Summary diagram (PDF file)
Introduction
1. In 2001–2, the University introduced a new Resource
Allocation Method (RAM) to govern the allocation of university resources to
divisions/OUDCE, and academic and non-academic services. Supplement (2)
to Gazette No. 4629, Wednesday, 10 July 2002 (Vol. 132,
pp. 1453–8), provided an updated account of this method for
2002–3. Since then, Council's Planning and Resource Allocation
Committee (PRAC) has reviewed the method once more, in the light of
experience of the first two years and taking into account comments which
have been received within the University on its operation. As a result, some
further revisions have been introduced into the allocation method for
2003–4. The purpose of this note is to provide an updated account of
the Resource Allocation Method.
2. The paragraphs below set out the underlying principles, and main
objectives, of the method, and give details of the formulaic and non-formulaic
elements embodied within it. They highlight refinements to the method which
have been made following the third year of its implementation.
3. Further details on any aspect of the method may be obtained from
relevant staff of the Planning and Resource Allocation Section in the
University Offices (and in particular Mr M.D. Sibly, telephone: (2)80303, e-
mail: michael.sibly@admin.ox.ac.uk, or Mr P.F. Clark, telephone: (2)70078,
e-mail: paul.clark@admin.ox.ac.uk). Details can also be found on the
Section's Web site, at http://www/admin.ox.ac.uk/pra/.
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General principles
4. The RAM was introduced to complement the University's new
governance and planning structures. It was intended to provide a transparent
and consistent means of allocating the University's income to divisions, to
whom responsibility for preparing academic budgets was devolved. Thus,
whilst Council through the PRAC remains ultimately responsible for
approving proposed divisional budgets, and for monitoring activity against
them, responsibility for determining detailed spending decisions now rests with
divisions. Details of the application of the method within each division may
be obtained from the relevant divisional board secretariat.
5. Among other things, the design of the RAM is intended to encourage
increases in the University's income, and its most efficient use. This is
achieved by allocating as much income as possible directly to divisions and
OUDCE, and building appropriate drivers into the formulaic allocation of the
remaining funds.
6. Implementation of the RAM is also designed to link the allocation of
income directly to planned academic activity, so that money flows according
to the strategic academic priorities set by the University and the divisions.
Operation of the RAM should be governed by these priorities, and the
academic and managerial principles established by the University, rather than
by the contingencies of a given financial situation. The RAM is concerned
with the most effective and fair distribution of the University's income. It is
not concerned with monitoring expenditure or the costs of different activities,
although this may of course inform the future development of the RAM.
7. The RAM takes account of the way in which income comes into the
University, but it is not simply an `income as earned' model. The RAM thus
also provides the University with a safeguard against fluctuations in the
methods used externally to calculate the University's funding, and a means of
mitigating the effects of external policies and methods of allocating funds
which may not fit with its own strategic priorities. It gives the University the
ability to move away, e.g., from the use of the HEFCE price bands and cost
drivers in the distribution of income. It also allows the University to moderate
the financial effects of external `market' forces, by redistributing funds
towards activities which it deems to be academically desirable, but which may
not be financially self-sustaining (e.g., the support of important minority
subjects). Thus, the RAM is a flexible tool which the University can adapt to
maximise the use of its resources in the future, and take best advantage of
new opportunities and circumstances. It is up to the University to decide how
best to use this tool.
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Details of the resource allocation
method
8. The basic method by which income is allocated to divisions is as
follows:
(a) Estimate total University income.
(b) Top-slice funds for certain specific purposes.
(c) Directly allocate income where appropriate.
(d) Agree service budgets.
(e) Allocate the remaining funds by formula to the
divisions/OUDCE.
(f) Adjust for differential academic salary costs.
(g) Levy capital charge, and redistribute funds to
divisions.
( h) Levy infrastructure charge for service budgets.
(i) Apply transitional arrangements (moderation).
Each stage is dealt with in more detail in the paragraphs below.
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Estimate total University income
9. The starting point for resource allocation is to estimate total
university income for the forthcoming year. For 2003–4, the estimated
total is currently c.£398.8m.
10. This total is made up of income from a variety of sources. The two
biggest elements are HEFCE grant (£132.2m in 2003–4), and
income from research grants and contracts (estimated at £154.3m for
2003–4). Other significant components include income from university
composition fees and from trust funds. It should be noted that whilst some
elements in the total are known with a high degree of certainty (especially the
HEFCE block grant), other elements are estimates, and the actual level of
income is dependent on factors such as the level of student recruitment, and
continued success in obtaining research grants and contracts.
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Top-slice funds for specific purposes
11. The next step in the new method is to set aside from this sum the
estimated total funds which are to be held centrally and are thus not available
for distribution to divisions/OUDCE, or for the funding of services. There are
three principal elements here: the transfer to colleges of the college fee
replacement income (£37.6m in 2003–4); the provision for central
contingencies, reserves, or special initiatives, amounting in 2003–4 to
approximately £10.5m; and a contribution to the services budgets,
amounting in 2003–4 to some £11.8m. This leaves remaining
income of approximately £338.9m for allocation in 2003–4.
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Distribution of remaining income to
divisions and services
12. The method for distributing this sum comprises three distinct components:
- direct allocation of a substantial proportion of total
income to divisions/OUDCE, and to services, on the basis that the income in
question is clearly generated directly by the relevant unit;
- the formulaic allocation of remaining income to
divisions/OUDCE; and
- a formulaic infrastructure charge, to fund those
elements of service budgets which are not covered by direct allocations to the
services.
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Directly allocated income
13. The directly allocated income (bullet point 1 above)
consists of three principal elements:
(a) All research grant and contract
income, including 100 per cent of overhead payments on such grants
and contracts (totalling an estimated £154.3m for 2003–4). It
should be noted that whilst the direct income associated with research grants
and contracts is clearly earmarked and not available for other purposes, the
overhead payments on such contracts are not earmarked. Although initially
allocated directly to divisions/OUDCE, these overheads are in part intended
to support activities outside the departments or faculties which provide
immediate support for research and therefore should be regarded as being
available to contribute to the infrastructure charge for service budgets, dealt
with below. Allocating all overheads to divisions/departments should act as a
clear incentive to them to maximise overhead recovery rates.
(b) Various other earmarked or directly earned
sums: these include, for example, income from a wide range of trust
funds, earnings from trading activities, etc. A significant component of the
funds under this heading consists of funds which are earmarked for or earned
by academic services or other service units.
(c) Certain unearmarked general funds,
which the University is free to allocate as it wishes, but which are nonetheless
being directly allocated to academic units because it is felt that this is the most
appropriate way to treat them. The most important elements under this
heading consist of income from tuition fees paid by overseas students, or
income from tuition fees which is for other reasons being allocated directly to
the host department (and in particular OUDCE). The rationale here is that in
those cases where the University is free to set the level of tuition fees itself,
such fees should be directly allocated, so as to encourage divisions and
departments to consider the level at which they are set, and to ensure all costs
are recovered.
14. It is intended that the direct allocation to divisions, departments, and
relevant services is not only simple, clear and transparent, but will also act as
a strong incentive to the relevant units to increase such income wherever
possible, and to consider carefully how their costs relate to the income
generated.
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Allocate the remaining funds by
formula
15. The second main step in the new method is the formulaic
allocation of remaining income to divisions/OUDCE. For
2003–4, the total available is approximately £108.1m. This figure
includes approximately £5.8m supplementary funding transferred to the
divisions from the University's Central Strategic Reserve (see paras. 38--9).
16. The formulaic allocations are based principally on (a)
teaching-related criteria and (b) research- related criteria.
Allocations of funds on this basis involve a series of linked steps. The first is
to decide how to divide available resources between those to be allocated on
teaching criteria and those to be allocated on research criteria. For
2003–4 the agreed ratio is 40:60 between teaching and research, this
ratio broadly reflecting the basis on which the funds are received from
HEFCE.
17. Teaching related funds (approximately
£42.4m in 2003–4) are then allocated pro rata to weighted
full-time equivalent home/EC student load. The weightings primarily reflect
differences in costs between different subject areas, and in the first instance
the basis for these are the weightings used by HEFCE in its own block grant
allocation formula (these are: 4.5 for clinical subjects; 2.0 for
laboratory-based subjects; 1.5 for subjects with a laboratory or fieldwork
element; 1.0 for all other subjects). Oxford has also introduced a further
weighting (of 1.25) to reflect the added costs of teaching postgraduate taught
(PGT) students. It should also be noted that, because student load relating to
postgraduate research students (PGR) in years 1–4 of their study are
used both in the teaching component of the formula, and in the research
component described below, there is de facto an additional
weighting attributable to such students.
18. In previous years part-time undergraduate students have attracted a 5 per
cent premium in the teaching- related element of the RAM. However, as
HEFCE's 2003–4 funding for part-time students (£162k in
2003–4) was incorporated within the grant for widening participation
and improving retention, this premium was removed from the 2003–4
RAM and the associated funding directly allocated to divisions pro rata to
numbers of part-time undergraduate students (mainly but not exclusively to
OUDCE).
19. The research related allocations (approximately
£63.6m in 2003–4) are more complex, but are designed to reflect
both the basis on which funds are received by the University, and also the
quality and volume of research activity in a particular subject area.
