Since the 2008 recession, universities with considerable research programs are increasingly asked about the cost, value and mission impact of their activities. Many find it difficult to validate their responses with comprehensive data.
Universities typically have ready access to direct and indirect administrative and facility costs incurred by sponsored (externally funded) research projects. They also know the costs of the university’s “share” of internal research projects — direct costs of research personnel and other expenses — not reimbursed by federal, state and private funders. For many universities, however, this is where the data flow stops. Because most universities haven’t quantified the costs of the trade-offs that commonly occur (e.g., bestowing course-load release time and expanding administrative and support duties of existing staff) against the benefits (e.g., reputation, academic enrichment and commercialized revenue streams) of their research activities, they don’t have a complete answer when board members, state funders and other stakeholders ask, “How much does research — both sponsored and internal — cost the university?”
Receiving a degree from an institution perceived as more prestigious than a lower-cost option has inherent value for students. However, when many institutions are viewed as comparably prestigious, the cost of attendance becomes a deciding factor. An institution can lose competitive advantage when that cost of attendance is higher because of the cost of research activity. When research costs are not well-understood or, worse, underestimated, opportunities are missed to streamline and create efficiencies in research functions that would keep the institution competitive.
At a time when state appropriations to public universities continue to shrink and private universities are under pressure to demonstrate value relative to the cost of tuition, research costs and relevance to mission are in the spotlight. To better understand — and validate — costs, benefits and trade-offs, institutions need the right business processes to provide the data and technology systems to support the analytics.
Data collection is the foundation; analytics is the quantifier
Prioritizing the cost data to be captured helps determine the best software solution, business tool and cost allocation methodology. Information needs to be extracted from various internal databases, and activity-based cost models need to be developed such that cost components are assigned to sponsored and internal research activities. Tracking and allocating the full costs of grant, contract and compliance support; preaward and contract management staff; custodial, training and technology staff; and facility management are often overlooked.
Clients, explore data analytics mechanisms that gather nonfinancial and financial data, link operating data and analyze collected data from several operating perspectives. Register to replay this client-only webcast.
Sponsored research awards often generate license and royalty revenues, and universities cite these as benefits of their sponsored research activities. While these revenues are an ancillary benefit, the associated costs of the intellectual property commercialization efforts and project management office costs for joint ventures and incubator startups need to be considered when assessing the net benefit of license and royalty revenues. These commercial revenue streams have separate business cycles, with direct and indirect costs of their own, and potential tax implications that need to be factored into the research benefit analysis.
Analysis of sponsored research data informs decisions
Universities generally maintain a database of sponsored research projects that tracks direct and indirect costs by project, award and fiscal year, and a scorecard that tracks the number and dollar value of awards from year to year. But more often than not, there isn’t data or a visualization tool that shows the year-to-year patterns of indirect cost rates (i.e., mean, medians, deviations, lowest rate and highest rate), institutional matching funds and direct grant support. Understanding the ratios and rates of funding by federal agency and science discipline in comparison to the university’s research priorities can be missed.
This is where analytics can be brought in to put data collection to good use. Mining sponsored research data can reveal patterns of growth for aligning research areas with institutional strategy. Grants that do not align with strategy and do not cover a certain percentage of costs should not be pursued.
Capture total costs for sponsored, internal research
Decisions to pursue certain specialized, top secret or other investment-intensive research must be based on an understanding of support activities, which require more specialization than the typical personnel and facilities needed to conduct other research. Examples of specific support functions include certification for drug testing labs and animal care and control, single-use encrypted Internet lines, expanded institutional review board functions for conflicts-of-interest compliance, ethics training and certification, specially trained billing staff, hazardous waste compliance and certification, specialized ventilation systems, and sterilized environments. Capturing the initial investments and ongoing operational costs of these activities is critical, not only for evaluating the total cost of research, but also for developing facilities and administration indirect cost rate proposals.
Most universities engage in both sponsored and internal research activities. Sponsored research projects are awarded by external competition and funded by research contracts and administrative departmental budgets that absorb unreimbursed overhead. In contrast, internal research is seldom externally funded and is supported by academic budgets for faculty salaries and academic administrative support. Both types of research typically result in some level of faculty course-load release time. Research projects are important to the institution’s brand and tenure-track faculty, who engage in and publish research to achieve tenure and individual status.
