Policy Guidance Note: Formula Funding

Support to VET Financing – Policy Guidance Note: Formula Funding

A Guidance note on the resource allocation mechanisms such as formula funding for VET providers.

Short description of content:

This note guides the multi-stakeholder dialogue on resource allocation mechanisms such as formula funding for VET providers, as a tool to improve the efficiency and the results and performance orientation of these key actors of VET systems. It is advisable to use this Guidance note in combination with the ETF VET Financing Prism, which provides a basis for developing multi-stakeholder dialogue on VET finance reform in accordance with principles of good governance. The Financing Prisms models VET finance in terms of three key activities: the mobilisation and allocation of resources along with management of the VET financing chain.

This note provides a discussion on the use of ‘formula funding’ as a mechanism for calculating and distributing institutions’ VET budgets. The merits of formula funding include simplicity, objectivity, transparency and equity. Formulae typically depend on the availability of data for teacher numbers, student demographics and projected course demand. They can be designed as levers to help achieve defined educational, economic and social policy goals. Careful design, management and monitoring is needed to mitigate risks such as data distortion and the provision of perverse incentives.

This note covers issues that need to be considered, including the advantages and disadvantages of formula funding for different stakeholder categories, and success factors for implementation. These issues are illustrated using case studies from England and Denmark. In the case of England, the text describes the rationale behind the use of different formulae for different categories of learners, adult learners and young learners in the 16 to 19 age group. In the case of Denmark, the ‘taxi-meter’ system, which enables institutions to manage course demand and productivity in service provision, is explored.

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