Other contributors to this collection will cover the more 'glamorous' aspects of becoming a Principal Investigator (PI): building networks, hiring well, navigating departmental politics, raising your profile. I will address something less glitzy but equally important: how university finances really work.
If you are stepping into your first independent role, this matters more than you may yet realise. Research requires money. Not simply ideas or talent, but time, space, infrastructure and people. None of these are free.
Resources for doing research emerge from a complex ecosystem comprising government (including intergovernmental organisations), research funders (including charitable bodies), industry, universities, students (both home and international), and ultimately taxpayers. The operation of this ecosystem varies according to where you are. I will focus on the UK; principally England, although the system is similar in the devolved administrations.
If you are moving into a PI role, you need to understand this funding ecosystem. You need to know enough to see how upstream decisions affect your laboratory (or whatever research infrastructure you use to do your research), your staff and your own time.
More specifically, if you are working in a complex organisation such as a university, you need to understand how it operates, where the money comes from, and where it goes. I am often astonished that colleagues can hold strong views about university management without having read the annual financial report or scrutinised the management accounts of their Department. If that is you, change it.
Read the annual report. It can be found on the externally facing website of your university. Not the glossy pages at the front, but the financial statements at the back. Look at income streams, the staff costs, the pension provisions. Pay particular attention to the borrowing and the cash flow. You do not need to become an accountant, but you do need to become financially literate. Make this an early habit in your career, not something to defer until you are in difficulty.
Universities have turnovers in the hundreds of millions of pounds, sometimes billions, and yet very thin margins. Many operate close to break even. They are independent charities with trustees and fiduciary duties. They must remain solvent. Your work depends on that solvency. You are no longer simply a scholar, rather you are leading a small enterprise inside a very large and financially constrained organisation.
You should also understand the relevant policy environment, nationally and internationally. Education and skills policy shapes how universities are funded and regulated. Growth, prosperity and industrial strategy shape the funding landscape for research and innovation. Policy is not an abstract consideration. It affects fee levels, visa regimes, funding allocations and regulatory burden. Follow it sufficiently to avoid being surprised by it. I strongly recommend dipping into The Times Higher, Research Professional and Wonkhe. Be prepared to ask questions of your Head of School and, if you get a chance, Vice-Chancellor.
Government funding is now only one small component of total income for many English universities. Tuition fees, particularly international and postgraduate fees, research grants, commercial activity and philanthropy all form part of the mix. This diversity can look resilient. It is also fragile. When one income stream weakens, pressure shifts to others. You should assume volatility.
Given volatility arising from policy, funding and the broader operating environment, it is vital to ensure a diverse research portfolio. This diversity should include different funders but also a spectrum of work, applied and foundational, oriented to different sectors and challenges.
Winning a grant feels like success. And it is. But from the institution’s perspective, the question is not simply how much money you have secured. The question is whether that income recovers its full economic cost. Research has real costs beyond those that are immediately visible: laboratories and estates, energy, compliance, research governance, IT systems, libraries, HR and research support, procurement, insurance, and audit. When you submit a proposal, you are asking the institution to underwrite risk on your behalf. If the grant does not recover the full cost of delivering the research, the shortfall must be met elsewhere, and you should know where that 'elsewhere' is.
In the UK this is expressed through the ‘full economic costing’ framework, or FEC. You will encounter directly incurred costs, directly allocated costs, estates, indirects, and overhead recovery. It is tempting to treat overhead as a tax on your genius, but it is the mechanism by which the institution sustains the infrastructure that allows your work to take place. Treat it as part of the system you rely on, not as an arbitrary deduction.
Historically, research in the UK has not been funded at full economic cost. The gap has been covered by cross-subsidy, most notably from teaching income and, in recent years, from international student fees. That cross-subsidy depends on recruitment, visa policy, geopolitical stability and domestic fee decisions. It is not guaranteed. Recently, the trend has been adverse. Plan on the basis that headroom may tighten further.
Inflation and regulatory requirements have eroded the real value of the undergraduate fee. Many courses now cost more to deliver than the fee recovers. International student income is increasingly required to cover teaching shortfalls and is therefore less available to subsidise research. The system is under pressure. As a PI, you should assume that institutional headroom is limited. Build your research plans with that constraint in mind.
There is a common belief that research excellence automatically pays for itself through enhanced reputation and overseas student recruitment. There is some truth in this, but it is a weak and slow mechanism. Improvements in research performance take years to translate into student recruitment effects, and the link is indirect. In practice, research is a cost centre for most universities. It is sustained because it matters to mission and societal contribution, not because it generates immediate financial surplus. Reputation is not a funding strategy.
If you examine any university’s accounts, one fact stands out. Staff costs are by far the largest expense. That has practical implications. First, your time is economically valuable. When you cost your time in funding proposals, do so honestly. Under-costing your own contribution does not help you in the long term. Second, when institutions face financial pressure, staffing decisions are the principal lever available. Hiring pauses, vacancy controls and contract scrutiny are structural responses to thin margins. You should factor that reality into your workforce planning. Think ahead about your team, their contractual positions, career trajectories, try to maintain stability and predictability for all concerned.
Universities aim to generate modest surpluses. These are not 'profits'. They are required for capital investment, estate renewal, digital infrastructure, debt servicing and resilience. Without surplus there is no investment. Without investment, research environments deteriorate.
When you negotiate for space, equipment, professional services support or co-funding, you are competing for limited surplus. Make your case in institutional terms. Show how your proposal contributes not only to scholarship but to sustainability, reputation, student experience or strategic priorities. Speaking that language increases your effectiveness. It also signals that you understand the organisation you are part of. Trust me, as a university leader, it makes a difference.
Universities also operate with long time constants. Degree cycles span years. Capital projects span years. Pension liabilities span decades. Financial shocks move slowly through the system but can persist for a long time. Plan accordingly and avoid assuming that short-term improvement equates to long-term stability. Think in years, not months. Ground strategic thinking about research in financial realities. Aim for stable long-term growth and think about the sustainability of your ‘asks’ in an institutional context.
Financial literacy enhances your independence. When you understand budgets, you are less likely to be surprised. Understanding cost recovery helps you design more sustainable research portfolios; understanding risk can help you make better decisions about staffing, co-funding and the balance between ambition and resilience. This is what professional autonomy looks like in practice.
Finance is not glamorous, but it is important. If you wish to lead research with confidence and resilience, seek to understand not only your discipline but the financial architecture that enables it.
Cite this blogpost:
