Costing university chemistry

The study set out to identify what factors contribute to the overall surplus or deficit of each of the chemistry departments. Income and expenditure streams were compared for each department. 

The figures considered were; publicly funded and privately funded teaching costs, publicly funded and privately funded research costs and other activities. These figures represent the principal cost drivers for the departments. 2002-03 financial data was used for the analysis. 

The figures used align with those that the funding councils have been using in their modelling of the full economic costing of research. From September 2005 the research councils are using a new costing system which allocates grants to cover full costs including staff, travel, equipment and a share of the more general cost of running a lab. 

Overall financial position

All of the chemistry departments in the sample were operating with budget deficits in 2002-03. Their deficits are in the range £500,000 to £3.6 million which represents from just over 10% to over 50% of total income. 

Figure 1 shows the income, costs and overall deficits for each of the eight departments in the sample. The costs are calculated using the Transparent Approach to Costing (TRAC). This requires that the expenditure shown should be allocated in full to either the activities of teaching, research or other. 

The departmental deficits shown were recognised by these universities and usually covered by transparent subsidies from across the university. However, the budgeting shows that the basic allocation of research and teaching funds is not sufficient. 

Costs 

The most significant factors contributing to the costs of chemistry departments are the high level of dedicated space needed per academic staff member and the high proportion of laboratory work which undergraduates are required to undertake. 

Chemistry is expensive to teach due to the amount of laboratory work. This is the case even when compared to some other laboratory based disciplines. Teaching chemistry requires the maintenance of laboratories (that may only be in use for 30 weeks of the year) and supervision of laboratory work by academic staff. 

The TRAC system works out departmental operating costs based on their space. In most of the sampled universities, the space costs for chemistry are charged at the same rate as space in all other departments. But this does not reflect the higher than average operating costs of much of the dedicated space in chemistry departments. These costs arise in particular from the ventilation requirements necessary to meet health and safety standards.

It is interesting to note that space per member of academic staff is the indicator on which chemistry departments consistently show up as expensive compared to other laboratory based subjects. The difference here with physics may reflect the position in which a significant amount of physics research is conducted in national or international facilities not maintained by the university. 

Only one or two of the university budgets in the sample had distinguished between different types of space on the basis of its cost in use. Such differentiation in types of space for costing purposes would serve to give a more realistic comparative model.

Deficit in all areas

Analysing the data for the five costed activities – publicly and non-publicly funded teaching, publicly and non publicly funded research and other activities - shows that most of the departments had deficits in all five activities for 2002 03. Although Chemistry is undoubtedly not unique in many of its characteristics, there are several unique factors that combine to contribute to this position. 

Public funding

In the RSC’s eight sample departments, around 80% of total income came from publicly funded teaching and publicly funded research. Chemistry departments are heavily reliant on this income and thus sensitive to the extent that public funding adequately reflects the actual costs of the research or teaching they are intended to cover. 

The high cost of teaching chemistry undergraduates is not fully reflected in the current formulae used by the English, Scottish and Welsh funding councils for the funding of teaching. The funding available is failing to reflect the actual costs of providing that teaching. This is the key to much of the present departmental deficits. 

Taking for example the formula used by the Higher Education Funding Council for England (HEFCE), chemistry is one of the laboratory based subjects which until 2003-04 received a weighting of 2. Thus universities received double the funding per chemistry student than for non-lab based subjects. But the figures in the RSC study show that this is still inadequate to reflect the expense of undergraduate chemistry teaching compared with other laboratory based subjects. Since 2004- 05 laboratory based subjects have been weighted at 1.7 in the funding formula, making their position relatively worse. 

The difficulty arises, however, not so much from the HEFCE formula, but from the way in which many institutions use the HEFCE formula to distribute teaching income to individual departments as a basis for resource allocation. 

In practice institutions do moderate this to some extent through cross subsidies to those departments that are seen to be inherently more expensive. However, where an institution comes under general financial pressure subjects in receipt of such ‘subsidies’ are inherently vulnerable. 

Non-publicly funded income

The RSC sampled departments showed that the largest sources of non-publicly funded income are from research contracts with industrial companies and to a lesser extent, with research charities. Surprisingly these costing streams show a substantial overall deficit. This indicates that departments are setting prices for industrial sponsors well below the full economic cost. To some extent this reflects a past absence of good costing data so that departments were unable to calculate the real cost of their research. In effect, a market has been created where the university sector is subsidising industry. 

There are other factors depressing the prices charged to industrial sponsors. There is a need to compete globally for research business from large multinational companies who are becoming increasingly unwilling to fund research for which there are not easily quantifiable benefits. In addition, departments are often forced to lower their charging to develop relationships with smaller UK-based companies which may simply be unable to afford the full economic cost of the research they are seeking to sponsor.

The next RAE

Departments clearly also have to plan for the next Research Assessment Exercise (RAE) in 2008 where they will be graded in terms of the quality of their research. 

Department closures have accelerated since the outcome of the last RAE. This was used by HEFCE to concentrate further its funding for research in England by restricting it to departments that were rated 4 or better in 2001 and to reduce substantially the level of funding for those rated 4. Both the Scottish Executive and the Welsh Assembly government are seeking to preserve their national research base through encouraging collaboration. Nevertheless, closures of chemistry departments have taken place here as well. 

With the continuing pressures for concentration of research funding towards those departments receiving the highest ratings, departments will wish to continue to improve their performance in the RAE and will be under pressure from their universities to do so. 

But as the analysis in the RSC report shows, even a 5* rating is not sufficient to avoid an overall deficit. 

The future – balancing the budget

There are developments on the horizon that are likely to improve the financial position of chemistry departments, although not necessarily remove deficits altogether. 

The move to variable tuition fees for home full-time undergraduates in English universities from 2006-07 will assist these institutions in recouping a more realistic sum for teaching costs. There is a clear indication that all universities providing undergraduate chemistry courses will charge the full £3000 per annum that is now permitted. 

The current review by HEFCE of the teaching funding method in England could increase the level of funding for undergraduate chemistry teaching, especially as HEFCE has indicated that it wishes to explore the use of TRAC cost data as a basis for the future allocation of teaching funds to institutions. 

The move to full economic costing of research projects funded by research councils and government departments should also improve the financial position of publicly funded research in chemistry departments. 

Universities are improving their TRAC systems and this should also provide an improved basis for pricing research projects funded by UK industry. This, together with the decision by the funding councils to increase the resources for projects sponsored by research charities through Partnership Funding, should help to reduce the deficits on non-publicly funded research. 

The RSC is using the results of this study to push the case for the adequate funding of chemistry with the funding councils. In particular the report was used as part of a submission in response to a HEFCE consultation on the funding of teaching. The RSC will continue to press this case.