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CHAPTER 1

INTRODUCTION

1.1 The Committee was appointed by the Committee of Vice-Chancellors and Principals in April 1984 with the following terms of reference:

To promote and co-ordinate, in consultation with the individual institutions which it will select, a series of efficiency studies of the management of the universities concerned and to consider and report to the Committee of Vice-Chancellors and Principals and the University Grants Committee on the results with such comments and recommendations as it considers appropriate; provided that the commissioned studies will not extend to issues of academic judgment nor be concerned with the academic and educational policies, practices or methods of the universities.

"We envisage that the Steering Committee in inviting the individual universities to participate will seek to form a group of some five or six institutions representing a reasonable cross-section of the university system in terms of character, size and geographic location.

"In this regard, we have been encouraged by the ready indication to participate which has been displayed by universities. The specification for each study will be for the committee to determine with the institutions concerned and we envisage that they together will select the professional consultants and other advisers to undertake a survey. There must be the greatest possible involvement of the individual institutions in the conduct of the studies as there was for the Departments of State in the Rayner Studies. On the same basis, therefore, the enquiries will be undertaken in partnership between university staff and the consultants.

"It is our intention that the Study Reports should be submitted by the consultants to the individual universities concerned and subsequently to the Steering Committee. That Committee will have the responsibility of considering whether each report satisfies the terms of reference and whether it requires further work in the particular area of enquiry.

"It will in due course submit the Reports to the University Grants Committee with its own commentary drawing general conclusions from its work as a whole. The Chairman of the UGC expects that his Committee will wish to report itself on the exercise as a whole and that it will agree to make the general report and the individual reports available to you as Secretary of State."

1.2 The Committee met for the first time on the 8th May 1984. We judged that our task was to examine whether management structures and systems were effective in ensuring that decisions are fully informed, that optimum value is obtained from the use of resources, that policy objectives are clear, and that accountabilities are clear and monitored. Our terms of reference did not include examination of academic policy which is the province of the UGC, but they did not limit us to a narrow search for specific economies.

1.3 We commissioned studies in six universities: these were the Universities of Edinburgh, Essex, Loughborough, Nottingham, Sheffield and University College London. They were chosen as a cross-section of the system as a whole in respect of size, subject-mix, undergraduate/postgraduate balance, financial structure and his-

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tory. We also commissioned a seventh study of the use nationally of data relating to the university system.

1.4 Each institutional study had two parts: a General Study, common to all, on the effectiveness of the institution's general management structure and administrative systems including the decision processes, authority and responsibility for and monitoring of the use of resources, and management information services; and a Special Study on the detailed working of a specific aspect of the institution's structure and systems.

1.5 In considering the scope of the Special Studies we decided that general conclusions could not be drawn from studying a different area of operation in each institution; nor would study of the same area of operation at all six provide the breadth of experience we required. We decided therefore to choose three major areas, each being studied at two institutions, as follows: Financial Management at Edinburgh and University College London; Purchasing, including purchasing and maintenance and use of scientific equipment, at Essex and Sheffield; and Buildings and Plant (including minor buildings works and allocation and use of space) at Loughborough and Nottingham.

1.6 We could not have carried out our task without the co-operation of the universities which agreed to undertake the efficiency studies. The Principal of Edinburgh. the Vice-Chancellors of Essex, Loughborough, Nottingham and Sheffield and the Provost of University College London responded to our invitation with a generous commitment which has continued throughout the exercise and for which we owe them a considerable debt.

1.7 Each Study was undertaken by a member of staff of the institution designated as the Study Officer who, in all cases, was assisted by management consultants and, in some cases, by a small team of colleagues. The Study Officers were guaranteed independence in their work and the full support and assistance of their institutions. We are greatly indebted to them.

1.8 In selecting management consultants we nominated three firms to tender for the work at each institution and contracts were awarded in each case to the firm chosen by the institution.

1.9 We met all the Study Officers frequently, either alone or with their consultants. We have also met regularly with the Heads of the six institutions and their senior colleagues, both separately -and as a group, and with the Vice-Chancellor of the University of London. We visited each of the six institutions, and we met representatives of the Trade Unions and of the National Union of Students.

1.10 We were commissioned specifically to initiate efficiency studies within universities and not to undertake a general enquiry. We decided therefore not to invite submissions, but those submissions which were received were carefully considered.

1.11 We appointed management consultants for the National Data Study after competitive tender. The universities of five members of the Steering Committee agreed to collaborate in this Study and we are grateful to the staffs of Cambridge, Heriot-Watt, Manchester, Sussex and Warwick Universities for their assistance.

1.12 We wish to express our thanks also to our Secretary, Michael Baatz, Assistant Secretary. Hugh Patterson and other members of the secretariat and to their secretarial assistant, Mrs. Janet Atkins, by all of whom we have been well served.

1.13 All the Studies have provided evidence for our main Report. Additional conclusions on specific matters arising in the Special Studies and in the National Data Study are set out in Appendices D and E. The terms of reference of all the Studies are set out in Appendices A, B and C.

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CHAPTER 2

UNIVERSITIES NOW

2.1 The UK universities make outstanding contributions to our national life. Their three year degree courses (four year in Scotland) are shorter than those of any other developed country and their wastage rate is low not least because of their emphasis on small group teaching and personal tuition. They play the leading role in maintaining and advancing scholarship in the humanities and the social sciences, where their achievements are high by international standards. They carry out the greater part of the pure research in the United Kingdom and much of the applied research on which future scientific and technological development depends. In consequence they provide most of the country's pure and applied research workers in science, engineering, medicine and other fields and they under-pin in culture and the arts the quality of national life. We support the UGCs view that any policy that diminished the role and status of the universities would damage many aspects of our educational, cultural and industrial life.

INSTITUTIONAL BACKGROUND

2.2 Universities in the United Kingdom are independent self-governing bodies with a large degree of constitutional autonomy. In almost all cases their autonomy is guaranteed by a Charter and Statutes, which are promulgated by the Privy Council and lay down in broad outline the constitutional framework within which they operate. In a few cases this constitutional position is incorporated in an Act of Parliament. Charters normally provide for a division of duties between a Council (Court in Scotland), which is the governing body and which carries financial and employment responsibilities, and a Senate which is given responsibilities for academic matters. However, the precise relationship between Council and Senate varies considerably. In some cases Council has ultimate powers in all matters; in others Council has to seek Senate's advice; in some, especially where actions affect academic questions, Council can only act with a recommendation from Senate. Whatever the formal situation, intervention by Council in purely academic affairs is a rare event and in recent years Councils have accepted that they should seek Senates' views on many issues, This traditional division of effective roles is one which is not familiar to senior managers in industry or even in local authorities and civil service departments. The special powers vested in the Senate stem from the inherent nature of teaching and research and enable it to protect academic freedom. However, in times of financial constraint the potential for friction between the Council and Senate is increased; and the changing circumstances of universities since 1981 are now leading to a questioning of the working relationship which prevailed throughout the period of expansion.

2.3 The degree of autonomy embodied in the Charter and Statutes gives a substantial amount of freedom to universities in the way in which they organise their affairs. Although the basic constitutional structure is similar across the nation there is significant variation of 'management style' from one university to another. This arises from variations in history, tradition, size, location and, in some instances, from the influence of outstanding leaders. Indeed individual universities rightly develop their own ethos and establish a very particular image in the eyes of other universities and of the wider public. Size is of particular importance. For example, in 1983/84, among the six universities which we studied, full-time student numbers ranged from 3188 in the case of Essex to 9866 in the case of Edinburgh. Full-time academic staff numbers (financed from UGC grant and fees) in these universities range from 259 to 1097. In practice, universities with medical schools have marked differences from those that have not - mainly arising from the effect of a close relationship with a complex of teaching hospitals funded largely by the DHSS through the NHS.

2.4 Despite the constitutional autonomy of universities, their freedom of action is significantly limited in practice. They are subject to Parliamentary accountability as far as public money is concerned and operate within the planning limits imposed by the UGC and the Government. They are dependent on the State for funds for teach-

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ing and research. By far the greater part of university income comes from the State by one route or another. The main channels are through the University Grants Committee, fee income from home students and the Research Councils. It is not surprising, therefore, that the State, through Government and Parliament, requires to know whether universities manage these funds well and whether they provide good value for money.

2.5 Universities with medical and dental schools are further constrained by the requirements of the National Health Service since it falls to universities with clinical schools to provide substantial parts of the patient care services in the university teaching hospitals; and indeed part of their funding comes from the DHSS. Other universities those with so-called 'responsible body status' must observe DES rules on extra-mural teaching; while the teaching of a number of subjects is constrained by the requirements of the relevant professional institutions. Moreover the impact of the university's customers the students should not be overlooked. The desire of young people for a university education has grown over recent decades and there have been significant trends in the subjects they wish to study. This poses universities with problems of matching supply and demand, outside those subjects (such as Education and Clinical Medicine) in which the UGC imposes limits on student numbers for purposes of manpower planning.

2.6 Universities are complex organisations with multiple objectives and functions. They can be seen as having:

(a) Objectives: The Robbins Report stated the aims of Higher Education as being:

(i) instruction in skills suitable to play a part in the general division of labour;
(ii) teaching to promote the general powers of the mind;
(iii) the advancement of learning;
(iv) the transmission of a common culture and common standards of citizenship.

(b) Functions: The prime function of a university is the attainment of these objectives through teaching and research. In addition universities have important cultural roles in their communities. The efficient performance of teaching and research involves essential secondary functions such as the provision and maintenance of plant and buildings, many forms of support for students (for example, residences and careers guidance), administration and forward planning.

2.7 Universities exhibit a number of features which complicate the managerial and administrative process, for example:

(a) Range of academic activity: There is an immense range and variety of activity undertaken within each university. This is reflected in the number of departments in some institutions there are for example as many as 120 in Edinburgh. The diverse physical environment, equipment, library facilities and personnel needed for research and teaching over such a wide range of activity complicate judgements about objectives and resource allocation.

(b) Professional loyalties: Between a third and a half of the total staff which universities employ are 'professionals' in widely diverse fields. Moreover, such staff often regard their status as physicists, surgeons, lawyers or technicians as being at least as important as their membership of a university. This can give rise to divided loyalties and conflicts of interest. It adds to the task of uniting an

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institution to work to a common purpose and objectives, and provides a managerial challenge.

(c) Participation: The tradition of self-government, which lies at the heart of a university's constitution, has extended over the years to wider groupings in the institution who have, or wish to have, a voice in both academic and business affairs. Such participation can provide a strong unifying force within the institution; but it can also be used to delay or block difficult but necessary decisions. This can be particularly marked at a time of scarce and declining resources.

(d) The tenure issue: There has been much comment in recent years on the inflexibility imposed on universities by the terms and conditions of service of staff, and of academic staff in particular. Essentially, tenure gives permanent employment in the employing university, with a contract that can only be broken in special circumstances. These are frequently restricted to various forms of misconduct, or inability or unwillingness to do the job; in general, tenure does not allow for dismissal on grounds of redundancy.

The position is not uniform across the whole university system. The variations are such that it is not easy to give a summary which covers all instances but most universities fall into one of three categories:

(i) universities in which the tenure of academic staff is complete and watertight beyond any doubt;
(ii) universities where tenure mayor may not be secure depending upon the legal interpretation of Charters, Statutes and conditions of service;
(iii) universities in which it would appear that academic staff have no security of tenure.

The Secretary of State has said that he intends to legislate on tenure at some future date, However, he has also said that:

"We have in mind no interference with existing contractual rights. We wish only to limit the tenure that may be granted by contracts made after some specified future date."

1981 AND BEYOND

2.8 In July 1981 major cuts were announced in the recurrent grant to universities, and though they were spread over three years they imposed severe strains on the university system. Indeed, at the time there were doubts whether some of the worst hit universities would be able to survive. Reductions faced by individual universities varied from 44% to 6% with an average of 17% over the university system. In the six we have studied the reduction ranged from 20% to 8%. Universities were helped by the special provision of £80m to pay for early retirement of staff, and nearly all of them have now been able to achieve the necessary reduction in the rate of expenditure. But one consequence of the July 1981 cuts was the retirement of most academic staff over the age of 55. In many faculties the number reaching normal retirement age during the rest of this decade is in single figures and, because of this, changes of balance or further economies will be more difficult than they would be in more normal conditions.

