George Layfield, UK sales manager at Capita Further and Higher Education

Understanding the complexities of the funding formula in the further education marketplace along with the practicalities of actually getting the funding has always been a bit of a minefield. In the past, funding bodies have been like the mythical hydra. You chop one head off, and two more spring up in its place.

While some could argue that Labour's recent decision to split the funding of FE provision between local authorities, the SFA and the YPLA is overly complex, next week there's a real possibility that this freshly established funding system could be scrapped and merged into a single body. Under Conservative policy, the Further Education Funding Council for England (FEFCE) would be introduced. Ostensibly, this could operate with a far leaner budget, meaning more money could be directly channelled into the institutions it is meant for, but the change could very well create even more disruption in an already unsettled environment. Of the three main parties, the Lib Dems are the only ones to pledge their commitment to immediately abolishing the funding gap between schools and FE providers, but this could prove hard to pay for when funding rates are unequivocally spiralling downwards.

Cuts versus Savings

No matter which party gets into power on May 7, they are going to be faced with an economic situation that hasn't been faced since the 1930s. It's no surprise that each party is adopting different tactics but it would be surprising if savings weren't close to the top of each agenda. And for FHE institutions, the impending likelihood of significant cuts have long been a dreaded black cloud hanging over them.

Already, balancing the books at colleges is an intricate business. Depending on how you calculate the funding formula there are over 20 variables that need to be considered so it's not the kind of thing that can be worked out on the back of an envelope. Yes, you could make the formula simpler to work out, but this negatively affects the 'fairness' of the calculation.
Few would disagree that different courses should attract different levels of funding. For example, a maths GCSE needing very limited equipment should receive different funding to a practical welding qualification that requires specialist equipment, as well as serious health and safety precautions.

Proper Planning Prevents Poor Performance

Although policies may change and funding bodies may come and go, the crux of the matter – that colleges need to become as financially streamlined as possible – remains constant. The first step is proper planning and as in any financial situation there are two key variables to consider; forecasting income and reducing (or at least maximising) expenditure.

Savvy colleges recognise that their curriculum is their product and how they deploy that product will affect the income they can expect to earn. One mistake made time and again is to analyse the current curriculum only when it's already up and running. The ideal sequence is to look at different options during the planning process, to compare 'what if' scenarios. What if you run a new vocational course, or what if more focus is given to adult learners, for example. Colleges can then make informed decisions on what courses to run, based on demand and financial viability. Given the high probability of funding cuts, accurate forecasting has never been more important.

Strategic Decisions

By far the biggest cost for all education and training providers are staff wages. "You must spend less than 65% of budget on staff" is the oft-repeated command, with this percentage under the microscope as a key performance indicator and with every possibility that it could fall further. How can you achieve this? By letting staff go until the ratio is correct? By hiring in subcontractors at often eye-watering expense? Superficially both options might achieve the KPI but clearly such actions are not going to help your long-term objectives.

In a rational world, curriculum heads should plan using the accurate and up-to-date data stored in their management information systems. Data on income related to the planned curriculum along with the associated costs to deliver can then be swiftly analysed. By looking at the proposed curriculum alongside detailed data of staff hours and skill sets to deliver, colleges can ensure their resources are being used efficiently. Some courses will be running at a loss, which is fine provided the college is aware of it and has agreed its acceptability. When the curriculum and financial implications are analysed in their entirety, there should normally be a monetary excess - a profit. How big this is will be a strategic decision for the college.

Over the last decade, colleges and training providers have had to re-invent themselves many times and the challenges they have faced have often created a better sector. As we head for austere times, the focus will be on streamlined, effective and efficient educational organisations – with the word organisation being critical. The colleges that adapt will survive. Those who plan properly, on the other hand, will thrive.

George Layfield is a former college manager and sales manager at Capita Further and Higher Education, providers of student management software for colleges, universities and private training providers

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