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"If you have to ask": Ten sure-fire ways to lose money on research

May 18, 2011
Higher Education, R&D
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Normally collegial discussions took a nasty turn after I suggested that most universities lose money on sponsored research.

Incredulous: “I don’t believe it. My department tacks a 50% surcharge to all my contracts; how can they lose money?”

Defensive: “Here are all the reasons that doing research is a good thing, so what’s your point?“

Defensive with an edge: “Why are you attacking research?“

Let’s be be clear about it:  if it’s your institution’s mission to conduct research, then spending money on research makes perfect sense.  In fact, it would be irresponsible to deliberately starve a critical institutional objective like research.

On the other hand, there are not all that many universities with an explicit research mission.  But there is an accelerating trend among  primarily bachelor’s and master’s universities to become — as I recently saw proclaimed in a paid ad — the next great research university. The university that paid for the ad has absolutely no chance to become the next great research university.  Taxpayers are not asking for it.  Faculty are not interested. Students and parents don’t get it either.

The administration and trustees think it’s a great idea.  Research universities  are wealthy.  Scientific research requires new facilities and more faculty members.  Research attracts better students. Best of all, federal dollars are used to underwrite new and ambitious goals. Goals that would be out of reach as state funding shrinks. As often as not, the desire to mount a major research program is driven by a mistaken belief that sponsored research income can make up for shrinking budgets. It’s a deliberate and unfair confounding of scholarship and sponsored research

If your university is pushing you to write grant proposals to generate operating funds, then alarm bells should be going off.  Scholarship does not require sponsored research. Chasing research grants is a money-losing proposition that can  rob funds from academic programs.  It’s an important part of the mission of a research university, but for almost everyone else, it’s a bad idea.  It’s a little like shopping on Rodeo Drive:  there’s nothing there that you need, and if you have to ask how much it costs, you can’t afford it.

How is it possible to lose money on sponsored research?  After all, professor salaries are already paid for.  The university recovers indirect costs. Graduate and undergraduate students work cheap.

A better question is how can anyone at all can possibly make money on sponsored research. Many companies try, but few succeed.  A company that makes its living chasing government contracts might charge its sponsors at a rate that is 2-3 times actual salaries. Even at those rates, it is a rare contractor that manages to make any money at all.

On the other hand, a typical university strains to charge twice direct labor costs.  Many fail at that, but the underlying cost structure — the real costs — of commercial and academic research organizations are basically identical.  There is a widespread  but absolutely false assumption that underlying academic research costs are lower  because universities have all those smart professors just waiting to charge their time to government contracts. The gap between what universities charge and what sponsors are willing to pay commercial outfits is the difference between making a profit and losing a lot of money. Just like intercollegiate athletics, sponsored research programs tend to lose money by the fistful.

Let me say up front that the data to support this conclusion are not easy to come by.  Accounting is opaque. Sponsors know a lot about what they spend, but relatively little about what their contractors spend.  It is in nobody’s interest to make the whole system transparent.  But my conversations with senior research officers at well-respected research universities, paint a remarkably consistent picture.  With very few exceptions, it takes $2.50 to bring in every dollar of research funding.

Fortunately, the arithmetic is easy to do.  If you know the right questions to ask, you can find out how much sponsored research is costing your institution. Here are ten sure-fire ways to lose money on sponsored research. You do not need all of them to get to a negative 2.5:1 margin.  If you are clever just a couple will get you there.

