The five things universities do to cut costs

Incoming Office for Students chair Edward Peck would have expected that many of the questions he would face at his pre-appointment Education Committee hearing would concern the precarious financial situations that are the reality at many higher education institutions.

His answer to this line of inquiry was instructive. As a part of an urgent briefing with the current chief executive he would want to know:

the extent to which those universities have done all the things you do as an organisation when you face financial pressures. There are five or six things that you routinely do. To what extent have they been done by those organisations? To what extent is the financial pressure they are facing particularly acute because they have not yet got through all the cost reduction measures that would have enabled them to balance income with expenditure?

To many with an interest in universities – as places to study, as employers, as local anchor institutions – this idea of “five or six things” would have been confusing and opaque. Is there really a commonly understood playbook for institutions facing financial peril? If there is, why would there be any doubt as to whether senior leaders were following these well-worn tracks to safety? If there genuinely is a pre-packaged solution to universities running out of money, why do so many find themselves in precarious financial situations?

It would help to take each of these “five or six things” (I’m going to go with five) in turn.

1. Size and shape

If your university is smaller than expected in terms of students or income this year, the chances are it has been this size before.

The sector has grown enormously over the last few years, and the way that funding incentives currently work (both in terms of boom and bust in international recruitment, and the demise – in England – of the old HEFCE tolerance band) has meant that the expansion needed to teach more students, run more estate, or conduct more research has had to happen quickly – taking action when the money and need is there, rather than as a part of a long term plan.

Piecemeal expansion suffers when compared against strategic growth in that the kinds of efficiencies that a more considered approach offers are simply not available. Planned growth allows you to build capacity in a strategic way, in ways that take into account the wider pressures the institution is facing, the direction it wants to head, or plans for long term sustainability.

Often senior leaders look back to the resources needed in previous years for a similar cohort or workload in determining costs at a subject area or service level of granularity. If we could teach x undergraduates with y academic staff and z additional resources in 2015–16, why do we need more now? – that’s the question.

It’s a fair question – but it is a starting point, not a fully formed strategic plan for change. You may need more resources because there is more or different work to do – perhaps your current crop of academics are bringing in research contracts that need specialist support, perhaps the module choices available to undergraduates are more expansive, perhaps the students you are currently recruiting have different support needs. There’s any number of reasons why 2024-25 is not a repeat of 2015-16, and the act of comparison is the start of the conversation that might help unpack some of these a bit.

2. Pausing and reprofiling

Imagine that at your university the last few rounds of the national student survey have seen students increasingly bring up the issue of a lack of library capacity as a problem. In response, the initial plan was to increase this capacity – an extension to the existing building paid for with borrowing, refurbishment and update of the rest of the building, and more money for digital resources.

A sound plan, but three years of lower than expected recruitment, declining income elsewhere, and an increased cost of doing business (construction costs are way up, for example) mean that the idea of putting the plan into action is keeping the director of finance up at night. It may be a necessary improvement, but it is no longer affordable.

In other words some or all of this valuable work isn’t going to happen this year, as things stand. One decision might be to redesign the project – perhaps covering some of the refurbishment and the content subscriptions but not the new build (and thus not the new borrowing). Even these elements would still have a cost, and with no new finance this would be coming out of recurrent funds. And there’s not as much available as there used to be.

So the other end of this point is reprofiling existing debt. For even a moderately leveraged university the repayment of capital and interest (under 6 per cent is pretty decent for new borrowing these days) takes up a fair chunk of available recurrent funding each year. If you are able to renegotiate your repayments – extending the loan term perhaps, or offering additional covenants, or both – this frees up recurrent funding to meet other needs.

Both of these solutions are temporary ones – one day that library will need sorting out, and paying less of your loan back now inevitably means paying more back later. But sometimes suboptimal solutions are all that are available.

3. Bringing things together

There may well be cases where the same thing is being done in multiple ways, by multiple teams, across a single institution. There might be benefits in every faculty having an admissions team and a research manager, but in a time of financial constraint you have to ask whether a central team might be more efficient – and whether this efficiency is more important than the benefits being realised from the current configuration.

Again – the calculus here differs from institution to institution. Where faculty autonomy is the norm, it may be that benefits are being realised that the centre doesn’t know exist, much less understand. As I am sure is becoming increasingly clear, questions like these are the start of a conversation – not the end. Even if in bald resource terms centralisation is a saving, you may not be taking all of the variables into account.

Conversely, where there are clear savings and no meaningful reduction in benefits you are still entering into a course of action that could prove hugely disruptive to individual staff members. For some, your plan may represent a long hoped for chance for progression or role redesign – for others it may be the push that means that their years of experience are lost to the university as they retire or move to another role. With campus redundancies in the news each week, staff are rightly suspicious of change – bringing people along with new structures requires a huge investment of time and effort in communication, consultation, and flexibility.

4. Focus

There are many, many more effective ways to run a surplus than being a university. The converse of this is that people who run universities probably have non-financial reasons to want to run universities rather than running something else. In some of the wilder us-versus-them framings of campus industrial relations we can lose sight of the fact that pretty much everyone involved wants a university to keep on being a university, despite the benefits that would come alongside a sudden pivot into, say, rare earth metal extraction or marketing generative AI.

That’s an admittedly flippant expression of something that is often forgotten in university strategising. We all have our reasons to be there. Expressing these is often the start of understanding which are the things a particular university does that are non-negotiably essential, and which are the things we do that are either generating income to subsidise these, or facilitating these things being done.

If there is something that a university is doing that is non-essential, is not helping essential activity to get done, and it is not generating income to subsidise the things that are essential, why is it being done at all?

Of course, this presupposes that everyone agrees on what activity fits into each category. Even posing the question can be painful. Once again, we are at the very beginning of a journey that probably took up a large part of governance and management meetings over the past few years.

5. Addressing underperformance

A couple of years ago, my party trick at conferences involving senior university staff was to show them my “fake subject TEF”. Confronted with a by subject analysis of student progression and satisfaction at their own provider, many of the staff I talked to would give me a similar answer – and it started “ah, I know why that is…”

The problems our universities face are already known to those who work there. External datapoints only confirm things that are pretty well understood, and usually confirm an instinct to act on them sooner rather than later – a reason why OfS investigations have tended to find the smoking guns already put beyond use by the time they get on campus.

If the problems within your institution are less obvious, a well-judged comparison with a competitor could help make things clear. A lot of the data you might want to play with is closely guarded, but there are ways in which you might use HESA’s public data to make a start (my tips – Student table 37, Staff table 11, Finance table 8). Otherwise, your staff will have a rich experience of working at other universities – what are the key differences. What is special about the way your place does things – and are there ways you can learn from the way things are done elsewhere.

Bring to the boil and mix well

If you are a university governor hoping for the mythical playbook, I can only apologise. If there was an easy way to make university books balance, we wouldn’t be where we are now.

What is on offer is the hard choices and difficult conversations that will very often lead to arguments, mistrust, and conspiracy theories. At boards and councils up and down the UK, variations on the above conversations are at the root of everything you feel is going wrong on campus.

You’ll be learning just how good your senior executive and governors actually are at running large, complex, beautiful organisations like universities. Parts of the university you may never have given a second thought to – the planning team, the finance department, the data analysis directorate, internal audit, procurement – will be coming up with ever more ingenious ways to make savings while preserving the university as a whole.