The Great Unknown

The general costs of the full cost model can take up half of the research funding collected by a researcher group. Where does this money go?

A researcher group receives 500,000 euros in funding from the Academy of Finland. However, only half of this sum is received by the group themselves — the university takes the other half to cover the overhead costs incurred by the research. Examples of these overheads include the faculty’s Financial Secretary lowering the group’s wages; the library purchasing access rights to scientific publications; IT support installing software; or a cleaner putting more soap and toilet paper in restrooms used by the researchers.

All of these are certainly essential expenses, but does this truly cost 250,000 euros? That is what researchers around Finland are pondering. In our example case, the overhead percentage is 100%, which means the research group itself is left with 250,000 euros. However, there is considerable variation between faculties. To name a few examples, the percentage for the humanists and political scientists at the University of Helsinki’s central campus is 65% this year, while the experimental research oriented Meilahti and Viikki are at 109%

The discussion has been ongoing for quite some time. The Academy of Finland, the largest external funder for research in Finland, adopted the full cost model in 2009. This model also includes the research overheads and has been vocally criticised since its introduction.

An Academy of Finland working group investigated the effects of the full cost model in 2015, concluding in their final report that “Based on researcher feedback, the practices are difficult to understand, interpretations change, and e.g. the amount of usable funding cannot be easily determined.”

According to individuals such as physics professor Tapio Ala-Nissilä, this is still the case. Ala-Nissilä works at the Aalto University and the Loughborough University in the United Kingdom. Previously, he had the entire large research group’s budget in his head, but it has since become impossible to calculate on one’s own.

“Many frustrated researchers call the full cost model the bullshit model. It’s hard to imagine a more ill-conceived way to fund research than how it’s done in the full cost model.”

Prior to the full cost model, the Academy of Finland and most other Finnish research funders used the additional cost model. In this model, the funder only covers the research project’s wage costs, other direct costs, and a certain fixed percentage for indirect costs. The remainder of the indirect costs would be left to the research organisation to cover.

Continuing use of the additional cost model became impossible when the universities broke away from the national budget in the 2010 university reform.

“Before that, the universities were items in the national budget, but after the reform you could no longer transfer Academy of Finland money straight to the universities, and research funding was now covered under the State Aid Act”, explains Soili Vasikainen, Counsellor of Science for the Ministry of Education and Culture (MoEC).

Of course, university finances were already subject to certain regulations prior to this. These were followed rather poorly, according to the National Audit Office of Finland’s (NAOF) 2007 report to the parliament. According to NAOF, only one university had presented sufficient financial information. The largest single omission was the allocation of costs based on working hours.

In the wake of the university reform, the universities’ finances were placed under tighter control despite the universities nominally attaining autonomy, with boundary conditions based on the constitution, the University Act, the Accounting Act, and State Aid Act alike. Their interpretation is not entirely straightforward, but it is obvious that the finance management of modern universities must be efficient and transparent. After all, their funding comes from taxpayers.

As a result of all this, there has been an effort to disclose the true costs of research projects in a way the old additional cost model could not handle. The overheads of the full cost model are intended to bring out even those indirect costs that were hidden in the additional cost model.

University management and financial administration personnel generally consider the full cost model a success. “The full cost model reveals the true research costs while the overall cost profits can be used to maintain the research infrastructure”, says Maija Tenkanen, Vice-Dean and professor in the University of Helsinki’s Faculty of Agriculture and Forestry.

According to former University of Turku rector Kalervo Väänänen, the problem is not that much in the full cost model itself, even though it is what researchers usually curse under their breath. He himself was against the full cost model when the Ministry of Finance began to push the model for research funding. At the time, Väänänen was a professor and Academy of Finland board member.

“I believe we could have managed without the full cost model, but we probably would have still had to consider different financial management methods”, says Väänänen.

By this point, Väänänen has not longed for the abolishment of the full cost model in years. He reckons there would be too much confusion no matter which way the system went. The full cost model certainly has its issues, but Väänänen has learned to understand it better over the years.