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2.9 The universities had hoped that the three years of cuts after July 1981 would be followed by a period of 'level funding' but this was not to be. Government initially appeared to hold out the prospect of level funding for universities after the contraction announced in 1981. But it is clear that the concept of 'level funding' was in terms of Government's planned levels of provision for pay and price increases; and by 1984 the universities were being told that they would be provided with less t~an level funding and would be expected to compensate for this by increased efficiency.

The 1985 Public Expenditure White Paper proposes that the UGC grant should increase at an average rate of 2½% per year in cash terms, which is well below the Treasury forecast of the rate of inflation. Among the considerations which can exacerbate the effects of this gap are:

(a) Annual salary settlements that rise even more quickly than allowed for in the general rate of inflation.

(b) Incremental drift; that is the escalating cost of staff which arises from the payment of annual increments on a routine basis. Before 1981 the increasing cost due to the award of annual increments was largely offset by new staff coming in at the bottom of the scale to replace those at the top of the scale retiring. More recently, and for the next ten years, the low staff turnover greatly reduces the value of the offset.

(c) The real costs of some important university commodities for example books and periodicals have increased more rapidly than the general rate of inflation. This has been made much worse by the fall of the pound against the dollar.

(d) Tax changes, such as the imposition of VAT on building repairs in 1984 and the national insurance charges of 1985, which raise university costs but which are not compensated by an increase in UGC grant.

2.11 Teaching based criteria are likely to be largely summarised in a formula based on planned student numbers (and their distribution between subjects) and unit teaching costs in each subject. The results of this calculation will need to be adjusted for a variety of special considerations, although of these the only one whose effect is likely to be substantial is London weighting. The UGC has no present intention of taking into account quality of teaching, because it has no reliable way of assessing it whereas peer review can be used to assess quality of research. This may change when satisfactory performance indicators for teaching are developed.

2.12 The overall response by universities to this type of scenario must, of course, involve a number of distinct measures. Among them is certainly the increased generation of income from non-government sources. But universities must also maximise

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the effective use of available resources. The crucial issue is how a university achieves the maximum value for money consonant with its objectives. The search for value for money is desirable at any time; in an era of constrained funding it becomes essential.

2.13 Even if universities have a clear view of what they want to do, they will not be able to achieve their aims unless they have the necessary structure to effect adequate rates of change and the will to produce it. We see this as the greatest need for the universities in their preparation for the period up to the end of this century.

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CHAPTER 3

UNIVERSITIES AT WORK

INTRODUCTION

3.1 This Chapter is central to our Report. It is divided into three sections.

3.2 In Section A we review the many factors which form a background to the strategic planning and decision-making processes within universities. The Study Reports properly concentrated on the internal efficiency of the universities under their microscope and consequently much of the material in this first section is drawn from our own discussions and overall assessments.

3.3 In Section B we examine the planning, resource allocation and monitoring processes found by the Study Officers. It is in this area that we believe there is the greatest scope for universities to improve their performance.

3.4 In Section C we look at the findings of the Study Reports on the governance of universities. Each Report looked at the authoritative bodies in the university and at the infra-structure of governance including the roles of senior academic and administrative office holders. Here we rely heavily on the conclusions of the Study Reports.

SECTION A: BACKGROUND TO PLANNING

3.5 Universities are subject to influences of many types. Foremost are those which arise from sources of funding, and without question the most important of these is the State.

3.6 Public money reaching the universities through DES or other Government Departments is subject to the annual Public Expenditure Survey procedure. Each year a Public Expenditure White Paper, usually published in January or February, gives precise levels of cash funding for the next financial year (April-March). The White Paper also gives broad indications for the two succeeding years but in recent years these have been unreliable. Based on the Government's view of inflation trends and its advance expenditure indications, it appears that UGC grants to universities are likely to fall on average by about 2% per annum in real terms between the year 1985/86 and the year 1987/88.

3.7 The "forward look" provided by the annual Public Expenditure Survey leaves the UGC and the individual universities with significant problems in forward planning. The White Paper gives only broad indications of forward funding for the next three years and even the levels of grant given to the UGC in January (and hence by the UGC to universities in February and March) for the next university financial year are not totally firm. The university financial year begins in August. University first degree courses last at least three years and students apply through UCCA about one year before entry, using information in prospectuses compiled six months before that. This means looking beyond the Public Expenditure horizon. The UGC has on occasion tried to provide some guidance on the situation further ahead, but its financial projections cannot be more reliable than the figures in the Public Expenditure White Paper.

3.8 These short planning horizons have led universities to put considerable effort into crisis management, and, more importantly, often lead to the abandonment of desirable developments to accommodate some new specific advice from Government. The relative uncertainty in the "forward-look" is compounded if there are additional and short-term funding changes. such as the decision of the Chancellor of the Exchequer to lower the cash limits for the financial year 1983/84 at short notice in the late summer of 1983. This cut the income of universities for the academic year 1982/83 by £23 million within two months of the end of that year.

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3.9 For many years the Government of the day has signalled messages to the University system. These messages sometimes concerned student numbers, sometimes finance and sometimes more academic matters such as subject mix; they were generally aimed to influence rather than to direct and they were within generally rising resource. Over the last few years, and particularly since 1981, the UGC has been receiving much clearer indications from Ministers as to how resources should be deployed and how universities should perform. In particular there has been pressure to build up fields such as biotechnology and information technology. Thus Government is coming to shape university development in a much more positive way than hitherto and this at a time when funding is not keeping pace with rising costs. This is likely to continue. The most undesirable aspect of the situation is that Government has not made clear its policy in relation to the role of higher education in the country. Yet the shape of the university system five years ahead is to some extent already being set by the subject choices of 15 and 16 year-olds at school.

3.10 There is thus a real need for Government to set the broad objectives to be expected of the university system in the years ahead. This is even more important than giving guidance on resources beyond the Public Expenditure time horizon. Perhaps the promised Green Paper on the Future of Higher Education will provide what is currently missing. Nevertheless, severe as are the problems relating to the planning horizon, we are clear they should not lead the universities to abandon the search for improved value for money.

3.11 The principal agency through which Government impinges on universities is the UGC which issues broad targets for student entry to individual universities, provides the base finance to support many university activities and issues guidance (and interprets the guidance of the Secretary of State) on a range of particular matters.

3.12 UGC targets of student numbers relate to UK and EEC undergraduate and postgraduate students. These targets are a factor in the determination of the level of UGC grant to individual universities. The unit of resource/grant per student provides notionally for teaching and an element of dual-funding research support. When total Government funding for universities was reduced after 1981 the UGC decided to give some protection to the unit of resource by reducing the student targets. Across the system as a whole the planned reduction in student numbers from 1979/80 to 1984/85 amounted to 5%. The reductions for the six institutions examined in the Study Reports ranged from 0% to 4%.

3.13 Some universities accepted students over and above their relevant targets partly from a belief that they should afford a university education to as many qualified students as possible and partly to acquire some extra income in the form of additional tuition fees. These fees, currently £500 per annum for each home/EEC undergraduate, are paid regardless of student targets. The relationship between UGC student targets and university income has therefore been obscured. Furthermore in the last two years, as a result of pressure from Government, student numbers have crept up again, even though total funding is diminishing in real terms.

3.14 Two major sources of the income of universities are UGC recurrent grant and tuition fees. These two together provide the base finance which supports not only the teaching but also the research activity of academic staff and the "well-found" laboratory facilities which together are the UGC contribution to the dual support system for research funding. This money is not earmarked for specific purposes and can be used as the institution decides but it is often accompanied by UGC 'advice' which is commonly heeded by institutions.

3.15 From the point of view of universities or of Government, UGC grant and home student fees are interchangeable; indeed, when Government alters the level of the tuition fee it also makes a counter-balancing change in the UGC grant. A typical university will received 64% of its funding direct from the UGC and 13% in the form of tuition fees. In England and Wales most of the fees are claimed by each university from individual Local Education Authorities as global sums for all the students

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from that particular Authority. They are claimed soon after students register at the beginning of each academic year but payment is sometimes considerably delayed. Local Authorities, in their turn, claim about 90% of the total from central Government in the form of a Specific Grant. The remaining 10% is charged to the rates.

3.16 In general the system of fee collection in England and Wales is inefficient, with the use of two distinct routes to channel funds to the universities from the same source. In Scotland the fees are paid directly to the universities by the Scottish Education Department. The Report on University College London draws attention to the late payment of fees to universities by the LEA's and its effect on institutional cash-flow. The National Data Study goes further, however, and proposes that major savings should be achieved by combining fee income with the UGC grant or administering fee payments nationally. We have not looked at the matter in detail but we would recommend the Secretary of State for Education and Science to consider it.

3.17 Part of the so-called "dual-support" system of research funding comes from the Research Councils in research grants to individuals and research groups for research staff, equipment and materials. Research Council grants are normally for periods of two or three years but on occasion longer. Some universities receive in addition large grants on a continuing basis for substantial and specialised research facilities such as the Mullard Space Science Laboratory of University College London. A typical university is likely to receive about 6% of its total income from the Research Councils, excluding any large special facility grants. Other sources of research funding are Government department contracts and commercial and industrial contracts and grants from charitable foundations.

3.18 The funding of medical teaching and research is more complicated. The UGC funds the university while the DHSS, through the Regional and District Health Authorities funds the associated hospitals. The dual-funding system applies to medical research for which funds also come from hospital sources and charitable foundations. The extent to which medical schools are funded by the Health Authorities varies from one institution to another. This renders valid comparisons complex and makes it difficult to come to judgments about value for money. We have not had time to investigate the relationship between the universities and the Health Authorities.

3.19 There is other Government funding to universities but it is less significant. For example, some universities with 'responsible body status' receive direct DES funding for extra-mural teaching. But the sums arising in this way for the universities concerned amounted to no more than £51/2 million in 1982/83

3.20 The 1981 reduction in Government funding required all universities to reduce commitments, in some cases very sharply, at the end of a growth phase which had lasted more or less unbroken from 1945 to the beginning of the 1980's. This posed problems for Vice-Chancellors and their management team, for Councils and Senates and for the individual university community. A university accustomed to the realisation of most of its expectations found itself faced with resource limitation. The situation was made more acute by the relatively broad-brush advice given at that time by UGC; and this posed some universities with difficulties over academic priorities. For the first time in decades the financial and academic priorities of a university were potentially in conflict, and the management structure of some universities found difficulty is responding except by a policy which was a mixture of "equal misery" and "random misery". That is to say the reductions in funding other than stipends were across departments broadly pro-rata to their existing expenditure and savings on stipends were made by not replacing staff who retired regardless of their subject. This gave no selective protection to any subject areas and caused a general deterioration in the effectiveness of resource utilisation.

3.21 If one of the causes of this absence of policy was the traditional structure and functioning of the universities, and in particular potential tension within Senates that more selective cuts would have produced, another was unquestionably the" tenure issue".

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3.22 Although the legal position is far from clear, and wide variations exist between individual universities, it was generally believed that members of the academic staff could not be made compulsorily redundant for reasons of financial exigency. This encouraged university governing bodies and indeed the Government to adopt programmes of reducing staff by voluntary redundancy and retirement. In this way major splits between Senates and Councils were avoided, and the required reductions in expenditure were achieved by the existing management processes.

3.23 Since 1981 the universities have been encouraged and have exerted themselves to increase their income from sources other than the State and this has led to a significant increase in the amount of work undertaken for industry. The extent of funds raised from this source differs greatly from university to university. But this income has to be set against the expenditure needed to carry out the contracts. We believe it unlikely that any surplus from this source will make a substantial impact on the overall level of university funding. Another development is the setting up alongside many universities of Science Parks, Innovation Centres, Limited Companies for the exploitation of inventions, and the like.

3.24 As well as their functional advantage to the university, such enterprises provide benefits in the links they create between the university and industry and commerce, in the experience they provide to academic staff engaged in them, and often in the opportunities for student involvement at postgraduate level. However, the decision to undertake such activities must be discriminating on academic as well as commercial grounds. The pursuit of inappropriate activities merely because they are expected to generate income may lead to important opportunity costs; and at the extreme such developments may even erode academic standards. The commercial evaluation of such undertakings is unfamiliar to many universities, so they need to obtain specialist professional advice. To be successful such developments must be run on a strictly commercial basis with objectives, management styles and staff conditions different from those of universities themselves. There also is a need to separate operations which are incompatible with the legal status of the university as an educational charity.

