Research Data Scotland: outline business case

Financial Case

Introduction

The Financial Case focuses on the viability and financial sustainability of the preferred option given RDS’s strategic objectives and mission. This section presents the income and expenditure totals for RDS by financial year, from FY 2021/22 out to FY 2025/26. Assumptions and caveats are highlighted, noting where analyses are to develop further and be tested with stakeholders.

A brief summary of past and existing financial arrangements for the service model coming under RDS is also set out. This highlights some of the constraints and weaknesses of existing funding arrangements.

A scan of the wider landscape is conducted. This reveals how similar entities elsewhere in the UK have structured their financial activities. This helps identify risks and points of similarity/difference, which will need to be considered further in the context of RDS.

The chapter addresses affordability of the preferred option and presents choices for consideration of a financial nature in order to ensure a sustainable approach to resource investment for RDS going forward.

As such, based on the preferred option, it will:

• Provide a description of how the financial model was developed.
• Estimate the total cost of the solution over a five year period.
• Calculate how much the preferred option costs each year, with a split across key cost categories.
• Consider capital and revenue expenditure.
• Identify funding avenues, their constraints and attributes.
• Set out the key financial risks.

Financial Case Summary

In order to be acceptable to its partners, the Financial Case for RDS must be sustainable with financial risk carefully managed. Due to the ending of some grant funding, the current SILC financial model will increasingly show a deficit position: if the RDS financial model were to be based on this, it is likely that this too would show a deficit situation making it more difficult to involve partners. Consequently, the Scottish Government Health portfolio has approved a proposal for £5m in each of the five financial years from FY 21/22.

This blend of SG core grant augmented by other funding streams is an essential condition of RDS’s viability: it not only makes RDS financially sustainable (with all sensitivity scenarios in surplus), but also mitigates the financial risk to partners.

Financial Modelling Approach

A financial model has been developed for this OBC and sets out potential future income and expenditure for RDS. The model forecasts future demand and project volumes coming through RDS based on consultation with key service partners and research programme funders (ADR-S, HDR-UK, ESRC), as well as Scottish Government and Public Health Scotland partners. Other activity associated with RDS’s objectives is also identified.

The modelling takes account of the significant upsurge in research and analysis required to support the evidence base around the Covid-19 pandemic – including clinical research, treatments, drugs and vaccines trials, and wider research exploring variation in outcomes for those testing positive for the virus and other impacts on health and non-health outcomes resulting from the pandemic.

A set of services and activities are modelled to meet this demand and the costs of these resources are estimated. This exercise is presented for the current financial year and for each year to FY 2025/26. The financial modelling includes a transition period with associated start-up/transition costs. The figures are being developed in close consultation with service partners and all assumptions tested with the Finance Working Group.

In developing the Financial Case, the following components have been included:

• Baseline costs and income for the relevant activities undertaken in the current system based on Scottish Informatics Linkage Consortium (SILC) in the status quo model.
• Outline costs for the preferred option (a new body established as joint venture). This has been based on an assumption that RDS will operate through a commissioning model, managed by a small core staff.
• Income from both revenue and grant funding streams, based on forecast project volumes and demand.
• A more detailed analysis of the costs used for the Strategic Outline Case.
• Conversations with key stakeholders in relevant partner organisations such as eData Research and Innovation Service (eDRIS), Edinburgh Parallel Computing Centre (EPCC), and the National Records for Scotland (NRS).
• Benchmark data on outline costs sourced from organisations offering a similar service such as NHS Digital, SAIL, and ONS, UK Data Service/Archive.
• A core SG grant of £5m per annum for five years commencing FY21/22.

Finance Working Group

A Finance Working Group has been established to input to and support the development of the business and financial modelling underpinning the set-up of RDS, to inform the OBC, the FBC and various applications for further funding and financial support. This Group will support work to take forward a review of charging structures.

SILC (2014) and Historic and Existing Funding Sources

Figures detailing the costs and funding of the existing service model have been compiled as part of this OBC. These capture recent and current year income and expenditure and provide a contemporary baseline account of activity, which is expected to come through RDS.

