Improving Relevance and Quality of Undergraduate Education (IRQUE): public funding alternatives for Sri Lanka

7/27/2019 Improving Relevance and Quality of Undergraduate Education (IRQUE): public funding alternatives for Sri Lanka

1/21

Int. J. Management in Education, Vol. 6, No. 3, 2012 191

Copyright 2012 Inderscience Enterprises Ltd.

Improving Relevance and Quality of UndergraduateEducation (IRQUE): public funding alternativesfor Sri Lanka

Pradeep RandiwelaFaculty of Management and Finance,Department of Commerce,University of Colombo,Colombo 03, Sri LankaE-mail: [email protected]

Siriyama Kanthi Herath*School of Business Administration,Clark Atlanta University,James P. Brawley Drive at Fair Street,Atlanta, Georgia 30314, USAE-mail: [email protected]*Corresponding author

Abstract: The Sri Lankan Government has initiated reforms in a number of public management areas and introduced major reforms into the higher education sector to respond to national concerns that the higher educationsector has failed to provide skills necessary for the national economicdevelopment. Reforming public funding strategy is a key task of the ImprovingRelevance and Quality of Undergraduate Education (IRQUE) project, whichwas initiated as an essential component of management in educationin Sri Lanka. This paper discusses various funding mechanisms available for higher education funding and suggests a tentative model for public fundingin Sri Lanka.

Keywords: higher education reforms; management in education; publicfunding strategy; IRQUE project; Sri Lanka.

Reference to this paper should be made as follows: Randiwela, P. andHerath, S.K. (2012) Improving Relevance and Quality of UndergraduateEducation (IRQUE): public funding alternatives for Sri Lanka, Int. J.

Management in Education , Vol. 6, No. 3, pp.191211.

Biographical notes: Pradeep Randiwela is a Senior Lecturer (former Dean/Faculty of Management and Finance) at the University of Colombo,Sri Lanka. He earned his MCom (Marketing) from the University of Colomboand BCom (Hons) from the University of Peradeniya, Sri Lanka, and aCertificate in Modernising HRM RIPA International, UK. His researchinterests include e-marketing, entrepreneurship, outsourcing and strategicmanagement in higher education.


2/21

192 P. Randiwela and S.K. Herath

Siriyama Kanthi Herath is an Associate Professor in Accounting at Clark

Atlanta University, USA. She has a PhD (Accounting) and an MCom (Hons)(ACCY) from the University of Wollongong, and an MBA and a BCom (Hons)from the University of Colombo, Sri Lanka. She has published 35 papers inrefereed journals. She is a member of the editorial boards of International

Journal of Electronic Finance, Open Business Journal and International Journal of Accounting and Finance .

1 Introduction

The higher education sub-sector in Sri Lanka is made up of both public and privateuniversities and other technical institutions. The University Grants Commission (UGC)

provides funds to public universities and institutions of higher education. In light of themajor economic and social changes that are occurring both within the nation and theglobal community, students, parents, legislators, administrators and policy-makers alikeconsider a higher quality education a key component to obtaining employment in todayscompetitive job market (Noland et al., 2000, p.2). Both the Sri Lankan Government andthe university authorities have recognised the increasing needs for reforming the higher education sector. As a result, the Government has initiated reforms in the higher education system and a World-Bank-assisted project has been launched in 2003 toaddress the issues related to higher education system. This paper discusses fundingmechanisms available for higher education and suggests a tentative model for publicfunding in Sri Lanka.

2 Public sector reforms: reforming higher education in Sri Lanka

In recent years, Less Developed Counties (LDCs) have given much emphasis to reducethe role of the government and to reform public sector management by adoptingmarket-driven business-like management practices. The motives of this tradition includethe reduction in governments direct responsibility in managing economies and providingservices to citizens, increased reliance on markets, communities and individuals tomanage themselves, and the reform of government action to create new pressures andincentives for efficiency and effectiveness (Batley, 1999). Education is one of the keyareas of the new public management reforms and the Sri Lankan Government also hasinitiated reforms in the higher education sector.

3 The need for reforms in higher education system in Sri Lanka

Many developing countries have made significant progress in providing better access toeducation, as evidenced by improved literacy and enrolment rates and higher quality andmore equitable distribution of educational services. Sri Lankas comprehensive publiceducation system is built on colonial foundations and it has produced one of the

best-educated populations in Asia. However, it is believed that the quality and efficiency


3/21

Improving Relevance and Quality of Undergraduate Education (IRQUE) 193

of the education system is deteriorating. Many educationists agree that there is an urgentneed for reforming the higher education system in Sri Lanka.

Unemployment among graduates in Sri Lanka is very high at present, except in thefields of medicine, engineering, information technology, commerce, agriculture and law.Many public university graduates are unemployed, as there is no demand for the studiesthey have taken. Traditionally, teaching and research had been the major missionof public universities in Sri Lanka and the mismatch between graduates skills and jobrequirements has created unemployment among graduates. Most Sri Lankan publicuniversities have not changed their programmes of study although the universities in therest of the world have adopted modern education systems according to the changingneeds of the job market. Public universities in Sri Lanka have not been able to matchtheir undergraduate courses with industry needs. This mismatch between the outputsof the higher education system and job market needs has led to significant unemployment

of university graduates.Deficiency in English language skills is another challenge for most graduates. Englishis the global business language and many universities in Sri Lanka have to recognise theimportance of improving graduates proficiency in English. Competency in Englishopens up job prospects in the global economy and many graduates in Sri Lanka are not

proficient in English language skills and are unable to secure employment.Another problem with the university system in Sri Lanka is the absence of

universityindustry linkages. This has led universities to be too academic andimpractical. This has also prevented graduates gaining employable skills.

