• Section 1 - Purpose
• Section 2 - Authority
• Section 3 - Scope
• Section 4 - Procedure
• Costing Models
• Competitive Neutrality
• Cost Data Structure
• Onshore Teaching Models
• Student Load Projection
• Consulting and Commerical Costing
• Offshore Program Costing Model
• Research contracts and Research tenders Costing
• Staff Costs
• Multi-Year Costing
• Treatment of ‘Direct indirect Costs’
• Program or Course Development Investment Cost
• Incremental Costing Versus Full Absorption Costing
• Costing School Overheads

Section 1 - Purpose

(1) The purpose of this procedure is to document the methodologies and available tools (models) to facilitate robust costing of proposed activities that RMIT University may wish to pursue.

Section 2 - Authority

(2) Authority for this document is established by the Financial Management Policy.

Section 3 - Scope

(3) This process applies to all RMIT University staff engaged in business origination activity.

Section 4 - Procedure

Costing Models

(4) Self-service costing models are developed and supported by the Strategic Modelling team and Research and Innovation (R&I). Standard models cover the range of teaching, commercial and research activities carried out across the University and include:

1. higher education program costing model
2. vocational education program costing model
3. offshore program costing model
4. offshore research students model
5. Research Contracts Costing and Pricing Tool
6. commercial project costing model
7. short course costing model

(5) Costing models are subject to annual review and are dynamically adjusted to reflect changes in organisational and operational structures.

(6) Where the relevant proposed service delivery does not conform to the standard, a tailored model will be developed in consultation with the college, school or portfolio group.

Competitive Neutrality

(7) RMIT must follow competitive neutrality requirements where appropriate, as detailed in the Competitive Neutrality Procedure.

(8) Where costing is required for a project for an external party, and it is determined the service is competing with the private sector, a full cost-reflective pricing basis must be applied.

Cost Data Structure

(9) All models work from a series of data inputs to derive a direct cost dollar amount. In addition, three layers of indirect costing are added to derive the overall (fully absorbed) cost of the activity:

1. school
2. college, and
3. central service (service).

(10) School indirect is based on the cost centre data stored within WorkDay. College and service allocation algorithms are based upon detailed analysis of service provisions mapped to an appropriate activity driver.

(11) The allocation algorithm models facilitate management override where appropriate. Management can revisit costs allocated and adjust cost allocations for services deemed not to be absorbed. The allocation model is linear and tailored to the individual activity and circumstance.

(12) College Finance Business Partners can assist with navigating through the models with specialised support provided by a Strategic Modelling analyst. Refer to the Cost Data Structure flowchart.

Onshore Teaching Models

(13) Each college must nominate the suite of programs that require a financial evaluation. Upon receipt of this listing, the Strategic Modelling team will maintain a master control listing.

(14) All new programs or major changes must be made in accordance with the Program and Course Policy.

(15) As part of the Program Approval Process, Business Advisory will also factor infrastructure and marketing costs into the analysis and provide a summary to be inserted into the proposal.

(16) The program initiating area is responsible for coordinating cost estimate/‘sign-off’ statements or advice from all infrastructure (Library, Property Services, Information Technology Services) and marketing areas for Financial Services to cost.

(17) The Program Costing Checklist and Teaching Template must be populated in full before a program costing is requested.

Student Load Projection

(18) Load projection submitted as part of the costing exercise should consider impact upon existing offerings and channels and lead times required to attract international students.

(19) The Strategic Modelling team will factor the following student data variable into the costing, based on information provided by the program developer:

1. commencing intake projections each year
2. student attrition rates
3. modes of study (full time and part time)
4. funding sources, and
5. program structure of studies (i.e. cognate masters).

(20) A specialised template has been developed to convert headcount (HC) into equivalent full-time students (EFTSL) based upon the variables above.

Review and Approval

(21) The program costing assumptions, data inputs and one-page summary should be reviewed and approved by the appropriate delegated authority.

Post-Implementation Review

(22) A post-implementation review will be conducted by the Financial Services group following completion of the annual program costing data cube. A program will only be reviewed against this data set after it has been active for three years from when it commences delivery. The results of this review will be shared with the relevant colleges.

Consulting and Commerical Costing

(23) Where RMIT staff are engaged in outside activities or providing services to external parties (i.e. industry consultancy or RMIT commercial activity), the review and approval of these activities must include a process of clearly identifying all costs associated with the activity.

(24) Commercial activity includes industry and enterprise training solutions that are highly customised for the client. These training solutions can be both accredited and non-accredited and include onshore and offshore delivery of agreed services.