The current model under SILC is intended to operate as a balanced budget based on an aggregate income from grants and revenue of approximately £4m and costs relating to staff, data infrastructure, building costs and other costs totalling a similar amount. This can be seen for FY 19/20 and FY 20/21 in the following table:

Table 11: SILC income and expenditure

	FY 19/20	FY 20/21
Income	£	£
Grant funding from SG	1,147,768	1,172,362
Grant funding from ESRC	1,346,873	1,640,935
Grant funding from CSO	150,000	150,000
Grant funding from ADR-S	251,817	190,000
Other grant funding	556,835	503,189
eDRIS income	510,000	640,049
Other income	-	-
Total	3,963,293	4,296,535
Expenditure
Staff costs	2,556,621	3,359,078
Non staff costs	1,228,004	833,793
Transition and set-up costs	-	-
Commissioning costs	-	-
Total	3,784,625	4,192,871
Surplus/(deficit)	178,668	103,664

The SILC service model relies upon various grant income and research council funding streams, along with revenue generated from charging for the services of the eDRIS team. The Scottish Government and NHS NSS also contributed to some of the costs of setting up SILC in 2014. This mixed funding model remains in place, with some users accessing the service for free, at the point they undertake a research project, and others paying on a project-by-project basis.

As SILC was not constituted as a legal entity the financial flows funding the service were supported by a set of bilateral MoAs, SLAs and other agreements between each of the funders and service partners. These arrangements, which exist still, do not lend themselves to ready appraisal of the cost-effectiveness of the system as a whole in meeting its objectives, or of the individual parts therein. Due to the ending of some grants, it is likely that the SILC model will move to a deficit position in future years. A predicted income and expenditure is shown in the following table.

Table 12: Predicted SILC Income & Expenditure FY 21/22 to FY 25/26

	FY 21/22	FY 22/23	FY 23/24	FY 24/25	FY 25/26
Income	£	£	£	£	£
Grant funding from SG	1,100,000	1,111,000	1,122,110	1,133,331	1,144,664
Grant funding from ESRC	1,817,000	1,485,000	1,485,000	1,485,000	1,485,000
Grant funding from CSO	150,000	-	-	-	-
Grant funding from ADR-S	190,000	190,000	190,000	190,000	190,000
Other grant funding	296,882	286,882	286,882	286,882	258,597
eDRIS income	652,258	674,828	717,118	775,958	849,557
Other income	-	-	-	-	-
Total	4,206,140	3,747,710	3,801,110	3,871,171	3,927,818
Expenditure
Staff costs	3,161,809	3,217,767	3,283,593	3,371,073	3,458,397
Non staff costs	906,134	906,134	906,134	906,134	906,134
Transition & set-up costs	-	-	-	-	-
Commissioning costs	-	-	-	-	-
Total	4,067,943	4,123,901	4,189,727	4,277,207	4,364,530
Surplus/deficit	138,197	(376,191)	(388,617)	(406,036)	(436,712)

Alignment of these various funding sources through RDS, with single contracts for activity, is expected to promote more efficient and effective service provision, to better align incentives and to realise non-cash releasing efficiencies. In addition, it will allow for surpluses to be carried over and reinvested in the service model and activity of RDS to support access to public sector data for research in the public interest.

To achieve these benefits through the establishment of RDS will require a different model: modelling for RDS has been predicated on similar levels of grant funding as per the status quo but costs are based on a commissioning model. RDS has additional costs over the SILC model in respect of staff and board costs, and transition costs relating to its establishment. These costs are shown in the following tables.

