies and the University's pricing policies were such that relatively little freely disposable income was derived from it. Again, because of uncertainty over the success of these steps and the highly competitive nature of the market, no advance financial benefit was assumed in the recovery plan.

For m a n y years, as a matter of policy, the University had operated its student residences in such a way as to minimize rents for students. In particular, new residences had been built with loan finance, with the interest charges being deferred in the early years. For accounting purposes the deferred interest is treated as being spent from the

14


University's general funds year by year. This policy contributed approximately £0.9 million to the University's budget deficit, and it was decided to eliminate this over the three years of the recovery plan, and to aim for a surplus of £0.1 million on the residences account by 1994/95. This would be achieved in part by cost reductions in the residences and in part by increasing rents. This increase in income was included in the financial recovery plan.

The University has substantial endowments received from benefactors over its long history, which total approximately £60 million. Unfortunately, these were almost entirely given for specific purposes, and use of the investment income derived from them is legally restricted to those purposes. They were thus of very limited help in dealing with the financial situation, although it was possible to use £1.3 million of general endowment funds to help reduce the 1990/91 deficit and, by careful management, it was also possible to identify ways in which income from specific endowments could be used in substitution for existing expenditure, at a saving of £0.2 million per annum.

Edinburgh has been amongst the leaders of United Kingdom universities in establishing arrangements for generating financial donations from its graduates (alumni) and from other agencies including charitable trusts and industry and commerce. However, nearly all of the income also is given for specific academic purposes and has to be spent on those purposes. It cannot be used to replace existing expenditure from general funds. A s part of the recover}' plan it was decided to levy an administration charge (of 8 per cent) on such income and to give priority of emphasis to generation of n e w income which the University could use for general purposes. Success in this venture was far from certain, because donors are more willing to give in support of specific projects rather than to help eliminate a budget deficit, and so no benefit was assumed in the recovery plan.

(ii) Sale of assets

In order to prevent the accumulated deficit becoming unmanageably large, and to provide capital funding to meet the costs of early retirements and voluntary redundancies (see below), it was agreed that asset sales of £11 million should be sought within three years. This would include land and buildings, works of art and valuable items from the

15


Library of very limited academic utility. S o m e of these proposals, especially the sale of Library items, faced severe opposition from some parts of the University, but the necessary agreement was secured by firm management leadership. It is an essential part of the recovery plan that capital should be raised in this way . In effect, by so doing the University was 'buying time' in which the other measures could take effect. It was fully recognized that asset sales by themselves would not solve a recurrent budget problem.

(iii) Reductions in budgeted expenditure

In addition to reductions m a d e as part of the initial reaction to the final crisis, further reductions in non-staff budgets (for example on departmental support grants, library expenditure, heating and premises maintenance, administrative costs, staff and student services) totalling £1 million were made .

Because the effects of the recovery plan would include elimination of the University's overdraft at the bank and rebuilding of cash reserves, this would generate a further saving because the need to pay interest on that overdraft would be eliminated. This was calculated as amounting to a saving of £0.4 million by 1994/95.

The University has m a n y activities which might be viewed as not being central to its main functions of teaching and research, such as an art gallery, collections of historic musical instruments, and a large physical education unit with a field station in the Scottish Highlands, and also a number of quasi-commercial activities which have sprung up from specific activities, principally based on application of research outputs. It was agreed to review all these items in order to ascertain their importance to the University, their costs and benefits, and whether greater financial contributions from them could reasonably be expected. Meanwhile, no advance assumption of financial benefit was m a d e in the recovery plan.

The overall impact of these actions, taking the cautious approach described above, could be summarized as having the following effect by 1994/95 (see Table 3)

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Table 3. Overall impact 1994/1995

Increased income £ million

Student fees 2.85 Residences account 1.0 Endowments 0.2

Budget deductions Non-salary expenditure 1.0 Saving in interest payments 0.4

Total improvement: £5.05

The remaining savings, approximately £ 6 m , would have to be from staff. It was n o w apparent that the University's student:staff ratio (SSR) was approximately 10 per cent higher than for the United Kingdom as a whole - i.e. Edinburgh had about 10 per cent more staff than its student numbers would justify at current government funding levels.

