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New TRAC guidance that applies from 2014-15 has now been published. This is hosted on the HEFCE web site on behalf of all funders. The current TRAC requirements continue to apply for TRAC reporting for the year ending 31 July 2014, but once the 2013-14 TRAC reporting is complete, the HEFCE web site will become the sole resource for TRAC as well as financial sustainability materials.

Part III - Annual TRAC

Section D: All other costs

Chapter D.1 Cost pools and cost drivers

  1. It is efficient first to group costs before their attribution. These cost groups are often called cost pools.

Cost pools

  1. Costs in any one cost pool are attributed using the same cost driver. A cost pool may relate to an activity, or a Support cost:
    • activity cost pools represent the costs of activities. There are three main activity cost pools – one for each of Teaching, Research, and Other. Additional cost pools are needed for sub-activities (PFT, NPF T; each research sponsor type; O and O(CS));
    • Support cost pools are intermediate holding places. The costs of a finance department may be separated into a number of cost pools – relating to payroll, fees, all other areas. A different cost driver is used for each cost pool (staff time/numbers, student FTEs, all other costs) when attributing its costs to an activity cost pool.
  2. All cost pools need to hold information by academic department; and need to differentiate between Support costs and direct costs of the main activities of Teaching, Research, and Other (to allow the calculation of the indirect cost rates).

Cost drivers

  1. Cost drivers are used at various stages of the cost attribution process. Cost drivers are used for those costs that cannot be directly allocated.
  2. Costs attributed to Support cost pools use cost drivers to attribute their costs to activity cost pools. For example, estates costs would be assigned to an estates cost pool and would be attributed to academic departments and activities on the basis of space used.
  3. Some costs do not need to be routed via a Support cost pool, as they can be directly attributed to an activity cost pool:
    • catering, conferences, residences – to Other
    • trading companies – to Other (or Research or Teaching, depending on the activity being carried out)
    • research support department – to Research.
  4. However, cost drivers will still be applied to costs in the last cost pool to attribute those costs to academic departments, and to research sponsor type.
  5. A wide set of definitions of cost drivers can be used:
    • a measure of the quantity of resources consumed by an activity
    • those factors responsible for variation in the cost of an activity
    • a measure of the benefits received
    • a measure of how often activities are performed and the effort involved in carrying them out (an activity driver – e.g. the number of students or staff).
  6. Cost drivers used for attribution to departments are not generally the same as those used for attribution to activities.
  7. A wide range of cost drivers could be used. Some are used by some institutions in their existing resource allocation models (RAMs). However, RAMs have historically had a different focus and it is unlikely that all cost drivers currently used in RAMs are relevant:
    • TRAC requires an attribution to activities (few RAMs have required this);
    • the data used in the RAM may not be up-to-date and may be drawing on planned rather than historical data;
    • there should be no ‘motivational’ element in the cost drivers for TRAC – this can be important part of a RAM;
    • the cost drivers in the RAM are often many and detailed and their use within the extra dimensions of TRAC (activities, PF and NPF, research sponsor type) may prove very complex.
  8. It is important to avoid confusion over the two sets of drivers, and the information that results. It is good practice for the differences to be minimised, and clearly understood. Many institutions are planning to bring their RAM and TRAC methods in line as they implement TRAC fEC and allocate the additional research funding that they are receiving – see document linkAnnex 5.
  9. Sensitivity analysis can be carried out to inform management of the impact on different cost drivers on key cost pools.
  10. TRAC does not require a large number of cost drivers. Institutions have considerable discretion to choose which cost drivers to use and at what level of detail. Some areas to be considered are:
    • the costs that are already directly charged to departments in institutions’ management accounts (for example, equipment costs, space costs, in some institutions);
    • the availability of information held for other purposes (for example, information on the use of library and learning resources may be recorded for use in resource allocation and strategic planning in some institutions);
    • the cost of collecting the information (for example, comprehensive information of the use of IT facilities may be costly to collect).
  11. Some common cost drivers that might be suitable to use are:
    • headcount and/or academic/research FTEs – sometimes including clerical, administrative and technical staff;
    • headcount and/or student FTEs, distinguishing between PGR, under-graduate and post-graduate taught students;
    • square metres of usable space occupied by departments;
    • total Research costs;
    • total non-pay costs;
    • academic or total staff time;
    • all DI costs.
  12. An illustration of how these cost drivers can be used is given in this table.
  13. Academic staff time should only be used as a cost driver if there is no other better alternative. When used, it should include the time directly attributed (by Research Assistants) as well as that attributed on time allocation schedules (by academic staff).
  14. Income is unlikely to be a robust cost driver as it is not a good indication of the use of resources by departments or activities.
  15. If direct costs are being considered as a cost driver, then two factors should be considered:
    • the purchase cost of large items of equipment should not be included;
    • attribution to Other activities will be lower than it would be if academic staff time was the driver. Direct staff costs may therefore form a more appropriate driver than direct costs.
  16. In some cases a combination of cost drivers may be appropriate e.g. the use of both staff and student numbers to attribute some types of library costs.
  17. In some cases it may be appropriate to weight elements of the cost driver/s used e.g. Arts students may receive a weighting of 2, compared to 1 for Engineering students, in attributing costs to academic departments for the use of the library. These weightings should be evidence-based (e.g. the number of library loans) where appropriate – see document linkAnnex 11.
  18. The use of the cost drivers at the ‘broad-brush’ level shown in the following table are acceptable for TRAC, provided the institution considers it a fair and reasonable representation of the use of the resources being attributed. The exception is for estates and library/learning resource centre cost drivers, which should be reviewed in more detail.
  19. All cost driver data should be robust.
  20. The table shows cost drivers that could be used to attribute:
    • costs to academic departments (column 2);
    • costs to activities – Teaching, Research, Other, Other (Clinical Services), and Support (column 3);
    • the costs of Support activities to Teaching, Research and Other (column 4).
  21. This table does not show the next level of attribution – Research costs to research sponsor type, Teaching costs between PF or NPF, or O(CS) to Teaching, Research and Other. These are discussed in Chapter D.3.
  22. Costs can be attributed at a high level. Column (1) in the table above refers to high-level accounts codes, aggregated as required in HESA FSR Table 6 (accessible via document linkAnnex 1). These high-level codes can be used in TRAC (along with department-level codes for attributing costs to departments. This means that only a few high-level cost drivers are required.
  23. A cost driver does not need to be separately identified for every account code – this would lead to an extremely onerous attribution process. The lower the level of code, the more detail needs to be extracted from the accounts – and simple spreadsheet systems might need to give way to more complex databases with computerised data transfers. Cost pools are used to group costs and simplify processes.
  24. It is good practice, however, to consider the use of more detail than that shown in the table, as it leads to better quality cost attribution. It may also be useful if an institutions wishes to meet other cost objectives (e.g. costing to lower-level activities not required under TRAC). In particular, an institution might wish or need to analyse their accounts codes at a lower level than shown here, e.g. estates costs into building cost pools, or library into periodicals/staff/books etc. This allows them to use many more cost drivers than illustrated above. This also meets TRAC requirements, but is not necessary for TRAC, and of course involves more work.
  25. Others may consider that more complex attributions are necessary properly to represent the use of given resources, e.g. finance department split into payroll (using a cost driver of staff numbers); accounts payable (total non-pay costs); accounts receivable (total income); etc. Materiality is relevant here.
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