Summary of findings

Over the five year period, without any grant funding or revenue, the estimated investment required for RDS is as follows, based on the hypotheses made in terms of volume and the scope of organisations included in the Business Case, and a commitment to significant development of the service:

Table 13: RDS financial summary

	Investment required £	Including risk contingency £
Staff costs	4,352,061	5,657,679
Non-staff costs (i.e. infrastructure, etc.)	3,914,416	4,697,299
Transition costs and set-up costs	505,000	606,000
Commissioning costs	17,896,298	23,265,188
Service development costs	16,229,554	19,475,465
Total	42,897,331	59,359,310

Forecast demand and volumes of work

The figures include estimates of likely future demand, based on current demand for

eDRIS. The demand modelling uses actual figures from previous years to develop ratios that allow prudent predictions on project numbers, revenue and staffing requirements in future years.

The eDRIS calculations represent a ‘stock and flow’ approach: the model starts with an opening balance of projects to which new enquiries are added and closed projects/enquiries subtracted to give a closing balance for each year, which becomes the opening balance for the following year. The model shows increasing demand with progressively higher number of projects/enquiries.

Table 14: Predicted project volumes FY 21/22 to FY 25/26

	FY 21/22	FY 22/23	FY 23/24	FY 24/25	FY 25/26
Live enquiries & projects brought forward	665	668	680	712	760
New enquiries pa	331	348	383	421	463
Assumed growth rate of enquiries	5%	5%	10%	10%	10%
Total enquiries/projects handled by eDRIS pa	996	1016	1063	1134	1223
Project closure %	33.0%	33.0%	33.0%	33.0%	33.0%
Enquiries & projects closed	329	335	351	374	404
Projects carried forward	668	680	712	760	819
% of completing projects issued fees	22.8%	22.8%	22.8%	22.8%	22.8%
Number of projects issued fees	75	76	80	85	92
SG	12	12	13	13	14
ADR-S	46	46	47	49	53
Non SG/ADR-S	607	609	621	650	693
Average fee	£8,700	£8,831	£8,963	£9,098	£9,234
Revenue from projects	£652k	£675k	£717k	£776k	£850k

In addition to the self-generated revenue, it is assumed that RDS would maintain its grant funding. On this basis, the income and expenditure has been estimated.

Summary income

The income of RDS over the next five years is shown in the following table:

Table 15: Predicted RDS income FY 21/22 to FY 25/26

	FY 21/22	FY 22/23	FY 23/24	FY 24/25	FY 25/26
Income	£	£	£	£	£
SG core grant	5,000,000	5,000,000	5,000,000	5,000,000	5,000,000
Grant funding - SG	1,100,000	1,111,000	1,122,110	1,133,331	1,144,664
Grant funding - ESRC	1,747,743	1,416,590	1,417,446	1,418,311	1,419,184
Grant funding - CSO	150,000	0	0	0	0
Grant funding - ADR-S	190,000	190,000	190,000	190,000	190,000
Other grant funding	296,882	286,882	286,882	286,882	258,597
eDRIS income	652,258	674,828	717,118	775,958	849,557
Other income	0	0	0	0	0
Total	9,136,883	8,679,300	8,733,556	8,804,482	8,862,002

Costs

For the OBC Financial Case, initial costs have been developed based on:

• 1. Ongoing operational costs including staff costs and non-staff costs (eg premises, utilities, technology, and other equipment).
• 2. Transition and set-up costs the cost of setting up the new RDS operation including one-off transition costs such as website creation, development of systems, transition staff costs, and legal costs.
• 3. Commissioning costs the costs to RDS of ‘buying’ services from RDS partners such as EPCC, eDRIS, and NRS.
• 4. Service development costs the costs of service improvements (mainly enhancements such as synthetic data, case tracking system, analytical workbench) relating to RDS’s transition to its Target Operating Model (TOM).