20. The principal component of the research-related allocation distributes
funds pro rata to a measure of the volume of research activity, weighted to
take account of quality (as reflected in the most recent RAE), and a relative
cost band weighting (derived from HEFCE's own research-related cost band
weightings). The core volume measure comprises numbers of staff returned
as research active (`category A' and `category A*' staff in
post), in the most recent RAE, who are funded from general income
or NHS-specific funds (this provision chiefly excluding those research-active
staff funded from research grants and contracts, and some staff funded from
endowments) and PGR load (weighted at x 0.15). These numbers are then
weighted by a quality factor derived from the most recent RAE ratings for the
relevant department or unit, and by an appropriate HEFCE cost weighting,
designed to reflect the differential costs of undertaking research in different
subjects. The quality-related weightings used in Oxford are: RAE grade 4 =
2.0; RAE grade 5 = 3.0; RAE grade 5* = 4.0. Thus, no credit is given for
RAE grades 3a or below (Oxford no longer has any such departments). The
cost weightings are: 1.6 for high-cost laboratory and clinical subjects; 1.3 for
intermediate cost subjects; 1.0 for all other subjects.
[1]
In 2003–4
£46.4m was allocated by this method.
21. A significant proportion of the research-related block grant received from
HEFCE is generated on the basis of the volume of external research grants
and contract income received from UK- based charities: under the RAM, this
funding (some £11.6m in 2003–4) is distributed pro- rata to a two
year moving average of UK-based charity research income, weighted for
RAE-derived quality ratings, and HEFCE research cost band weightings.
22. Two other smaller sums are distributed on the following basis:
(a) some £4.7m in 2003–4 is allocated pro
rata to non-charitable UK research grant and contract income, again weighted
for RAE-derived quality ratings and HEFCE research cost band weightings;
and
(b) a further sum of some £945k in 2003–4
is distributed pro rata to the number of research fellows employed in a given
department (using the same definition of what constitutes a research fellow as
applied for the RAE 2001). This number is taken from the annual Research
Activity Survey data return made to HEFCE, on the basis of which a part of
the block grant for research is distributed. The number of research fellows is
not weighted for either relative subject cost or quality.
23. The combination of these four components is designed to achieve an
appropriate balance of incentives to generate additional research-related
income, to reflect research quality, and to recognise differential costs. As with
the teaching-related formula, use of externally derived quality and cost
weightings is the subject of ongoing review.
24. For 2003–4, the University received £4.4m of research
funding in respect of 5** Units of Assessment i.e. those units graded as 5* in
both the 1996 and 2001 RAEs. This funding was topsliced at 25 per cent
(£1.1m) in recognition of the fact that the additional funding resulted in
an above inflation increase in the Quantum: these funds were used to
notionally offset the topslice. The remaining 5** funding (£3.3m) was
directly allocated to the earning divisions, outside of the formulaic allocation
of research funding.
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Adjust for differential salary costs
25. The basic formulaic allocations on teaching and research related criteria
derived from the above approach are then subject to two further modifications.
The first of these is an adjustment designed to reflect the
differential costs to departments and faculties of certain
types of academic appointment—and in particular the relative costs of
CUF/faculty lecturers, and university lecturers. This adjustment is intended
to be financially neutral, and any plans to move academic posts from one
category of appointment to another will need to be approved by PRAC and by
Council, after consultation with colleges, as part of the annual planning and
budgeting process. For 2003–4 prospective data was used, and the
£7.1m generated by this means used to offset the top-slice.
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Levy capital charge
26. The second adjustment is made by the application of a capital
charge. This is intended to provide an incentive to departments to
be efficient in their use of space, and to ensure that they do not expand to
larger premises without being exposed to the financial consequences which
such expansion has for the University as a whole. It is also intended to put a
price on the opportunity cost of using capital funds to invest in buildings
rather than staff. The charge is currently set at £20 per square metre,
and is to be levied on divisions pro rata to the area occupied, although some
types of space are excluded from the charge (particularly recently constructed
space funded from external donations, grants etc. from non-public sources).
27. The funds generated by the capital charge (about £3.4m for
2003–4) are redistributed to divisions formulaically on the basis of total
research active staff numbers in 2001 RAE, weighted by research quality
weightings, and student numbers (with 1.25 weighting for PGT students). This
formulaic reallocation of funds shares some of the same features of the main
allocation formula, but is deliberately different in certain respects, notably in
that it includes all students (i.e., Home/EC and Overseas),
adopts different factors for the research-related allocation, and excludes any
subject weightings (teaching or research).
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Levy infrastructure charge for service
budgets
28. The approach to setting and providing for service budgets involves several
related steps. The first is to agree the level of the budget for each particular
service. This is founded on an activity- based analysis, looking carefully at the
costs which need to be incurred in order to deliver a particular level of
service. Scrutiny of proposed service budgets was undertaken for
2003–4 by a sub-group of PRAC chaired by the Pro-Vice-Chancellor
for Planning and Resource Allocation, and discussions were held both with the
Pro-Vice-Chancellor for Academic Services and University Collections, and
with the heads of the principal services themselves.