3.25 Income for universities from private sources also now includes the tuition fees from overseas students. There are no UGC limitations on the number of overseas students and indeed there is implicit encouragement by Government to attract such visitors. Overseas students are welcomed by universities as an important contribution to the international character of the institutions. They are also a valuable source of income as they can often be educated at marginal cost to the university. Universities must, however, ensure that they are not being subsidised from other income,

3.26 Despite this range of sources from which universities' draw financial support they are likely to continue to experience restricted funding for some time. The period immediately following 1981 should have required the universities' governing bodies to be much more selective in cutting expenditure. Nor, in our view, is selectivity in the planning for the future of universities less necessary now than it was then. We believe that universities now have a crucial task to set up the necessary structure and procedures to maximise the effectiveness of the use of their limited resources; and these procedures will have to allow substantial changes in the deployment of

resources within individual universities. Only in this way will they be able to assure themselves, the Government and the society of which the universities are part, that the money they are given to pursue their educational roles is spent effectively.

SECTION B PLANNING, RESOURCE ALLOCATION AND ACCOUNTABILITY IN INDIVIDUAL UNIVERSITIES

Introduction

3.27 It is in the planning and use of resources that universities have the greatest opportunity to improve their efficiency and effectiveness. In examining the evidence we have therefore asked the following seven questions:

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(i) How much strategic and long term planning takes place in universities?
(ii) On what criteria are resources allocated?
(iii) By what mechanisms are resources allocated?
(iv) What is the quality and extent of management information?
(v) Who, below Council, is responsible for the allocation process?
(vi) What is the budgetary control mechanism?
(vii) What is the process of accountability?

3.29 In the following paragraphs we review the evidence under these seven headings. We have concentrated on the evidence which indicates scope for improvement, though in fairness we recognise that each of the universities studied had some good features in its planning procedures. Often these represented the solutions we would recommend in tackling the deficiencies which we found in others and which are listed below. But we believe all six universities would accept that they can make some improvements.

The Findings and Recommendations of the Study Reports

3.30 How much strategic and long term planning takes place in universities?

(a) Objectives and aims in universities are defined only in very broad terms. They usually take the form of general statements of intent to maintain and improve the quality of teaching and research across all subjects at present established in the institution.

(b) Long term planning (as opposed to medium term planning) is largely ignored but the Study Reports think it should not be. Enough is known about demography and about the changing patterns of employment to give a context within which plans should be produced.

(c) Some institutions have established academic plans looking two or three years ahead. In others no such plans are evident and there are certainly no corporate strategic plans which are regularly reviewed and updated. Such limited forward planning as exists is generally at the margin. It is argued that the difficulties of tenure and the associated fixed staff costs prevent more radical strategies.

(d) There is no evidence of a thorough consideration of options and of means to arrive at objectives. In some cases the universities believe strategic planning is too difficult to be of great value and they fall back on encouraging departments to be flexible and to have contingency plans ready. Such strategic planning as takes place seems to be a mixture of "top down" proposals which represent efforts to give academic leadership and "bottom up" proposals which bring together a collection of departmental plans but then adopt the result in an uncritical way.

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(e) There are pressures to preserve cohesion and morale which lead to a reluctance to set priorities and even to discuss openly academic strengths and weaknesses.

(f) The preparation of responses to the UGCs November 1983 questionnaire stimulated some institutions to look again at the possibilities of strategic planning. They are slowly attempting to develop these processes and to review plans regularly on a rolling basis.

3.31 On what criteria are resources allocated?

(a) With the lack of strategic planning within universities and the short term planning horizons offered by the Government, it is not surprising to find little relation between long term objectives and the allocation of resources.

(b) Incremental allocation from an historical base emerges as the dominant approach. The Reports abound with examples, particularly in relation to equipment and space.

(c) In some universities mechanisms exist for co-ordinating the relative needs of the academic and the non-academic sectors before the total picture comes before Council. In others their relative needs are not examined and the division of the total cake between the academic and non-academic sectors is made on an historical share basis. There is no subsequent questioning of the shares nor is it clear how far the size of the non-academic sector is determined by the needs of the academic for its services.

(d) In most cases resource allocation does not appear to take into explicit account the relative strengths of departments. There are exceptions; for example in two of the universities procedures have been developed which allocate a proportion of non-salary funds in relation to research income. These procedures also provide incentives to departments to increase research grant income.

(e) There are genuine difficulties in dividing resources between teaching and research. This has arisen in a number of Reports, and is treated specifically in the National Data Study. It is certainly a matter of active discussion in the universities and in the UGC.

(f) A major omission is the lack of the systematic use of performance indicators.

3.32 By what mechanisms are resources allocated?

(a) In a majority of the universities the most obvious feature is the fragmentation of the allocation process. Resource is often considered in discrete "packages". Common divisions are: staff cost (sometimes divided between academic, technical and clerical); departmental running costs; equipment grants; minor works; research support funds; funds for academic services (e.g. libraries and computing); and administration.

(b) There are instances of inadequate co-ordination between the committees involved in the allocation process. The allocation of equipment grant is frequently undertaken by a committee other than that which provides staff; in one instance a computer was bought without authority for the necessary operating staff. Expensive equipment is sometimes acquired without taking account of the building work necessary to install it.

(c) In some institutions there is no single body, other than Council, which is able to see the whole allocation pattern. Councils, by their nature, are not really equipped to examine in detail the validity of the total pattern, to spot inconsistencies or identify opportunities for significant change.

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(d) In several instances the Reports argue that co-ordination of resource allocation relies far too much on the Vice-Chancellor and senior administrative officers and on the informal and uncertain device of cross membership of committees.

(e) There is a tendency to restrict alterations in allocation by, for example, insisting on refilling vacant posts when there are other options available, whereas some institutions have a more flexible system of regarding all resources as cash. This latter course has the advantage of encouraging consideration of all the options.

(f) Quantitative performance measures play some part in the allocation in most institutions. These measures usually merely supplement the qualitative judgements made by colleagues on performance and views about short term political pressures.

(g) The Reports generally suggest that the centre of the university should retain control of the annual allocation of major blocks of resource. Only in this way can co-ordination, redeployment and the fulfilment of plans be assured. At the same time delegation of in-year control over the blocks of resource (for items other than posts) should be made to heads of departments and they should be given powers of virement within agreed rules.

3.33 What is the quality and extent of management information?

(a) The National Data Study finds that a university's requirements for management information will not be clearly defined until it knows better what it is trying to achieve.

(b) Plenty of information is collected and that relating to students and staff is seen as being of good quality. But much of it is "raw" data which is not effectively analysed, brought together and presented. It is currently used for administration and not for management.

(c) The use of departmental profiles which include a mixture of facts and indicators of performance over time is recommended.

(d) Measures of input are better developed than measures of output. Measures of input include, among others, applications per place; 'A' level scores; research grants; and unit costs. Output indicators include assessment of the quality and value of research; publications; the number and quality of graduates and their employability. It is agreed that far more work needs to be done on measures of output. Inter-university comparisons should be treated with care but may at least lead to asking important questions. Comparisons of departmental performance over time are seen as among the most useful indicators.

(e) There have been some experiments in the use of planning models but there is evidence that these can reduce rather than increase the flexibility of decisions.

(f) Financial information provided for departmental management varies in quality. Often it arrives too late to be useful, nor does it show forward commitments which are especially important for some large science departments. This has led departments to keep their own sets of accounts. To overcome these difficulties some universities are developing on-line commitment accounting information.

(g) Attention is also drawn to inconsistencies in the form of accounts for departments within a single university. This increases the difficulty of using the information for management purposes.

(h) In some cases non-academic parts of the universities do not have detailed budgets. They should be subject to the same disciplines as academic departments.

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3.34 Who, below Council, is responsible for the allocation process?

(a) There is a general recognition in most of the Reports that the present committee structures for planning and allocation are not effective and need improvement. Frequently there are too many committees involved, with different reporting relationships to Senates and Councils. Separate committees often exist for allocating staff, running costs, equipment money, space, minor works allocations and funds for supporting services, without the necessary co-ordination. Council is too large a body to be able to integrate so many separate inputs nor is it equipped to do so.

(b) Some planning committees are said to be too large because they are set up to represent sectional interests. Instances are also given where committee members failed to support recommendations when these reached a superior body.

(c) In universities which have established a central planning and resources committee there is confusion between its role and that of the Finance Committee of Council. This arises because in earlier decades such Finance Committees had a more central role in allocating resources.

(d) There is a general recognition of the need to combine in one body the responsibility for planning, resource allocation and accountability. Some Reports suggest, for example, that Senate and Council should have a single unifying body which can integrate financial and academic policies in this way and carry the confidence of both senior bodies. Such a body would provide an effective way of evaluating alternatives, provided that it was small and its members recognised that they were there to act in the best interests of the institution as a whole.

(e) The administration should serve this central committee by bringing together the skills and knowledge necessary for the planning and resource allocation process. One of the Reports suggests that consideration should be given to the appointment of a forward planning officer.

(f) Those bodies to which resources are allocated need to be large enough to take advantage of whatever financial authority and virement is allowed. This may mean treating a group of departments or units as one for resource allocation purposes. The limited annual carry-forward of over or under-spending which is allowed to budget centres under agreed rules is seen as encouraging efficient management.

3.35 What is the budgetary control mechanism?

(a) In most cases academic departments are the main budgetary units. Heads of departments are seen as the responsible officers. Departments carry responsibility for expenditure on non-recurrent items, for running costs and usually for departmental equipment allocations. Apart from occasional and very limited freedom to spend money on temporary staff, all staff expenditure is a central university responsibility.

(b) The responsibilities and accountabilities of heads of departments are not always clearly defined. One example given is that responsibility for major research grants may be placed directly on an individual academic other than the head of department; indeed the head may not even be kept informed of the state of such a grant. Some of the Reports conclude that the hierarchy of accountability needs to be more clearly defined.

(c) An extension of the practice of charging departments for services is supported in all the Reports. At present telephone costs are widely recharged and other candidates being considered are power, cleaning and rental for space. A distinction is drawn between charging for services over which departments have full control as opposed to those where they have none.

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(d) One university has developed this idea into a departmental profit and loss statement. This shows a notional income related to student numbers and a notional expenditure related to all university overheads. To these are added real income and expenditure to provide a picture of surplus or deficit. It is suggested that the information is also useful for assessing the financial implications of academic decisions,

(e) The National Data Study draws attention to the UGC recommendation that contract overheads should be charged at 40%, at least. It points out that in many instances the overheads may be more than this.

3.36 What is the process of accountability?

(a) There is little formal accountability for the use of resources. Allocations are made in the variety of ways described earlier, but they are rarely examined retrospectively by the allocating authorities There is, however, heavy reliance on informal feed-back mechanisms particularly in relation to the use of academic staff time, mainly because of the difficulty of measurement. But it is also true of the use of equipment, space and other major items of resource.

(b) There are a number of recommendations that the lines of accountability and reporting should be clearer. There are also suggestions for an annual report of each department's activities showing how performance has compared with plans and objectives and including some pre-specified performance indicators.

The Steering Committee's Assessment

3.37 We do not dispute that university planning is a difficult process. We have already drawn attention to several powerful constraints which inhibit the optimal deployment of resource. Universities are increasingly told what they should be doing by outside bodies, in part because such bodies believe universities themselves are not sufficiently responsive to national needs. On the other hand the financial horizon offered by Government is shorter than in past decades and the uncertainties of grant level are a constant disturbance to university planning. The universities have their own constraints on change. First, there is the attitude to tenure; secondly, there is the conviction that planning, at least at a detailed level, stifles creativity; and thirdly,

planning and consensus management appear to many to be inimical.

3.38 Formidable as these constraints may be, it is also true that:

(a) A university which has not given corporate consideration to the questions of where it stands academically in relation to quality, spread and market performance, and where it wants to be in five years time, will have less chance of success and will be in danger of drifting.

(b) Unless a university pays rigorous and systematic attention to the quality of its resource allocation and monitoring procedures it is certain to be wasting its resources, especially the time and energies of its academic staff, and not giving the best value for money.

3.40 This is not yet the state of affairs to be found in the university system. It is true that since 1981 universities have increasingly come to recognise that they cannot all expect to attain and achieve the very highest standards in every academic discipline, but the Reports show that in some of the universities there is still a strong

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emphasis on maintaining the historical distribution of resource. Planning and resource allocation tend to be incremental rather than dynamic. Mechanisms and procedures which were suitable for growth have been retained in quite different circumstances.

