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'Colleges are at breaking point. We must take risks to survive'

Even the most financially prudent colleges have to take risks - and some of them won't pay off, writes Lowell Williams

Even the most prudent principals must take risks to surivive, says Lowell Williams

In his interview with Tes last month, Richard Atkins was absolutely correct in reminding the sector about best practice in college financial management and governance. I suspect he and his team see too many instances when colleges have not taken care of their core business. And no-one would – or should – ever argue that colleges shouldn't manage their staffing costs and ratios carefully, stay on top of their cash flow and aim to break even or make a small surplus. This is irrefutable common sense.

But is common sense enough for the future of our sector, or are these really just survival tactics?  We all know that funding for the sector is inadequate. What's more, it's flat: flat and inadequate. This means that for many colleges income is flat-lining whilst costs are rising, driven by inflation and pension pressures.

So, if a college has no annual income growth to help achieve or maintain the metrics Richard rightly sets for us all, the college will need to make “efficiencies”.

Quick read: 'High risk' of college insolvency, warns FE commissioner

In depth: ‘When you’ve run out of money, it’s too late’

More news: Richard Atkins stays as FE commissioner until 2020

More efficiencies needed?

"Efficiencies" is, of course, a euphemism for paying staff less or paying fewer members of staff, teaching students for less hours or in bigger groups, and not investing in new equipment and resources. Without growth in income, these efficiencies will be required year on year, each year, every year.

These efficiencies might be avoided in some cases. If your college is in a lucky situation where income growth comes “safely”, perhaps from a demographic rise in the population of local young people… then you might be ok. Perhaps your college’s market position is strong and improving and you are more and more often the college of first choice for local learners…then you might be ok (but probably at the expense of the college or school down the road). Perhaps you’re in an adult education budget devolution area where your combined authority is offering substantive growth in adult numbers…then you might be ok. Every college in the country will be faced with a differing scenario, often not of its own making. Some might be…ok.

But if you’re not in a “safe growth” scenario, what are your choices?

  1. Apply the efficiencies detailed above, stay alive and hope the college isn’t too run down by years of austerity when better times arrive, if they ever do.
  2. Grow by some other means.

Risk and reward

This is where we get stuck in the risk and reward paradox. How do you “grow by some other means” without taking a risk? What might typically be on a college’s “grow by other means” shopping list?

Invest in new products and services to grow apprenticeships or full cost income from employers? Invest in your estate to attract more learners from your competitors? Acquire a training provider or two? Merge with another college, or several other colleges, locally or nationally, rationalise provision, make centralised efficiencies and asset strip whatever you can?

Take over local schools with a hope that more of their learners will progress to your college in the future? Embark on whatever European Social Fund or European Structural and Investment Fund projects are floating about locally or nationally? Diversify into prison work? Try your luck with some big overseas contracts? Dust off the mass franchising model (a 20 per cent return is a 20 per cent return after all)? Or buy a hatful of lottery tickets and cross all your fingers and toes?

Unless you go mad on the lottery ticket buying, that’s the only tactic on the list above which doesn’t come with considerable risk attached.

Risks will still be risks

I know that risks should be entered into prudently, thoughtfully, cautiously and with the end clearly in mind. But even if you do all of that, they’ll still be risks and, by definition, some of them won’t pay off. We have seen colleges adopt each of the scenarios detailed above (except, I hope, the lottery ticket buying). Sometimes it has worked out and sometimes it hasn’t. It’s only the failures, however, which get reported in the press.

I’m not trying to make this into a binary choice. It’s more nuanced than saying the choice is either rigidly applying the austerity model to hit the commissioner’s metrics or taking speculative risks to drive growth. Of course, you can be measured in your risk-taking and thoughtful about your efficiency model at the same time. But I just cannot see a future for the sector where the sum of our financial strategy is to keep staff costs below 65 per cent and hang onto whatever we have left in the bank.

Financial breaking point

Given Richard’s distressing comments about the impending insolvency of one or more colleges and everything else we know about the sector’s financial health (but which we speak of only in private), we have to accept that the sector is at financial breaking point. We are seeing the outcome of years of inadequate funding, colleges either driven into the ground through austerity or failing from growth strategies which just didn’t work out.

Even with all the greatest leaders in the world, our sector won’t survive without adequate funding. Withholding this funding is the biggest and most shameful risk which has been taken.

Lowell Williams is chief executive of Dudley College of Technology

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