Part 2: Proposals for new initial condition E7 - Effective governance

Condition E7B: Business plans

Scope

E7B.1 This condition applies to higher education provided (or to be provided) in any manner or form by, or on behalf of, a provider (including, but not limited to, circumstances where a provider is responsible only for granting awards for students registered with another provider).

Requirements

E7B.2 The provider must have:

1. a business plan which:
   1. meets relevant requirements; and
   2. covers the provider’s planned activities over a five-year period, including the provider’s current financial year and four future years; and
2. in the OfS’s judgement, the ability to deliver the business plan in practice.

E7B.3 In assessing whether a provider has the ability to deliver the business plan in practice, the OfS will consider:

1. whether the provider has the capacity and resources to deliver the business plan in practice;
2. where relevant, evidence of the provider’s past performance providing higher education;
3. any other matters which the OfS considers relevant to the provider’s ability to deliver the business plan in practice.

E7B.4 The provider’s business plan must demonstrate that the provider has given significant consideration to the interests of students in the formation of its business plan, including by:

1. identifying any business objectives and targets that may conflict with the interests of students;
2. considering how that conflict will be managed, which may include placing less weight on business objectives and targets where such objectives and targets conflict with the interests of students.

E7B.5 The provider’s business plan must include a description of all of the following:

1. where the provider has previously provided, but is not currently providing, higher education, the nature of any higher education courses that the provider has previously provided (including a summary of the subject matter and level of those courses, the modes of study, modes of course delivery, and the numbers and characteristics of the cohorts of students the provider has recruited);
2. where the provider is currently providing higher education, the nature of any higher education courses that the provider is currently providing (including a summary of the subject matter and level of those courses, the modes of study, modes of course delivery, and the numbers and characteristics of the cohorts of students the provider has recruited);
3. the geographic location of any previous or current higher education provision;
4. the provider’s business competitors;
5. the nature of the provider’s planned higher education provision, including:
   1. any higher education courses it intends to provide;
   2. the subject matter and level of those courses;
   3. the modes of study and of course delivery;
   4. the numbers and characteristics of the cohorts of students the provider has recruited and/or intends to recruit for those courses and the academic needs of those students;
   5. the geographic location of any planned higher education provision;
   6. the provider’s likely business competitors;
6. the provider’s business objectives and targets;
7. the provider’s strategy for achieving the business objectives and targets, including how the provider intends to approach:
   1. how it will use any surplus generated (if applicable);
   2. marketing to, and recruitment of, students, and whether it intends to use recruitment agents;
8. any relevant risks and how the provider plans to manage those risks; and
9. the provider’s plans for how, if registered, it would comply with all ongoing conditions of registration applicable to it from the date of registration.

Definitions

E7B.6 For the purposes of this condition E7B:

1. “business objectives and targets” means measurable objectives and targets that the provider plans to use to monitor its overall performance, including (but not limited to):
   1. the provider’s financial targets;
   2. the numbers of students it aims to recruit to its higher education courses;
   3. where the provider is currently providing higher education courses, any aims to expand the provider’s current provision (including to new subject areas, levels of study or modes of course delivery);
   4. any aims to obtain authorisations, accreditations or licences from other persons or organisations, including the Office for Students, the Secretary of State, and professional statutory and regulatory bodies;
   5. any aims to form partnerships with other persons or organisations, including other higher education providers (whether or not registered with the Office for Students) and/or awarding bodies;
2. “capacity and resources” includes, but is not limited to:
   1. the financial resources of the provider;
   2. the number, expertise, and experience of the staff employed or contracted by the provider (or to be employed or contracted by the provider); and
   3. the provider’s management and governance arrangements;
3. “higher education course” is to be interpreted:
   1. in accordance with the Higher Education and Research Act 2017; and
   2. so as to include, for the avoidance of doubt:
      1. a course of study;
      2. a programme of research;
      3. any further education course that forms an integrated part of a higher education course; and
      4. any module that forms part of a higher education course, whether or not that module is delivered as an integrated part of the course;
4. “relevant requirements”, in respect of a provider’s business plan, includes (but is not limited to) that, in the OfS’s judgement:
   1. the plan is comprehensive;
   2. the plan is clearly drafted, including in respect of English language, spelling, grammar and formatting, such that the contents of the plan are properly understandable;
   3. the plan is coherent both internally and alongside other documents in the provider’s application, with no material inconsistencies, contradictions or discrepancies either within the plan itself or between the plan and other documents in the provider’s application;
   4. the plan demonstrates that the provider has a sound understanding of:
      1. the higher education sector and the context in which the provider plans to operate;
      2. relevant risks;
      3. the requirements imposed under the ongoing conditions of registration which would apply to the provider from the date of registration (if registered);
   5. the plan contains appropriate strategies to manage relevant risks;
5. “relevant risks” means:
   1. any risks of non-compliance with ongoing conditions of registration which, if registered, would apply to the provider from the date of registration;
   2. any risks to public funds;
   3. any risks to the interests of students that may arise as a result of the provider’s business objectives and targets;
   4. any risks arising from assumptions made by the provider in the formation of its business plan, including any which could impact:
      1. the provider’s ability to achieve its business objectives and targets;
      2. the provider’s compliance with ongoing conditions of registration which, if registered, would apply to it from the date of registration; and
      3. the interests of students;
6. “staff” includes, but is not limited to, employees and contractors.