3.41 Among the reasons for this are the strong forces within each university. These include large and powerful academic departments together with individual academics who sometimes see their academic discipline as more important than the long-term well-being of the university which houses them. We stress that in our view universities are first and foremost corporate enterprises to which subsidiary units and individual academics are responsible and accountable. Failure to recognise this will weaken the institution and undermine its long term vitality.

3.42 This emphasises the importance of academic leadership with clear ideas and objectives for the university as a whole. But the pursuit of these ideas and objectives by partial and short-term devices is no substitute for more explicit strategic planning. Strong leadership, effective participation by the academic staff and lay members, and the devolution of responsibility to units are all compatible with a carefully designed planning process.

3.43 No ideal planning structure can be laid down to fit the circumstances of every university but we offer the following as features which need to be present:

(a) It is important to bring the functions of planning, resource allocation and accountability together into one body in a corporate planning process.

(b) A planning and resources committee of strictly limited size reporting to Council and Senate. Such a committee should be appointed by Council and have the Vice-Chancellor as its Chairman. It must have both lay and academic members all of whom should recognise that they are there to pursue the corporate interest of the university and not to represent sectional interests. Such a committee would have the advantage of integrating academic, non-academic, financial and physical planning and of providing an effective bridge between the legitimate and different roles of Council and Senate.

(c) A series of bodies (officers or sub-committees), each reporting specifically to the planning and resources committee, to deal with staffing, space, equipment and services.

(d) Care should be taken to find the best balance between effective central control and leadership and an appropriate degree of virement and incentive at budget centre level.

(e) Budget centres, which are ultimately responsible to the central planning and resource committee, should be large enough to ensure flexibility and redeployment so that a controlled degree of virement can be permitted and effective.

(f) Budget centres should be aware of the full cost of their activities including the overheads on which they call. Where over time the budget centre can affect the size of the overhead allocated to it, the cost of the overhead should be charged to it.

(g) There is a recognised need for reliable and consistent performance indicators. These need to be developed urgently for universities as a whole and for individual universities as an integral part of their planning and resource allocation process.

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SECTION C: THE GOVERNANCE OF UNIVERSITIES

3.45 In Section B we considered how the planning and resource allocation mechanisms in universities could be improved. In this section we examine the findings of the Study Reports on the formal elements which form a part of the university system of governance, and recommend changes that should be made to improve the effectiveness of the system in general and the planning and resource allocation mechanisms in particular.

Councils and Senates

3.46 In Chapter 2 we explained the basic constitutional position of Councils and Senates. Whilst the Reports acknowledge that Council is, in constitutional theory, the most important central body in a university, their evidence is of wide variation in the effectiveness with which Councils fulfil this role and give a lead to the university. This is especially so in the key activity of strategic and long term planning.

3.4 7 Virtually all the Councils have majorities of lay members. Indeed the Privy Council in approving Charters and Statutes now insists that this be so. The Reports are unanimous in stressing the vital role which such unpaid laymen have in universities. The recruitment of laymen varies between the universities. Some still have a significant local authority element reflecting their original sources of funding and support. The Reports suggest that the local authority representation could now be reduced to make way for a wider span of skills and experience drawn from local, regional and national sources. In some universities the lay members are already primarily drawn from industry, commerce and the professions. The Reports contain various proposals for encouraging the greater involvement of laymen in a university's affairs, especially in the sphere of strategic academic and financial planning. They take the view that Council as a body should playa much more active role in such matters. It is evident that over the past three decades the influence of Councils has weakened.

3.48 In most of the six universities Senates are large bodies with some having a membership of over 200. However, Senates delegate many of their powers to Faculty Boards, departments and committees. Examples of such delegated work include the admission of students, the organisation of teaching and examination arrangements. On any question which involves additional funding, Senates must make recommendations to Councils.

3.49 The Reports have concerned themselves in particular with the size of Senates and the impact of this on the way in which they operate. Whilst they may be the proper bodies for formally approving academic policies and decisions, they cannot, given a large and representative membership, undertake either academic management or the crucial roles of policy formation and strategic academic planning. Such large Senates have become bodies which legitimise policies, provide a sounding board for opinion, act as an important channel for distributing information and at times provide an institutional safety valve. Although there is some evidence of a desire to reduce the size of Senates, by and large the Study Reports accept the value of the role played by a large, widely representative body meeting once a term.

3.50 In conclusion, we endorse the following proposals about Councils and Senates which arise from the Study Reports:

(a) The time freely given by lay members of Councils is not only valuable but is essential to the institution. It brings into the university a type of knowledge and experience which is scarce within its own ranks.

(b) Given the nature of the environment in which universities now work it is important that laymen should be recruited for their experience and skills. We note how difficult it is to attract, for example, younger executives but we encourage Councils to make every effort to do so. In some cases, if Councils

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are to remain at a sensible working size, this may mean reducing the local authority representation in order to widen the range of experience.

(c) The time given by laymen should be used more effectively than appears to be the case, especially in the sphere of strategic academic and financial planning.

(d) It is evident that over the past three decades the influence of Councils within universities has weakened. We believe that Councils now need to playa much more active role. Again the key areas in which this is necessary are those of academic and financial planning.

(e) If Councils are to do this they must be allowed time to debate issues important to the future of their universities. Although most of the universities have taken steps to streamline the business and agendas of Councils we that found there is still scope for separating policy from routine and delegating more of the latter.

(f) Senates are the main forum for generating an academic view and giving advice on broad issues to Councils. They should also continue to play an essential role in decisions affecting academic questions; but much of this work consists of co-ordinating and endorsing the detailed academic work carried out on their behalf by Faculty Boards, departments and committees.

(g) Large Senates are not the best places in which to undertake planning and resource allocation. In any case under our proposals this role would fall to a central committee composed of members of Council and Senate, appointed by Council and reporting to both bodies.

(h) The relationship between Councils and Senates was discussed in the Reports and gives rise to some concern. The decades of expansion up to 1981 placed Senates in the ascendancy in those relationships. It does seem to us that the relative decline in the exercise of influence by Councils has increased the potential for Senates to resist change and to exercise a natural conservatism. ViceChancellors and university administrators have, in the past, been trained to believe that harmony between the two bodies should have a very high priority in a university. It may well be, however, that a degree of tension between them is necessary in the circumstances now facing universities, and can be creative and beneficial in the long term. That can only happen if Councils assert themselves,

3.51 It is a very strongly held tradition in British universities that the detailed exercise of the powers of Councils and Senates is carried on through a system of committees. The structure of the committee system is often elaborate and the number of committees is large. Typically a university has between 50 and 100 committees reporting to either Council or Senate. The number of key committees is much smaller as many of the committees listed meet very infrequently, for example, to deal with such issues as the award of prizes. A further group of committees, mainly concerned with the academic syllabus and assessment, will be found at the faculty level.

3.52 Not surprisingly the Study Reports have given close attention to this system. The Reports point to a number of significant features:

(a) Committees are used extensively for achieving consensus and as a means of spreading information and understanding.

(b) Committees are used for co-ordinating related features of broad policies. Here there is clear evidence of committee structures making co-ordination difficult. We noted instances where a function was carried out by a single committee in one institution but was distributed among several committees in another.

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(c) There was evidence of too much reliance on informal processes for coordination between some major committees.

(d) Joint committees of Council and Senate play an important role in the working relationship between those two bodies.

(e) There needs to be more recognition among committee members that they should act in the interests of the university as a whole and not as sectional representatives.

(a) A distinction needs to be drawn between those parts of the committee system concerned with academic matters (e.g. curricula, examinations) and those concerned with non-academic functions (e.g. catering, residence). In the former, decision taking by committees is both desirable and necessary for sound functional reasons. In the latter decision taking might normally be assigned to individual managers or officers either without committee involvement or aided by consultative committees.

(b) Universities should realise the costs both in money and of time involved in maintaining elaborate committee systems.

(c) The number of committees and their inter-relationship should be thoroughly reviewed on a regular basis and clear terms of reference should be drawn up. It is far too easy for committees to stay on the books when their most important functions have passed elsewhere, and it is easier to add to committee membership than to prune it.

(d) The size and frequency of meetings of committees should also be subject to regular and thorough review. Universities should be rigorous in pruning and keeping the system working tightly.

(e) In regard to the frequency of meetings, a committee system involves a cycle of meetings in order that the consideration of business is integrated and its flow through the hierarchy of committees is planned. In general one cycle of meetings per term should be sufficient, provided that the administration exercises experience and foresight in the scheduling of business.

(f) There should be a significant increase in the delegation of authority to chairmen and to officials on routine matters. Time of committee members is an expensive commodity and should not be wasted when the only accumulated business consists of routine items.

3.54 Although the formal organisation of a university and the way in which it operates is of the greatest importance, it is clear from all the Study Reports that the Vice-Chancellors involved all rely to a considerable extent on an informal process which operates in conjunction with the established committee structure of the institution. Subject to proper controls,and used sensitively, we feel that such arrangements are of the greatest importance for the effective running of a university and for the generation of good value for money. In many cases these informal processes actively involve lay members of the Council, and where this occurs it is clearly beneficial. The existence of informal processes, even if effective, should not be used as an excuse for not developing a proper committee system.

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Officers

Vice-Chancellors

3.55 Vice-Chancellors (or Principals or Provosts) are the chief academic and administrative officers in their institutions. The Study Reports have left us in no doubt that their effectiveness is absolutely crucial to the success of the institution.

3.56 The Reports identify the Vice-Chancellor's primary roles as: giving academic leadership as chairman of the Senate, acting as chief executive with responsibility to Council, representing the academic community to Council, representing the university in relations with the local and regional communities and representing its interests to a whole variety of national and international bodies.

3.57 We have been especially struck, both in the Reports and from our discussions, with the wide range of management styles and modes of operating which characterise the Vice-Chancellors of the six universities. In some cases the Vice-Chancellor sees his role quite clearly as providing leadership and exercising executive authority; in others he sees his role primarily as that of a chairman seeking consensus. It would be invidious to be specific about particular institutions but the variety of style is marked and much of it clearly stems from the structure, history and culture of the institutions which can only be changed slowly and with difficulty.

3.58 Vice-Chancellors will always have differences of style arising from their own personalities; yet we do discern a more fundamental change which is increasingly taking place. The tradition of Vice-Chancellors being scholars first and acting as a chairman of the Senate carrying out its will, rather than leading it strongly, is changing. The shift to the style of chief executive, bearing the responsibility for leadership and effective management of the institution, is emerging and is likely to be all the more necessary for the future.

3.59 The Study Reports show one common factor that Vice-Chancellors have virtually no formal constitutional powers other than those which may be delegated to them to act on behalf of Council, Senate or a committee. They rely on the influence which stems from leadership and persuasion. It does, however, lie within the powers of Council to strengthen formally the executive role of the Vice-Chancellor.

3.60 No one can doubt the need for the Vice-Chancellor to be recognised as the academic leader of his institution and in no way should other responsibilities be seen as diminishing this. But to enable the institution at least to survive and to seize the opportunities open to it in the future, the Vice-Chancellor will have to adopt a clear role as the executive leader as well and have the necessary authority to carry it out.

3.61 Given such a task the process of selection of Vice-Chancellors is vital. Furthermore we take the view that once an appointment is made a continuing process of developing skills is necessary. For example, a Vice-Chancellor should certainly know something about how other complex organisations handle the processes of managing change. Increasingly too, as universities are developing their involvement with industry and increasing their efforts to raise funds from other than public sources, he must have some knowledge of finance and business. In this latter area the help and advice of lay officers and Council members plays an increasingly important part.

3.62 Given the importance of academic leadership in a Vice-Chancellor's role, it is probable that a large proportion of appointees to such posts will continue to be senior academics from within the university system. This being so it is important in our view that senior academics across the university system, from whom the next generation of Vice-Chancellors will be chosen, should be given the opportunity to improve their managerial skills through appropriate training and to gain some experience outside the university system through periods of secondment and staff exchange.

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Pro-Vice-Chancellors and Deans

3.63 Pro-Vice-Chancellors (or Vice-Principals or Vice-Provosts) vary in number between institutions. Usually there are three or four such officers serving for periods of three or four years. Normally they are senior professors who are given a reduced teaching load during their period of office. The Study Reports make it clear that they are not line managers. Much of their role depends upon how the Vice-Chancellor chooses to use them. Often they are given particular tasks in developing academic policy. At other times they are obviously valuable as "trouble shooters". But they are also a vital part of the mechanism for policy co-ordination in that they frequently have ex-officio membership of the key committees. They also play an important part in the informal processes of policy development and co-ordination through regular meetings with the Vice-Chancellor and the Registrar.