  1. Reduce senior personnel productivity by 50%: university budgets are by and large determined by teaching loads, a measure of productivity. It is common to adjust the teaching loads of research-active faculty. Sometimes normal teaching loads are reduced by 50% or more.  It is, some argue, table stakes, but a reduced teaching load is time donated to sponsored research because funding agencies rarely compensate universities for academic year support.
  2. Hire extra help to make up for lost productivity: Courses still have to be offered, so departments hire adjuncts and part-time faculty.
  3. Do not build Cost of Sales  into the contract price: The sales cycle for even routine proposals can be  months or years.  Time spent in proposal development converts to revenue at an extraordinarily small rate. In nontechnical fields and the humanities where research support is rare, the likelihood of a winning proposal is essentially zero.
  4. Engage in profligate spending to hire promising stars: Hiring packages for highly sought-after faculty members can easily reach many millions of dollars.  A sort of hiring bonus, there is little evidence that this kind of up-front investment is ever justified on financial grounds.
  5. Make unsolicited offers to share costs: Explicit cost-sharing requirements were eliminated years ago at most federal agencies.  Nevertheless, grant and contract proposals still offer to pay part of the cost of carrying out a project.
  6. Allow sponsors to opt-out of paying the indirect  cost of research: An increasingly common practice is to sponsor a research project with a “gift” to the university.  Gifts are not generally subject to overhead cost recovery, so a university that agrees to such an arrangement has implicitly decided to subsidize legal, management, utility, communication, and other expenses, and
  7. Accept the argument that indirect costs are too high: The  meme among federal and industrial sponsors is that indirect costs are gold-plating that must be limited. Rather than believe their own accounting of actual costs of conducting research, they argue that universities, should limit how much they charge back to the sponsor.
  8. Build a new laboratory to house a future project: Sponsors argue that it is the university’s responsibility to have competitive facilities.  But that new building is paid for with endowment funds or scarce state building allocations that might have gone toward new classrooms or upgraded teaching labs.
  9. Offer to charge what you think the sponsor will pay, not what the research will cost:  Money is so tight at some funding agencies that program managers are told to set a (small) limit on the size of grants and proposals independent of the work that will be actually be required.
  10. Defray some of the management costs of the sponsoring agency: It has become so common that it is hardly noticed.  University researchers troop into badly-lit conference rooms to help program officers “make the case” to their management.
The list goes on. It is so easy to turn a sponsored research contract into a long-term commitment to spend money for which there is no conceivable offsetting income stream that institutions routinely chop up the costs and distribute them to dozens of interlocking administrative units.  The explosion in the number of research institutions has all the elements of an economic bubble.
  • It is motivated by a gauzy notion that all colleges and universities are entitled to federal research funds..
  • It is fed in the early stages by accounting practices that make it easy to subsidize large expenditures.
  • It has the cooperation of funding agencies who know that the rate of growth is not sustainable.

Virtually everyone involved in university research knows that the bubble will burst.  A colleague just showed me an email from his program director at a large federal research agency.  It said that — regardless of what he proposed — the agency was going to impose a fixed dollar amount limit on the size of its grants. But in order to win a grant, he had to promise to do more.  His solution: promise to do the impossible in two years instead of three.  Just like the famous Sydney Harris cartoon,  a miracle is required after two years. At least there would be enough money to pay the bills while a new grant proposal was being written.

Climate Change, Ivory Towers and The Journal of Irreproducible Results

December 8, 2009
Higher Education, R&D
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There’s a kerfuffle on the eve of the United Nations Climate Change Conference in Copenhagen. 1,700 email messages  that were supposed to be stored on a secure server somehow found their way to open servers and were rapidly picked up by bloggers and others, who jumped on the opportunity to use the sometimes embarrassing messages to discredit  the overwhelming consensus of climate scientists that the earth is warming at an alarming rate and that human activity is the most likely cause. Aside from the shocking coincidence of events — what are the chances that a massive, worldwide fraud would be exposed at the same time the conspirators are getting together to impose their new world order? — and the uproar among climate scientists — who are launching ad-hominem attacks at every skeptic who pokes his head above ground — are there other lessons to be drawn from this shameless bit of theater?  My Georgia Tech colleague, climate scientist Judith Curry, hit the nail on the head when she  pointed out that: (1) there is really nothing in the released messages that discredits published scientific results and (2) scientists are being incredibly counterproductive by retreating into their Ivory Towers and passing up the opportunity to educate and engage both skeptics and the public.  Her Open Letter to Graduate Students and Young Scientists should be required reading for everyone interested in how to keep worlds from colliding:

…even if the hacked emails from HADCRU end up to be much ado about nothing in the context of any actual misfeasance that impacts the climate data records, the damage to the public credibility of climate research is likely to be significant. In my opinion, there are two broader issues raised by these emails that are impeding the public credibility of climate research: lack of transparency in climate data, and “tribalism” in some segments of the climate research community that is impeding peer review and the assessment process.

For “climate science” you can substitute “innovation” and the message is the same. If you’ve circled the wagons and are shooting at anything that moves, the easy target is public understanding of not only science but innovation in general.  The American public is not interested in the long-term thinking required to make sense out of squabbles like this. There are simply not enough people like San Diego Florist Steve Boigon, who — according to the New York Times — downloads MIT physics lectures because he  finds that:

I walk with a new spring in my step and I look at life through physics-colored eyes.

Curry did not go after the easy targets. Instead, she talked honestly to students about the importance of climbing down from the Ivory Tower. The interactive relationship between basic science, technological innovation and public policy — what Donald Stokes calls Pasteur’s Quandrant –  is a hot topic these days, because  so many important societal issues can only be resolved at their intersection.

There’s a veil that conceals the inner workings of creative science and engineering  from the lay public, and attempts to lift it sometimes produce  bizarre reactions.  I was once struck speechless  at an all-hands meeting when one of my engineers stood to scold  the  CEO for making product decisions because he knew “nothing about electronics.”  A prominent member of my Board of Advisers at the National Science Foundation once countered criticism of his particularly cumbersome approach to software development by angrily proclaiming,  “Programming is like playing a piano.  Only virtuosos should do it!”  A world-renowned engineer once responded to an essay critical of his methods by widely distributing a letter entitled “On a Political Pamphlet from the Middle Ages.”  I was one of the young authors who was at the receiving end of that one.  When  outsiders try to lift the veil, the best course is to repair to the upper reaches of the Ivory Tower, hope that the hubbub goes away, and shoot down if it doesn’t.