Sri Lanka experienced a 25-year civil war until 2009. There are several universities inthe war-ravaged areas and they too experienced the hardships of the war. Study

programmes had to be moved to other universities for long periods of time. During theconflict period, universities were closed for prolonged periods throughout the country.The war created regional imbalances in terms of access, resource utilisation andnetworking.

Many educationists believe that university students should be equipped witha sound education, to become intellectuals who would be able to contribute to the societywhen they graduate. The role of the universities should be changed according to theneeds of todays knowledge-based economies. University graduate should be equippedwith industry-relevant skills and knowledge. As a result of the increasing needs for reforms, the Government of Sri Lanka has, in recent years, initiated major reforms in thehigher education system in Sri Lanka. A World-Bank-assisted project, IRQUE, waslaunched in 2003 to address the issues related to the higher education system in Sri Lanka(Randiwela and Herath, 2008). Authorities believe that the IRQUE Project will generateappropriate solutions to the challenges of University Education in Sri Lanka.

4 The IRQUE project

The IRQUE, which is a US$40.3 million project, will be implemented over a period of six years. The priority areas identified by IRQUE include legislative and administrativereforms, a revised university funding formula, establishment of an autonomous board of quality assurance and accreditation, inclusion of social harmony within curricula,developing learning materials to teach competencies and skills needed in the labour market, improvement of the teaching skills of instructors, upgrading equipment and


4/21


facilities including IT, strengthening labour market linkages and increasing universityintake in priority disciplines with high demand in the labour market (Randiwela andHerath, 2008, p.2). Reforming public funding strategy is a key task of the IRQUE project.

5 Need for reforming funding strategy in higher education

During the British colonial era, a standard system of schools was begun and this wasregarded the beginning of the modern schooling system in Ceylon (now Sri Lanka).Education ceased to be a commodity of the urban affluent society when the freeeducation system was introduced in Ceylon in 1938. This system opened the doors toeducation at all levels without any restrictions on the grounds of caste, creed or socialstatus. After independence, the literacy rate of the people increased substantially as a

result of the increase in the number of schools.The origin of the modern university system in Sri Lanka dated back to 1921 when theUniversity College Colombo was established. Admission to the university systemin Sri Lanka is based on the highly competitive General Certificate of Education(Advanced Level). Undergraduate education in Public Universities is also free butextremely limited and as a result many qualified students are not granted access touniversity education. The majority of those who are not granted admission to publicuniversities give up higher education due to the inability to fund their studies.

The education system in Sri Lanka belongs to the Ministry of Education and both primary and higher education are being funded by the Ministrys Block Grants.Sri Lankas higher education system dominates the 17 public universities. They arerequired to submit a budget based on the directions given by the UGC on how theyallocate these funds. Allocations are made based on the size of the institution, its currentneeds and its historical allotments. Thus, public universities hold accountable for theresources they receive from the government and they should offer programmes that

provide students with the specific skills, knowledge and attitudes that employees look from them. According to the Coordinator of IRQUE project,

Public universities in Sri Lanka receive a direct grant from the government.Any organisation that depends so much on public funding has a responsibilityfor public accountability. The IRQUE projects main drive is to introduce acompetitive mechanism to support universities to enhance the quality of their curricula and make them more relevant to the labour market.

It is important to make the public university system demand driven with quality andrelevant study programmes.

The IRQUE Final Report (2003, pp.6, 7) has revealed a number of weaknessesof higher education in Sri Lanka and it specifically recognised that:

The current funding arrangements do not appear to have a rational basis, or atleast one based in some way on the activities and performance of institutions byall those involved and affected.

The current structure of funding has created a number of problems in the efficiencyand effectiveness of the programmes provided by public universities in Sri Lanka.

Nandy (2000) argued that the existing funding system could generate anomalies in theallocation of funds. Thus, it is time for state-run Sri Lankan universities to see alternativestrategies for funding. The majority of the universities in the world are organised as


5/21


fee levying non-profit entities. Rather than waiting for government grants, publicuniversities should look for ways in earning their funds.

It is important to note that, however, the challenges and limitations in the currentfunding arrangements may not be directly proportional to the volume of activities and

performance of different universities. The university system needs altitudinal andstructural adjustments to lay a fertile ground for the proposed alternative strategies to thefunding of university education. Among other solutions, empowerment of universities,establishment of quality assurance programmes, facilitating networking of institutions,establishing linkages with the private sector employers and reducing regional imbalanceswill help improve the quality and relevance of the university education system inSri Lanka. The next section will review some of the existing funding strategies for higher education.