“It would be completely out of the question now to hand out a lump sum of public funds and say you can do whatever you see fit with it. At this stage, it would be better to simply refine the new model to make it as easy to use as possible.”

However, this has proved an insurmountable task. The overheads aren’t the only issue that grinds researchers’ gears in the full cost model, but they are the main issue. In particular, researchers are frustrated by the system’s lack of transparency. Covering the indirect costs incurred by the research is understood, but the system should be more open before it can fully be trusted.

The overhead percentages are calculated based on the previous year’s audited financial statements, in accordance with the MoEC regulation. Percentage calculation is also audited. Because of this, the overhead percentages for universities and research facilities vary between each other and each year, as they should according to the model.

However, the universities themselves determine how to collect and share their overhead costs. The practices are diverse, stated an Academy of Finland working group covering the current status and development needs of the full cost model in their report, which was published in late September. The group comprised members of the Academy and MoEC. For the report, the group sent a survey to the financial administrations of universities and national research facilities. The responses to the survey indicate that overheads are handled in different ways even within a single university.

“The idea has been that the allocation of overheads is part of the universities’ autonomy, but perhaps a specific recommended practice should be considered. There is so much deviation in the practices at the moment”, MoEC’s Soili Vasikainen muses.

Professor Tapio Ala-Nissilä says overheads trickle down to the administration in a way that feels opaque and arbitrary. The most frustrating aspect is the way the universities or faculties — however the matter is handled in each university — return overhead costs to researchers. Ala-Nissilä says that in his department, these returns currently cover one doctoral researcher’s salary for a professor each year, on a discretionary basis.

“But it’s completely opaque to me how exactly the money circulates.”

The University of Helsinki’s Markku Kulmala thinks along the same lines as his professor colleague. According to Kulmala, the faculty heads return 0 to 70 per cent of the overheads to the research group that obtained the funding at the end of each project year.

“Overheads are part of the income stream for the university and faculties, so the returns come indirectly. As such, it’s difficult to state an exact figure. Returns have also decreased after the big cuts in 2015”, Kulmala says.

However, according to the University of Helsinki’s Head of Finance Marika Häggman, the so-called returns do not actually involve money collected for overhead costs.

“It’s quite a common misconception that the returns are overhead money that was collected in excess.”

According to Häggman, overheads are collected based on the true costs and no surplus is left to return. Instead, many units in the University of Helsinki distribute basic funding to their research groups to support them and provide an incentive. This funding can be based on e.g. the number of publications or degrees or the amount of external funding secured. External funding often correlates strongly with paid overheads.

These return practices are largely determined by the deans and vary both between and within the universities. Whilst not officially considered overhead returns, the connection to overheads is so strong that many researchers consider the practice a form of money laundering — the university takes money collected by researchers and places it into its coffer, where it loses its colour and is then handed out to the researchers on a seemingly arbitrary basis, like alms.

Regardless, there are many researchers that feel the issues with the full cost model are not simply caused by the universities’ application of the model. For example, Tapio Ala-Nissilä believes the full cost model has cut research funding by as much as 30 or 40 per cent because the Academy’s budget was not increased accordingly. In the past, the research funding provided by the Academy went primarily towards the research itself, but according to Ala-Nissilä as much as half of the funds or even more may get cleaved off to pay for university administration nowadays. Ala-Nissilä reckons that, for example, the fixed 25% overhead percentage used in the EU’s Horizon funding would suffice to cover research costs in most fields.

“On what grounds is the Academy of Finland obligated to fund the basic functions of the university? They’ve clearly been forced into doing so. Water and electricity, proper work facilities and equipment should be basic interests for researchers. That’s why we’ve got the university’s basic budget”, Ala-Nissilä argues.

Ala-Nissilä is frustrated by defences for the full cost model, believing them to be intentionally misleading. In turn, university management and financial administrators are frustrated by the viewpoint represented by Ala-Nissilä, which the financial personnel believe misses the entire point of the full cost model — all costs incurred by research must be itemised and covered, including electricity, water, work facilities, and equipment.