Both types of research can benefit the institution in prestige and overall competitive standing. Capturing the value of this research and understanding its relationship to costs incurred are of paramount importance in order to prioritize investments in faculty and research facilities and manage tuition increases.
The process for capturing the total costs associated with these two types of research entails capturing data from two different institutional areas — the office of sponsored research projects and the department of academic affairs. Many times, universities consider only the unreimbursed costs of sponsored research as their total cost of research and have not developed the processes for capturing the costs associated with faculty release time.
In many cases, new research facilities are partially funded by leases to third parties that are conducting separate or collaborative research. Depending on the nature of the research, a portion of these third-party lease arrangements may be unrelated to the exempt purpose of the university and could have tax implications. In addition to being able to quantify the cost of research to the university, tracking direct and indirect costs of unrelated business income is important to determine deductible expenses to the IRS and other taxing jurisdictions.
Another aspect of data analysis is understanding the level of personnel costs associated with direct, indirect and research support activities. The analysis of direct personnel costs takes into account salaries and benefits. Those institutions without a federally approved fringe benefit rate can find that different benefit packages (e.g., family vs. single health insurance coverage, pension status and adjunct vs. full-time faculty) of personnel working on a grant can unexpectedly exceed the approved direct-cost budget and increase the institutionally funded share. It should be noted that an approved fringe benefit rate does not always protect the institution from unexpected project overruns if researchers use the fringe benefit budget to cover other direct expenses of the project. Often these costs are hard to track unless specific reporting systems are in place. Furthermore, analyzing salary structures across the research categories (e.g., bioengineering, computer science, health sciences, engineering, environmental sciences and psychology) and the growth or contraction by sponsored funders of those research areas can highlight opportunities for resource reallocations. For example, high cost structures in low-priority research areas that have experienced reductions in federal awards may indicate that the best use of personnel would be in instruction and not in research. The prevalence of research assistants, external collaborations and junior faculty on grants directly influences cost structures; developing insights into how to better maximize staffing across groups of related or similar grants can prove quite advantageous.
While personnel costs related to research activities can be mined from the sponsored research project systems, the impact of course-load release time needs to be obtained from academic affairs or similar systems. The relationship of release time by department and discipline to the value of sponsored research awards can highlight the misalignment of efforts to strategy. Given that research activities and grants span several years, a lost or unrenewed grant can reflect a short-term disruption to the research-teaching ratio. Enhancing the preaward and post-award planning systems can help to allocate resources in such circumstances. When faculty are entirely supported by grants and contracts, a lost or unrenewed grant will create labor charges not covered by any source of revenue. The ability to track these costs by department is essential, and faculty productivity reports are useful in identifying plans to measure faculty preaward and grant proposal efforts.
The analysis of research costs needs to assess the amount of release time given to tenured, tenure-track and nontenured faculty for internal research and service projects, as compared to externally funded research. Externally funded research raises the profile of an institution and brings a source of revenue. Internal service projects may be integral to the university’s mission, as is the case for land grant institutions. These projects — e.g., agricultural sites that provide services to rural areas — can bring an enriched academic experience to students who participate in them. Some internal research may be conducted solely for the professional stature of a particular faculty member and carry with it “branding prestige” for the institution. Other internal research supports tenure-track faculty professional development for tenure, but has less institutional and student value. Most of these activities result in the reduction of teaching loads, which are then covered by adjunct or nontenure-track faculty. Insights into both the quantifiable costs and qualitative aspects of the nonteaching efforts of faculty can help universities assess their policies for course-load release and the increased costs to educate students.
The true cost and value of research
With research activities embedded in many aspects of the academic enterprise, teasing out costs is essential. A well-defined process captures not only cost data, but also opportunities for efficiency and insights into value. The response to the cost-benefit question posed by stakeholders and funders must be supported by data showing that research results in direct value to students as well as the institution, and that the cost per student, whether ultimately paid by the student or an external funder, is quantifiable and justifiable.
Visit the report overview for more articles:
The State of Higher Education in 2016
Clients, register to replay Using data analytics in not-for-profit and higher education operations.