Sustainability for Higher Education – Part 1

We have recently formed a Sustainability* Interest Group at the Consortium of Advanced Management, International (CAM-I) and want to share some of our general research with the Higher Education community. We have also drafted a white paper titled “Carbon, Cost & Profitability - Practical suggestions to create an auditable carbon footprint/emissions profile.” If you would like to participate in the interest group or would like me to email you a copy of our whitepaper please leave a comment below or contact us at CostWiseCollege.

Now I’m not going to get into any heated debate about human impacts on the environment, have we really caused climate change? Is it all part of natural solar cycles? Should we implement an Emissions Trading Scheme? I approach this whole argument from a more pragmatic view point, we know that our standard sources of energy – crude oil, natural gas, and coal are finite resources. Yes we have an awful lot of it and we probably have many more years left but one day it will all run out, so it makes sense to look for renewable energy sources. Also the more energy we use the more expensive it is, so if we try to do things more efficiently and use less energy we should also save money. How we transition globally from fossil fuels to renewable energy sources in a cost-effective way is what the economists get paid the big money for, although in practice it will be the politicians that create the catalyst for change, whether that’s an open market trading solution or a tax is up for debate.

For this posting I’m just going to discuss the benefits of modelling your emissions rather than just measuring it. The first thing we need to figure out is how much energy the organization is actually using and where it’s being used. The calculation of a “carbon footprint” is a great starting point, but we want to take it one step further and model this footprint through the organization.

What do I really mean when I talk about modelling? It’s really about identifying how an organization works, what are the cause and effect relationships inside the organization. This model can contain financial and non-financial measures as well as a range of other measures, in this case, greenhouse gas emissions. The carbon footprint can be used as an input into the model or the carbon footprint could be calculated inside the model, by simply including the readily available ‘emissions factors’ in the model associated with the appropriate energy source, by way of very simple example see the image below for the calculation of CO2 equivalent emissions for electricity using an emissions factor of 0.87 Kg CO2-e per kWh.

 The benefits of modelling your carbon emissions are that: 

• Management can identify high carbon activities and processes and can actively manage them.
• Organizations can report the true emissions profile of the individual product or service they provide to a customer or client.
• The approach is auditable, repeatable and disciplined.
• Once in place can be used to calculate the impact of any proposed tax or emissions trading scheme on the organization.

 “Whenever possible, environment-driven costs should be allocated directly to the activity that causes the costs and to the respective cost centers and cost drivers.”

The United Nations Division for Sustainable Development “Environmental Management Accounting Procedures and Principles”  

*There are three components to sustainability: social, environmental and economic, or the alliterative People, Planet, Profit. Because this scope is very broad the interest group will initially focus on economic and environmental and in particular greenhouse gases for the environmental aspects. It is the intention of the group to expand this scope over time to cover all aspects of Sustainability.

2010 National University Finance & Procurement Conference

We will be attending and exhibiting at the 2010 National University Finance and Procurement Conference from 26-28 July at the Hyatt Regency Coolum, Sunshine Coast QLD Australia. Please look for us at Booth 16. The link to the conference website is here: http://www.hes.edu.au/page/conferences---events/2010-national-university-finance---procurement-conference/

This year's conference theme is:

The Global Financial Crisis has drawn attention to the importance of universities having business sustainability strategies in place to ensure business continuity. Many universities globally have lost significant sources on income through diminished investment returns that have the potential to impact the quality of teaching and research and even the image of the university as a desirable destination for local and international students. Universities are starting on a new journey, exploring the benefits of innovative business practices, including outsourcing and shared services and the benefits of collaboration. There is a renewed focus on understanding the University as a Business. So, how far "over the Horizon" are universities prepared to go to adopt business innovation in developing their Road Maps for Business Sustainability?

SRE 2010 Transparent Costing (TC)

As promised, posted below is the start of our discussion on research costing developed by Andrew Faulkner. We would like to start an open debate / discussion on this topic which seems to be of interest to all Universities in Australia at the moment, so please add your comments / suggestions below.

