Full Economic Costing and Pricing – Latest developments John Newton - National Co-ordinator for Costing and Pricing JCPSG

Full Economic Costing and Pricing –

Latest developments

John Newton -

National Co-ordinator for Costing and Pricing

JCPSG

JCPSG

Joint Costing and Pricing Steering Group

What is fEC?

•TRAC methodology

•“The full economic cost of a project/activityincorporates all direct and indirect costs,including the cost adjustments, requiredunder TRAC” (a definition)

•Direct costs

•Indirect costs

•Cost adjustments- Infrastructure - COCE

JCPSG


Background

•TR•TRAC• Investing in Innovation•Cross-Cutting Review of Science and Research•CSR 2002•Government expectations/commitment•JCPSG Strategy - cost/market-based pricing•DSR - new funding arrangements•OGDs/Treasury letter•HEFCE Financial Memorandum•Long-term strategy for science/CSR 2004

JCPSG


Why is fEC important?• Sustainability

•“ An institution is being managed on asustainable basis if, taking one year withanother, it is recovering its full economiccosts across its activities as a whole, and isinvesting in its infrastructure (physical,human, and intellectual) at a rate adequate tomaintain its future productive capacityappropriate to the needs of its strategic plan and students, sponsors and other customer requirements.”(Definition in TRAC Volume III)

•Issues - fEC, strategic, pricing, project management/cost recovery, investment

JCPSG


TRAC requirements •Definitions•Accounting/costing principles and conventions•Time allocation - now every 3 years•Sampling•Cost drivers•T, R,O, S•PGRs•T, R, O /dept•R by research sponsor•Library/learning resources and estates robust•Testing•Internal Audit•Audit Committee•Approval of figures - to Funding Councils

JCPSG


fEC requirements •Estates - direct cost (by FTE or sq m)

•1650 hours

•Indirect cost rate calculations - £/FTE

•RC projects - time estimates, pay bandings, monitoring, check on total RC time, direct costs

•QA process

•Default indirect cost rates

•Dispensations

•Income reporting (January 2006)

JCPSG


fEC research project calculation

Directly Incurred costs•Researcher salary costs - names, time (hours)•PGR salary costs - names, time•Technical/clerical salary costs•Direct non-staff costs, exc. EstatesDirectly Allocated costs•PI/Co-investigators - names, time (hours)•Charges for lab. technicians•Directly allocated Estates costs (Inc. infrastructure adjustment)•Equipment•Indirect costs, inc. COCE adjustment calculated for PI/researcher and PGR FTEsExceptional items

JCPSG


fEC data requirements•FTEs

•Costing schedules for salary costs (note standard time), estates, charge-out rates for equipment, indirect cost rates/FTE

•Verification of costs

•Recording of actual costs

•Recording of estimated costs and matching with other records

•Comparison

•No double-charging

•Indexation

JCPSG


Use of fEC

•Pre-award estimates

•fEC for cost-based pricing

•Funding of project

•Difference – to be subsidised from other income streams

•Review of processes

•Post-award reporting

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Pricing publications

•Pricing toolkit (JCPSG)

•Financial strategy in higher education institutions (HEFCE)

•Developing a pricing strategy in higher education institutions (JCPSG)

•OST guidance on the pricing of competitive and non-competitive contracts

•OST guidance on the pricing of non-Research Council projects

JCPSG


Pricing tips

•Don’t disclose costs

•Have clear pricing policy guidelines

•Clarify ownership over IPR

•Target appropriate markets

•Be aware of market position and competition

•Beware of Risk

•Use Lambert Model Agreements

•Negotiate for win-win

JCPSG


Implementation issues

• Control/systems processes

•Project management

•Cultural change

•Communication

•Resources

•Performance measurement

•Training

•Planning for Sustainability

JCPSG


Future developments

•Funders Forum – Public Good Funding Principles

•Public sector acceptance – Treasury letter

•Cost recovery on Framework Programmes

•Eligible/ineligible costs - charities, EU, etc

•HEFCE Review of Teaching

•Shortfall on Research, European and Public Good projects – use of QR or…?

JCPSG


Performance Indicators

•% of full economic costs recovered/project or activity.

This could also be stated by sub-category of activity (e.g. research sponsor, client, customer, etc) and category of activity (e.g. PFT, NPFT, PFR, NPFR, and O)

•Contribution (being the difference between income and full economic cost) by project or activity, sub-category and category (as above)

•Total of indirect costs recovered annually (which may be compared annually)

•Total of estates costs recovered annually (which may be compared annually)

•% of S time to time spent on T, R, O by department or school annually

JCPSG



•Surplus/deficit for major categories of activity (i.e., NPFT, PFR, NPFR, O) annually

•% of surplus /deficit for major categories of activity to full economic costs annually

•% of surplus/deficit for major categories of activity to income annually

•% of surplus/deficit to COCE by category of activity annually

•Review of backlog in investment in infrastructure annually

•Success rate of bids to research sponsors and clients annually – to indicate competitiveness

JCPSG



•Number of customers/sponsors/clients for R and O

•Income growth by category of activity annually

•Comparison of forecast to actual of surplus/deficit by category of activity and surplus/deficit for competitor institutions year on year

•Quality reviews of performance from customers, clients, students, sponsors – comparing trends

JCPSG


Strategic issues

• Shortfall on Research, European and Public Good projects – use of QR or…?

•Pricing implications - contribution/project, negotiation.

•Research strategy - portfolio, mix by sponsor by dept

JCPSG


Future

• JCPSG website - www.jcpsg.ac.uk

•Self-help groups

• BUFDG group

•Sector bodies – AURIL,ARMA, etc

http://www.jcpsg.ac.uk/

Documents

Full Economic Costing and Pricing – Latest developments John Newton - National Co-ordinator for Costing and Pricing JCPSG