3.64 Three of the Reports recommend that Pro-Vice-Chancellors should be given responsibility for particular areas of policy and they suggest that in this way they can best relieve the heavy pressures which fall upon the Vice-Chancellor. One Report points out that if the burdens of office of Pro-Vice-Chancellors are too heavy, senior professors may be unwilling to undertake the task because of the likely effect on their academic career. Another suggests that the period of office should be followed by a sabbatical year to allow for re-entry into research.

3.65 The role of Pro-Vice-Chancellors does and should depend heavily on tasks assigned to them by individual Vice-Chancellors. We have said that we expect the executive role of Vice-Chancellors to increase and we believe it follows that the use made of Pro-Vice-Chancellors will be increasingly vital. Given this, the development of management skills in Pro-Vice-Chancellors is important.

3.66 Another important academic office in a university is that of Dean. There will be a Dean for each faculty (or school) of the university. Deans are appointed, or more usually elected, for a period of two or three years. They give academic leadership at faculty level and chair Faculty Boards. Like Vice-Chancellors they have few formal powers and rely largely on influence and persuasion.

3.67 The Study Reports show variation in the roles and importance of Deans. These arise from the dual role which they play. As elected officers they are responsible to their Faculty Boards for many academic matters and they are expected to promote and defend their particular part of the university. At the same time they are expected increasingly to playa key role in implementing the policies of the university which may be in conflict with the views of their own constituents. In some cases, depending on the university structure, they may be themselves important budget holders and have a degree of authority delegated to them from the centre. Because of this dual role there seem often to be differing views about whether they should be heavily involved in the formation of central university policies.

3.68 In so far as Deans are giving academic leadership within their faculties, we have no comment to make. But where Deans have some executive responsibility or have some control over budgets and resource allocation, they need to operate within a management system of the kind which we refer to below as appropriate for heads of academic departments.

Heads of Departments

3.69 Academic departments are the key units in most universities and arrangements for their efficient management can play an important role in the effectiveness of the whole institution. A university can have anything from fewer than twenty to well over one hundred academic departments and these can vary in size from as few as two or three staff members to large science departments with over a hundred academic staff and many technical staff. The Reports show that heads of departments are normally appointed by Council although in some cases they are elected from within the department. [t is much less clear to which body heads of departments are

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or should be responsible and accountable. This is a perceived weakness in the monitoring and reporting back mechanisms, especially since heads of departments are frequently responsible for the administration of very large sums of money, for seeing that teaching is effective, for the use of expensive equipment and for a considerable burden of personnel management.

3.70 In most universities academic departments are the basic budgetary units and heads of departments are frequently the budget holders. Given this important context the Study Reports have made a number of proposals for improving their effectiveness. We endorse all of the following:

(a) There is a dilemma which can arise in the selection of a head of department. The headships of departments are key appointments. Ideally the individual should be both a manager and an academic leader. However the most eminent and able academic, as judged by the standards of research or teaching, is not always the person most fitted to manage a department. We take the view that it is preferable to retain the two functions in one person. In circumstances where this is impracticable, we believe the head of department must possess the requisite managerial capabilities and that he should be encouraged to delegate some part of the responsibility for academic leadership to others.

(b) We are in no doubt that given the heavy responsibilities and accountabilities of heads of departments, they should always be appointed by Councils, on the advice of Vice-Chancellors after appropriate consultation by them.

(c) Heads of departments should preferably serve for a term of three to five years with the possibility of re-appointment and should receive a responsibility allowance.

(d) The duties, responsibilities and reporting lines (which are important for budget holders) of heads of departments should be made clear. The duty to consult and inform their colleagues should be an essential feature.

(e) The university should provide proper support to enable them to carry out their duties effectively. Such support should certainly include detailed reference manuals of university rules and practices and in the case of larger departments might well include the provision of administrative assistance. The needs of heads of departments should be kept in mind when universities are implementing our recommendations for improving management information.

(f) Heads of departments should be responsible for the allocation of duties to the members of the academic staff in the department. The time of academic staff is the primary resource of a university and it needs to be managed and accounted for with appropriate care and skill.

(g) Universities should take seriously their responsibility for ensuring that heads of departments are given some training in management techniques.

3.71 Universities are unusual in that little formal attempt is made on a regular basis to appraise academic staff with a view to their personal development and to succession planning within the institution. We believe this to be of crucial importance. Currently academic staff are only "reviewed" when they receive confirmation of appointment (commonly after three years), at the point in the lecturer scale where there is a salary bar, and then if they are later considered for promotion either at their own or at other universities. This is a somewhat intermittent approach, commonly without any formal feedback.

3.72 A regular review procedure, handled with sensitivity, would be of benefit to

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staff, and to the university as a whole. In considering the form of staff appraisal system for a university three main objectives can be identified:

(a) Recognition of the contribution made by individuals.

(b) Assistance for individuals to develop their full potential as quickly as possible.

(c) Assistance for the university to make the most effective use of its academic staff.

3.73 Such reviews are normally conducted on an hierarchical basis leading to the most senior people being reviewed by the head of the institution. Universities vary considerably in their structures, but obvious levels at which personal responsibility for conducting reviews should rest are departments, faculties and Vice-Chancellors. It is also clear to us that parallel staff appraisal systems should apply to all nonacademic staff within the university, and that there should be some central responsibility for co-ordinating staff reporting processes.

Administration

3.74 The senior administrator in a university is normally the Registrar (sometimes called the Secretary or Registrar and Secretary). In some universities responsibility is divided between two senior administrators a Registrar and a Bursar. We have been impressed by the range of tasks undertaken by the central administrations of the universities. They include: servicing of the governing bodies and the committee system; academic administration which includes course regulations, student records, awards and welfare services; supporting the strategic planning process; financial administration; personnel work; and the maintenance of university property. The tasks are complex because of the wide range of academic disciplines, the complexity of plant and equipment, the employment of several hundred 'professional' staff, the external relations with, for example, the National Health Service in universities with medical schools and the sheer variety of activities in relation to the size of the institution. Moreover, the senior administrative officers make an important contribution to policy formation especially in the informal processes.

3.75 Each of the Study Reports has looked at the organisation of the central administrative services. There is agreement that the administrations serve their universities well. Administrators understand that their role is to facilitate the main purposes of the institution. We have also noted that in the 1981 cuts the administration generally lost a greater percentage of staff than academic departments but that the workload falling on their shoulders has increased considerably in the past four years.

3.76 The Reports nevertheless raise a number of points which bear on the question of ensuring value for money. We endorse the following:

(a) Administrators have an important role in providing support for all the university's principal activities. Over the past decade the nature of their role has changed somewhat and the senior administrators now have an increasingly important task in supporting the Vice-Chancellor.

(b) It is in the interest of universities to develop the skills and potential of their administrative staff. We believe that able young administrators should be given a chance to have a wide experience of administrative roles by moving between universities and between sections within each university. As part of such development there is advantage in staff from the central administration filling support posts in large faculty units. From the staff point of view this avoids the isolation of being employed -by a faculty and allows movement and increased

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breadth of experience. From the faculty point of view it can provide staff who are already familiar with the organisation of the university's central offices.

(c) There is recognition that administrative training has been both substantial and well organised nationally since the late 1960s. We have additional evidence from the Committee of Vice-Chancellors and Principals and from the Conference of University Administrators which confirms that view. The Reports recognise that provision needs to be kept under constant review.

(d) Effective staff appraisal schemes are still not widely used in the administration and we believe that such schemes should be introduced along the lines described earlier in this Section.

(e) There should be more delegation of authority to senior officers. These officers have already had their workloads and range of. duties increased considerably, but the Reports suggest that there is scope for further managerial responsibility to be delegated to them in non-academic areas.

(f) In one instance it is suggested that the arrangements for co-ordinating the administration deserve review. Five of the six universities have a unitary administration with a Registrar or a Secretary as the sole chief administrative officer responsible to the Vice-Chancellor and the Council. The sixth has two chief administrators of equal status and it is suggested that this may add an extra co-ordinating task to the shoulders of the Vice-Chancellor. Whatever the number of senior administrators we can see the need to treat the administration as one for the purpose of resources so as to maximise the possibility of redeployment as changes occur in needs and priorities.

(g) Several reports point out that the administration does not always have a clear budget for which it is held accountable. In our view it should be under the same disciplines as other departments with respect to cost and manpower budgets and performance indicators.

(h) Academic-related staff often have conditions of service (such as tenure and salary scales) related closely to those presently enjoyed by academic staff. In our view this is not appropriate and is not conducive to the efficient management of the university. Their conditions of service should be determined by the nature of their duties and in relation to similar employment outside the university. We have noted that there is a gap in the gradations of work and in the salary scales available between the ranges for secretarial and clerical staff and those for administrative staff. We believe universities should examine the desirability of establishing an intermediate "executive" grade.

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CHAPTER 4

UNIVERSITIES AND THE FUTURE

4.1 Universities are assets of immense national importance. The¥ establish high cultural and intellectual standards throughout society and in the Institutions through which society pursues its goals. The quality of life and the international status which the country enjoys today are in large measure a reflection of the excellence of its universities in the past. Serious consequences would follow if excellence ceased to be their objective, or if they were deprived of the ability to pursue it.

4.2 So far as the universities are concerned, we share their conviction that academic excellence is crucially dependent on academic freedom. But they should be on their guard against confusing freedom with licence. Our recommendations are constructed as a package to provide the foundations of policy, resource allocation, delegated responsibility and accountability which must underpin academic judgments.

4.3 Quite apart from the fact that it is in their own interests to use their resources to the best effect, they have a duty to the general public. Only a minority of the population has benefited directly from a university education or can expect their children to do so, yet society as a whole contributes significantly to the cost of universities through taxation. Society needs to be assured that its money is spent to the satisfaction of the authorities which represent it and of the clients the universities serve directly. The requirements of these clients, industry and commerce, the local Education Authorities, the professions, the schools and, not least, present and prospective university students, are undergoing sweeping changes, as are the preoccupations of those authorities the Government and the UGC in response to the opportunities and the problems thrown up by social shifts and rapid technological advances. The universities need to show that they are making the appropriate adjustments to their outlook and priorities. Ultimately it is only if they provide these assurances that the universities can expect to receive support on the scale required for the continued effective discharge of their responsibilities.

4.4 For their part the Government and the UGC, the authorities which provide the essential support, should bear in mind that for this very reason the decisions they make relating to the universities may have unforeseen and unfortunate consequences unless they are carefully considered.

4.5 Our terms of reference direct us to enquire into the steps which might be taken within the universities to ensure the better conduct of their affairs. But the universities must operate within the framework of Government measures and this chapter is as much concerned with the role of Government and of the UGC as it is with that of universities.

THE ROLE OF GOVERNMENT

4.6 To fulfil its responsibilities, Government must recognise the need for a university system and what it provides. The objectives of university education were stated by Robbins in 1963, and reiterated with significant extensions by the UGC in its advice to the Secretary of State as recently as the autumn of 1984. As far as is known at least the Robbins objectives are still accepted by Government.

4.7 The Government has to consider these objectives within the framework of higher education as a whole a system of which the universities are only a part. We believe the system can only work effectively if the Government states what it expects of the system and of its principal parts. We hope that the Government will do this in the forthcoming Green Paper.

4.8 It is all the more necessary for Government to make clear how it sees the role of universities because the funding horizons provided by the Public Expenditure Review process are so short. Financial forward planning is made even harder by the

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considerable amount of additional chopping and changing which occurs at short notice. The cuts introduced by the Chancellor of the Exchequer in the late summer of 1983 were an acute example of this as are the uncompensated extra costs imposed in recent budgets; but even the "new blood" exercise, now in its final year, was inadequately signalled for the scheme to be used to maximum effect. If Government has to change the rules, it should give either more notice or a longer period for implementation. Rapid changes in funding are not conducive to efficient use of resources.

4.9 One of the major impediments to rapid change in the university system is the "tenure problem". The Secretary of State has said that he intends to legislate, but since the legislation is not to be retrospective, its effects are likely to be small over the next ten years or so. Yet the Government's public expenditure plans imply the need of further staff reductions.