Summary

Applies to: all providers seeking registration

Initial or general ongoing condition: initial condition

Legal basis: section 5 of HERA

Condition E7B.2

Business plan

1. The business plan means the document, or documents, submitted by a provider to fulfil this requirement. The business plan need not be a new document created solely for the purpose of this condition, providing it meets the information requirements set out in E7B.3. A provider may choose to rely on a pre-existing business plan, strategic plan or other planning document it has previously produced, as long as the content remains accurate and up-to-date. A provider may, where necessary, submit that document alongside additional narrative which covers any omissions. Where a provider chooses to submit multiple documents, these must collectively include all required information and meet all the relevant requirements.

Relevant requirements

2. The ‘relevant requirements’ a provider’s plan must meet are listed in E7B.6.

Comprehensive plans

3. In judging whether a business plan is comprehensive, the OfS will consider whether the plan provides enough detail and specific factual information to understand how the provider intends to operate.
4. ‘Specific factual information’ means concrete information relevant to a provider’s plans (such as course names, forecast student numbers, demographic statistics, measurable key performance indicators (KPIs)). A plan will not be assessed to contain enough ‘specific factual information’ if it only contains vague, descriptive statements about what a provider wants to achieve (such as general statements about providing high quality education, or opportunities for students).
5. A provider’s business plan will not be considered ‘comprehensive’ where it omits significant elements of a provider’s plans relating to the information requirements set out in E7B.5. The OfS would not, for example, consider a provider’s business plan comprehensive if it:
   1. Omits any information about plans it is actively pursuing to enter new partnership arrangements, or secure new awarding bodies for its courses.
   2. Omits information about planned new campuses.
   3. Omits information about business objectives and targets that it has adopted for the purposes of reporting to shareholders or the governing body.
   4. Omits information about its strategies for achieving business objectives and targets which are essential to its success, particularly where this involves activities carrying a higher degree of risk, such as recruitment of international students, use of recruitment agents, or delivery through partnership arrangements.

Coherent plans

6. The OfS is unlikely to consider a plan coherent or consistent where:
   1. The future direction of the provider set out in the plan does not tally with financial and student number forecasts submitted in relation to condition D (for example, where the business plan suggests a cautious approach and modest growth, but forecasts show a rapid increase in revenue and student numbers).
   2. The business plan describes robust arrangements for overseeing and managing key risks through a provider’s governance structures, but these are not reflected in the provider’s set of governing documents and descriptions of a provider’s arrangements to prevent fraud and protect public money.
   3. A provider’s business plan gives a narrative description of its aims and purpose which prioritise the interests of students, but this is inconsistent with the practical targets, objectives and measures it has put in place to monitor performance, which are purely financial.