However, not everyone is dissatisfied with the full cost model. The model is more positively received at research facilities than universities.

Research professor Markus Olin has worked at the VTT Technical Research Centre of Finland since 1987 and carried out all of his research projects under the full cost model. He has completely internalised the model.

“I think this is completely natural. Sure, researchers always wish the factor was smaller so you could get more research for less money but cutting costs has turned out to be difficult”, Olin says.

According to Olin, VTT became a limited company in 2015 but had already been a net budgeted company prior to this. This means that even as an agency, VTT had to cover all costs with their own income.

Olin says this has helped him understand why overheads are collected from projects. For Olin’s research group studying nuclear waste disposal, the full cost model has been more cost-efficient than the old additional cost model or the Horizon model used by the EU.

“It takes quite a bit of Excel wizardry to fit the EU and VTT funding models together, and even then, we’d only be able to cover maybe 70 per cent of research costs at best with EU money.”

The full cost model is straightforward from the funding point of view as well, according to Satu-Anniina Pakarinen, Division Director, Financial Service for the Academy of Finland. Funders always issue funding to the university, not the research group that secured the funding. As such, even the Academy of Finland does not determine where and how the granted research funds are to be used within the project. Despite this, the Academy is often at the centre of the discourse during arguments over the full cost model. After all, its annual funding amount of 300 million euros does comprise nearly half of all complementary funding for Finnish universities.

Another major funder, Business Finland (formerly Tekes) has been utilising the full cost model for even longer.

The adoption of the full cost model was also influenced by the fact the rest of Europe was moving in the same direction at the time. The European University Association, representing over 800 European universities, recommended a switch to the full cost model throughout Europe.

However, in their Horizon 2020 framework for the 2014–2020 period, the EU adopted a hybrid of the additional and full cost models, which covers a fixed 25% of indirect costs with the aim to streamline administration.

“Obviously, that is not quite as simple as one would hope either. There are many different calculation models behind it as well”, says Satu-Anniina Pakarinen.

According to Marika Häggman from the University of Helsinki, the EU’s decision to abandon the full cost model in the Horizon program led the university field to expect the Academy and Tekes to follow suit and abandon the model themselves.

“But they didn’t. The issue still pops up from time to time, but I don’t sense a change coming anytime soon.”

If the full cost model was to be abandoned, Häggman reckons the initiative should most likely come from the Ministry of Finance.

Academy Professor Anu Wartiovaara from the University of Helsinki would welcome the old additional cost model back to Finland. According to her, it would allow more researchers to receive funding because the project would no longer require double the grant amount in relation to the costs.

According to Wartiovaara, Finns in EU consortiums are able to accomplish far less than other EU countries. Despite the EU no longer using the full cost model, any Finnish researcher participating in an EU consortium on Academy funding must pay the overhead costs to their university from the EU funds.

“While the overhead percentage for, say, representatives of nine EU countries is 15% at most, mine is over a hundred! Compared to everyone else, we get about half the amount of usable funds even if all countries had been granted the same funding.”

Jari Hämäläinen, Vice Rector for Research and Innovation at the LUT University says he understands well why EU chose to leave the full cost model behind. According to him, the main reason was the major variation in overhead percentages between different countries. Tweaking the system to account for every country’s system and still remain equal would have been too difficult.

However, the Finnish universities have suffered from the fixed 25% overhead compensation.

“Basically, in Finland it only covers salary costs and legally mandated ancillary costs, but none of the facility or lab costs. Essentially, this means accepting a Horizon project is expensive for the university, because someone has to pay the rental costs for facilities and that sort of thing”, Hämäläinen says.

According to Hämäläinen, the way researchers tend to see the matter is that they are going to be in their rooms along the hallway of the facility regardless, and all money coming in from outside means savings for the university. Likewise, one might think researchers are always recruited specifically for the project, which means new researchers require new work facilities and computers. In that case, all overheads are created when receiving external funding.

