Friday, May 20, 2011

Colleges, financial health and institutional landscape: size sometimes matters

Last year I analysed the 2008/9 accounts of general FE colleges (GFEs) to see if they showed that big was beautiful: the results showed that larger GFEs might have economies of scale from lower admin costs but they were not financially healthier. With the Skills Funding Agency’s (SFA) release of the 2009/10 college accounts I thought it was time to see if anything had changed.

The SFA’s college accounts spreadsheet allows anyone with a spare 30 minutes to correlate college size (as measured by the income measure used by the SFA for analysing finances) and financial health (as gauged imperfectly but simply by college adjusted surpluses as a proportion of income).

When analysing GFEs I excluded the two super-colleges in Leeds and the North East which are so much larger than the rest of the sector. Again I found that there was still no correlation between college size and financial health. (Last year I found was a slight deterioration in operating surplus as a percentage of income as income increased although I excluded all London GFEs.)

The results for Sixth Form Colleges were more interesting. They showed that there was some correlation between larger size and better financial health. The lower admin costs college size increases did feed through to larger surpluses which can be saved for a rainy day and/or re-invested into better building and equipment.

The lessons for Sixth Form Colleges and policy-makers? Mergers and collaboration have more to offer them than GFEs in terms of better financial performance. While I suspect that Sixth Form Colleges do not the thirst for expansion (even empire) that some GFEs demonstrate, there may be ways of developing alliances and federations without full-blown merger. They will have to consider options as the landscape changes around them – particularly feeder schools forming federations and joining academy chains.

Note: the charts show adjusted surpluses as a proportion of income (%) against college income (£k)

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