It was concluded that the £6 million would need to be found from staff savings over three years, which was judged as the min imum time-scale on which this could be achieved. It was agreed that the University should plan on that basis, unless and until further increases in income or other savings measures could be identified. This comprised approximately 10 per cent of the University 's expenditure on staff met from general funds.

Staff reductions on this scale posed formidable problems. Nearly all of the academic staff and senior support staff have contracts of employment which give them full security of tenure. Thus, if the University were to try to terminate their contracts through redundancy, they would be able to bring a legal action for breach of contract. The University took legal advice from eminent lawyers, and was advised that in such circumstances the law courts would probably award very substantial compensation to staff.

Other staff do not have this security of tenure, but these are more junior staff and are lower paid. Attempting to secure the savings from this source alone would have caused major internal disruption, including

17


possible industrial action, and would have left the University with so few support staff that it would not have been able to function properly.

The ways open to the University to reduce staff were:

e to continue to freeze vacancies as they arose, with appeal; e not to renew the contracts of those staff on fixed-term appoint

ments, w h o do not have tenure and comprise a sizable minority of academic staff;

e to persuade older staff to take early retirement or voluntary redundancy. The capital cost to the University of such action can be quite high because of the need to pay compensation to staff or to the pension scheme, and a normal m a x i m u m cost of two years' salary was agreed. Cases which would cost more than this are not normally approved.

Analysis of prospective staff losses showed that it was just possible that the necessary losses could be found without resorting to compulsory redundancy. However, it was made clear within the University and to the outside world that if redundancy became necessary, the University would pursue it. It was also made clear that if increases in income could be secured beyond the cautious increases included in the recovery plan, this should reduce the need for staff losses.

VI. Actions considered but not taken

It is worth noting three actions which were considered when the recovery plan was prepared, but rejected by the University unless they became unavoidable.

The first is compulsory- redundancy, which was not pursued for the reasons given above.

The second was to increase the tuition fees charged to United Kingdom students. It needs to be explained that the United Kingdom government pays the fees of nearly all undergraduates and postgraduates from the United Kingdom (and other E C countries), up to a m a x i m u m level set by the government. Universities are, in theory, free to charge students higher fees, but the extra cost would need to be met by the student or his/her family. With some very minor exceptions, no university has yet charged fees higher than the government will meet,

18


but the possibility that such 'top-up' fees could be charged remains a live issue in the United Kingdom, because of declining government funding for universities. Edinburgh rejected this course of action in 1991 for three reasons:

(i) as the only university to be charging such fees, this would have been to the University's competitive disadvantage, reducing demand for places at Edinburgh at a time when the University needed to increase its intake of students;

(ii) unless very high fees were introduced, the financial benefit would have been too little and too late;

(iii) this action would have provoked very severe criticism internally and externally and thus have been politically unwise: if and w h e n such fees are introduced, the need for them must be seen to arise from lack of government funding, not from a financial crisis largely of a university's o w n making.

The third action contemplated was not to pay salary and wage increases to staff. It needs to be explained that nearly all salary and wage bargaining for the employees of United Kingdom universities is conducted at national level, with individual universities being bound to the agreements reached through their membership of the employer's negotiating body. This system is under great strain because the government's policy of differential funding for universities means that some universities can afford quite large increases whereas others can only afford small increases. It seems likely that the system will break d o w n within a few years. In 1991, Edinburgh had to consider whether it would become the first university to fail to implement a national salary agreement. The effects of withholding salary increases, or part of them, on both a temporary or a permanent basis were closely investigated, and the possibility was explained to the University community. The financial benefits could have been quite considerable - a 1 per cent increase in salaries costs over £0.6 million per annum. So, withholding, say, a 6 per cent increase would reduce by more than half the number of staff losses required. In the event, no such action was taken, for the following reasons:

19


• it would have impacted most on lower-paid support staff, w h o were in no w a y to blame for the budget crisis;

° it would have badly affected staff morale, and might well have resulted in industrial action by at least some staff unions;

• it would have badly damaged the University's reputation and ability to attract good staff once it had achieved financial stability;

• there were doubts as to the legality of such action in view of the contracts of employment held by some groups of University staff.