6 Reforming higher education funding strategies

Over the past few decades, higher education institutions all over the world have beenfaced with increased demands for growth and widening access, reflecting the move fromelite to mass and on to universal higher education (Trow, 1970). This trend has been

progressively linked with the changing perceptions of the role of higher education,reducing public funding per student, increasing demands for greater transparency andaccountability for efficiency, cost-effectiveness, relevance and quality. In manydeveloping countries, the role of the state in funding higher education has beenquestioned and many governments have changed their funding systems. The new modesof funding include a variety of mixes, such as lump sum or block grant plus grant

based on student enrolments, or block grant plus performance-related grant, or enrolment-related grant plus research grants, or block grant plus incentive grant, or block grant plus matching grant, matching grant to match, e.g., amount of resources generated

by the universities through non-conventional measures (Tilak, 2005, p.2). Under thesereforms, except for a few countries such as Sri Lanka and Brazil, a number of countries(e.g., China and Australia) have started to charge fees for higher education and major trends in funding higher education are:

decline in public expenditure in higher education

increased efforts on cost recovery through introduction or increase in tuition fees

introduction of student loan programmes

insisting on the public universities to generate resources from third parties such as

corporate sector promoting the growth of private higher education institutions

promoting avenues for searching finances such as recruiting foreign student(Tilak, 2005).

The education reform policies clearly involved drastic cut in public expenditures,necessitating a search for alternative methods of funding higher education (Tilak, 2005).Funding strategies are classified in a number of ways. Michael (2002) discusses fundingapproaches under four categories:


6/21


political funding strategy

formula funding strategy

strategic funding approach

adjustable formula funding strategy.

Political funding strategies are characterised by negotiation and responses to importantstakeholders wishes. Formula funding attempts to reduce the political elementsin decisions about appropriations by front-loading the inevitable political discussion,considerations and concerns (Michael, 2002, p.9). Formula funding considers therelationships among quantifiable factors for in allocating funds among differentinstitutions. Strategic funding approach

is based on a long-term projection of the states needs and direction(economic, social, medical, political, etc.) and the determination and allocationof resources needs/direction, while institutions are free to align themselves withthe states priorities the extent that they want states resources. (Michael,2002, p.10)

The adjustable formula funding strategy is a diverse strategy that combines the threefunding approaches discussed previously. A portion of the funding approach that isquantifiable is built into a formula, the portion that is political is handled politically,while the portion that is strategic is handled strategically (Michael, 2002, p.11).This strategy not only attempts to gather the advantages of all the three approaches, butalso suffers from being unmanageable. A number of different categories of fundingstrategies are discussed in the next section.

6.1 Performance-Based Funding (PBF)Performance-Based Funding (PBF) is the allocation of resources contingent on achievedrather than promised results. It links funding to results and departs from traditionalconsiderations in Tertiary Education of line items expenditure and inflationary increase.Until recently, linking of public budgeting to campus performance has taken twodifferent forms, based on the connection of resources to results either performancefunding or performance budgeting (Burke, 2002). Burke (2002, pp.22, 23) constructs adistinction between the concepts of performance funding and performance budgeting.He expresses that

Performance funding ties tightly specific resources to institutional results oneach of the designated indicators. The tie is automatic and formulaic.Alternatively, Performance budgeting allows governors and legislators, or coordinating or system boards to consider campus performance on theindicators collectively as merely one factor in determining the total allocationfor public college or university. The link is loose and discretionary.

Performance funding for public colleges and universities has evolved since its inceptionover 20 ago in the state of Tennessee (Noland et al., 2000, p.5). Major characteristics of PBF (Burke, 2002) are:

rewarding institutions for actual performance

linking funding to the quantity or quality of outcomes rather than to inputs


7/21


using Performance Indicators (PIs) that reflect public policy objectives rather thaninstitutional needs

designing incentives for institutional improvement, not just maintaining status quo.

Relative Disadvantages of PBF are:

it tends to be more inflexible in its application

it can lead to greater year-to-year variation in funding if performance results vary

it may discourage institutional diversity if many institutions collectively pursuesimilar incentives

often, it is linked to reduced institutional autonomy in the expenditure of public and private funds relative to other funding methods.

There are several types of PBFs.

Performance set asides : A portion of public funding for HE is set aside to pay on the basis of various performance measures:

A portion of funding for recurrent expenditure is set aside to be allocated on the basis of a number of performance measures

% set aside varies from less than 5% to some cases nearly 100% of currentfunding

number of indicators varies from single to multiple

performance measures are typically devised through negotiations between

government and institutions allocation of funds is not done on a formula basis.

Performance contracts : Result-based funding based on performance contract isflexible design where evaluation criteria are negotiated between the supervisingagency and each tertiary institution. Performance contracts are institution specificrather than system-wide in their content and application. They typically cover a

period of 34 years. Governments enter into regulatory agreements with institutionsto set mutual performance-based objectives:

Performance contracts are typical regulatory agreements more than legally binding documents

performance-based evaluation criteria are negotiated between governmentand institutions

the agreement may be with entire system of institutions or individualinstitutions

A portion of overall funding may be based on whether institutions meet therequirements in the contracts

the agreement can be prospectively funded or reviewed and acted uponretrospectively


8/21


The contracts are more often punitive than incentives

failure to meet goals may result in reduced funding. Payments for results : Results-based funding 1 can be defined as the allocation

of resources contingent on achieved rather than promised results. Tying fundingto results departs from traditional considerations in tertiary education of line itemexpenditure and inflationary increases. Hence, output 2 or outcome 3 measures areused to determine all or a portion of funding formula, or institutions are paid for thenumber of students they graduate in certain fields of study or with specific skills:

two ways in which countries pay for results

use some set of performance measures to calculate institutional eligibilityfor all or part of their formula funding of recurrent expenses