Sound understanding of the higher education sector

7. The OfS will consider whether the business plan demonstrates significant misunderstandings or material factual inaccuracies about the operation of the higher education sector. The OfS would not expect a provider to understand every element of the sector but it should have a fundamental understanding of the context in which it would operate.
8. Examples of content in a business plan which are likely to lead the OfS to consider that a provider does not have a sound understanding include:
   1. The provider identifies inappropriate or unrealistic competitors, for example a small college identifying a large established university as a key competitor.
   2. The provider sets out unrealistic or too ambitious short-term goals, such as high performance in league tables or immediately being granted degree awarding powers.
   3. The provider’s growth projections are too optimistic or rely on the assumption of unrealistically high rates for conversion of applicants to registrations.

Sound understanding of relevant risks

9. The OfS will assess whether a provider’s business plan demonstrates that the provider has a sound understanding of relevant risks by considering whether it identifies the most substantial risks that are likely to arise from its chosen approach. The OfS’s assessment will take account of factors, including:
   1. the information included in the provider’s business plan about the nature of its students and courses
   2. its business objectives and targets
   3. its strategies for achieving these.
10. The most substantial risks are those that are likely to occur and have the largest impact on students, in terms of scale and seriousness, if they do. The exact nature of relevant risks will vary depending on the aims and objectives of the provider and its strategy for achieving them. Examples include:
    1. Risks of not meeting student recruitment targets, particularly if there are reasons recruitment may be challenging.
    2. Risks relating to recruitment of international students.
    3. Risks relating to quality and standards of courses, especially where a provider has not delivered higher education courses before or has set out plans to expand its provision.
    4. Risks relating to reliance on validation partners for awarding qualifications.
    5. Risks relating to not being awarded degree awarding powers, or a student sponsor licence.
    6. Risks that may arise from a business model which recruits a significant proportion of students from underrepresented groups. Examples are the increased risk that these students may not receive sufficient personalised academic or personal support to achieve a positive outcome, or the risk that cost pressures may disproportionately affect such students’ ability to complete their course or obtain a good grade.
11. The OfS is unlikely to consider that a provider's business plan demonstrates a sound understanding of relevant risks where:
    1. The provider’s plan fails to identify significant risks which the OfS considers the provider is likely to encounter, particularly where these risks arise from a high-risk approach which a provider has chosen to pursue (for example, where a provider does not identify the potential risks to the interests of students or risks to public funds associated with its planned reliance on domestic recruitment agents).
    2. The provider’s plan fails to engage with entire categories of risk set out under the definition of relevant risks (for example, where a provider’s plan does not include any consideration of potential risks of regulatory non-compliance).
    3. The provider’s plan significantly misjudges the potential severity of the risks it has identified. It may underestimate the likelihood of a risk occurring or underestimate the potential scale or seriousness of negative impacts on students associated with those risks.

Sound understanding of the conditions of registration

12. The OfS will assess whether a provider’s business plan demonstrates a sound understanding of the conditions of registration. The OfS will pay particular attention to whether the business plan accounts for compliance with the ongoing conditions of registration in a credible way that is likely to achieve ongoing compliance in practice.

Appropriate strategies to manage relevant risks

13. In determining whether a provider’s business plan contains appropriate strategies to manage relevant risks, the OfS will consider:
    1. The risks a provider has identified.
    2. How substantial those risks are (and the OfS’s judgement about whether this demonstrates a sound understanding of the relevant risks).
    3. Whether the plan sets out a clear position for the provider to accept, avoid, mitigate or otherwise manage those risks.
    4. Whether any proposed strategy for managing the risks is appropriate to the likelihood, scale and seriousness of impact or the risk materialising.
14. The OfS is unlikely to consider that a provider’s business plan contains appropriate strategies to manage relevant risks where:
    1. The provider has not demonstrated a sound understanding of relevant risks.
    2. The provider’s plans identify risks, but do not set out plans to manage these risks, or risk management plans are superficial or generic, lacking concrete detail about the actions the provider needs to take that will manage or mitigate risks.
    3. The provider’s assessment of the relevant risks or the impact of its mitigations is too optimistic. The provider may, for example, accept substantial risks but not take any extra actions, or take minimal or insufficient actions in response.

Ability to deliver the business plan in practice

15. Guidance on the OfS’s approach to assessment of whether a provider can deliver its business plan in practice is set out in relation to E7B.3 below.