The University's stance remains that it intends to implement nationally agreed salary increases, but if doing so would seriously damage the prospects for financial recovery, it will have to review the position.

VII. Implementation of the recovery plan

A detailed schedule was drawn up, setting out the time-scale for achievement of objectives, and specifying the individuals with personal responsibility for their achievement.

The apportionment of the increase of 15 per cent in undergraduate intakes had been agreed as part of the process of drawing up the recovery plan, through consultation with Deans. N o significant increase was possible in the Faculty of Medicine, because of government quotas, but otherwise the increase was spread fairly uniformly across all Faculties. The only area in which some doubt existed about achieving these targets was the Faculty of Science and Engineering. A number of Faculties, or areas within Faculties, suggested that they be given higher target increases in undergraduate intakes and thus lower staff reduction targets. They were told that the University's formal plans would not be altered in this w a y at that time: rather, if those Faculties/areas did actually achieve even higher increases in student numbers than planned, then the need for staff losses would be reviewed. It was emphasized that increases in student intakes should be so organized within Faculties as to avoid generating demands for additional resources. Admission of students occurs in October, and, in the event, nearly all Faculties exceeded their intake targets in October 1991 and increased their intakes of postgraduates and students from overseas. Subsequently, further increases in target intakes were agreed with Deans for October 1992 admissions.

20


The required staff losses, totalling £6 million by 1994/95, the equivalent of 210 staff if expressed solely in academic posts, were allocated across the eight Faculties and the support services in such a w a y as to aim for a pattern of staffing in 1994/95 reflecting the funding attracted by each part of the University through the U F C ' s funding formula and student fees. That is to say, two objectives were sought -first, to reduce the number of staff and second to redistribute posts so as to achieve a more appropriate balance across the University. Milestone target losses were set for each part of the University and for each year of the recovery plan.

The process of determining the allocation of staff losses across Faculties could easily form the topic of a separate paper. In essence, target staffing levels were derived mathematically on the basis described in the previous paragraph; the outcome was notified to Deans, and their comments on the implications requested. These were discussed in a series of individual meetings with the Deans, and final staffing targets were set by the newly formed Principal's Executive Group.

Progress towards staff reductions is monitored monthly by senior officers, and there is a formal review each quarter by the n e w Central Management Group. Decisions as to where staff losses should occur within their Faculties and the balance between types of staff are m a d e by the Deans. It is assumed that any post which falls vacant for any reason will not be filled, but it remains open to Deans to submit appeals for key posts to be filled in accordance with the criteria described previously. This is not meant to imply a totally random process. In some parts of the University there is sufficient staff turnover to enable losses to be managed to a significant degree. In other parts of the University this is not the case, and the University is willing if necessary strongly to encourage individuals to take early retirement or voluntary redundancy to ensure that targets are met. In order to ensure that, overall, the required number of losses would be achieved at each annual milestone, the University has been willing to adjust the distribution of required losses between Faculties on a temporar}' basis.

Asset sales have been vigorously pursued, at times against quite vociferous internal and external opposition. It has been necessary to take legal steps to verify the University's right to dispose of certain items, which has resulted in slower progress than originally planned. Moreover, the state of the United Kingdom economy has resulted in slower sales of

21


buildings and land than was intended w h e n the recovery plan was prepared.

The University community has been kept informed of developments via internal newsletters, meetings for students and staff with the Principal and senior officers, and through major committees such as Senate and Court.

The current position (i.e. towards the end of the 1991/92 academic year) is more favourable than had been expected. There has been excellent progress with student recruitment, resulting in increases in fee income of over £2 million more this year than was assumed in the recovery plan. This level of recruitment will ensure further increases in fee income in future years. Staff reductions are being secured by voluntary means on the scale necessary to meet the first milestone. The University has received an increase in its funding from the U F C for next year, 1992/93. The only area of significant difficulty has been the disposal of assets which, as indicated above, has progressed more slowly than hoped. Currently asset sales of over £4 million have been achieved, and the University is very hopeful of making further progress in the next year.