6.1.1 Performance-based funding for research

The allocation of public funding for research projects on the basis of peer reviewis a well-established practice in many countries. It is well known that there is no bestmethod for assessing the quality of research. Every approach has strengths andweaknesses. Nevertheless, the attempts that have been made, notably in the UK andHong Kong, to assess research performance, and link the results directly to substantial

portions of public funding for higher education, have proved largely effective in terms of both targeting the distribution of public funds and improving the quality as wellas the quantity of research output. There are, however, disadvantages in this approach.Indeed, the very fact that both the UK Higher Education Funding Councils andthe Hong Kong University Grants Committee have independently decided first to modifytheir approaches and then to review them with a view to changing the emphasissubstantially give evidence for the problems, which include:

negative impacts on collegiality and morale

institutional game-playing

mission creep

difficulties in evaluating research and scholarship in certain practical and professional disciplines (e.g., performing arts, nursing, architecture, etc.)

difficulties in evaluating co-authored and multi-authored outputs, especially wherethese involve interdisciplinary collaboration

treatment of young or new researchers excessive bureaucracy.

Overall, however, the efforts appear to be worth it, provided that due account is given tothe potential risks.

6.1.2 Performance-based funding for teaching

The use of output/performance criteria in the allocation of resources for teaching ismuch more controversial and problematic. Countries such as Denmark, Sweden, the


9/21


Netherlands and some States in the USA use output criteria in their funding formulae.An interesting variant of this approach is Finlands model involving the assessment andidentification of quality units. In this case, institutions can propose units for evaluation

by the Finnish Higher Education Evaluation Council, and the assessment criteria andmethods of evaluation adopted by the Council are predominantly quantitative, althoughsome qualitative data are obtained via peer-review visits.

An alternative approach that is increasingly favoured in developed countries(e.g., UK, Sweden, New Zealand and USA) is based on the audit of qualityassurance processes or, as they are coming to be called, education quality processes(Massy, 2003). The emphasis is on ensuring that the institutions at all levels (i.e.,department, faculty and university-wide) have in place effective processes for assuringthe quality of the education they offer. A direct link between the results of such auditsand funding is impractical, but an indirect link can be made where an independent

authority takes the audit reports into account in making its funding allocation decisions or recommendations. Other areas where PBF methods are used include differentiation of role and mission, and widening access and participation in higher education.

6.1.3 Performance-based funding for mission

An apparently inevitable consequence of the increased use of PBF, for researchin particular, is the tendency of all third-level education institutions to seek to developtheir research activity, often at the expense of the quality of teaching. In response to thisform of mission creep, governments in several countries and regions have developedmechanisms designed to encourage or require differentiation of role and mission withfunding incentives and penalties. These mechanisms range from public statements of theexpected roles and missions of different institutions or groups of institutions, which formthe basis of funding decisions (Hong Kong) to various forms of performance contracts(Germany and Sweden).

6.1.4 Performance-based funding for access

As governments seek to increase levels of participation in third-level education, andmove from elite to mass and universal systems of higher education, issues of access for economically and socially disadvantaged groups of students arise. Even in countrieswhere no or minimal tuition fees are charged or where very generous systems of studentaid are in place, participation in higher education is higher among economically andsocially advantaged groups. Measures taken to counter this trend include positivediscrimination by legislative means, special funding elements for access and participationand incorporation of social and ethnic diversity measures into quality assurance

programmes.

6.2 Competitive Funding (CF)

The major objective of Competitive Funding (CF) strategy is to enhance higher educationinstitutions access to CF streams to support teaching and research. Major features of CFare:


10/21


it is a flexible mechanism for allocating funds and it can target a variety of sector issues

it is an output-oriented funding mechanism, which increases cost-effectiveness thatcan enhance quality and relevance

institutions have to compete for funds on the basis of their own strategic planning

CF strategy stimulates creative forces through the selection of best projects based on potential performance and track record.

6.3 Formula-Based Funding (FBF)

Formula-Based Funding (FBF) distributes funds to institutions, based on an agreed setof rules, which allocates value to different cost elements. FBF applies to all institutionsin a systematic way. Michael (2002) recognised some objective measures for assessingand funding institutions. These measures can be either input-based or output-based.Input measures are:

full-time enrolment

headcounts

number of course credits

levels of course credits

nature and type of course credits

mission of institution

scale of operation and productivity

number and type of faculty

impact on academic fields

capital assets (square footage, buildings, rooms, etc.)

library holdings, laboratories, etc (Michael, 2002, p.6).

Several output measures are:

retention rate

graduation rate

employers rating of graduates

post-graduation quality of life

Publication impact analysis

spin-off companies

class sizes (Michael, 2002, p.6).

In recent years, many institutions of higher education have adopted some form of FBFin allocating resources.


11/21


6.4 Enrolment-Based Funding

Under the enrolment-based funding model, funds are allocated to institutions of higher education according to the number of students enrolled. The funding amount per residentstudent is different from the amount per non-resident student. Enrolment-based fundingis very popular in a number of developed countries and the models used by the UK andAustralia seem to be very comprehensive.

6.5 Funding of Lifelong Learning

With the increasing significance attributed to lifelong education in the developed world,the distinction is breaking down between part-time higher and higher vocationaleducation courses leading to formal qualifications and those regarded as part of adult

education, continuing education, distance education or associated with out-reach centres.As a result, many of these lifelong learning courses are now treated as part of mainstreamlearning and publicly funded. Even when a political decision is taken to providesupport from public funds for a wide range of part-time provision, traditional fundingmechanisms, whether input-based or output-based, are challenged to accommodate themall because of the difficulty of defining the basic unit of provision. As a result, alternativeapproaches are being considered and among them are vouchers and Individual LearningAccounts (ILAs).

