Sustainability

An institution is being managed on a sustainable basis if, taking one year with another, it is:

recovering its full economic costs across its activities as whole, and
is investing in its infrastructure (physical, human, and intellectual)
at a rate adequate to maintain its future productive capacity appropriate to
- the needs of its strategic plan and
- the requirements of students, sponsors and other customers.

For an activity to be sustainable, resources must be identified to meet the full costs in the long run:

Direct;
Indirect;
Maintenance of infrastructure;
Cost of capital and forward investment for innovation.

The issue of sustainability arose from concern about under-investment in the HE sector. Whilst the day-to-day Direct and Indirect costs were being met from various income streams, it was apparent that insufficient money was being invested in the sector’s physical infrastructure.

Sustainability in infrastructure is about operating a reinvestment policy that does not lead to (say) half of the institution’s premises becoming obsolete all at once.

The cost of capital covers the financing costs of the institution, covering the existing costs of borrowing (ie interest) and the opportunity cost of institutional net assets.

In addition, there is an element for forward investment in innovation, providing a small surplus for the rationalisation and development of the institution’s business and capacity.

Most HEIs have not costed adequately for the infrastructure and capital costs, and TRAC requires a method that is consistent across the sector. This replaces the relevant figures as reported in the annual Financial Statements (eg depreciation, interest) with TRAC-based figures. This can lead to significant adjustments to the institution's costs.

These TRAC-adjusted costs are the basis of Full Economic Costing.

Institutional strategy for sustainability

Sustainability - Excerpt from TRAC Vol II C7 (Link to pdf file)