How the Worsening Financial Situation in Higher Education Changes Forecasting Needs

The UK Higher Education sector has experienced profound change over the last decade. Despite challenges, especially cost pressures and declining real-term home undergraduate fee rates, the sector has, overall, expanded strongly, chiefly through the recruitment of international students. However, this economic model is under acute strain, with further cost pressures, limits on fee rates and a decline in international student numbers. None of this looks like it will go away, and the result is that many institutions are needing to implement urgent operational savings and longer-term strategic re-thinks for ensuring financial sustainability.

Read on to discover the specific challenges involved, how they affect the FP&A process, and how we would recommend tackling this.

Long-Standing and On-going Financial Challenge

1. Fee Rate Stagnation and Cost Inflation: Since being raised to £9,000 in 2012 undergraduate tuition fees have only increased to £9,250 in 2017 and £9,535 from next year. Inflation, higher wages, higher pension costs, higher energy costs, increased interest rates, and from April 2025 increased NIC has swamped the increase in fee rates.
2. Downturn in Student Recruitment: Lower student recruitment, especially premium rate, high fee, international students, in part driven by stricter visa requirements, puts pressure on income. A significant portion of many establishment’s students are international and they pay substantially higher fees, so to lose this chunk of income makes a huge difference.
3. Competition between Institutions: Removal of student number caps has translated itself into large research-intensive institutions increasing their student recruitment, with small teaching and specialist institutions squeezed and recruiting fewer students, significantly affecting income.
4. On-Going Economic and Regulatory Uncertainty: There remains no clarity on medium-term fee rates and funding. The Government is likely to require universities to ‘do more’ in terms of its social agenda of wider access etc in return for increased fee rates. The demands on public finances are very high, and politically, HE is unlikely to be near the front of the queue.
5. The Office for Students in England, forecasts that the financial situation will push up to 75% of institutions into deficit in 2024/25, and 40% may experience cash flow problems without making cutbacks to previous financial plans.

Remedies Tried - Cost Reduction and Efficiencies

With income growth plans unfulfilled, institutions have responded by cutting costs to operational budgets and making efficiency gains. Principally, this has been by: (i) cutting staff numbers (recruitment freezes, voluntary severance, and some compulsory redundancies since staff costs are typically over 50% of total costs); (ii) cutting ‘all non-essential’ non-pay expenditure; and (iii) reining-in capital expenditure and building maintenance. Despite this, the financial situation has worsened.

How Planning and Forecasting Needs have Changed

The depth and duration of the financial squeeze means that many institutions are needing to consider both (i) further urgent cost reductions; and (ii) more ‘transformational (strategic) changes’. This puts more pressure on the planning and forecasting process because:

1. More options need to be modelled and assessed, affecting every financial aspect of operations and investment, covering not just in-year, nor just the 4-year plan, but also longer-term strategic options. Crucial areas include cash flow, financing and borrowing, income forecasts (student recruitment, fees etc), and operational cost base.
2. The process needs to be swifter (to match the pressure for decisions) and more efficient than is typically achievable today with existing planning processes and technology.
3. Decision makers (the Executive, Deans, Heads of School and Service etc) need better and more integrated information, such as a clear quantification of options, assumptions, forecast outturns, sensitivities and risks).
4. Outturn performance needs to be more closely monitored and rolling re-forecasts performed quickly.

Specific increased FP&A needs are likely to be:

• Quantification of loss-making areas/programmes.
• Development of a range of realistic income and student recruitment plans, scenarios, risks.
• Review of academic portfolios, and departmental structures.
• Assessment of support and overhead costs, activities and efficiency increase potential.
• Estate costs and utilisation and the assessment of cost reduction options (e.g. sale, letting).
• More integrated I&E, Balance Sheet and Cashflow planning, including capital and borrowing requirements – rather than, typically, separate models for each of these, and typically separate models for short-term and longer-term planning. The need is now for a more integrated model capable of running many scenarios and reporting them, clearly.

Existing planning methods (and software) will likely struggle;

Invest in the FP&A Process (and Technology)

Aligning strategic cost reductions and income growth potential and transformational change is essential as a means to restoring financial surplus. Ensuring that the FP&A process is focused on this is critical. This can be aided by the judicious investment in FP&A technology, especially those which can be implemented quickly, without disruption, at modest cost and produce rapid returns. An example is Corporate Planner.

Contact us

A flexible, integrated and self-serve solution from Account-Ability using Corporate Planner may be the best tool for institutions of all sizes dealing with uncertain futures. You can arrange a free demo of our software by clicking here or speak to a member of our team by calling 01242 472083.

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