4.10 In most universities this problem is exacerbated by the age structure of staff since the premature retirements of 1981 to 1984 and by Government pressure to change the balance of subjects. The universities have little chance of making the necessary staff reductions in the years ahead unless Government provides some additional funding to help meet this difficulty.

4.11 We recommend that each university be required to prepare a forward plan in which its future staffing levels are assessed against educational objectives and student numbers agreed with the UGC. From that an estimate should be made of the cost of achieving the necessary reductions in staff, and this also should be agreed with the UGC. Once a realistic estimate of the cost of these reductions has been produced by the UGC for the university system as a whole we see no alternative to the Government undertaking to meet it or the greater part of it because no one else has sufficient resources to do so.

THE ROLE OF THE UGC

4.12 The UGC is the main link between the universities and the Government. Part of its role is to divine what each side is thinking, and to convey those messages unvarnished to the other. Another part is to provide universities with the best longterm planning horizon that it can, even if that consists only of its own assessment of the future. Finance is only one part of the planning horizon, and policies are an even more important guide as well as being less likely to change.

4.13 Ever since it was established, the UGC has made annual grants to universities. With the end of expansion, and the Government's increasing emphasis on value for money, these grants have been accompanied by more, and more specific, advice; and it is becoming harder for universities to ignore that advice. The role of the UGC has changed substantially in the last ten years, even though its terms of reference have remained essentially the same.

4.14 This change has, in turn, posed the universities with some problems. They now tend to see the UGC as a tool of the DES, a view that is readily reinforced when Government fails to provide the overall planning framework within which the university system is set. Moreover, the UGC is itself a Committee advising the Secretary of State, the Chairman is formally a Second Permanent Secretary in the DES and the Committee is primarily supported by career civil servants on the DES payroll.

4.15 There is no doubt that the somewhat reserved relationship between the UGC and the universities needs to be changed if forward planning is to be pursued to optimal effect and value for money improved. We believe a number of steps would be helpful:

(a) Encourage the UGC to provide and make known its own views about the prospects and directions for higher education. It should do this even if Government

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is providing its own framework and it should do so even more if that Government framework is absent.

(b) Strengthen both in numbers and quality the administrative staff available to the UGC. In this connection more extensive secondment from universities and from other departments of Government is essential.

(c) Strengthen the relationship between the secretariats of the UGC and of the CVCP.

(d) Increase the dialogue between the UGC and the university system. Recently the UGC has asked the CVCP to participate in a variety of joint planning exercises. Such developments can only be beneficial for all concerned.

(e) Increase the number and scope of discussions, in confidence, between individual Vice-Chancellors and the Chairman of the UGC and the chairmen of the individual subject sub-committees. Close relationships between an individual university and the officer of the UGC particularly responsible for its affairs are also important.

4.17 One such is the area of inter-institutional co-operation and collaboration. We have found many examples of non-academic co-operation already, for example in academic computing networks, purchasing consortia and O. and M. Units. But there are undoubtedly other potential areas for example the development of common software packages for administrative computing, or on-line access to the major university library catalogues.

4.18 As far as the UGC advice in general is concerned, we are aware that many of the departmental closures and inter-institutional collaborations proposed in the letters of advice to universities in 1981 did not take place. We recommend that the UGC monitor the outcome of its advice on such matters with a view to improving its effectiveness in managing to the university system.

4.19 Whether the UGC as now constituted and staffed can carry out these roles must be seriously open to doubt. We recommend that Government should commission an investigation into the role. structure and staffing of the UGC. We do not think that the UGC can reasonably be asked to do this for itself.

UNIVERSITIES STATISTICAL RECORD

4.20 The universities collaborate over the Universities Statistical Record set up and managed jointly by the UGC and the CVCP in 1968 to provide a data base on individual students and staff (the latter on an anonymous basis). It currently costs £0.5M per annum to run and is financed from a levy on the UGC recurrent grant. Arrangements are being made to transfer to the USR some processing, and all data from the UGC annual survey of university expenditure (Form 3) from the 1983/84 return onwards.

4.21 The USR properly treats all data about individuals as confidential. This information about individuals is aggregated into data about groups but the universities are reluctant to allow the USR to release to anyone except the UGC, data which would enable individual institutions to be put in "league table" order. This has the effect of

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limiting the extent to which proper management comparisons of performance can be made by institutions within the university system.

4.23 We have no doubt that the individual Vice-Chancellors and the authorities within a university who set and judge performance of budget units should have the same relatively free access to data about any university as does the UGC. This would of course involve renegotiating the arrangement under which the USR was set up. If necessary this could be on a "not for publication" basis. The confidentiality of the records of individual members of staff or students should be preserved.

THE ROLE OF THE COMMITTEE OF VICE-CHANCELLORS AND PRINCIPALS

4.23 The CVCP is a voluntary association of the executive heads of universities and related institutions to which a limited number of roles notably in connection with salary negotiations are delegated. It is largely a forum for discussion and the dissemination of information, but it is beginning to be a place where systematic views concerning the university system are developed. In recent years its role as an intermediary, interpreting the universities' collective views to the DES, to the UGC and to many other bodies, has grown in extent and importance.

4.24 We feel that it must be for the CVCP to encourage and assist universities to adopt the improved practices outlined in this Report; and also to help channel the pressures that are arising from UGC and Government with the same end in view. More generally it is for CVCP to encourage and foster best practice. An example of this is the recent initiative on auditing and accounting standards.

THE ROLE OF UNIVERSITIES

4.25 It has been a constant theme in this Report that we see a need for change throughout the university system. The key to a successful response to the need for change is planning for selectivity and having the means to achieve it.

4.26 An important part of any plan for change not least when resources are limited must be the search for value for money. The organisation of each university must be reviewed and streamlined to allow the appropriate improvements to be made.

4.27 Within the next twelve months, every university should 'prepare a programme for implementing the recommendations in this report on a basis to be agreed with the UGC; the university should also describe how it intends to apply in its own situation the findings of each of the Special Studies so as to secure the potential savings and improvements. It would then be the responsibility of the UGC to monitor the implementation of the plans, once agreed, and to take progress into account when allocating grants.

4.28 Finally it is important to stress that while improved management is essential it must be the servant, not the master. The task now facing universities is to adopt a structure and a way of proceeding both formal and informal which can rapidly identify and manage change, yet be sufficiently sensitive to the academic aims of a university and the need to involve academic staff. New structures and processes will have to be put in place without damage to the essential academic character and role of the institution. That is no mean task, but on its successful accomplishment may rest the vitality of the university system up to and beyond the year 2000.

4.29 The attitude of mind of the staff and the will of the institution to achieve the necessary change are crucial. Without these little will be achieved of value. It is against that background that we now turn to our specific recommendations.

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CHAPTER 5

SUMMARY OF RECOMMENDATIONS

5.1 RECOMMENDATIONS FOR GOVERNMENT (Chapter 3, para 3.16; Chapter 4, paras 4.7, 4.8. 4.11, 4.15 (b); Appendix E).

(a) Government should provide broad policy guidelines within which the UGC and individual universities can undertake strategic and long term planning.

(b) Government should consider what action can be taken to restore a longer funding horizon for universities in view of the disincentives to strategic planning inherent in the present system.

(c) Government should avoid thrusting crises on universities by sudden short term changes of course.

(d) Government should be prepared to provide funds to meet the whole or the greater part of the realistic cost of future staffing reductions agreed between individual universities and the UGC.

(e) Government should examine whether a change can be made in the method used in England and Wales to channel fees to universities.

(f) Government should commission an examination of the role, structure, and staffing of the UGC.

5.2 RECOMMENDATIONS FOR THE UGC (Chapter 4, paras 4.15, 4.17, 4.27).

(a) The UGC should provide and make known its own views about the prospects and directions for higher education.

(b) There should be an increase in the frequency and scope of informal and confidential discussions between individual Vice-Chancellors and the UGC Chairman and Sub-committee Chairmen.

(c) The UGC should encourage further inter-institutional collaboration.

(d) Within the next twelve months, the UGC should agree with each university a programme for implementing the recommendations in this Report and the relevant findings of the Special Studies, and should take progress into account when allocating grants.

5.3 RECOMMENDATIONS FOR CVCP (Chapter 3, para 3.62; Chapter 4, para 4.24; Appendix E).

(a) The CVCP should encourage and assist universities in adopting best practices as outlined in this Report and in the findings of the Special Studies.

(b) The CVCP should consider whether it can extend its role in training to developing the management skills of Vice-Chancellors, ProVice-Chancellors, Deans and Heads of Departments.

(c) The CVCP should discuss with the Council of Local Education Authorities the possibility of universities reporting on student attendance on a "by exception" basis.

5.4 RECOMMENDATIONS FOR THE UGC AND CVCP JOINTLY (Chapter 3. para 3.33; Chapter 4, para 4.15 (c), 4.22; Appendix E; Appendix G).

(a) The relationship between the secretariats of the UGC and CVCP should be strengthened.

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(b) The USR should be enabled to give increased access within the university system to the data it holds.

(c) A range of performance indicators should be developed, covering both inputs and outputs and designed for use both within individual universities and for making comparisons between institutions.

RECOMMENDATIONS FOR UNIVERSITIES

5.5 We recommend that all universities examine their structures and develop plans within the next twelve months to meet certain key requirements. These are:

(a) Councils to assert their responsibilities in governing their institutions notably in respect of strategic plans to underpin academic decisions and structures which bring planning, resource allocation and accountability together into one corporate process linking academic, financial and physical aspects.

(b) Senates to continue to play their essential role in co-ordinating and endorsing detailed academic work and as the main forum for generating an academic view and giving advice on broad issues to Council.

(c) Developing a rolling academic and institutional plan, which will be reviewed regularly and against which resources will be allocated.

(d) Recognising the Vice-Chancellor not only as academic leader but also as chief executive of the university.

(e) Establishing a planning and resources committee of strictly limited size reporting to Council and Senate with the Vice-Chancellor as Chairman and both academic and lay members.

(f) Budget delegation to appropriate centres which are held responsible to the planning and resources committee for what they have achieved against their budgets.

(g) Developing reliable and consistent performance indicators, greater awareness of costs and more full cost charging.

(h) Appointing Heads of Departments by Councils, on the recommendation of the Vice-Chancellor after appropriate consultation, with clear duties and responsibility for the performance of their departments and their use of resources.

(i) Introducing arrangements for staff development, appraisal and accountability.

(j) Saving academic and other time by having fewer committee meetings involving fewer people, and more delegation of authority to officers of the university especially for non academic matters.

The proposals in (a) to (j) above are derived from recommendations and references to be found in the text of the Report and Appendices, as follows:

Planning and Resource Allocation

3.28, 3.30, 3.31, 3.32, 3.33, 3.34, 3.43.

Budgetary Control

3.35, 3.43, 3.70, Appendix D (Financial Management).

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Governance

3.46 to 3.50 (Councils and Senates); 3.51 to 3.53 (Committees); 3.55 to 3.62 (Vice-Chancellors); 3.63 to 3.68 (Pro-Vice-Chancellors & Deans); 3.69, 3.71 (Heads of Departments); 3.74 to 3.76 (Administration).

SPECIAL STUDIES

5.6 We commend to universities our conclusions and suggestions as to best practice derived from the Special Studies in Financial Management, Purchasing and Building Maintenance and Use of Space (Appendix D).

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APPENDIX A

TERMS OF REFERENCE OF GENERAL STUDY

1 To examine and report on the effectiveness of

(a) the organisational structure and decision processes including arrangements for delegation and accountability within the structure;

(b) the management information systems in providing comprehensive bases for decisions and their use;

(c) the management by accountable authorities of the resources for which they are responsible including the monitoring of value for money;

having regard, among other things, to:

(i) whether policy objectives are determined and policy decisions taken with appropriate authority;

(ii) the extent to which policy objectives and decisions are based on appropriate financial and other data and with critical underlying assumptions made explicit;

(iii) arrangements for alternative options;

identification, selection, consideration and evaluation of

(iv) the extent to which policy aims and objectives are clearly set out and decisions are consistent with them and are taken by the appropriate authority; the extent to which staff are notified of policy aims and decisions and those concerned clearly understand their resulting instructions.

2 To recommend such changes in particular to organisational structure and decision processes, as are considered desirable to:

(a) increase institutional effectiveness and efficiency;

(b) ensure that objectives for policy and administration are clearly set by the decision authorities;

(c) specify the assignments of the authority and responsibility for attaining those objectives, and management of resources in doing so;

(d) improve the provision and use of the information needed to exercise the responsibility for decisions and implementation;

(e) achieve optimum value for money as a clear objective of policy, and to identify any obstacles to that end.