(25) The Commercial Project model should be used to ascertain the resources required to undertake the activity and support in arriving at a commercial outcome for industry.

(26) Staff undertaking any commercial negotiations should be aware of the requirements contained within the Competition Code and the Competitive Neutrality Process.

Offshore Program Costing Model

(27) Prior to new or renewed offshore teaching contracts being signed off, the financial viability of the program is to be established using the Offshore Program Costing Model, to support Program and Course Policy requirements.

(28) All offshore costing will be reviewed by the College Finance Business Partners or Strategic Modelling team member, who will provide an endorsement to the delegated authority as to the accuracy of the costing and the financial viability of the program.

Research contracts and Research tenders Costing

(29) Due to the specialised nature of external engagement and underlying activities and resource consumption, specific guidance for RMIT research activity is detailed in the Research Costing and Pricing Guideline.

Staff Costs

Staff Costs Methodology

(30) All models compute staff salaries based on the following methodology:

1. Staff salaries are extracted from the relevant employment agreement and recomputed to an effective working rate per hour by excluding public holidays and University holidays.
2. Specialised rates for specific projects can be loaded into the models.
3. Annual leave and sick leave are factored into the effective hours based on the average number of days utilised in the University in the previous year.
4. The on costs factored into the models include Annual Leave Loading, Long Service Leave Loading, Superannuation, payroll tax and WorkCover and varies by sector (HE/VE) and employment conditions (i.e. fixed, casual etc.).

(31) The staff costs methodology omits Parental Leave Loading and expenditure as this is incorporated as an indirect cost.

(32) In the absence of a specified incremental annual increase percentage under a bargaining agreement, a percentage estimate is applied.

Special Rates

(33) In addition to the Staff Costs Methodology, the Onshore Teaching models (HE and VE) also factors in the teaching hours per classification, based on an informal survey and work plan analysis, and teaching restrictions governed by the relevant employment agreement to arrive at an effective teaching rate.

(34) The Offshore Costing model also factors in additional penalty rates for academics teaching above the maximum full-time teaching load of eight courses.

Multi-Year Costing

(35) Where applicable, the models are built to factor in multiple year projections.

(36) Some models will cost the activities based on a fixed direct cost and fixed overhead cost which is then applied to future periods without indexation. This is apparent in the Onshore Teaching models as the analysis focuses predominantly on the complexities of student volume projections such as multiple year intakes, student attrition, different study modes (full time and part time) and program structure of studies (i.e. multi exit pathways availability some programs).

(37) Some models, particularly the Offshore Costing model, may have an incremental year on year increase of salaries applied to future periods of costing to assist with projecting potential offshore taxation expenses.

(38) Viability approvals will be costed in constant dollars  and analysis to support pricing negotiations will be costed in future dollars.

Treatment of ‘Direct indirect Costs’

(39) Some activities may have ‘direct indirect costs’ that are incurred by a school, college, or service area specifically for the activity. For instance, a new program may require specialised textbooks to be purchased for the Library.

(40) Additional costs incurred by a service area for a particular activity will be treated as a ‘direct cost’ because the service area has to incur the additional expenditure as a direct result of the activity, and the activity must be costed in its entirety.

Program or Course Development Investment Cost

(41) The investment cost of a course or program is assessed and treated as an activity. Hence, there will be three layers of costing added to the direct cost.

(42) The recovery of the development investment will depend on the nature of the program or activity.

(43) Generally, programs offered in multiple locations will have the investment costs spread over the different streams in the different locations, based upon the following:

1. concurrent programs will have the costs amortised over the multiple programs, and
2. contingent (standalone) programs will need to recover the entire investment cost.

Incremental Costing Versus Full Absorption Costing

Absorption Costing

(44) Absorption costing refers to all costs associated with the activity being absorbed by the relevant activity. The cost of delivering a short course will include direct materials, direct labour, and both variable and fixed school, college, and service overheads. As a result, absorption costing is also referred to as full costing or the full absorption method.

(45) If the activity is to be delivered over multiple years, then it will be costed under the absorption method.

Incremental Costing

(46) Incremental cost is the cost associated with increasing the activity by one unit. As some activity costs are fixed and others variable, the incremental cost will not be the same as the overall average cost per unit.

(47) The incremental method will be utilised if the delivery commences and concludes in a single budget period.

Costing School Overheads

(48) The Strategic Modelling team will determine whether to cost school overheads using the incremental costing or the full absorption method (and in some models a percentage of revenue method). Refer to the Indirect School Overhead Costs flowchart.