It is too early to offer a more detailed appraisal of the effectiveness and the impact of the recovery plan. O n e obvious area of concern is the impact on the quality of teaching and learning of the increase in student numbers and the decrease in staff. At Edinburgh, it is primarily for Faculties to manage academic quality, although the University 's central authorities, especially the Teaching Committee, the Research Committee and the Academic Audit Unit, play a co-ordinating role and ensure that University policies are observed. It was thus m a d e clear to Faculties that these changes in student and staff numbers would need to be managed in such a way as to minimize any damage to academic quality, whether in teaching or research. They were asked to think imaginatively about more flexible and efficient teaching, and reminded that overall Edinburgh's student:staff ratio was 10 per cent above the comparable national figure. The planned student and staff number changes would probably result eventually in an S S R approximately equal to the national average, given that nearly all other universities are also rapidly increasing their student intakes. There is, of course, a commitment to repatteming staffing levels as part of the recovery plan in due course.

22


It is inevitable that the increase in student numbers will bring pressures on other resources, such as teaching accommodation and the Library. The first of these issues is being addressed mainly by more efficient use of space, and also through expenditure on minor building works included in the recovery plan and, fortunately, through special U F C minor works funding m a d e available, on a competitive basis, to all United Kingdom universities to enable them to admit extra students. Fortunately, the University's Main Library building is very large and can cope with increasing student numbers (but some of the dispersed libraries are not in this fortunate position). The pressure on library books and periodicals is very great, and the University is giving high priority to identifying some additional funding for the Library in the light of the good progress being m a d e with the financial recovery plan (see below).

T o some extent it is the case that the expansion of student numbers and decrease in staff numbers has proceeded without detailed planning of the full consequences. Rather, the University is seeking to address these according to where pressures actually arise. This is less than desirable, but it is important to recognize that the University had no other option: it was faced with a very serious financial crisis, and if it had not voluntarily m a d e these changes at short notice, the U F C would have forced it to do so. Moreover, by national standards the University was overstaffed and over-provided with accommodation.

It has also been argued that the University proceeded on its recovery plan without a clear underlying strategy. This is, in part at least, fair. The University took a fairly short-term view, believing there was general consensus for the need to emerge from the crisis with m i n i m u m damage to teaching and research in the quickest practicable time. A s part of this process, it was recognized that it might well be necessary to reduce the range of activities undertaken at Edinburgh. T o the senior management, this was a sufficient strategy to inform the preparation of the recovery plan. But there is a contrary view to the effect that time should have been taken more formally to review the University's strategy before the plan was prepared. In fact that is an issue n o w being addressed as part of the n e w planning and budgeting arrangements mentioned below.

Very recently, the University formally amended the recovery plan to bring forward by one year the date for achieving financial stability and to reduce the total staff losses required by 25 per cent. This is possible because the increased student intakes appear very secure for future years.

23


There is every prospect that the University will budget for a surplus in the 1992/93 academic year. Tight financial control is being retained, and the pressures arising in some parts of the University as a result of decreasing staff numbers and increasing student numbers are indeed severe. Because of the good progress being m a d e , it is currently the intention to make funding available on a highly selective basis in the coming year to address the areas of greatest pressure. A programme of rebalancing resources will be needed for a number of years, not least to ensure that the University's capacity for high-quality research, which is a fundamental element of its mission, is not damaged to a greater degree than is avoidable.

VIII. Changes to the University's management processes and organization

The University's budget crisis was a very severe symptom of a deeper problem, namely inadequate management processes and procedures. This was recognized at an early stage, and was addressed separately from, but in parallel with, the financial crisis.

At an early stage it was recognized that the University had too m a n y committees, with unclear and/or overlapping areas of responsibility and lines of communication. The roles of committees and of individual officers often overlapped. Committees which might, in theory at least, have foreseen the financial crisis had not done so. A s a consequence, there has been a distinct shift away from collective responsibility through committees to individual responsibility for senior officers. The Planning and Resources Committee and the Estates and Buildings Committee have been disbanded. The Vi ce-Principals have been given executive responsibility in specific areas by delegation from the Principal. The Deans have been recognized as the academic managers of their Faculties. T w o n e w management groups were formed, namely the Principal's Executive Group (comprising the Principal, Vice-Principals, Secretary, Deputy Secretary, Director of Finance and Director of Personnel) and the Central Management Group (comprising the Principal's Executive Group plus the Deans). Whilst these changes were of assistance in securing rapid agreement to key elements in the recovery plan, they were recognized as addressing only part of the problem. Consequently, the University sought advice from a firm of management consultants specialising in higher

24


education (Coopers and Lybrand Deloitte) and commissioned a review of the senior management structure and processes, including these recent changes themselves.