29. Once service budgets have been settled, the next step is to take account
of the direct allocations of resources made to services, referred to in
paragraph 13 (b) above. In the case of a number of services,
these directly attributable or directly earned allocations comprise a significant
proportion of the relevant budget.
30. The next step is to calculate the proportion of the agreed service budgets
which cannot be met by such direct allocations, and then to provide funds for
these through an infrastructure charge levied on total divisional income. This
formulaic charge is based on a number of factors which are designed, in very
broad terms, to represent proxies of usage of particular services. The principal
drivers being used for 2003–4 are student load, staff load, and area
occupied or maintained. The total volume of funds being provided for in this
way for 2003–4 is arrived at through the following process.
31. For 2003–4, the PRAC sub-group recommended a 3.5 per cent
increase in the budgets of the services and £2.2m of funding for
additional items bid for during the budgeting process. However, these
recommendations did not take account of:
(a) a number of funding decisions (amounting to
£3.2m) taken by PRAC during the course of 2002–3, which were
not consolidated until after the recommendations had been made;
(b) £1.8m of deficit funding which had been
allocated to the services for 2002–3. This funding had been incorporated
into the service budgets baseline prior to the 2003–4 uplift.
32. As a result, when the 2003–4 RAM formulaic income was
examined, it was generally acknowledged that an imbalance had developed
between the budget settlement for the services and the provisional settlement
for the divisions: the total RAM budget for the services having been calculated
as £70.5m. In order to address this imbalance PRAC took the decision
to recalculate the baseline for the service budgets: cutting £0.5m of
2002–3 deficit funding and all previously agreed additionally funded
items from the baseline.
33. Once this new baseline had been calculated, PRAC also agreed that it
should be inflated by 2.5 per cent and not the 3.5 per cent originally
recommended by the sub-group—effectively a 1 per cent cut. However,
PRAC also allocated a further £2.2m of non-recurrent
supplementary funding to the services for those additional items that PRAC
had already agreed to fund (£1.2m for 2003–4) and a revised list
of new items which had been bid for during the budget settlement process
(£1m for 2003–4). Thus the total RAM service budget for
2003–4 was £67.58m: £65.38m funded from the
infrastructure charge and topslice; and £2.2m of supplementary funding.
34. A summary of all the steps described in paragraphs 9--33 above is
provided in the flow chart [PDF file].
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Transitional arrangements
35. The transitional adjustment (also referred to as moderation) is the means
of moving divisions smoothly to their ultimate RAM positions. Funds are
taken from `gaining' divisions and redistributed to `losing' divisions in a
planned way, allowing all divisions to adjust their baselines over a period of
time. In a change from 2002–3, it has been agreed by Council that gains
and losses arising from the formula should be limited to plus or minus 5 per
cent of gross formulaic income for 2003–4 (in 2002–3 gains and
losses were limited to plus or minus 2 per cent).
36. In essence, the transitional funding distributed to divisions once the RAM
has been run is calculated by comparing the expected financial position in the
current year with the projected position of the year for which allocations are
being made. The additional funding to `gaining' divisions is capped at plus 5
per cent, and the funds released as a result are used to support `losing'
divisions.
37. Council has also agreed that the funding allocated to the Medical Sciences
Division as a result of their successful bid to HEFCE for Additional Student
Numbers (ASNs) should be excluded from moderation. Thus the 2003–4
RAM was run (a) including the ASNs and (b)
excluding the ASNs. The cash difference between the two models was then
allocated to the division as a lump sum.
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Supplementary funding
38. For 2002–3, £8m of deficit funding had been provided to the
divisions through the formulaic element of the RAM. For 2003–4, it
was proposed that no general deficit funding should be provided i.e. through
the formulaic element of the RAM, but that supplementary
funding should be allocated outside of the RAM, targeted to the areas
of greatest need.
39. In the event, it did not prove possible to implement the new system.
Instead, the following funding decisions were taken:
(a) £4.4m of funding to moderate, and raise
divisional allocations to 2002–3 cash levels;
(b) £1.4m of additional funding for 5**
departments;
(c) £2.2m of supplementary funding to the
Services.
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Further development work
40. Analysis and review of the implementation of the RAM, and its strategic
implications for the University, is a continuing process. Detailed scrutiny of
its operation will continue, with proposals for refinement and development
being brought to PRAC and Council for approval. This will also seek to
ensure that further changes take full account of the University's emerging
academic and financial strategies.
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Footnote
[1]
Following the RAE in 2001, HEFCE reduced the cost band weighting for
high-cost laboratory subjects from 1.7 to 1.6. However, in order to maintain
stability, the 1.7 cost weighting was retained for the 2002–3 RAM.
After further analysis PRAC agreed that this weighting should be reduced to
1.6 for the 2003–4 RAM.
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