University of Sydney is a standout in productivity growth

INSIGHTS & RESOURCES

University of Sydney is a standout in productivity growth

The Australian
by KEITH HOUGHTON
21 February 2024

2022 productivity performance of 40 Australian universities

Recently released analysis finds that one large Group of Eight university outperformed other public universities in its research and education productivity outcomes during the pandemic.

Productivity and cost efficiency are just as applicable to universities as they are to for-profit entities, government agencies and other not-for-profit organisations. Cost efficiency improvements can provide significant discretionary funding not otherwise available to university management.

Recently, the Higher Education and Research Group (HERG) released the results of the analysis of university efficiency and productivity for 2022 using the most recent data released by the federal government. The analysis uses empirical data, avoiding the pitfalls of survey-based cost estimates. The results contain several surprises.

For the first time, HERG includes the three major private universities in the analysis. Also, as 2022 is a key point in assessing the effects of the pandemic on universities, the outcomes for the three years to the end of 2022 are included in the analysis.

The results for the University of Notre Dame, Bond University, and Torrens University, together with the 37 public universities, are shown in the chart above. This chart shows one productivity frontier (defined by the sector’s strongest cost-efficiency performers) for all 40 universities (blue) and a second frontier limited to the public universities (brown).

All three private universities performed strongly. Notre Dame and Bond are both near the efficiency frontier, closely resembling the profile of some public universities. Torrens University defines the frontier (blue) with a particularly high intensity in education.

As expected, the pandemic had significant and, at times, substantial negative consequences for university productivity, as well as cash flow, revenues, and expenditure.

The first year of the pandemic, measured from the commencement to the conclusion of 2020, showed that the overall productivity of Australia’s 37 public universities declined only modestly, 0.8 per cent on average. This result is better than some will expect and is a tribute to the actions of university management as well as staff and students. The long-term trend in annual university productivity growth averages more than 2 per cent.

There was one exceptional outcome. Charles Darwin University (CDU) showed substantial growth in its higher education student population and an increase in research outcomes. With these and other factors, CDU’s productivity growth was over 20 per cent for a single year – a record for the sector. This result may have been affected by the possibility of fewer Top End students travelling interstate for their university studies.

For years, the efficiency frontier has been pushed further and further ahead. The decline in the frontier between 2019 and 2020 demonstrates that this first year of the pandemic was tough – but less tough than some expected and, in many instances, was managed very successfully.

Thanks to some resolute management decision-making, most (but not all) universities showed positive productivity gains in 2021. The productivity performance improvement averaged 2.9 per cent for the year.

The Go8 achieved 3.1 per cent, including strengthened research publication growth. For that year, there were some outstanding results, including for Newcastle, RMIT, Macquarie and La Trobe. Of particular interest is the result for the University of Sydney, delivering productivity growth of 9.8 per cent for the year.

What will be a surprise to some but perhaps not to others is that 2022 was to become the most challenging year of the pandemic period for productivity performance. Over that year, the public universities, in aggregate, added around two billion dollars in total costs. This cost increase was in the presence of a modest decline in student teaching load and a decline in research publications relative to 2021. This reduction in publications is the first recorded since HERG’s records commenced in 2001.

With few exceptions, 2022 was also a record for declining university productivity. The sector averaged a decline of 4.87 per cent for the year. The Go8 average was more modest, a decline of 1.96 per cent. The University of Sydney followed its 2021 result with a second substantial increase: this time 4.83 per cent up.

USyd is one of only three institutions that recorded productivity gains in both 2021 and 2022. The others are The University of Queensland and the University of Technology, Sydney.

While all three universities achieved remarkable outcomes, the University of Sydney’s result represents a particularly notable cumulative productivity gain over the two years and resulted in that university becoming one of the institutions defining the efficiency frontier – a rare thing for large universities. The presence of diseconomies of scale is a factor present in Australia’s university sector, making the the University of Sydney result especially noteworthy.

Why is the the University of Sydney result, and others with strong productivity growth outcomes, important?

Building a strong, cost-efficient institution can release resources able to be directed toward new or other high-priority activities. It provides a source of discretionary funds not otherwise available. The the University of Sydney result could not come at a better time as the sector prepares for opportunities and obligations that will likely arise from the Universities Accord review.

Keith Houghton is the chief academic strategist of the Higher Education and Research Group.

There is growing anticipation that the federal government’s response to the Universities Accord review’s final report will come soon. Given this and the fact that the budget is less than a month away, it is timely to review one of the final report’s key insights.

The joint and common cost problem arises where there are two or more outputs that arise from costs that are shared in the production of these outputs. In many situations, the ability to assign costs to these two or more outputs is not complex. But there are instances where it is highly complex. In these situations, there is a need to use advanced analytics to provide a valid and reliable estimate of costs.

The need to measure costs and productivity in higher education is crucial for the effective and efficient use of resources.

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