Chapter 36 : Unit Costs

36.1 The crudest measure of unit cost is to take the non-specific annual expenditure of an institution (corresponding fairly closely on the income side to grant, if any, plus fees, if any) and to divide it by the fte number of students. Last year (1995-96) this yielded the results shown in Table 36.1.

Table 36.1 Unit Costs (1995-96)

  HK$/student year
(* = projections)
Primary School
Secondary School
UGC Institutions 201,842*
APA 199,024*
VTC Technical Colleges 87,500*
HKIEd 136,281*

Source: UGC Secretariat and institutions concerned

  According to this analysis, higher education in UGC HEIs is eight times as expensive as secondary school work. The figure for higher education is, however, regarded by some as misleading. There is a good deal of activity in universities which is not closely related to teaching students, of which the largest component is usually research. The unit cost for UGC institutions in Table 36.1 might possibly therefore be reduced by a factor somewhere in the range 0.6 to 0.9 and the ratio with secondary school costs then becomes about six. Whether the removal of the research component of cost is legitimate is a matter of some controversy, since proximate research undoubtedly enhances teaching.

36.2 A question which is often posed is whether higher education in Hong Kong is expensive compared with that in other places. International cost comparisons are notoriously difficult, but in gross unit cost terms, using current rates of exchange, it would seem that we are cheaper than the US (for similar institutions) and Japan, more expensive than either the UK or Singapore and substantially more expensive than Australia. Such comparisons are however not entirely reliable and need to be treated with caution due to the often significant differences in the economic and social circumstances of different countries, as well as in methods of calculating unit cost and public accounting systems. Moreover they need to be related to local factors such as purchasing power and the housing market. In addition due account needs to be taken of the longer undergraduate and postgraduate courses in the US, Japan, and elsewhere.

36.3 The figures quoted in paragraph 36.1 are crude average unit costs. Within higher education, however, as we noted in paragraph 34.4, there are wide variations in student/staff ratios between subject areas and these, and other factors, lead to wide variations in unit costs. Taking the unit cost of a typical humanities department (excluding languages) as 1.0, the likely range of relative cost weightings is shown in Table 36.2.

Table 36.2 Range of Relative Cost Weightings (Teaching)
by Academic Programme Category

Academic Programme Category Relative Cost Weightings
Clinical medicine 4.8 - 5.4
Clinical dentistry 5.9    
Pre-clinical studies 2.2 - 2.5
Subjects & professions allied to medicine 1.4 - 2.4
Biological sciences 1.3 - 3.8
Physical sciences 1.3 - 3.2
Engineering & technology 1.2 - 2.3
Built environment 1.0 - 1.6
Mathematical science 0.9 - 1.5
IT & computing science 0.9 - 1.5
Business & management 0.8 - 1.6
Social sciences 1.0 - 1.6
Languages 0.8 - 1.5
Humanities (ex languages) 0.9 - 1.2
Arts, design & performing arts 1.3 - 1.8
Education 0.9 - 1.4

Source: UGC Secretariat

  Using the current distribution of students by subject in UGC HEIs, the average factor is 1.69. This corresponds to the overall average unit cost (when the non-teaching element has been removed).

36.4 Higher education is not homogeneous as to level. The UGC institutions, APA and OLI engage in postgraduate, undergraduate and sub-degree teaching. The Technical Colleges and most other providers of higher education in Hong Kong offer sub-degree courses or CPE. The unit costs of sub-degree, taught postgraduate and research postgraduate teaching tend to be about 80%, 120% and 200% respectively of those of undergraduate courses. Calculations of unit cost are also sensitive, of course, to the factors used when converting headcounts of part-time students to full-time equivalents. There are various ways of determining these factors, but those based upon completion times are probably the most satisfactory.


Overall unit costs are determined by very many influences, some permanent, some temporary, some structural and some related to quality. Between 1990-91 and 1995-96 the gross unit cost of the UGC institutions increased (at mid-1995 prices) from HK$163,000 to HK$202,000. This 24% increase was due in part to a substantial growth in research activity (Figure 6.5), in part to a change in student mix towards the more expensive levels and subjects (Figures 8.1 to 8.4), in part to "front-end loading" (the provision of staff ahead of students in rapidly expanding institutions in order to plan and organize new courses), and in part to the introduction of various UGC initiatives to try to improve quality such as grants for language enhancement, teaching development and inter-institutional collaboration. There were also increases in remuneration for doctors and some staff not formerly paid on university scales, and improved housing benefits.

The increase in unit cost described in the previous paragraph is summarised in Table 36.3.

Table 36.3 Increase in Unit Cost

Growth in research


Change in student mix


Higher pay and benefits for some staff


Front-end loading


Quality improvement measures








Source: UGC Secretariat

  The first three items are permanent increases : the remainder may be temporary.

36.7 The subvented HEIs in Hong Kong have recently undergone very rapid expansion, but even before that major growth they were accustomed to doubling their size each decade. Two features of substantial sustained growth in higher education are many new initiatives, which in their infancy are always relatively expensive in unit cost terms, and inefficient use of staff, buildings and plant as new ventures fail for a time to take up the full available capacity and expanding established activities outgrow it. That situation is now coming to an end. We are entering a period of stability in terms of the overall size of the subvented sector.

36.8 During a period of no overall growth, institutions should be able to turn their energies from the problems of expansion to considering how to improve the efficiency and the quality of their existing activities. Savings associated with economies of scale and the abandonment of front-end loading should be reaped. There may possibly be small gains from changed pedagogy (see paragraph 26.19). Administrations should be slimmed as tasks associated with expansion no longer have to be performed, and management procedures improved. There will be new expenditures (including those for reducing staff in some areas as demand changes (see paragraph 30.11)), but overall we would expect unit costs to fall in the near future.

36.9 We have been asked by government to advise on the level of savings that could be achieved without detriment to the quality of education provided. We consider that, during the 1998-2001 triennium, an annual reduction in the student unit cost of the UGC-funded sector of slightly more than 3% should be achievable. This will add up to a 10% reduction in student unit cost between the final year of the current triennium (1997-98) and that of the next triennium (2000-01). This 10% reduction will need to be implemented gradually over the three years of the triennium to avoid the disruption that would be associated with any sudden major reduction of funding. Moreover we shall need to retain 50% of the resultant savings to meet new expenditure requirements for the introduction of additional quality assurance initiatives (like our current earmarked grants for Teaching Development and Language Enhancement), for the development of the areas of excellence (paragraph 29.8) and for institutional restructuring (paragraph 30.11) which is essential in order to achieve the savings in student unit cost.

36.10 The unit costs which we have considered so far have been on an annual basis. They have to be multiplied by course length to obtain the total cost of a particular stage of education. Taking the unit costs from Table 36.1, but reducing the figure for higher education by 25% to allow for non-teaching activity, we obtain the costs for each stage of education shown in Table 36.4.

Table 36.4: Unit Costs (1995-96)

Stage Unit Cost, HK$/student year Length, years Cost, HK$/student
Primary Education
Secondary Education
First Degree 151,500 3 454,500

  Clearly, increasing course length at any stage or transferring a year to a higher category is likely to be very expensive, even after allowing for some consequent modification of unit costs. At present, the three year length of most of our first degrees makes them very cost-effective compared with longer courses elsewhere in the world.

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