Provided that the Study will not extend to issues of academic judgement, nor be concerned with the academic and educational policies, practices or methods of the University.

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APPENDIX B

TERMS OF REFERENCE OF SPECIAL STUDIES

FINANCIAL MANAGEMENT

To examine and report on the efficiency of the management by the institution of its financial affairs, including in particular:

(a) the effectiveness of the overall governance of the finances of the institution, including the assignment of financial responsibility and supervision. The formulation of financial policy. The specification of accounting principles and internal accounting controls and definition of delegated authorities;

(b) the extent of devolution within policy guidelines or targets to faculties/schools, departments and other cost centres of responsibility for budgetary virement, the authorisation and control of expenditure, the generation of income; and reporting on their financial performance;

(c) the procedures for the construction, approval and evaluation of the institution's budget; the nature of the relationship to institutional planning and assessments of institutional performance;

(d) the extent and usefulness of financial and related information made available to officers and committees (e.g. Council. Senate, faculty. departments, administrative committees), and whether it can be improved in usefulness, substance and timeliness, and to consider what information of any type which would assist decision-making bodies in financial fields should be provided on a cost effective basis;

(e) the management of capital investments and short-term funds and of capital assets not held primarily for investment (e.g. land and buildings for possible future use or development) and the opportunity cost of such holdings;

(f) the handling of cash as a resource including management of cash flows, deposits and investments. and planning of future requirements;

(g) the definition and operation of basic accounting systems and procedures e.g. for purchases; payments (salaries, wages. supply creditors, etc.); management of income from fees. grants, contracts and including levels of overhead recoveries;

(h) the organisational structure, costs and style of the financial administration department and its relationship with other departments of the administration and of the university; the nature and location of the internal audit and other investigative roles with particular reference to their ability to pursue value for money;

(i) the financial performance of commercial, or quasi-commercial, enterprises (e.g. university press, farms, consultancy companies etc.);

and to recommend changes in policies, practices and procedures to improve efficiency.

Provided that the Study will not extend to issues of academic judgement, nor be concerned with the academic policies. practices or methods of the University.

PURCHASING INCLUDING THE PURCHASE OF SCIENTIFIC EQUIPMENT AND ITS MAINTENANCE AND USE

To examine and report on the efficiency of the management by the institution of purchasing including the purchase of scientific equipment and its maintenance and use including in particular:

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(a) the existence of policies laid down by the governing bodies for the organisation and control of purchasing (departmental, central or both) including procedures for initiating, specifying, authorising and controlling purchases, stock holdings, supplier selection and relevant management information;

(b) responsibility for stating, applying and checking the financial criteria and controls for purchasing decisions, tendering, vendor rating, cost/benefit appraisal and related procedures to ensure consideration of options;

(c) arrangements for appraisal of proposed purchases including who is responsible for approval, how expected benefits are assessed, how costs and specification of performance need are judged, how costs of use (staffing and maintenance), duration of useful life, and the completeness of a proposal in identifying any associated purchases or supplies are taken into account, how alternative options for meeting the need are considered and how priorities are established for and between departments, and how these are related to approved research and teaching objectives;

(d) the extent of coordination of purchasing for different departments or units within the university; the use for purchasing of inter-university consortia and other agencies such as local authorities, health authorities, etc.; and arrangements for volume purchasing, competitive bidding, call-off contracts, etc;

(e) the cost and effectiveness of the purchasing function in, for example, vendor rating, price comparisons, discount control, updating of supplier lists, approval of invoices, etc., the allocation of authority to and responsibility of its staff;

(f) arrangements for checking, receipt, storage and internal distribution of purchases and effectiveness, security, and rationality of stores arrangements in maintaining low purchasing costs and low holding costs;

(g) the arrangements for the maintenance of scientific equipment by supplier, service contractor or internal staff with reference particularly to optimum cost and reliability;

(h) arrangements for monitoring and scheduling the utilisation of equipment by type, value and user group and arrangements for improving use including the scope for use by external agencies;

(i) arrangements for and control of recharging for usage of equipment by internal departments and the terms and conditions for use by external agencies;

(j) the use of equipment inventories including location, value, sales and scrapping of equipment;

and to recommend changes in policies, practices and procedures to improve efficiency.

Provided that the Study will not extend to issues of academic judgement, nor be concerned with the academic policies, practices or methods of the University.

MAINTENANCE AND SERVICING OF BUILDINGS AND PLANT, MINOR WORKS AND THE ALLOCATION OF SPACE

To examine and report on the efficiency of the management by the University of the maintenance and servicing of buildings and plant, of building works funded from revenue income and of the allocation of space (other than residential premises) including in particular:

(a) the effectiveness of the means of determining the overall allocation of resources for the maintenance of buildings and plant and for building works funded from

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revenue income within the institutional planning and resource-allocation processes;

(b) the means and bases for allocating priorities to maintenance tasks as between different buildings and grounds and services, e.g. valuable experimental work where constant or controlled environment is essential; limits on times of access because of teaching, research or administrative time-tables; existence of security or safety constraints;

(c) the efficiency of the arrangements for ensuring that maintenance is carried out at a cost effective level and that the resources used for maintenance are utilised in the most effective fashion;

(d) the way in which policies and criteria used to assess space needs and to allocate space to departments and other units are determined; and the extent to which they take account of usage, cost and the need for any special facilities and serVices;

(e) the assignment of responsibility for the production and the assessment of surveys and inventories of buildings to identify usable, unusable and limited use areas and the characteristics of available space, especially with regard to maximising flexibility of characteristics and usage;

(f) the extent of the policy relationship between expenditure on building works funded from revenue income and institutional planning with regard to operational priorities, space usage, etc; the specification and evaluation of procedures for initiating, designing/specifying, authorising and controlling building works funded from revenue income, including methods of preparing estimates or tenders, monitoring progress and costs, and agreeing completion and final payment;

(g) the structure and costs of the maintenance organisation, its relationship to the rest of the administration and an assessment of its capability for planning and executing its work and regularly monitoring the effectiveness and efficiency with which the work is done and measuring the performance of maintenance staff;

(h) the policies and processes for the allocation of building works funded from revenue income between inhouse resources and external contractors, and how they assess choices in terms of the need for economy, speed and special skills; the assessment of comparative cost and skill effectiveness of internal works, direct labour and external works contractors;

(i) the establishment of and responsibility for procedures for estimating the costs of proposed maintenance work; the methods of obtaining, evaluating and accepting tenders from the university's own workforce and external contractors; and the use of comparisons in other institutions; the methods and responsibility for the control of expenditure on maintenance works projects including the purchase of materials and the time of direct labour charged to projects;

(j) responsibility for the assessment of comparative cost effectiveness of planned maintenance and reactive maintenance; of determining the extent to which maintenance and servicing is recharged to departments and its cost effectiveness; and of comparing the performance of the institution in such areas of cost effectiveness with other institutions;

(k) the existence of inventories of buildings and plant including approximate market value, maintenance history and expenditure, changes in structure, locations of services, fire and safety requirements, the extent to which such inventories of the major capital resources of the institution are computerised, related to the space allocation process and used to predict maintenance requirements;

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(l) the nature and costs of maintenance workshops and stores (size, number, locations, contents); the extent of their integration with other workshops and stores;

and to recommend changes in policies, practices and procedures to improve efficiency.

Provided that the Study will not extend to issues of academic judgement, nor be concerned with the academic policies, practices or methods of the University.

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APPENDIX C

TERMS OF REFERENCE OF NATIONAL DATA STUDY

To examine the requirements of national bodies for information provided by universities; the extent to which the requirements (a) are co-ordinated and (b) are correlated with the internal management information systems of universities; and to examine the uses of the information by the national bodies concerned.

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APPENDIX D

SPECIAL STUDIES

INTRODUCTION

1 The value of the Special Studies is in indicating good practice and identifying weaknesses which prevent or limit effective management. In this Appendix we summarise the salient findings of the Studies and set out our conclusions. Moreover we strongly recommend all universities to read the six Special Studies themselves.

FINANCIAL MANAGEMENT

2 Financial management has been the subject of Special Studies at Edinburgh and University College London. The subject is also considered in the General Studies in relation to planning and resource allocation.

3 In Chapter 3 of the main Report we stress the importance of strategic planning and resource allocation, and the need for financial control and effective monitoring of each allocation and budget centre. The planning and resources committee which we have proposed for the overall management of these matters must determine the procedures to be used in accounting for financial operations.

4 We do not suggest that universities that are subject to financial constraints are deliberately careless in their expenditures. The studies indicate, however, many areas in which they could spend more effectively and demonstrate that they do so. At present non-pay budgetary control of academic departments is an accounting control for ensuring that expenditure does not exceed allocation but does so without analysis and accountability. The same is true of administrative budgets. The use of inventories of equipment, stocktaking and stock analysis does not sufficiently reflect the importance of major items.

5 We commend the following conclusions that have emerged from the case studies:

(a) A domestic manual of Financial Procedures and Regulations, approved by the Council, should establish a uniform reporting framework and enable comparisons to be made between budget centres.

(b) Each budget centre should prepare an annual plan including a budget covering all the expenditures for which it is responsible. When this has been approved or amended by the planning and resources committee and Council, the centre should he monitored and held fully accountable for the plan's fulfilment.

(c) Each budget centre should be given as much delegated authority for administering its plan as is consistent with the procedures and regulations laid down in (a) above, and within the requirements of internal audit (see below).

(d) Where there are intermediate authorities within the budgetary line they should hold the primary budget centres responsible for performance and themselves account to the planning and resources committee.

(e) Effective financial management requires that cash resources are used to maximum productive purposes. This is achieved by purchasing goods and services of required quality at least cost; maintaining minimum stock investment commensurate with operational needs; and maintaining maximum positive cash flow and optimum investment income from it.

(f) Cash flow forecasting and control, with monitoring of creditors and debtors, is a vital aspect of income management and should be designed to identify promptly surplus funds available for short and medium-term investment. Professional investment advisors should be employed and an investment appraisal service used to assess investment management performance.

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(g) Research contract overheads should be identified and levied at full cost unless a conscious decision is made to accept a lower rate on clearly stated considerations. Universities should engage outside advisers where the volume of contract work is substantial.

(h) Tuition fees are a substantial element in university income and their collection should be accelerated by early issue of invoices, particularly in respect of returning students.

(i) Internal audit should extend beyond probity and systems audit to a value for money audit. The internal auditor should be responsible for his professional performance to the Treasurer or Chairman of Finance Committee and major audit reports should be available to Council.

(j) Presently most management accounting systems are inadequate. They are also frequently held both centrally and locally and are incapable of integration. The above proposals require an integrated system to provide, inter alia:

(i) for cost centre/operating units:

(a) payments and commitments to date by operating units and projects.
(b) payments to date by type of expenditure and supplier and discounts obtained.
(c) uncommitted resources to date. (d) other returns to users' requirements.

(ii) for intermediate levels of responsibility:

(a) summary reports of unit financial operation related to budgets.
(b) aggregated financial report for the area of responsibility.

(iii) for Council:

(a) annual first and revised estimates in total and by appropriate sectors of responsibility.
(b) summary financial reports related to budget in total and by sectors of responsibility. .
(c) cash flow report and forecast. (d) performance analyses of relevant indicators such as discounts received, frequency and volume of purchases by type, etc.

6 Purchasing systems in universities whether centralised, decentralised, or a combination of both should be designed to ensure that the goods and services bought by the university satisfy operational requirements, and are obtained expeditiously and economically.

7 The responsibility for procurement at the Universities of Essex and Sheffield, where special studies were conducted, is divided. A range of items are centrally purchased and supplied to departments while academic departments (principally science, medical and engineering) make their own purchases from departmental maintenance and equipment grants. The laboratory superintendent/departmental superintendent is usually responsible for departmental purchasing, acting in consultation with the budget holder, the head of department or other member of staff.

8 The Essex Report notes that purchasing efficiency is due mainly to the diligence and enthusiasm of staff rather than to defined and coordinated policies. However, neither Essex nor Sheffield appears to have an explicit purchasing policy, other than is implied by the existence of a central purchasing unit. Nor are there recognised,

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consistent purchasing procedures. There are significant differences between departmental systems and the central purchasing unit, although both universities are taking steps to promulgate financial regulations.

