How Planning Works

22 August 2005

Deputy Vice-Chancellor Professor Martin Hall explains how UCT's annual cycle of budget planning works.

Each year at this time our annual cycle of planning comes to a crescendo with the preparation of the budget recommendations to the University Finance Committee, Senate and Council. We are trying to make this process as fair and transparent as possible; to this end, I here describe how our system works.

First, some vital statistics. UCT is a community of some 25 000 people. We have physical assets valued at around R5-billion and about R3-billion flows through our accounts each year. Our Finance Department processes well over a million transactions each year, our electricity account runs to R14.5-million and it costs R2.1-million every year to remove refuse from our campuses. But despite the size of our operations, we have little flexibility. Sixty five percent of our operating budget is spent on staff salaries and we are committed - almost always for three or more years ahead - to continuing to offer programmes to students, honouring our undertaking to them when they enrolled. As a result of these factors, most of our money for next year - and for several years into the future - is already committed. We have to pay for the new things that we want to do from a small proportion of our overall resources.

Like all organisations, we have income and expenditure. Leaving aside research income, our revenue comes from three primary sources: state subsidies, student tuition fees, and interest that we earn from the smart management of our cash flow. It is sometimes argued that revenue from fund-raising should be more significant. But successful fund-raising invariably increases costs (for example, new buildings, built from donated funds, have to be cleaned and maintained). In contrast to North American universities, we have a modest endowment, although this may be increased in the future.

We organise income, and associated expenditure, around 22 organisational units. These are the six faculties, the Centre for Higher Education Development (Ched), the Graduate School of Business (GSB) and the professional and support departments: the library, the HR department, the Student Development and Services Department, and the like. And this brings us to the heart of our budget system. Each of these units has a Recurrent Operating Target (ROT), which is an agreement on the balance between income and expenditure that each unit will achieve in the year. As all students are registered in one of the six faculties, or the GSB, all fee income and subsidy income as earned is attributed to the unit where the student is registered (or where the research activity generating the subsidy takes place). We take off between 20 and 30 percent of this income to fund the support departments - the balance becomes the income line in the units. Each unit then submits its budget proposal to achieve its agreed ROT. Some will be set a "positive ROT", while others will be allowed to spend more than they earn: what is important is not that each faculty or PASS department is a self-sustaining enterprise, but rather that it, at a minimum, meets its agreed ROT.

The professional and support departments are treated in the same way as faculties, except each has no direct student or subsidy related income. This is essential - the job of the professional and support departments is to provide services such as libraries, IT access, financial and HR management, committee servicing and student records on which the faculties depend. Without the professional and support departments, the faculties would not be able to function, and therefore would have no students to provide income. For example, without the Admissions Office and Student Records, there would be no processing of applications, recording of examination records, graduations - or students at UCT.

One frequently-asked question is why there are negative and positive ROTs. This is largely because the subsidy system, while weighted to different disciplines, is far from perfect. In effect, we have an agreement between the faculties that they will support one another in the interests of being able to offer the comprehensive curriculum on which our reputation rests. A second question - perhaps more of a misunderstanding - is that UCT has an "overhead" of between 20 and 30 percent - the amount that we take from faculty income to cover support costs. But remember that these funds also pay for vital core provisions: a library acquisition budget of more than R30-million each year, more than R40-million in direct financial aid to students, internet access (our account for bandwidth alone is some R5.5-million each year), new buildings and facilities and the renewal of all computers on a three- to five-year cycle. Our true overhead is less than 10 percent; we run a lean operation, and we are always pushing all units to further improve efficiencies.

A further - rather prevalent - misunderstanding is that "Bremner" (or "the Centre") has funds to disperse. We do not. The annual planning and budgeting process disperses all our resources to the 22 units. The rules for ROTs allow units to retain funds that result from better-than-anticipated performance, and to build up reserves for special projects. The opportunities for imaginative planning are vested primarily in the faculties, and there is no gold in the Bremner basement.

So how does this all come together? We organise planning and budgeting in a continuous cycle. The process - looking ahead more than a year - starts in November when we take stock of our successes and challenges so far. Increasingly, we are trying to do this against agreed performance priorities - issues such as transformation, building research excellence, improving the quality of teaching and learning and building sustainable operations. We take these ideas forward to a meeting with the university's senior leadership in February - just as the academic year starts. At this time, the planning and finance departments work closely together to take a long-term view on the budget framework for the following five years - trying to estimate inflation and the order of increases in costs that we can manage, among other parameters. Following this, and through the first semester, we shape up our priorities, and present an outline view to Council at its June meeting. At this point, we also set our target for overall fee revenues for the following year, allowing full engagement with the student sector (we are one of the few universities to do this, in the interests of transparency: others set their fees very late in the year in order to balance their books, after they have decided how much to spend). Following the June Council meeting, the detailed work starts. In July and early August, we meet individually with each of the 22 units, reviewing their performance, plans and preliminary budgets for the following year. Following the individual meetings, a further meeting is convened with all unit heads present, where peer review and input is further used to shape key issues and decisions. This has become known as the "show and tell" session. As a result of this intense - and often tense - series of meetings, we shape the first version of a detailed proposal for consideration by the University Finance Committee and the University Strategy Committee. The end result is a plan and budget proposal by the Vice-Chancellor to the University Finance Committee for recommendation to Council to consider at its early October meeting.

Is this a fair system? I believe we still have a way to go. In particular, we have much more to do in aligning the individual performance of our staff with our objectives as a university, in improving efficiency and in finding new sources of income that can provide more financial aid and increase investment in our research infrastructure. Moreover, we have yet to achieve our primary goal, which is a small operating surplus in every year, which we can use for new projects and to bolster our reserves. But in general terms, we are on the right track, and getting better each year.

Professor Martin Hall

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