This work by the consultants was of particular help to the University, not only through the formal report which resulted from it but also through the individual discussions between senior officers and the consultants. The consultants m a d e a number of key recommendations, which included the:

• need for the Court (i.e. the University's governing body) to take a more active role in determining the University's strategy and plan and monitoring its performance;

• need for the membership of Court to include more people from outside the University with relevant experience, and fewer members nominated by interest groups; need for an effective working interface between the senior management of the University and the Court, with the Finance Committee being adapted to a Finance and General Purposes Committee for this purpose;

• strong desirability of grouping the eight Faculties, very disparate in size, into four or five groups of approximately equal size; for the head of each group of Faculties to serve as a m e m b e r of the Central Management Group, which would subsume the role of the Principal's Executive Group. The Central Management Group would thus comprise the senior managers and budget-holders responsible for all parts of the University. It would prepare annual plans and budgets and monitor performance against them, with individual members being accountable for performance in the areas for which they are responsible;

e need for further detailed study by the consultants of: (i) the University's financial control mechanisms; (ii) the academic m a n agement structure, to prepare more detailed recommendations regarding the grouping of Faculties, and covering the roles of Faculty Groups, departments and their officers; (iii) planning and budgeting arrangements; and (iv) the structure and management of the support services.

25


It is not unusual for consultants to recommend further work which they believe they should perform - and be paid for, of course. However, the University was convinced of the importance of these additional studies, and items (i), (iii) and (iv) went ahead, with item (ii) being handled by an internal working group.

The financial control study was the first to be completed, and is n o w being implemented. It enables the University to draw a clear distinction between restricted funds (which have to be used for a specific purpose) and unrestricted funds (which it is free to deploy as it wishes), and to achieve strict net expenditure control over funds of either type. It depends upon provision to budget-holders of timely and accurate information on expenditure to date against budgets, w h o are then expected to report up the management chain on significant deviations from budgets, and take the necessary corrective action.

The academic management study is largely completed. Agreement has been reached on the grouping of the eight Faculties into four Faculty Groups, each headed by a Provost w h o will be a m e m b e r of the Central Management Group. Within each Faculty Group, departments will be grouped into planning units of approximately equal size. Other consequential changes, including job descriptions for all office-holders and changes to the administrative support arrangements, are n o w being progressed.

The planning and budgeting study is completed, and is linked in with the changes to the academic management structure mentioned above. A new devolved system will be introduced in the next academic year. Initially this will require a statement of the University 's strategy for the next five to ten years, which is currently being formulated through widespread consultation. From this strategy, central guidance on planning principles and parameters for the next three years will be formulated and passed d o w n to Faculty Groups and hence to planning units. The planning units will then produce costed plans which will be aggregated, and prioritised by Provosts, and then passed up to the Central Management Group for final consideration, synthesis and approval. Because the plans have been costed at all points during the preparation, budgets associated with approved plans will then be prepared relatively easily, and passed d o w n the chain to Faculty Groups and planning units. It is intended to give Faculty Groups and planning units the m a x i m u m discretion in the use of their budgets, as is consistent with the University

26


remaining fully in control of its expenditure. In view of the difficulties through which the University has passed, it is likely that some form of central control on staff appointments will be retained for the time being.

The review of support functions, which covers all academic services, administration, and student and staff services, is nearing completion. Little can be said about its impact at the present time, but clearly the outcome is expected to be consistent with the other changes currently under way.

A s a result of agreed changes, the principal bodies responsible for the University's affairs with effect from 1st August 1992 will be as shown in Graph 2.

Central Management

Group

Finance and General Purposes

Committee

Staff Committee

Audit Committee

(This m a y be compared with the position in 1990, shown in Graph 1). * The dotted lines m e a n transmission of information/submission of recommendation and the straight lines mean formal reporting routes.