Condition E7B.3

Capacity and resources

16. The OfS’s assessment of a provider’s ability to deliver its business plan will consider the provider’s capacity and resources. This includes assessing the provider’s financial resources. The OfS will pay particular attention to whether the provider can afford any proposed activity in its business plan or governing documents which is necessary to ensure compliance with ongoing conditions of registration or to manage significant risks.
17. The OfS will assess whether the provider’s management and governance arrangements are sufficient to deliver its plans. The OfS will consider how the provider oversees activities to ensure compliance with ongoing conditions of registration, including how it structures and resources relevant committees.
18. The OfS may also draw on its communications with a provider’s staff during the assessment process. For example, a provider is unlikely to be considered to have sufficient capacity and resources if it has said that it cannot provide audited financial statements to the standard the OfS has specified, or the OfS needs to engage with it extensively before receiving them.
19. A provider is also unlikely to be considered to have sufficient capacity and resources where:
    1. It has identified significant investment needs in a business plan (for example, to invest in IT systems for data returns), but it does not appear to have the financial resources to deliver them.
    2. Its business plan has not identified or appointed an independent external auditor that meets the requirements of the OfS’s accounts direction.
20. The OfS will also assess whether a provider can deliver its plans for how it would comply with all the ongoing conditions of registration that would apply to it. The OfS will consider the provider’s capacity and resources for delivering its plans in these areas, and whether information in the rest of its registration application supports or contradicts those plans. The OfS would consider that a provider is unlikely to be able to deliver its plans to comply with the ongoing condition of registration where:
    1. The plan does not set out robust processes for collating and validating student data, including by failing to demonstrate that IT systems are sufficient for this purpose, or failing to identify sufficiently skilled individuals who will be responsible.
    2. The plan (alongside financial forecasts) suggests that the provider has not planned for, or does not have the financial resources to meet, mandatory subscription requirements.
    3. During any communication with the OfS, the chair of a provider’s governing body demonstrates an insufficient understanding of the governing body’s responsibility for interactions with the OfS and its designated bodies and for ensuring compliance on an ongoing basis. For example, the chair is unaware of the requirements to submit information, including data returns and reportable events as required, or cannot explain the provider’s arrangements for fulfilling these responsibilities.
    4. The provider’s set of governing documents submitted in relation to E7A do not contain what is needed to comply with the ongoing conditions of registration. This includes, but is not limited to, where the documents of a provider seeking registration in the Approved (fee cap) category do not provide for appointing an independent board member.
21. The OfS is likely to draw on any additional evidence from discussions with the provider’s senior staff about its plans for compliance with the ongoing conditions. The OfS will use this evidence to assess whether the provider’s claims are credible.

Past performance

22. When assessing whether a provider can deliver its business plan in practice, a provider’s past performance may be relevant. This may include (but is not limited to):
    1. The provider’s track record in delivering higher education, particularly any evidence in relation to quality, preventing fraud and protecting public money.
    2. The provider’s previous financial performance.
    3. Published or final judgements from relevant regulatory or statutory bodies, within the last five years, placing more weight on more recent judgements within that period.
23. Circumstances where past performance may inform a judgement that a provider does not have the ability to deliver its business plan in practice include, but are not limited to:
    1. Historical poor performance or adverse judgements against the provider from relevant regulatory or statutory bodies, within the last five years, that the business plan does not address appropriately, such that risks remain relevant and insufficiently mitigated.
    2. Financial forecasts relating to costs or income, or student number forecasts, that are unrealistic compared with historical performance, where this performance resulted from a similar approach to that which the provider intends to pursue.
24. Looking at past performance will be particularly relevant for providers in subcontractual arrangements. A provider may have already been delivering higher education and indirectly accessing public money as a delivery partner in a subcontractual arrangement with a registered provider. In these circumstances, the OfS will pay particular attention to any evidence about how it has managed activities necessary to facilitate ongoing regulatory compliance historically. This may include evidence which indicates the provider had a poor track record in delivering high quality courses on behalf of a lead provider. It may also include notifications to the OfS about the provider’s failure to adequately prevent fraud and protect public money. If the evidence suggests that a provider has not managed these activities well, the OfS would be less likely to consider that it would be able to deliver its plans for complying with ongoing conditions of registration.
25. A provider in a subcontractual arrangement should also provide complete, accurate data in a timely fashion to the Student Loans Company or its lead partner. Doing so informs accurate student finance payments. If evidence suggests a provider has not done this, the OfS would consider that it is unlikely to be able to deliver its plans to comply with ongoing requirements in these areas. The provider would need to show that it had made substantial changes to the way it managed the return of this data in the past.