Cheers,

Lea


SRE 2010 Transparent Costing (TC)

The funding available for the indirect costs of research is designed to be calculated on two key components

1. A set of allowable indirect costs, falling into one of four indirect cost categories; and
2. A single indirect cost driver to support the calculation of the proportion of indirect costs incurred by universities attributable to ACGs.

Four categories of indirect costs will be adopted in the 2010 trial TC framework:

1. non-academic salaries and on-costs;
2. costs of maintaining physical university infrastructure;
3. finance and insurance costs;
4. other costs indirectly associated with research.

One of two cost drivers will be adopted in the 2010 trial TC framework relating to the relative effort of academic staff on ACG research. The preferred method, takes the universities research related indirect costs (derived from a cost model or comprehensive financial systems) and allocates them to ACG based upon the percentage of staff time performing ACG research.

  

          % time spent on ACG research * FTE ACG associated staff / total Research Active staff FTE

  The second method allocates the universities total indirect costs to ACG. 

        % time spent on ACG research * FTE ACG associated staff / Total staff FTE

The methodology is simple enough to use and most universities should not have any issues calculating this indirect ACG costs once the Active ACG FTE Percentage is known. The major issue facing universities is collecting this data through staff surveys which will be a burden on the academics to accurately describe how they spend their time. Surveying has its own traditional issues such as adequate response rates as well encountering political/sensitivity issues.

Universities are expected to undertake two full surveys of academic time in semester one of 2010, it is unknown how frequently they will be expected to repeat them.

 
If the university has a comprehensive cost model in place (like an ACE Management Model) then the model can calculate these figures for the university (a small advantage) as well as improving the cost methodology used and possibly reducing the survey burden on the university. Some of the areas where the costing process can be improved are outlined below.

One issue with the second method is that FTE ACG/Total Staff FTE will calculate ACG as a percentage of Total staff, which includes all the corporate support staff that are supposed to be allocated via these methods. These FTE which often support each other in reciprocal relationships should end up being allocated to either research, teaching or other products based upon the direct effort being expended upon the products. What you effectively want to achieve is:

          FTE ACG/(Total Staff FTE-Indirect Staff FTE).

Otherwise, ACG is receiving a smaller indirect portion than it really should.

Similar issues arise if attempting to define the total research related indirect costs and the Total Research Active Staff FTE for the first method without the use of a cost model.

If a cost model is used that calculates ACG Research as one of its product lines then this has the advantage of isolating the direct ACG Research and FTE, calculating the relative FTE ratios between ACG and the rest of the university and apportioning the indirect costs according to a suitable driver (FTE). The key to making such a model accurate and usable from a SRE reporting viewpoint is having an accurate allocation of staff time to ACG Research. If the model is already fully allocating academic (and research staff) time according to workloads, payroll data and faculty/school business rules then the only piece of information required to complete the model for ACG research costing is the time spent by staff on ACG Research. This means that rather than a full survey of all staff, only a partial survey of research involved staff is required covering their research time.

  

Because this would reduce the survey burden it seems more likely to receive willing input from the academics than a full staff survey, especially as the results of it relate to the research funding received by the university. One issue is that the survey responses could be skewed towards too much time spent on ACG research. This should be countered by the fact that the results will be used to calculate the direct research costs as well as the indirect research costs, thus showing up as an over-expense in relation to direct funding if they over-estimate their time.

Where have we been?

It's been quite a while since the last post. Things have been a bit busy for us over the last few years, which has been great but no excuse for not even attempting to update this blog. Just an update we have been busy outside of the Higher Education community with government and military contracts and entered into the world of oil and gas with quite an exciting project.

We have recently been busy with two new clients and would like to welcome Deakin University and Edith Cowan University to the Cost Wise College community. I feel we have an appropriate quorum now to be able to discuss various aspects of our solution with the community.

Our first topic will be the requirement to cost university research. Andrew Faulkner will be posting this article soon so please check back and provide comments.