27


This process of seeking to achieve changes to the management structure and processes of the University at a time of severe financial difficulty has not been without its problems. The University has a long tradition of democratic collegiality, and there have been fears that this will be eroded, through the exercise of greater power by senior managers w h o are not accountable to bodies such as the Senate. There have been concerns that the identities of Faculties which have existed for over two hundred years will be lost, with attendant damage to the external image and perception of the University. Also, there has been concern that the appointment to the Court and its Finance and General Purposes C o m m i t tee of greater numbers of individuals from outside the University, with backgrounds in industry and commerce, win have a distorting effect on the Court's work and attitude to the academic functions of the University. These concerns have all had a degree of legitimacy, and each has had to be answered in such a way as to reassure the University community of the wisdom of proceeding in the intended direction. A key element in persuading members of the University that this is the correct approach has been the prospect of greater discretion, with accountability, at departmental/planning unit level in the use of resources in pursuit of agreed plans. This devolution of responsibilities is seen as a major positive opportunity in m a n y parts of the University, provided that central offices can provide departments and planning units with the necessary financial information to enable them to fulfil their responsibilities.

IX. S o m e reflections on the University of Edinburgh's experience in handling its budget deficit

These reflections fall into three areas: ways in which the budget deficit could have been avoided, or at least reduced; the process by which the problem was addressed; and the content of the recovery plan and other actions taken to remedy the situation. It is for readers to decide whether, and to what extent, these views are relevant to their o w n universities.

1. W a y s in which the budget deficit might have been avoided

This paper has not gone into very great detail about the reasons for Edinburgh's financial problems. They were essentially a failure of

28


management, both of management systems and on the part of some individuals. The detailed background is not especially relevant to an understanding of the w a y in which the University sought to recover from the situation. However , major contributory factors included:

(i) a failure to ensure close linkage between academic and financial planning and to recognize that virtually all academic decisions carry resource implications; associated with;

(ii) absence of robust planning and budgeting arrangements, linking budgetary allocations to agreed plans, and monitoring performance against them; this in turn being linked to;

(iii) absence of effective financial control arrangements, under which all items of expenditure would be covered by approved budgets with designated individuals as the budget-holders, individually responsible for ensuring that budgets are adhered to (or able to explain w h y this is not possible because of external forces);

(iv) an over-reliance on forecasts of income and expenditure, instead of close monitoring of actual figures, both during the financial year and at the end of it once the final accounts were available;

(v) failure to monitor adequately external factors such as developments in government funding policies and their effect on the University, and performance indicators such as levels of resource utilization at Edinburgh as compared with at other universities, available from published information;

(vi) absence of effective internal information systems and communi cations, both between different central offices and between central offices and academic departments;

(vii) absence of effective mechanisms and expertise to allow senior officers to detect the problems at an early stage.

29


T h e processes by and through which the problem w a s addressed

The following were found to be helpful in dealing with the situation:

(i) Taking all possible steps to keep the University community informed of the position, and explaining as frankly as possible the reasons for it, through internal newsletters, meetings for students and staff, and private briefings for key individuals and trades union officers. It was important at meetings with students and staff for the Principal to be seen to have the support of his senior officers, and for them to be able to explain the more complex or technical issues where necessary.

(ii) The use of small 'task forces' to address particular aspects of the problem, provided their work is co-ordinated and provided that they are disbanded when their work is complete. In our particular case w e were fortunate in being able to involve a number of senior officers w h o were n e w to the University, and w h o could therefore take a more dispassionate view of the problem and its causes. Those of us w h o had served for longer periods with the University often found it more difficult to come to terms with the severity of the problem and its origins.

(iii) The value of informing the relevant authorities (in our case the Universities Funding Council) of the nature and extent of the problem as soon as they were known , rather than attempting to keep it hidden from them.)

(iv) The use of external consultants in w h o m w e had confidence to help address certain aspects of the problem, where University officers lacked the professional expertise and/or were too closely associated with current unsatisfactory arrangements.