6.6 Vouchers

In voucher schemes, the student receives an entitlement from the regional or nationalgovernment to a certain amount of money to be spent on education. The value of thisentitlement is related to some notion of the average per capita cost of education.When a student chooses to enrol at a specific higher education institution, the institutionredeems the value of the voucher(s). This entitlement can be open-ended in terms of theage of the recipient (although not the total amount of education to be supported) andhence facilitates access for non-traditional and adult learners. Vouchers are a form of demand-side financing, which provides incentives for student choice and greater institutional responsiveness to student needs in a market system more generally. Only tothis extent can such a scheme be described as performance-based.

6.7 Individual learning accounts

ILAs are a variant of the voucher system. In 1998, the UK Department for Education and

Employment proposed a version of this scheme for the adoption in conjunction with thedevelopment of the University for Industry project. With the deferral of that project, 4 theBritish Government has decided to make any new scheme an integral part of a new

National Skills Strategy currently under consideration. However, reservations have beenexpressed about the feasibility of ILAs achieving their stated objectives, at least as theyhave so far been implemented in the UK. As Thursfield et al. (2002) conclude: ILAs donot, and cannot, remove the structural and cultural barriers to lifelong learning.


12/21


6.8 Student loan schemes

Student loans are used in a wide range of developed and developing countries including New Zealand, Australia, Canada, USA, UK, Sweden, Hungary, Sri Lanka, Ghana,The Philippines and China. There are two major types of Student Loan Schemes inoperation around the world:

Mortgage-type loan schemes : Loan is for a defined period of time, with a fixedschedule of repayments. Repayment is unrelated to individuals income.

Income-contingent loan scheme : Repayment amount is linked to borrowers income.Hence, loan repayment period varies with income and size of loan.

Student loan scheme designs may vary in a number of other ways, including eligibilitycriteria, loan entitlements, interest rate setting mechanisms and repayment rates. Studentloan schemes can operate national wide or institutional-based.

7 Principalagent relationship and redesigning higher education funding

The relationship between the government and the public Tertiary Education Institutions(TEIs) can be described within the context of principalagent model. The institutionsof higher education have more information about education processes than thegovernment. The government (the principal) therefore delegates part of the decisionauthority to the institution (the agent). However, the information asymmetries betweenthe government and the institution can create an agency problem; the institution canexploit their information advantages to pursue other goals. The agency problem typically

arises when funding is based on inputs or historical patterns. As the government cannotobserve the effort of university staff, the system may preserve inefficiencies andineffective programmes. A way to overcome such agency problems is to redesign fundingsystems, so that incentives of the principal and the agents converge. This is the essence

behind the idea of results-based funding. The government should be tight on setting goalsfor TEIs and assessing results and provide flexibility on the methods used to achievethese ends. Thus, decision makers would assume a stimulative role centred onincentive-induced change rather than control and prescribe action at the decentralisedlevel (Windham and Peng, 1997).

Higher education systems are complex and they cater to multiple objectives.Hence, building a funding system without perverse incentives or unintendedconsequences requires careful consideration of design options. Perfection is unlikely to

be ensured in the design phase and progress is often based on trial and error during theimplementation phase. The impact of incentive-driven institutional change is contingenton the tailoring of components to fit national and systematic characteristics. Even whenan administrative culture has become obsolete or dysfunctional, it remains necessary tounderstand its institutional roots to secure durable improvements. Also, administrativecapacity limitations and other institutional constraints must be considered when designinga funding system (Schiavo-Campo, 1999).


13/21


Incremental funding worked well enough in countries or periods when systems wereexpanding with increasing resources. However, difficulties have arisen in most placesin periods of stagnation or consolidation when funding was restricted or reducing.This led to moves to formula funding based on inputs (e.g., intake numbers) or outputs(e.g., graduate numbers). Funding on the basis of inputs involves the allocation of resources for specific costs (e.g., staff costs) or measures of activity (e.g., studentnumbers). Funding on the basis of outputs, on the other hand, involves the allocation of resources in response to specific teaching and research outcomes (e.g., graduates,

publications).Each type of indicator 5 reflects a trade-off between accountability and measurability.

Focusing exclusively on inputs and processes facilitates the monitoring of what and howmeans are used but neglects the purpose for which resources are obtained. Outputindicators are relatively simple to observe and quantify but many be only vaguely

associated with societal impact. Outcome indicators are generally more relevant, but alsoless useful for assigning responsibilities. For most purposes, it is preferable to rely on acombination of indicators rather than focusing on any single measures. Yet, an abundanceof data adds complexity, and risks making the performance system unwieldy and difficultto understand. Hence, most result-based funding systems attempt to strike a balance

between manageability and comprehensiveness. According to Thorn et al. (2004),an indicator should preferably meet the following requirements:

easy to calculate

difficult to manipulate

give a reliable estimate of the institutions value added

not be subject to noise.