Table 16: Predicted RDS expenditure FY 21/22 to FY 25/26 ^[11]

	FY 21/22	FY 22/23	FY 23/24	FY 24/25	FY 25/26
Expenditure	£	£	£	£	£
Staff costs	863,078	866,708	870,376	874,079	877,820
Non staff costs	866,200	819,688	741,227	742,822	744,479
Transition & set-up costs	200,000	95,000	70,000	70,000	70,000
Commissioning costs	3,418,309	3,486,263	3,564,204	3,663,920	3,763,603
Service development costs	3,565,517	2,793,532	3,089,161	3,290,164	3,491,180
Total expenditure	8,913,105	8,061,191	8,334,967	8,640,986	8,947,082
Surplus/(deficit)	223,778	618,109	398,589	163,496	(85,080)

The financial modelling shows that RDS is in annual average surplus position of approximately £0.3m per year over each of the first five years of its operations. To test the robustness of this position, the financial model has included sensitivity analysis with various scenarios modelled to test their impact.

Sensitivity and Optimism Biases

The Financial Case offers a prudent and tested set of scenarios to draw out the nature and consequence of different financial risks:

• An end to the ESRC main grant in March 2022 (this is the biggest single grant).
• An end to all grant funding (except the SG core grant, SG DSLS grant and internal eDRIS grant funding).
• To mitigate optimism bias, an increase in costs (30% for staff costs, 20% for all other costs) .
• A drop in eDRIS project volumes by 15%.
• An increase in eDRIS project volumes by 15%.

The different scenarios have been modelled and the results are shown in the following table.

Table 17: RDS sensitivity analysis FY 21/22 to FY 25/26

	FY 21/22	FY 22/23	FY 23/24	FY 24/25	FY 25/26
	£	£	£	£	£
As modelled RDS I&E	223,778	618,109	398,589	163,496	(85,080)
As modelled SILC I&E	138,197	(376,191)	(388,617)	(406,036)	(436,712)
ESRC grant funding ends Mar 2022	223,778	(712,891)	(932,411)	(1,167,504)	(1,416,080)
All grant funding ends Mar 2022	223,778	(1,102,891)	(1,322,411)	(1,557,504)	(1,806,080)
Staff costs +30%, other costs +20%	(2,012,609)	(1,456,486)	(1,740,554)	(2,049,261)	(2,371,467)
Volume -15% pa from FY 21/22	248,861	684,412	520,458	350,418	166,238
Volume +15% pa from FY 21/22	211,237	581,088	333,918	66,366	(217,183)

This can also be seen in the following graph.

Data for Figure 4

	FY 21/22	FY 22/23	FY 23/24	FY 24/25	FY 25/26
As modelled RDS I&E	223,778	618,109	398,589	163,496	(85,080)
As modelled SILC I&E	138,197	(376,191)	(388,617)	(406,036)	(436,712)
ESRC grant funding ends Mar 2022	223,778	(712,891)	(932,411)	(1,167,504)	(1,416,080)
All grant funding ends Mar 2022	223,778	(1,102,891)	(1,322,411)	(1,557,504)	(1,806,080)
Staff costs +30%, other costs +20%	(2,012,609)	(1,456,486)	(1,740,554)	(2,049,261)	(2,371,467)
Volume -15% pa from FY 21/22	248,861	684,412	520,458	350,418	166,238
Volume +15% pa from FY 21/22	211,237	581,088	333,918	66,366	(217,183)

Financial Sustainability and Risk

As shown above, whilst the base case is positive, some of the sensitivities are in a deficit position. This includes the scenario whereby the current ESRC budget is cut from March 2022 (average deficit of £0.8m pa), and the scenario whereby all grant funding (with the exception of the DSLS, which is in the control of SG) is cut (average deficit of £1.1m pa). In these scenarios, RDS could be returned to a surplus position by reducing the amount spent on service development.

The other sensitivity showing a deficit position assesses an increase in staff costs of 30% and an increase in other costs of 25%.

This scenario has an average deficit of £1.9m pa and is included to counter optimism bias but again the deficit could be returned to a surplus position by reducing the amount spent on service improvement. The sensitivities will be redone when there is greater detail on the costs, and the Financial Case will be updated accordingly. At this stage, it is clear that RDS is in a surplus position but this is sensitive to increasing costs: overall RDS will be dependent on the core SG grant in the short-to-medium term, and is unlikely to be established without this support.

