The financial plan, which was approved by the board in mid-June, was one of the main items on the agenda at the HSU meeting of 30 June 2016. At the meeting, University Director Arnold Boon summarised the financial plan, which received general support from the members of the committee, who emphasised that the plan reflects calm deliberation and attention to detail despite the difficult conditions.

“I’m very satisfied that we’ve developed a financial plan which has the support of both the board and our main liaison committee. We discussed the financial plan in HSU over the course of the spring, and we now have a finished document of which we have a common understanding. We agree that we must attempt to avoid layoffs to the greatest possible extent, and we can now continue the implementation of the cost reductions calmly and deliberately with the involvement of the liaison committees,” states University Director Boon.

The implementation of the financial plan will begin after the summer holiday, when the various measures will be considered by the liason committees at the local level. In this connection, the HSU employee representatives noted that according to the financial plan, the implementation will take place in the least burdensome way possible.

“Naturally, the prospect of cutbacks of this magnitude is worrisome. The management went over the challenges as well as the planned cutbacks in the financial plan. There are a lot of technical details, but the management explained how the plan works, and I’m confident that they mean what they say when they state that the university is on top of the process of finding the savings AU has been directed to make,” says Aase Petersen, joint union representative for technical/administrative employees.

Similarly, Olav W. Bertelsen, joint union representative for academic staff, describes the plan as well-thought-out. He is pleased that the cutbacks will be phased in at a reasonable pace which the organisation will be able to follow.

“All things considered, it’s good news that the management and board have decided to try to avoid layoffs. And it’s particularly good news that the strategy they presented indicates that this will be possible. One point of concern is the uncertainty associated with the study progress reform, which – if our efforts have no effect – can cost up to a quarter billion kroner per year. This is why it’s important that we all do our best to reduce completion times,” says Olav W. Bertelsen.

A summary of University Director Arnold Boon’s explanation of the financial plan follows below.

The university faces a revenue shortfall of DKK 280 million.

In addition to the decreases in revenue which will result from degree programme resizing, the expected study progress reform penalty and reductions in the area of public sector consultancy, all of which were already known, the Finance Act entails additional decreases in the university’s revenues. These include the reallocation contribution of two per cent of government grants to education and reductions in competitive government research funding,which the university must compete intensely against other research institutions to attract.  The reduction in external funding will also result in less research grant overhead income. The financial plan estimates the total reduction in revenues at approx. DKK 250 million.

The reduction in revenues will not immediately affect the university’s bottom line. According to the financial plan, the total revenue shortfall will be approx. DKK 280 million in 2019 (2016 figures subtracted from 2019 figures in the tabel below). This is partly due to the fact that the decrease in revenues will result in a decrease in costs on account of a reduction in some of the university’s activities. In addition, the university predicts an improvement in the revenue base on account of an increased intake of students to degree programmes not affected by degree programme resizing as well as a few new degree programmes.  The revenue shortfall is itemised in the table below.

Revenue shortfall 2016-2019*

*The figures should be interpreted to mean that the university will lose DKK 70 million in revenues in 2016, a reduction which the university has taken steps to offset at the present time. In 2017, the reduction in revenues will total the DKK 70 million from 2016 plus an additional DKK 131 million, i.e. a total of DKK 201 million. Correspondingly, the shortfall in 2018 will be DKK 281 million, because DKK 80 million will be added to the DKK 201 million shortfall for 2017. In 2019, the shortfall will increase by DKK 72 million over 2018, which means that the total shortfall will be DKK 353 million in 2019 compared to 2015.

As the university expects the budget to balance in 2016 despite the DKK 70 million decrease in revenues, the financial plan must offset a shortfall of a total of DKK 283 million in the period 2017-19.

Gradual phase-in of cost reductions

The budget reductions of 2014 mean that the university is in a solid position for handling the revenue reductions resulting from the latest Finance Act. The majority of the savings for 2016 have been already found. The remaining savings of DKK 283 million will be phased in gradually over the course of the next three years.

The financial plan incorporates the planned reductions in the faculties’ contribution to administration and the senior management team’s strategic funds (USM) which were adopted in connection with the cost reductions of 2014. The additional cost reductions will be achieved through restraint in filling vacant positions, increasing efficiency in connection with degree programmes and reducing costs related to buildings and other operations, for example through purchasing agreements. The distribution of the cost reductions is shown in the table below.

Initiatives to improve budgets and reduce costs

Natural wastage will reduce payroll costs

The normal turnover in the university’s staff – so-called natural wastage – means that the majority of units will be able to adjust their payroll costs by exercising restraint in filling new positions and conscious focus on the importance of using appointment to further the university’s academic development.

Although there are variations in natural wastage over time and across the university’s units, according to a rough estimate, the university will be able to fill 80 per cent of vacant positions, and therefore a hiring freeze is unnecessary.

The senior management team and the joint union representatives have also discussed various possible courses of action in order to realise savings on personnel costs without cutting jobs, for example by reducing overtime and additional work, ensuring that employees take their holiday, and by claiming reimbursement from the municipality in connection with illness and leave.

Differences in the faculties’ financial situation

There are considerable differences in the budgetary challenges facing the faculties. For Science and Technology, cuts to government research funds and the reallocation contribution on public sector consultancy contracts comprise the major financial challenge. The faculty will find the necessary savings by reducing the faculty management team’s risk fund and funds for strategic investments, through increased efficiency in facility management and other operating costs as well as by adjustments to payroll costs.

At Health, the Skou construction project, the renovation of the Bartholin building and the government’s reallocation contribution on education funding will have the greatest effect on the faculty’s budget in coming years. Administrative savings and the reductions in the contribution to the senior management team’s strategic funds are sufficient to offset the fall in revenues at Health.

The reallocation contribution and the study progress reform constitute significant challenges at Arts, which is already in the process of a major readjustment in response to the reduction in degree programme funding resulting from degree programme resizing. The faculty faces an eight per cent long-term decrease in total revenues, and after a major review of its degree programmes, has decided to carry out a number of changes aimed at improving efficiency, for example a gradual reduction in the number of courses offered by 180. In addition, the faculty is planning a long-term adaptation in the number of employees – through natural wastage – to match the expected capacity requirements after degree programme resizing has been fully implemented in approx. 2024.

Like Arts, Aarhus BSS has a strong focus on education, which means the faculty also faces challenges in relation to education revenues. The faculty will achieve savings on administration and building operations and maintenance, and also anticipates an increase in education revenues as a consequence of increased intake of students to degree programmes not affected by resizing as well as a few new degree programmes. In addition, the faculty anticipates a slight increase in external grants and basic research funding.

For all four faculties, the financial plan assumes that they will step up efforts to attract external funding, and that time to degree will be reduced in order to minimise the university’s study progress penalty.

Read more

• Aarhus University's financial strategy 2017-2020 (PDF)
  
• The board approves AU’s budget plan and strategic initiatives