Unit costs: some explanations of the differences between UK universities

Considerable interest is currently being shown in the funding of university education. The UK university sector has suffered a series of major cuts in public funding since 1980, and these have been accompanied by demands for higher standards and increased efficiency. Policy statements issued during the present decade have frequently emphasized the need for methods of assessing the performance of Universities. The comparison of universities on the basis of their performance, it is argued, would lead to a more efficient use of resources:

The essentials of performance measurement in education are to introduce into considerations of policy and the management of the education system at national and institutional level some concrete information on the extent to which the benefits expected from education expenditure are actually secured, and to facilitate comparisons in terms of effectiveness and efficiency as between various parts of the system and as between different points in time (DES, 1987a, p. 49).

Various measures have been suggested as possible indicators of university performance. These include measures constructed using the first destinations of graduates (DES, 1987a), the achievements of students whilst at university (DES, 1987a), wastage rates (CVCP, 1986; DES, 1987a) and unit costs (CVCP, 1987; DES, 1987a). Performance indicators based on graduates' first destinations, graduates' degree results and undergraduate wastage rates have been investigated by Johnes, Taylor and Ferguson (1987) and Johnes and Taylor (1987; 1989a; 1989b). The role of unit costs in evaluating university performance has not, to date, been examined in detail. The large degree of variation between universities in their unit costs (se CVCP, 1987; 1988), however, makes such a study imperative.

The aim of the present paper is to establish the extent to which inter-university variations in unit costs can be explained by corresponding variations in the type of inputs used by each institution an to use the findings to evaluate unit costs as a performance indicator. Section I examines the variation between universitites in unit costs over a number of academic years. Section II suggests a number of factors which may be expected a priorito affect unit costs at the institutional level, and the importance of these factors is tested statistically in Section III. The main conclusions are reported in Section IV.