9 Our conclusions are as follows:-

(a) A clearly and widely disseminated policy statement is essential to maintaining consistently good practice and procedures. The policy statement should outline the objectives of purchasing throughout the university, and define the roles of the central and departmental purchasing units.

(b) Standardisation of ordering and accounting procedures should be designed to minimise administrative costs, to ensure that controls over procurement are effective and that criteria of performance are available for monitoring.

(c) Control of purchasing expenditure is part of the departmental budgetary process. Authority to place orders, the effective point of control of purchasing, is variously delegated to heads of departments, or through them to a laboratory superintendent or chief technician. Accountability must be explicitly defined and not "informally understood", and rest ultimately with the specified budget holder.

(d) A combination of centralised and decentralised systems can give the flexibility and independence sought by academic departments, together with adequate assurance that value for money is being achieved. The correct balance, with appropriate controls and accountability, is the responsibility of management in defining and monitoring purchase policy.

(e) An academic department should act as a single agent for the purchase of appropriate items only in cases where it is a major user of a product, such as for example, liquid gases, and can therefore be a convenient purchasing agent for smaller requirements of other users.

(f) Management information is vital for a combination of centralised and decentralised purchasing to work effectively and to ensure that opportunities for collaborative negotiating. buying and storage are identified and known. The Sheffield Report instances savings of up to 50 % of disposable plastic items through amalgamation of departmental orders. Regular meetings of laboratory superintendents and the central purchasing officers to identify items of common interest augment management information but are not a substitute for it.

(g) The purchasing information system should be integrated and enable budget holders to have up-to-date order, commitment and payment data from a central record. We endorse the recommendations of the study reports aimed at extending and formalising the cooperative and collaborative processes which already exist, and at improving the quality and flow of management information.

(h) Some departmental stocktaking is clearly necessary and efficient for laboratory-based subjects but opportunities for reducing stocks through departmental collaboration should be examined. There appears to be considerable variation between departmental stock control procedures and we recommend examination of the scope for improvement.

(i) Bulk purchase, tender procedures and collaborative ordering and storage on a departmental, school, faculty or university-wide basis can effect economies and should be prescribed in purchasing regulations. Externally, university consortia, central and local government contracts and collaborative arrangements with other universities and educational institutions in the same area should be exploited.

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(j) Suitable arrangements should be made for assessing proposed purchases, recurrent costs and alternative options.

(k) The available options for the purchase of scientific equipment may in many instances be limited or non-existent in a single institution. We propose that regional purchasing organisations should undertake studies of the acquisition of high value scientific equipment on a planned basis involving a wide range of institutions of higher education.

(I) The appraisal of performance of equipment following purchase is important. We recommend that reports on the use of expensive acquisitions should be prescribed in the financial/purchasing regulations.

(m) Both Reports favour inventory systems as the basis of records and reports of utilisation for control. These recommendations would improve the use of valuable assets, and identify unwanted and under-used equipment and stores which could be relocated or sold. Such systems also should help in assessing the longer term equipment needs of departments and in enabling regular reviews of the equipment maintenance contracts. The possibility of collaboration between departments in the maintenance of equipment by contract or in-house should be examined.

BUILDING AND PLANT MAINTENANCE AND WORKS ALLOCATION AND USE OF SPACE

10 Universities have a vast stock of buildings and plant under their control. Its maintenance and repair, along with minor modifications to it. constitute a significant part of universities' annual budgets. The lower level of funding in recent years has, however, caused universities to give such work a lower priority than other activities. The back-log is growing and the long-term consequences of inadequate building and plant maintenance are now a cause of concern to individual universities which have been documented by the UGC.

11 Expectations of additional funding for dealing with this growing problem would probably be misplaced. Universities must use the limited funds available to them as effectively as possible. The Special Studies at Loughborough and Nottingham addressed this prospect and references to it can be found in the general study reports. Our conclusions are contained in the following paragraphs:

(a) Each university should develop a comprehensive maintenance strategy directed to value for money in terms of cost effectiveness and optimum serviceability of buildings and plant. The strategic plan should contain general policy directives and be in the form of a rolling programme extending over not less than three years. The programme should provide for long-term periodic maintenance. minor adaptations and modifications, and major projects (including minor works funded from general income and earmarked grant-aided projects) and incorporate budgets for services, routine corrective maintenance and emergency repairs. Priorities within the programme should be ranked by the Works Department for the Committee responsible for its activities, and the priorities approved by that Committee should determine the current year's work.

(b) The strategic plan should be zero-based and incremental only in relation to corrective maintenance and repairs. The estimate for future corrective works should take account of previous demands and the amount of work that has been completed in the previous budget period. Precise identification of maintenance requirements should ensure that when the Committee makes priority choices on the basis of academic considerations it also considers the implications of its decisions for subsequent short-term recurrent maintenance costs and serviceability.

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(c) Comprehensive planned preventive maintenance is very costly and normally limited to situations where the risks of not doing it are too great to contemplate. There is however considerable scope for analysis of the relative cost-effectiveness of preventive and reactive maintenance to identify which of them. over a reasonable period of time, offers the greater potential for cost savings.

(d) The occasional use of dilapidation surveys is a sound practice providing a warning of the cumulative effects of a limited maintenance budget. There should be an associated system of building and plant inventory recording changes to services. installations, and building construction as at Loughborough and Nottingham.

(e) A number of factors are taken into account by universities when considering their buildings and plant programmes: prompt maintenance of critical services for research; importance of local staff knowledge and relations of confidence with clients; need for special equipment or skills beyond the capacity of direct labour; maintaining continuous employment or direct labour, and capacity for flexible response to special situations. These should not, however, be allowed to preclude sound value for money judgments being made before decisions are taken. For these, precise job specification and estimating are essential.

(f) We attach particular importance to forward estimating on a full cost basis (including labour, material and standing costs of the Works Department); this will provide benchmarks for productivity, accountability and control for craftsmen and supervisors, as well as a means of deciding whether direct labour or contractors provide best value for money. The Special Studies refer to the absence of systematic comparison between the cost of work done by direct labour and by external contractors.

(g) The standards of acceptable site work should be the same for both direct labour and contractors. Final judgment of value for money and quality of site works should be made independently of those carrying them out.

(h) In accordance with proposals in the main report, the full cost of repairs and maintenance should be transferred to the departmental cost-centre budget. This extends the system commonly applied to Halls of Residence to all cost centres. Clients who have budgetary accountability for the cost of maintenance are more likely to demand high standards.

(i) Themes treated generally in the previous paragraphs also apply in the management of minor building works; the importance of accurate detailed cost estimates for proposals; the necessity for full costing including in-house design work; the design of modification of financial accounting records for operational needs including control purposes; and supervision of work in progress and acceptance of completed work.

(j) Space should be recognised as no less a resource than labour, materials and services. This recognition is unlikely to be effective unless space is costed at least in terms of basic running costs including maintenance. We are not persuaded by the arguments against departmental accountability for space through charging. Charges would encourage close consideration of space implications of equipment and research projects and levying of full standing costs on research contracts.

(k) The UGC space norms provide a valuable basis for comparison of space allocations and needs between departments but should not be used rigidly. The UGC itself stresses that they are guidelines and need qualification in specific situations by individual weightings, for example, for the incidence of research contracts and research students or by use of special norms for "non-science" laboratory subjects such as archaeology and physiology.

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(l) Identified surplus space should be one aspect of an annual review of space. Specialised accommodation such as lecture rooms are generally pooled and centrally timetabled for shared use by departments. The practice should be universal. The abridged planning norms sent to universities by the UGC make clear that the use expected of teaching accommodation and inter-institutional comparisons should now be possible.

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APPENDIX E

NATIONAL DATA STUDY

1 The National Data Study examined what university information various national bodies require, how well the requirements are co-ordinated and how much of this information universities need for their own management.

2 Discussions were held with about 20 national bodies, with considerable attention being paid to the University Grants Committee as the heaviest user of the information. Discussions were also held with five selected universities to assess the reporting burden and to examine the match with their own management needs. To help with the last point, the consultants also had access to relevant extracts from the six individual efficiency studies.

3 Regular requests originate in the main from the Universities Statistical Record and from the University Grants Committee. The principal UGC request is for financial data. A number of other bodies make regular, although more limited, requests on, for example, non-academic staff or student accommodation. Finally universities also receive a number of ad hoc requests which, on the whole, they try to meet.

4 The study concluded that the volume of information requested from the universities is large; but on the whole the requests do not impose an undue burden on the universities, because much of the information is already held internally for the universities' own purposes. Changes in requirements often cause more of a problem than the requirements themselves.

5 The consultants concluded that there is limited scope for savings in data provision. However, they put forward suggestions for eliminating some forms and handling other information differently which might generate savings of up to £100,000 a year. We recommend these should be followed up, including: changing the student attendance returns made to LEAs to reporting by exception; looking at the derivation of the provisional student returns used by the UGC; and using the USR, where possible, to meet ad hoc requests, which were estimated by one University to consume about 1 man day per week.

6 Further, as yet unquantified. savings may be possible by combining and simplifying the information on student accommodation requested by the National Union of Students and the CVCP; from the streamlining of the collection of data on continuing education and on first destinations of students; and possibly from the elimination of some duplication on course information. The consultants also suggested that some savings could flow from simplifying data on non-academic staff gathered by UCNS. We support this suggestion even though we recognise that the data are intended for wage negotiations.

7 Most of the financial information is gathered by the UGC on its Form 3. The consultants advise that its usefulness is limited because the design of the form means that there will be inconsistencies of definition between universities.

8 However, of more fundamental significance, the consultants question whether the information sought by the form is appropriate for the tasks for which the UGC require it. They suggest that the data needs must be rethought from these principles rather than seeking to modify the existing form. In the light of this suggestion we see little merit in further tinkering with Form 3 particularly in view of the comments about the efforts involved in change; instead, we agree with the consultants' suggestion that it should be rethought as part of the review we propose of the UGC itself.

9 The consultants suggest that the USR offers a potentially useful mechanism for increasing co-ordination in data handling and for making more comparative management information available to individual universities. We discuss this further in paragraph 4.22.

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10 By far the greatest potential for savings identified by the consultants would arise from changing the arrangements for payment of student fees and, perhaps, maintenance grants. On fees the consultants point out that the present arrangements may cost universities as much as £1/2 m to operate, with a similar sum being spent in the LEAs. They argue it would be simpler for fees to be paid by the UGC as part of the block grant. This would not close off any future options for fees (eg. absorbing them in block grant, converting them to form part of a unit cost based system, moving to a loan approach). We agree that this possibility should be considered by the Secretary of State, and that a natural extension of any such examination would be to reconsider the involvement of LEAs in the payment of the means tested maintenance grants.

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APPENDIX F

DEPARTMENTAL PROFILES

Departmental profiles should provide periodic analyses of; staff of all grades, including numbers and gross cost; departmental maintenance, equipment and library allocations and expenditure; other standing costs of space, service utilities (telephone etc.) and general overhead; research grants including sources, number, value and staff, equipment and materials they provide; undergraduate numbers including applications per place and A-level scores and postgraduate student numbers distinguishing research and taught course postgraduates.

The profile should provide budgetary control by showing for each head of expenditure current commitment, expenditure and variance from budget. It should also provide analyses of; staff/student ratios; academic/technical/clerical staff ratios; the budget centre's allocation and expenditure for each head of expenditure as a percentage of the university total; previous year and current year comparisons; and staff age distributions. These analyses provide both inter-unit comparisons and performance indications.

This list is not exhaustive and some of the performance indicators in Appendix G, for example, may provide further material for departmental profiles.

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APPENDIX G

PERFORMANCE INDICATORS

1 Performance indicators for universities have proved difficult to devise and there is no universally accepted series that is in general use. Most universities have devised their own series, but these are only rarely brought together and considered as a whole. The indicators are commonly divided into three categories:

(a) Internal performance indicators include

• market share of undergraduate applications (by subject)
• graduation rates and classes of degrees
• attraction of masters and doctoral students
• success rate of higher degrees (and time taken)
• attraction of research funds
• teaching quality

• acceptability of graduates (postgraduates) in employment
• first destination of graduates (postgraduates)
• reputation judged by external reviews
• publications by staff and citations
• patents, inventions, consultancies
• membership, prizes, medals of learned societies
• papers at conferences

• unit costs
• staff/student ratios
• class sizes
• course options available
• staff workloads
• library stock availability
• computing availability