Other relevant matters

26. The OfS will also consider other matters it considers relevant to whether a provider can deliver its business plan. This will include considering whether the provider can realistically deliver its plan in practice, regardless of its capacity and resources. For example, the OfS would consider that a provider could not deliver a plan that contains opposing or contradictory aims.

Scope of the OfS’s judgement

27. Any decision that a provider satisfies this condition does not represent a judgement about whether:
    1. the provider's plan will mean that it succeeds commercially
    2. the provider will meet the targets in its plan
    3. the provider’s approach is valid or has the OfS's endorsement.
28. A decision only means that the OfS considers that the provider meets the requirements for registration, and has not identified any evidence that it cannot deliver its plan in practice.

Condition E7B.4

29. A provider would be unlikely to satisfy this requirement if its business plan:
    1. Demonstrated little or no consideration of the characteristics or aims of the students it intended to recruit, particularly by failure to properly consider the potential support needs of the specific students it intends to recruit.
    2. Made little or no reference to students in describing its mission or overarching objectives.
    3. Focused primarily on commercial or financial targets, with few or no objectives or targets related to its students, their academic experience or outcomes.
    4. Failed to sufficiently prioritise the mitigation of risks of regulatory non-compliance which may have a negative impact on students, or other risks to students, in contrast to a high prioritisation of the mitigation of commercial risks.
    5. Set out targets, including commercial targets, or ways of operating that were likely to create conflict with the interests of students, without considering how that conflict would be managed. This might include, but not be limited to:
    6. Plans for rapid growth which do not set out how this is going to be done in a way that ensures that all students continue to have a high quality student experience. For example, ensuring that the provider has adequately prepared and is ready for growth in student numbers, before this happens or where necessary setting limits on growth based on considerations of the staff-student ratio or availability of resources.
    7. Plans to generate significant surpluses to be issued as dividends or shared as profits which do not recognise the risks to value for money for students or consider how to manage those conflicting interests by, for example, demonstrating the provider has arrangements in place to provide transparent information to students about value for money.
    8. Plans which project minimal ongoing investment in resources and services in order to meet financial targets, without recognising risks of potential negative impacts on the student academic experience. Or plans that do not consider how to manage those conflicting interests. For example, a plan may not balance profit-seeking behaviour with reasonable investment in the provider’s staff, estate and physical and virtual infrastructure to deliver a high quality learning experience.