First, it should be transparent for institutions and their employees how their performanceis evaluated. If people do not know how to influence their performance, result-basedfunding is unlikely to work. Second, the indicator must be difficult to manipulate.For instance, test score can be manipulated in several ways, such as teaching-to-the-examand keeping marginal students out of the pool of tested students. Third, students learninside and outside tertiary education, correcting for external influences. Finally, randomfactors should not have a major impact on selection indicators. As discussed in an earlier section, a mix of input elements and output elements normally characterises fundingarrangements. Whether the emphasis lies on output or input depends on the magnitudesof the parameters (funding rates) included in the conditions (formulae) that determine the

budget. The degree of output-orientation can be described by means of a continuumrunning from the extreme case of input orientation to the other extreme case of outputorientation (Jongbloed and Vossensteyn, 2001). This continuum is shown as thehorizontal axis in Figure 1. Among the systems described earlier, the majority is

predominantly input-oriented with regard to the allocation of resources for teaching.There is a wide range of practices with regard to the degree of output orientation in theallocation of resources for research. There is a very practical reason for this. The useof output or performance measures or indicators as a direct or indirect factor to determinehigher education funding at the system level is easier for research than for teaching andthe other scholarly activities normally undertaken by universities and other third-levelinstitutions. However, performance management rests on the assumption that effective


14/21


governance cannot be achieved within a classic bureaucratic framework of tightregulatory control of sources and methods of production.

Figure 1 A classification scheme for funding systems

Source : Jongbloed and Koelman (2000)

8 How to make regulatory changes

It is advisable to pay much attention to the following factors and issues in changing the public funding strategy in Sri Lanka.

8.1 The appropriate balance between input-based and output- or performance-based funding

Because of the high level of fixed costs, notably staff-related costs, in the budgets

of higher education institutions, a considerable level of funding stability is essential.This is normally provided by the allocation of the bulk of recurrent funding for higher education institutions based on historical calculations of the basic costs of teaching andresearch. The use of output- or performance-based criteria is, therefore, usually confinedto the allocation of a relatively small proportion of total funding. Exceptions to this arethe funding for teaching in Denmark using the taximeter model and the funding for research in the UK, New Zealand and Hong Kong.

8.2 Best practice in the application of output- or performance-based funding

It is important to make a distinction between output- or performance-based fundingsystems, which are based on quantitative outcomes, e.g., completed credits or graduatenumbers, research publications, etc., and those that are based, in whole or in part,on an assessment of the quality of those outcomes. As previously noted, the useof output- or performance-based criteria for determining the allocation of resourcesfor teaching in higher education is already less prevalent than the use of such criteriafor the allocation of research funding. The association of qualitative assessmentswith these allocation models for teaching is rare and is currently practised systematicallyonly in the UK.


15/21


8.3 Major pitfalls in the application of output- or performance-based funding systems

The major pitfalls in public funding appear to be:

Excessive bureaucracy : Time and resources spent on compliance outweigh the benefits

Loss of trust : A problem not peculiar to higher education institutions among publicsector institutions in present times

Unforeseen and unintended consequences : Outweighing the benefits

Game-playing : The development of a compliance culture

Mission creep : Decline in diversity of institutional mission.

8.4 Observe the use of performance indicators as a basis for funding third-level education

As indicated in an earlier section, there are several examples of the successful use of PIsin the assessment and allocation of some portion of the public funding for higher and higher vocational education. Where such PIs are qualitative (e.g., assessments of teaching or research performance), they are often intensely contested and can becounter-productive. Quantitative PIs (credits passed, degrees awarded, research

publications, etc.) are less open to argument, but have the inevitable failing of beingrather blunt instruments given the complexities of the higher education enterprise.A more effective system, in terms of achieving actual quality improvements, appears to

be the adoption of a policy of encouraging institutions themselves to take a moreconscious approach to performance assessment in the whole range of their activities, andthen auditing the institutions own processes for doing so.

8.5 What sort of incentives can be built into public funding systems toencourage institutions to diversify and increase their income fromnon-public sources, and are there any particular risks associated with

such incentives?

Fundamental to encouraging institutions to diversify their sources of income is to ensurethat they are not penalised for their success in doing so. Many countries and regions

provide public funding support for higher education on a deficiency grant basis and thisgives rise to the danger that when institutions receive less public subsidy the more moneythey receive from other sources (donors, fees, 6 endowments, commercial contracts, etc.).To avoid this pitfall, it is desirable to draw up clear guidelines in consultation with theinstitutions regarding a definition of private funding and the terms for its exclusionfrom funding calculations. Active support for institutions efforts to raise funds fromalternative (i.e., non-government) funding sources can be provided by offering matching

public grants.


16/21


The risks associated with providing incentives for institutions to diversify their sources of funding and hence reduce their dependence on public funding are both

political and practical. Politically, the reduction of dependence on public fundingincreases the (fiscal) autonomy of the institutions. This may result in the institutions

being less willing to respond to government policy priorities, unless these are enshrinedin legislation or some form of performance contract. Issues of quality assurance andmission creep may also arise and require alternative means of government oversight.Practically, institutions may find their own academic and strategic objectivescompromised by the pressures of fund-raising and the demands of other stakeholders.

Nandy 6 revealed the following features about higher educational management inSri Lanka and its responsibilities:

The treasury, the UGC and the HEIs manage the Higher Education Sector between them. so many mixed up lines of responsibility. The treasury and

the UGC are both involved in discussing funding with individual universities sometimes, even the UGC is not fully aware what exactly is happening withthe funding. The UGC appears not to have sufficient control on the release of money to individual institutions.