Once established, the financial position of RDS will be improved through greater efficiency, cost reduction, increased revenue, and through securing further external grant funding. Whilst these actions are aligned to the benefits of RDS, it is unlikely that RDS will be able to achieve them in the short term. Consequently, the core SG grant is vital to underwrite RDS.

Factors affecting RDS’s costs:

Experience delivering data driven research highlights the significant costs associated with supporting researchers and provisioning high-quality linkage-ready datasets. Efforts to improve data quality and metadata standards across the Scottish public sector will work to drive down the costs of conducting research. In addition, making better information about existing data sources available publicly will also help manage the burden on the service (research co-ordinators) and support a more informed user community.

Other efficiencies along the data pipeline are being tested both in Scotland and elsewhere and learnings from this can inform changes to RDS processes to improve efficiency and drive down costs.

Charges levied on users arguably do not reflect the full cost of provision and continue to be supported by grant funding. Preliminary analysis of management information from the existing service model suggests significant time is spent on pro bono work that is not invoiced. A review of charging structures and fees will be undertaken in the coming year.

The financial figures will be subject to further development and revision as part of the FBC. The Financial Working Group will continue to test further developments and output of the model. The FBC stage will also undertake an early ‘sensitivity testing’ exercise to allow the modelling of alternative cost scenarios over the 5-year period. The capability to model scenarios should be built into subsequent versions of the Financial Model.

Other financial risks facing RDS and the Financial Case modelling:

• Accuracy of the baseline costs.
• Ability to forecast demand and revenue – historically this has been a problem for the service model and has had direct implications for staff capacity and ability of the entire journey to be managed, free of bottlenecks while also ensuring staff are always fully utilised.
• Complexity of projects to be undertaken and estimated time required from staff members.
• Optimal staff resource – level of resourcing, skills, expertise, turnover and capacity.
• Costs and resource estimates.

These risks will be further explored as part of the FBC.

How Could RDS Be Funded?

UK-wide Public Sector Data Access

An assessment of the wider UK landscape reveals considerable variation in how data access arrangements for public sector data are delivered via institutional and financial frameworks.

A number of the data access platforms/services are located within academic institutions and/or public sector bodies. In all cases, these rely on some level of ongoing public sector funding. This is the case for the SAIL databank (Swansea University), which is part-funded by Health and Care Wales and the Welsh Government. The Secure Research Service within Office of National Statistics (ONS), the UK Data Service and NHS Digital all receive support via research councils and central government departments to commission relevant services for making public sector data available for public benefit research. Some of these institutions are able to supplement service provision with income from commercial activity in other parts of their business model.

The analysis of fees charged for services in other parts of the UK suggests these are subsidised and not representative of the full economic cost of providing them. This mixed model of funding is typical and represents how the service model in Scotland has worked to date.

Further work in the coming year will explore an acceptable compromise on fees and charges – such that RDS remains an attractive offer to researchers and others wishing to access public sector data, while remaining on a healthy financial footing.

Income Generation

RDS will have opportunities to generate income from:

• Charging for research co-ordinator service and for costs of accessing datasets.
• Charging for analytical support.
• Annual Subscription fees to potential users.
• Profit-sharing arrangements where proceeds from IPR over products derived from accessing the data could potentially be shared with RDS in order to reinvest in the services and data.

Conclusion

The Financial Case presents the income and expenditure estimates for RDS, based on past and recent business activity and estimates of forward demand, presenting a set of five year budgets and net financial position. This analysis takes on board initial conversations with service providers and funders and with those involved in delivering the Covid-19 research data service.

The set-up of RDS is based on the current service model, which will gradually transition into the new data access model based on the commissioning of services from existing partners.

The financial model has shown that, at present, based on the assumed future service model, which includes development of the service, and a core grant of £5m from SG, there is a surplus position of approximately £0.3m per annum and RDS would be sustainable. This financial position remains sensitive to increased costs and the Financial Case will be updated in the FBC.