Hämäläinen feels facility rentals are a good example. Often, it is expected for the university to pay all rental costs for their units instead of having the faculties cover the costs.

“This would easily lead to a scenario where the faculties want to keep all facilities for their own use since they don’t have to specifically pay for them”, Hämäläinen argues.

As a result, facility costs would gradually increase. Hämäläinen feels it is better to pass certain costs on to the units so they can see their true facility and other costs. However, he adds that the universities must also provide funding for these costs.

Many researchers also criticise the full cost model for failing to provide an adequate incentive. It is frustrating to see at worst the majority of the research money you collected through your own work and experience sink into the university coffers and promptly disappear — somewhere. Occasionally, part of the funds collected as overheads is returned to the group, but the logic behind this is seemingly impossible to decipher.

Pertti Alasuutari, Academy Professor of Sociology at the University of Tampere mentions taking note of the fact universities started granting tenure to administration personnel once the full cost model began to transfer funds from research to administration. On the other hand, the percentage of fixed-term teachers and researchers has remained high.

Like many others, Alasuutari feels the full cost model has played a role in restricting scientific freedom, to the extent the model now seems to dictate what to research.

“The university world and the University of Tampere in particular are changing from an academic community to something led by outsiders. Those of us who significantly boost the university’s finances should be able to guide the university’s research strategy as a community.”

Markku Kulmala stresses that the university is not a capitalised factory. As such, it is vital to motivate your researchers, because the university’s decision makers are not the ones who build excellent consortiums or participate in competitions for funding.

“Now we’re being punished for being active enough to get external funding. The overheads go somewhere, but we’ve got no idea where.”

Anu Wartiovaara agrees with this sentiment. It would be a good start if leaders more actively listened to researchers. Many other researchers interviewed by Acatiimi also felt their concerns were being ignored by university and ministry leaders.

“We could avoid many problems if academy professors or leaders of centres of excellence had a voice on big decisions. Or if researchers were asked how the sum of many small changes would affect the grassroots level”, says Wartiovaara.

Kalervo Väänänen sees the gulf between researchers and administration to be largely a result of communication, or rather a lack thereof. The administration tries to operate based on rules laid down from above but may not always understand the researcher’s point of view. On the other hand, the researchers simply wish to research while the administration seems to keep placing obstacles along their way.

None of the researchers or financial experts interviewed by Acatiimi thought communication regarding the full cost model was adequate. According to Väänänen, university communications units could serve as intermediaries, but the subject matter is so difficult that even communications experts may struggle to comprehend it.

“The only solution I see is that the universities should put in the effort to talk this through with the researchers and strive for a fair and realistic estimation of the overhead costs as much as is feasible.”

Satu-Anniina Pakarinen from the Academy of Finland thinks along the same lines. The subject is so complex that not even all financial management experts understand all details of internal overhead calculation, for example. Dialogue is required to reach an understanding between the parties.

MoEC’s Soili Vasikainen, former Head of Finance at the University of Helsinki agrees.

“The administration is now quite detached from the faculties and their daily life. Leaders keep meeting with other leaders, but what even are the forums these days where administration personnel would meet with researchers?” she wonders.

In their September report, the Academy of Finland suggests certain remedies that might make the full cost model easier to understand — coordinating financial management practices, increasing dialogue and transparency. However, these will not bring even one extra euro towards research.

According to calculations by the Finnish Education Employers (FEE), university funding in the 2012–2019 period decreased by approximately 300 million euros in real terms as a result of cuts and the university index freeze. The index was unfrozen the following year, but only slightly over 10 per cent of the cuts made by the previous administrations have been compensated.

If we were to return to the additional cost model, the universities would be required to cover more of the indirect costs from research from their basic funding. If, on the other hand, the universities’ own contribution amount was to be reduced under the full cost model, Academy of Finland research funding would be available to even fewer projects. At this stage, no model has been shown to be capable of multiplying research funds.

Text Hannu Kaskinen & Tuomo Tamminen

Images Outi Kainiemi

Acatiimi 5/2020