The UGC, in its turn, also carries out a number of duties that should be the business of academic administrators in the institutions. For instance, the UGC deals with admissions,makes rules and often is involved in the appointment of staff at all levels, and has a major say in the transfer of staff.

9 Policy implications of funding in Sri Lanka

The policy implications of funding can be presented at three levels:

a university level

b the government level

c the public level.

9.1 University level

Universities need to be open to innovations in the area of sourcing for non-government funds. In this respect, universities should learn from one another and possibly study the success stories in sister universities.

Need to have a periodic review of the activities of the income-generating centres

in various universities, which were established for this purpose. If these units areno longer fulfilling the functions they were meant to fulfil, they should not constituteanother financial problem. Value-for Money-Audits should be conducted for each

programme.

The teaching staff who are currently involved in commercial ventures need closemonitoring that teaching and research duties are not neglected, or taken assecondary.


17/21


The university system in Sri Lanka needs to show more pragmatic ways in handlingfinancial problems. A way of reducing administrative costs needs to be devised,so as to try to win more money into teaching and research.

The problem of autonomy is a major issue confronting the Sri Lankan universitysystem. If universities become truly autonomous, it may be easy to separateuniversity policies from political agitation and propaganda.

The university system needs to intensify creating a friendly environment for learning. For instance, students accommodation deserves an urgent attention.

Universities need to heighten the universityindustry partnerships.

Promote contract/assignment basis tenure, instead of 100% permanent teaching staff,while paying attractive/competitive remuneration.

9.2 The public

It is important to enlighten the public about the various modes of financing higher education. The public includes parents, guardians and alumni of these universities.Some of the public could even be industrialists who may be willing to donate or providefunds for applied research, which will benefit their industries and economically enhancethe universities. If the public is to provide necessary support in financing the universities,then they should be well informed as to the conditions of the universities and aboutalternative modes of financing higher education. They should know the types of expertiseavailable in universities so that they can be explored and utilised in the industries.

9.3 The government There is an urgent need to make upward reviews of salaries paid to university teachers,so as to stop brain drain and profiteering tendency among staff and studentsin the Sri Lankan universities. The government needs to give universities deservingautonomy, so that in a conducive atmosphere, they can do what they know how to do

best teaching, research-training and research. The government may need to introduce anaccreditation system to the degrees awarded by all HEIs in Sri Lanka so as to ensure theinterest of all higher education learning partners concerned.

Implementing a funding system goes beyond its technicalities. Even a carefullytailored design may fail if it does not rest on some degrees of support from keystakeholders. Tertiary institutions are generally populated with well-articulatedindividuals, some of which stand to lose from changes in funding structures. Therefore,developing an implementation strategy with explicit assumptions and contingency plansincreases the likelihood of success. 7 There is no one, all-purpose answer to how best toimplement a university-level funding system. Different approaches work in differentcountries and regions, but may not be applicable in other circumstances. However, thereappear to be some general design principles, shared explicitly or implicitly by manysystems.


18/21


A funding mechanism is most likely to be successful if accepted as reasonable by all parties concerned. In this connection, the Finnish approach of drawing up and agreeingwith the institutions concerned, individual performance agreements as the basis for funding has apparently been very successful. Similar approaches are being adopted bySweden and Germany. The success of the Missouri Funding for Results programme islikewise built on consultation. With regard to the design principles for the fundingmechanism per se, the New Zealand Tertiary Education Advisory Commission used thefollowing to guide to review its funding framework: 8

promote the desired steering of the tertiary education system

be transparent

have low transaction costs

assign financial risk where it is most appropriate ensure equitable access to lifelong learning

promote allocative, dynamic and productive efficiency

recognise and respect academic freedom and provider autonomy

accord with the principles of the Treaty of Waitangi.

The above-mentioned considerations would appear to be a sound basis for the designof a funding system for Sri Lankan universities, although the emphasis may differ in viewof Sri Lankan cultural, political and socio-economic circumstances. Some effective waysof generating additional income, increasing access or cutting down costs are as follows:

Introducing additional sessions (it is possible to introduce evening sessions)and part-time study on a large scale. For this, increase the number of students(expanding opportunities) and the average unit cost would be somewhat decreased.

Introducing distance learning and open learning models to enhance student learningat an affordable cost. This could be coupled/compatible with the e-Sri LankaProgramme as well.

Promoting inter-university cooperation (especially among those that are in proximityto one another) along the lines of sharing the services of staff and even offering jointdegree and diploma programmes to cut down costs and promote (social) harmony.

Generating income from research, innovation and consultancy services that will benefit both the institutions and the industry.

Conducting value for money audits.

On the basis of the above-mentioned discussion, a basic model 9 is suggested as shown inFigure 2 for reforming public funding in Sri Lanka.

The proposed funding system recognises importance of a variety of fundingarrangements and it consists of several different types of grants. Rather than giving block grants to universities, this proposal encourages universities to maintain their teaching andresearch programmes at high-quality levels.


19/21


Figure 2 A model for reforming public funding in Sri Lanka (see online version for colours)

This funding proposal will increase the competitive intensity among various fieldsof study resulting in better-quality teaching and research programmes. This will help theattitudes of universities in raising funds, and in the future, public universities in Sri Lankawill achieve funding excellence by using alternative funding strategies such as privatefunding. They will launch fund raising drives with alumni.