3. T h e formulation and implementation of plans to recover from financial difficulties

Our experience leads to the following observations:

(i) A s far as possible, plans should reflect the outcome of wide consultation within the University and thus c o m m a n d a wide degree of support; this does not preclude early emergency action to address the problem. Consultation should not become an excuse for procrastination, and there comes a point where it is the role of senior management to give leadership and to act decisively.

(ii) Plans should be tough but achievable. There is little point in setting unachievable plans, whereas achievement of tough objectives, and especially early achievement, is likely to boost internal morale and impress external bodies.

(iii) Plans should include a contingency element to allow for unforeseen circumstances. If, through good fortune, this is not needed, then there will be the resultant benefit of early achievement of objectives.

(iv) Plans should be formulated so as to indicate the time-scale for achieving each element and the individual w h o is to be responsible for this.

(v) The University should be willing to spend some money if necessary to ensure successful implementation of the plan, for example in order to strengthen key support functions, to invest in activities which will generate income in the future, or to ensure that essential areas of teaching or research do not collapse.

(vi) Internal management structures and processes should be such as to facilitate achievement of plans, and good information systems will be necessary at all levels. People cannot be

31


expected to deliver success if they are not given the tools to do the job.

(vii) It is m u c h to be preferred for plans to be based on a preexisting strategic view of the University's mission, reflecting its strengths and the particular contribution it is able to m a k e to society.

X , Conclus ion

The University's budget problems were largely of its o w n making. Through its o w n efforts, the University has made substantial progress in overcoming them. It is putting in place new management arrangements intended to ensure that such problems could not arise in the future. This process has been difficult and at times painful. There have been tensions within the University which have not been easy to resolve, and which have left a residue of uncertainty and anxiety which remains to be overcome. It is n o w the responsibility of senior management to heel those wounds, and to ensure that the University is fully restored to academic vigour and strength as well as being financially secure.

32

Appendices

Chronology of the events described in the paper

June 1990: Budget deficit of over £ l m forecast for 1989/1990.

July 1990: N e w Director of Finance starts to have concerns about the accuracy of this forecast.

31st July 1990: End of 1989/1990 financial year.

1st August 1990: Start of 1990/1991 financial year: work starts on preparing the Accounts for 1989/1990.

September 1990: Director of Finance expresses serious concern about financial position. Budget deficit of at least £3 million for 1989/1990 seems likely.

October 1990: Task force established: recommends emergency action to address the financial situation. Deficit for 1989/1990 n o w clearly over £3 million. Deficit for 1990/1991 likely also to be over £3 million: confirmed by external firm of accountants w h o act as the University's Internal Auditors. University community informed of the position.

Nov /Dec 1990: W o r k proceeds to implement the emergency action and to understand the reasons for the problem. Internal discussions on changes to the management structure commence.

January 1991: Final Accounts for 1989/1990 published and show an operating deficit of £6.3 million.

35

Managing budget deficits in higher education the experience of the University of Edinburgh

February 1991: Revised forecast deficit for 1990/1991 of £5.4 million. Recognition that a deficit of approximately £7 million for 1990/1991 should have been forecast in early October 1990, before emergency action was taken. Planning and Resources Committee and Estates and Buildings Committee abolished. Principal's Executive Group and Central Management Group created. Universities Funding Council announces funding for universities in 1992/1993: Edinburgh slightly worse than average.

March 1991: W o r k starts on a detailed financial recovery plan. Government announces increase in Value Added Tax.

M a y 1991: Financial recovery plan completed and approved: submitted to Universities Funding Council. W o r k starts on external consultants' study of the University's management structure and processes.

31st July 1991: End of 1990/1991 financial year.

1st August 1991: Start of 1991/1992 financial year.

August 1991: Consultants' report on management structure and processes received.

September 1991: Approval given for four further studies by the consultants.

October 1991: Student intakes exceed the levels included in the financial recovery plan, and are at a record high for the University.

November 1991: Consultants' report on Financial Control processes received.

36

Managing budget deficits in higher education the experience of the University of Edinburgh

December 1991 : Accounts for 1990/1991 published: operating deficit of £3.7 million.

February 1992: Consultants' report on Planning and Budgeting and internal report on Academic Management Structure received. U F C funding for 1992/1993 announced. Edinburgh slightly better than United Kingdom average.