It is a world view that is somehow wired into university training. The Medieval regalia, semi-religious icons,  and murmured  incantations that convey special status on the conferees reinforce the impression at every college commencement that something mystical has taken place. Science textbooks are uniformly silent on how science is done, presenting instead the subject as a linear, completed work — orderly in progression and tidy in its use of knowledge.  Nearly every engineering textbook guides  readers through well-rehearsed exercises to successful completion of design tasks. Why would anyone want to learn how to build a bridge that falls down?

Insiders, of course, know differently. What takes place behind the curtain is as important as the finished product.  Some of the best technical books ever written lift the veil.  Proofs and Refutations by Imre Lakatos describes  the centuries-long frustration of mathematicians  trying — and repeatedly failing –  to precisely define polyhedra.  The process led some of  the greatest mathematical results of all time. Why Buildings Fall Down by Mario Salvatori and To Engineer is Human by Henry Petrosky are both compelling arguments that progress in  engineering is inextricably tied to understanding engineering failure.  Insiders know that failure is part of the package.  That’s exactly what makes the most outrageous of the climate change attacks so improbable.

There is a sub-genre of humor devoted to obvious, boundlessly incompetent scientific failure, real or imagined.  The Journal of Irreproducible Results is perhaps the defining publication that holds technical vanity up to ridicule. An article entitled Peaceful Use of Nuclear Explosives helpfully noted that

Development of hydro power in the desert of North Africa awaits only the introduction of water

My personal favorite medical discovery was an announcement entitled The Incidence and Treatment of Hyperacrosomia in the United States:

Some very famous Americans  have indeed been afflicted with Acute Hyperacrosomia, among them Abraham Lincoln, George Washington and Lyndon Johnson.  Their condition is readily apparent upon comparison with normal individuals such as Napoleon Bonaparte, Truman Capote  and Dick Cavett…..Since the male population does express the condition to a higher degree, it falls primarily to the female population to objectively consider the risks of involving themselves with hyperacrosomic males…

The jokes are so well-known that Henry R. Lewis apparently had not second thoughts when he wrote The Data Enrichment Metho d:

The following remarks are intended as a non-technical exposition of a method which has been promoted (not by the present author) to improve the quality of inference drawn from a set of experimentally obtained data.  The power of the method lies in its breadth of applicability and in the promise it holds in obtaining more reliable results without recourse to the expense and trouble of increasing the size of the sample of data.

I have a hazy understanding of the data manipulation charges that climate skeptics are leveling at researcher, but I am pretty sure that The Data Enrichment Method was not involved.  There is also the issue of transparency that is specific to climatologists, but Curry handles that well. And then there are the charges that editors of journals were unduly influenced by political considerations.  Like the Inspector in Casablanca, I would be shocked — truly shocked — to hear that hundreds, perhaps thousands, of smart, educated, and highly ambitious people make decisions based on self-interest. The secret that Curry reveals is that it may be regrettable, but  it doesn’t matter in the long run.  Science is not an orderly, axiomatic progression of knowledge. It is a social process.

Even a brief peek under the veil would be enough to convince many fair-minded skeptics that if there were another, compelling, contradictory analysis of the same data, it would have by now appeared in a reputable scientific journal.  Why?  Because it would be a career-making result.  The article would write itself.  What editorial board could long resist publishing an epochal article?  History teaches that political manipulation is much more likely to focus on who gets priority as multiple groups rush to publish simultaneously.  It’s a to maintain a conspiracy when everyone is looking out for himself.  None of this means that everything that has been published is correct. It just means that it’s very unlikely that the shrill cries of  systematic fraud have any validity.



So strong is the urge to seek out systematic scientific fraud, that there is a magazine devoted to the subject. The Skeptical Inquirer (SI) is a kind of companion to The Journal of Irreproducible Results. It specializes in debunking academic myths and scientific hoaxes.  It has over the years exposed magicians, perpetual motion charlatans, creationists, and hundreds of scientific frauds.  Who are these crusaders?  They are the very power brokers that would have to be co-opted if the climate change conspiracy theorists were right.  Here’s a partial list of SI Fellows:

If there is  a less easily manipulated group under one banner, I have not seen it.

Judy Curry’s Open Letter does not only apply to climate scientists. It applies to every boardroom that squashes the discussion of how innovation takes place and every executive suite where technologists are too busy innovating to engage seriously with corporate management.  Of course, it also applies to the easy targets — facile business leaders who confuse near term planning with technical progress and are too quick to jump to the “bottom line” — but that discussion will have to wait for another post.

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