10 Conclusion

The critical importance of higher education in the modern knowledge-basedsociety suggests a necessity for strengthening links between funding institutions

of higher education and achieving expected results, especially supporting the economyand reducing unemployment among graduates in Sri Lanka. For each of the dimensionsof the proposed model, multiple-criteria should be used to drive the implementationof reforms rather than a single taximeter design. For Teaching Grant category,a combination of PBF, CF and FBF can be used. In reforming public funding, it isimportant to consider variations between institutions of higher education in Sri Lankanin terms of size, nature of courses offered, cost structure and the need for funds.For example, a relatively new university may need funds for purposes different from anold university.

Acknowledgements

This paper is part of the results of a study commissioned by the Improving Relevance andQuality of Undergraduate Education (IRQUE) Project (Funded by the World Bank),under the Ministry of Education Sri Lanka, as an input to a review of its fundingmechanism and funding systems for developing a funding model to the universities inSri Lanka under its patronage.


20/21


References

Batley, R. (1999) The new public management in developing countries: introduction, Journal of International Development , Chichester, Vol. 11, No. 5, pp.755760.

Burke, J.C.A. (2002) Funding Public Colleges and Universities for Performance: Popularity ,Problems and Prospects, Rockefeller Institute Press, New York, NY.

IRQUE Final Report (2003) Melbourne University Private and Resources Development ConsultantLimited, RDC Set 1, Vol. 1, pp.67.

Jongbloed, B. and Koelman, J. (2000) Vouchers for higher education? A survey of the literature(Report commissioned by the Hong Kong University Grants Committee) , Center for Higher Education Policy Studies, University of Twente, Enschede, Netherlands.

Jongbloed, B.W.A. and Vossensteyn, J.J. (2001) Keeping up performances: an international surveyof performance-based funding in higher education, Journal of Higher Education Policy and

Management , Vol. 23, pp.127145.Massy, W.F. (2003) Honoring the Trust; Quality and Cost Containment in Higher Education ,

Anker Publishing Co., Bolton, MA.Michael, S.O. (2002) Higher Education Finance: Formula Funding Issues For Ohio ,

http://www.regents.state.oh.us/hefc/Steven_Michael_4.8.02.pdf Nandy, S. (2000) A New Method for the Allocation of Funds to the Universities and Institutions of

Higher Education in Sri Lanka , A Report Submitted to the UGC, Sri Lanka. Noland, B., Davis, H. and McClendon, S. (2000) Improving Institutional Accountability Through

Performance Funding: The Tennessee Experience , http://www.statepublic.tn.us/thec/2004web/division_pages/ppr_pages/Research/Papers/2000.11.16 (Retrieved on 10 April,2006).

Randiwela, P. and Herath, S.K. (2008) Improving Relevance and Quality of UndergraduateEducation (IRQUE) in Sri Lanka: the need for a change in public funding strategy,

International Journal of Innovation and Learning , Vol. 5, No. 3, pp.300316.Schiavo-Camp, S. (1999) Performance in the public sector, Asian Journal of Political Science ,

Vol. 7, No. 2, pp.7587.Thorn, K., Nielsen, L.H. and Jeppersen, J.S. (2004) Approaches to Results-Based in Tertiary

Education Identifying Finance Reform Options for Chile , World Bank Policy ResearchWorking Paper 3436, October, http://siteresources.worldbank.org/INTAFRREGTOPTEIA/Resources/Approaches_to_Results_Based_Funding.pdf

Thursfield, D., Smith, V., Holden, R. and Hamblett, J. (2002) Individual learning accounts:honourable intentions, ignoble utility?, Research in Post-compulsory Education , Vol. 7,

pp.133146.Tilak, J.B.G. (2005) Global trends in the funding of higher education, IAU Horizons World

Higher Education News , Vol. 11, No. 1, March, http://www.unesco.org/iau/newsletters/iaunew11-1-en.pdf

Trow, M. (1970) Reflections of the transition from mass to universal higher education, Daedalus ,Vol. 99, pp.142.

Windham, D.M. and Peng, W. (1997) Incentive concepts and macro-economic planning,in Kemmerer, F.N. and Windham, D.M. (Eds.): Incentive Analysis and Individual Decision

Making in the Planning of Education , IIEP, Paris, pp.116.

Notes1Government should be tight on setting goals for universities/tertiary institutions and assessingresults and provide flexibility on the methods used to achieve these ends.

2Reflects the quantity of products produced such as the number of graduates or the number of research papers published. The performance criterion corresponding to output is efficiency ,i.e., maximising the quantity of output in relation to a given total amount of inputs.


21/21


3Covers the quality and societal impact of the product produced. Outcome indicators include

learning results, job placements and user satisfaction. The performance criterion corresponding tooutcomes is efficiency, i.e., maximum outcomes in relation to the outputs produced.4It has been replaced by a publicprivate partnership called Learndirect.5The process of identifying indicators goes to the heart of designing a result-based funding system.Indicators are more effective when they mirror governments strategy in the higher educationsector. Indicators come in four types namely: Inputs, processes, Output and Outcomes.

6Other than tuition fees that are formally taken into account in the funding assessment process.7Thorn et al. (2004).8 NZ Tertiary Education Advisory Commission (2001).9This has to be coupled with Capital Funding. The suggestions given by Nandy (pages 1314) arerecommended in this regard. The percentage values given in this model are tentative.These could be determined after consulting the stakeholders of the HE.

Documents

Improving Relevance and Quality of Undergraduate Education (IRQUE): public funding alternatives for Sri Lanka