Library books sold by auction in N e w York for approximately £2.5 million.

Consultants' report on Support Services received. University formally amends the financial recovery plan in order to bring forward the targets by one year. Balanced budget for 1991/1992 forecast. Surplus for 1992/1993 forecast.

April 1992:

M a y 1992:

37

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38

П Е Р publications and documents

More than 650 titles on all aspects of educational planning have been published by the International Institute for Educational Planning. A comprehensive catalogue, giving details of their availability, includes research reports, case studies, seminar documents, training materials, occasional papers and reference books in the following subject categories:

Economics of education, costs and financing.

Manpower and employment.

Demographic studies.

The location of schools (school map) and sub-national planning.

Administration and management.

Curriculum development and evaluation.

Educational technology.

Primary, secondary and higher education.

Vocational and technical education.

Non-formal, out-of-school, adult and rural education.

Copies of the catalogue m a y be obtained from the H E P Publications Unit on request.

T h e International Institute for Educational Planning

The International Institute for Educational Planning (IIEP) is an international centre for advanced training and research in the field of educational planning. It was established by U N E S C O in 1963 and is financed by U N E S C O and by voluntary contributions from M e m b e r States. In recent years the following M e m b e r States have provided voluntary contributions to the Institute: Belgium, Canada, Denmark, Finland, Iceland, India, Ireland, Norway, Sweden, Switzerland and Venezuela.

The Institute's aim is to contribute to the development of education throughout the world, by expanding both knowledge and the supply of competent professionals in the field of educational planning. In this endeavour the Institute co-operates with interested training and research organizations in M e m b e r States. The Governing Board of the 1ГЕР, which approves the Institute's programme and budget, consists of eight elected members and four members designated by the United Nations Organization and certain of its specialized agencies and institutes.

Chairman: Victor L. Urquidi, (Mexico) Research Professor Emeritus, El Colegio de Mexico,

Mexico.

Designated Members: Arturo Núñez del Prado, Director, Latin American and the Caribbean

Institute for Economic and Social Planning, Santiago. Cristian Ossa, Director, Development Policy and Analysis Division, Department

of Economic and Social Development, United Nations. Visvanathan Rajagopalan, Vice-President and Special Adviser to the

President, The World Bank. Allan F. Salt, Director, Training Department, International Labour Office.

Elected Members: Isao Amagi (Japan), Special Adviser to the Minister of Education, Science and

Culture, Ministry of Education, Science and Culture, Tokyo. Mohamed Dowidar (Egypt), Professor and President of the Department

of Economics, L a w Faculty, University of Alexandria, Alexandria. Kabiru Kinyanjui (Kenya), Senior Programme Officer, Social Sciences

Division, International Development Research Centre, Nairobi. Tamas Kozma (Hungary), Director-General, Hungarian Institute for Educational

Research, Budapest. Yolanda M . Rojas (Costa Rica), Academic Vice-Rector, University of

Costa Rica, San José. Michel Vernières (France), Professor of Economic Sciences, University of Paris I

Pantheon-Sorbonne, Paris Lennart Wohlgemuth (Sweden), Director, Scandinavian Institute of African

Studies, Uppsala

Inquiries about the Institute should be addressed to: The Office of the Director, International Institute for Educational Planning, 7-9 rue Eugène-Delacroix, 75116 Paris, France.

Late in 1990, the University of Edinburgh encountered a severe and unexpected financial crisis. This work describes the immediate steps taken to address the situation, and the longer-term changes in the University's management arrangements and systems which were subsequently put into effect. It also reviews a number of actions contemplated but not implemented. It records the progress made towards recovery by the middle of 1992, and offers some reflections on the reasons for the problems encountered by the University and on the effectiveness of the steps taken to deal with them. This study forms part of an IIEP research programme directed by Bikas C . Sanyal.

M . D . Cornish is a professional university administrator with over twenty years' experience, covering a wide range of administrative functions on both sides of the former 'binary line' in higher education in the United Kingdom. H e has contributed to studies of higher education systems in several countries, including Canada, China and India. H e is currently Deputy Secretary at the University of Edinburgh, with responsibility for planning, research support, management information services and student services.