Condition E7B.5

Descriptions of the nature of a provider’s higher education provision

30. A provider needs to provide a description of the courses it plans to offer.
31. In addition to a description of its planned provision, where relevant a provider should provide a description of its current courses or the courses it offered in the past. A summary description of the nature of courses offered in the most recent years of delivery, rather than a full history of all the higher education courses it has ever offered, is sufficient.
32. The business plan should provide an overarching description of the provider’s provision rather than an exhaustive account. This description should be detailed enough to enable a sound understanding of the provider’s business model, its current and/or planned course offering and student population. It should demonstrate that the provider has a comprehensive plan for how it intends to operate. It should also show that the provider understands the higher education sector and allow the OfS to identify any substantial risks the provider is likely to face.
33. A description of the nature of a provider’s higher education provision does not need to list every individual course offered. But it should provide a comprehensive picture of the range of courses on offer and the distinguishing characteristics of those courses. For example, a sufficiently detailed description would cover the following points:
    1. A high-level description of the subject areas covered by courses, identifying any areas of specialism or expertise.
    2. A sense of scale and relative importance of the course offering, which may include the number of courses offered across different subject areas and the proportion of students studying (or intended to be recruited) in different areas.
    3. Whether the providers courses are at first degree level, sub-degree, postgraduate masters’, include foundation years or are a mixture of different levels, and the proportion of courses at those levels. For a provider delivering a small number of courses this may include listing individual qualification titles, but for a provider with a large, diverse range of courses it would only need to include some descriptive statistics.
    4. Details of the awarding body for the provider’s courses and any partnerships that it is reliant on, including future plans.
    5. Whether all courses are delivered on a full-time or part-time basis, involve apprenticeships, are in-person or delivered as distance learning, and any campus locations.
34. Information about the characteristics of the cohorts of students recruited to the provider’s courses, or that it plans to recruit, should demonstrate the provider’s understanding of its target market, and the academic needs and aims of its current and potential students. Relevant information may include, for example:
    • whether students are primarily young or mature
    • whether they are recruited from the local area or nationally
    • their typical level of prior qualification, particularly their typical level of technical proficiency in the English language
    • reasons for study
    • any other information about the student population which could be considered particularly distinctive, or pertinent to understanding its shared characteristics.
35. Information about a provider’s business competitors should show that the provider understands the market in which it will operate and that its plans are informed by sufficient understanding of the higher education landscape. Relevant information may include, for example:
    • identifying the provider’s most relevant competitors and showing that it understands their offer
    • a strategy that takes this into account (for example, by setting out how it differentiates itself from its competitors, or is responding to unmet demand).

Business objectives and targets

36. The ‘business objectives and targets’ included in the business plan will vary by provider. E7B.6.a provides examples of the business areas in which a provider may have set objectives and targets that would be particularly relevant to the OfS’s assessment, such as financial targets, recruitment targets, or objectives around expanding the provider’s course offering.
37. In deciding the information to include about objectives and targets, a provider should especially consider including:
    1. Details of any business-critical goals (financial or otherwise) which if not met might jeopardise the provider’s ability to deliver its plan. For example, if the courses a provider plans to offer depend on achieving professional accreditations or its own degree awarding powers, or if the provider’s financial sustainability depends on any short-term recruitment or turnover targets, these business-critical goals would need to be highlighted as such in the provider’s plan.
    2. Any performance indicators, strategic objectives or other measures of success (financial or otherwise) that the provider has set for itself within the period covered by the business plan. Examples of strategic objectives would include:
       1. recruitment or revenue targets
       2. goals related to successful TEF participation or student sponsor license applications
       3. the development of the provider’s course portfolio or the establishment of new subcontractual partnerships to deliver courses on behalf of another provider.
    3. Relevant performance indicators would include, but not be limited to:
       1. Any targets set out by the provider in any business plans, strategic plans, annual reports or other planning documents, particularly where these have been used to secure investment, report to shareholders or report to other stakeholders.
       2. Any measures adopted for internal reporting or performance monitoring, for example, through establishing KPIs or metrics which are regularly reviewed by the provider’s senior managers or governing body.
       3. Any measures used to determine performance-related pay of the provider’s senior managers.
38. The OfS will pay particular attention to whether the information provided is comprehensive. Omission of any of the business objectives and targets described above from a provider’s business plan may indicate that the business plan does not comprehensively reflect how the provider intends to operate.
39. The business plan should set out, in broad terms, the provider’s strategy for achieving the business objectives and targets it has identified. The content of this section will depend on the targets and objectives identified, but may include, for example:
    1. A provider’s strategy for achieving recruitment targets, such as its target demographic, approach to marketing, and any planned use of recruitment agents.
    2. A provider’s strategy for growth of its course portfolio (or other objectives relating to changes in the provision it offers), such plans for start new partnerships or expand into new subject areas.
    3. A provider’s strategy for achieving financial targets, particularly where this involves the generation of surpluses, such as any approaches the provider intends to adopt to increase revenue, reduce or limit costs, or any planned changes to its fee structure.
    4. A provider’s strategy for achieving objectives in relation to the academic experience or outcomes of students, such as investment in staff, physical or digital resources, partnerships with employers, curriculum changes, or changes to academic support arrangements.
40. The plan should provide information about any planned strategies which will require:
    • additional investment
    • a significant change to the size and shape of the provider or the way it currently operates
    • approaches which carry a risk that the provider needs to manage.