Annual Report 2010-2011

Moving Forward

[ Table of Contents ]

Financial Statement Discussion and Analysis
March 31, 2011

Disclaimer

This Financial Statement Discussion and Analysis (FSD&A) should be read in conjunction with the Canadian Institutes of Health Research (CIHR) annual audited financial statements for the year ended March 31, 2011 and accompanying notes. The FSD&A and audited financial statements have been reviewed and approved by the CIHR Governing Council.

Financial Highlights

• CIHR's net cost of operations increased by 4.3% in 2010-11 largely due to increased Parliamentary authorities provided by the Government of Canada.
• Total CIHR expenses for 2010-11 increased by 4.5% mostly as a result of a 4.3% increase in grants and awards expenses.
• The ratio of total operating expenses to total expenses for 2010-11 was 6.4%, up slightly from 6.3% in 2009-10.
• Total Parliamentary authorities provided by the Government of Canada increased by 4.3% in 2010-11 resulting primarily from new funding announcements by the Government of Canada.
• CIHR's total assets and total liabilities decreased by 11.5% and 11.4% respectively as compared to 2009-10. These corresponding decreases to assets and liabilities resulted directly from CIHR's recognition of $2.3 million of additional revenues in 2010-11, whereby CIHR disbursed funds on behalf of external parties to fund additional health research grants and awards. As such, the due from the Consolidated Revenue Fund asset and the deferred revenue liability both decreased as compared to the prior year.
• Net cash provided by the Government of Canada increased by 4.8% in 2010-11 to offset an increase in expenses of 4.5%.

Financial Analysis

CIHR is financed by the Government of Canada through Parliamentary authorities. In 2010-11, CIHR was provided with $1,029.9 million of Parliamentary authorities, an increase of $42.2 million (or 4.3%) as compared to 2009-10. The Government of Canada provided CIHR with additional Parliamentary authorities as part of Budget 2010, as follows:

• An ongoing budget increase of $16.0 million to support outstanding health-related research;
• $5.0 million to fund a clinical trials network to help move research on medical isotopes and imaging technologies into clinical practice; and
• $1.6 million of funding for the introduction of the Banting Postdoctoral Fellowships Program, to help expand Canada's world-class research capacity by recruiting top-tier international postdoctoral researchers to Canada.

CIHR also received additional Parliamentary authorities to increase funding for several key programs and initiatives, including:

• An additional $5.3 million to fund the third round of Centres of Excellence for Commercialization and Research grants - an innovative program designed to create centres to advance research and facilitate commercialization of technologies, products and services;
• $4.6 million to support the launch of the new Canada Excellence Research Chairs Program, which supports Canadian universities in their efforts to build on Canada's growing reputation as a global leader in research and innovation;
• $4.5 million of additional funding to support the CIHR-led Drug Safety and Effectiveness Network, to generate evidence for use in assessments of drug products' safety risks relative to their therapeutic benefits; and
• An ongoing annual transfer of $3.0 million from the Public Health Agency of Canada to support innovative research in the prevention, detection and treatment of breast cancer.

The foregoing increases in Parliamentary authorities have resulted in corresponding increases in total Parliamentary authorities used by CIHR (4.4%), grants and awards expenses (4.3%) and the net cost of operations (4.3%). Total operating expenses increased by 6.1% primarily due to increased employee salaries and benefits, as CIHR increased its human resource capacity to enable the effective administration of new and expanded grants and awards programs.

The following graphic indicates how 2010-11 grants and awards expenses were allocated by CIHR's four program activities.

Grants and Awards Expenses by Program Activity
(in thousands of dollars)

*Figures do not include refunds on previous year’s grants and awards

Long description

As displayed in the graphic above, the two largest increases were to the Health Knowledge and to the Health and Health Services Advances program activities. Expenses under the Health Knowledge program activity increased by approximately $15.7 million. This increase was a result of increased expenses incurred via CIHR's Open Operating Grant Program which funds the best project ideas submitted by researchers from all areas of health research. The Health and Health Services Advances program activity expenses increased by approximately $23.9 million largely as a result of funding for new strategic initiatives such as the Strategy for Patient-Oriented Research, the International Collaborative Research Initiative on Alzheimer's Disease Research, the Medical Isotopes Initiative and the expanded Drug Safety and Effectiveness Network.

Trend Analysis

CIHR Net Cost of Operations and Grants and Awards Expenses
(in millions of dollars)

Long description

• As evidenced by the above chart, net cost of operations and grants and awards expenses increase or decrease on a yearly basis in relative proportion to changes in the Parliamentary authorities provided to CIHR by the Government of Canada.
• Total Parliamentary authorities have increased by 19.3% since 2006-07 whereas net cost of operations has increased by 21.4% and grants and awards expenses have increased by 20.7% over the same period.

CIHR Operating Expenses
(in millions of dollars)

Long description

• In 2010-11, salaries and employee benefits made up 72.0% of total operating expenses, compared to 70.8% in 2009-10. The increase in CIHR's salaries and benefits, and other operating expenses is consistent with the overall increase in grants and awards expenses.
• Total operating expenses increased by 6.1% in 2010-11 due to higher wages for employees as CIHR increased its human resource capacity to enable the effective administration of an increased number of grants and awards programs.
• The ratio of operating expenses to total expenses was 6.4% in 2010-11, consistent with prior fiscal years.

Risk and Uncertainties

CIHR understands the importance of risk management and is committed to ensuring that risk management considerations are integrated into its strategic and operational planning, business processes and decision making. CIHR has a Risk Management Framework that sets out how CIHR identifies, assesses and mitigates risk.

As reported in its 2010-11 Report on Plans and Priorities, CIHR has identified three primary risks, as follows:

Health Research Roadmap

CIHR's Strategic Plan, the Health Research Roadmap, sets out an ambitious agenda that will enable the agency to realize its full mandate in all its complexity, show leadership within the wider health research community and demonstrate accountability and results to the people of Canada. There is a risk that CIHR will be unable to fully deliver on the strategic directions outlined in the Health Research Roadmap within the defined timeframe, including risks that internal and external stakeholders will not understand or support the proposed changes and that ongoing operational requirements and competing priorities may prevent the required human and financial resources from being able to focus on the implementation of the strategy.

CIHR management has implemented several strategies to mitigate these risks, including:

• The development of a high-level, three-year rolling implementation plan, which includes goals, key activities, and performance measures for external audiences;
• The implementation of an internal governance model to ensure that senior management monitors progress, identifies and resolves issues promptly and takes steps to mitigate implementation risks; and
• The implementation of a stakeholder engagement and communication plan.

Knowledge Translation

There is a risk that CIHR may not be able to support the synthesis, dissemination, exchange and ethically sound application of knowledge at the levels required to achieve the Knowledge Translation (KT) component of its mandate and to improve the health of Canadians. The importance of achieving these objectives has been strongly emphasized in CIHR's Health Research Roadmap. Funding opportunities and other mechanisms for advancing KT require time, human resource expertise and resources at levels that CIHR has yet to achieve.

CIHR management has taken the following steps to mitigate risk associated with potentially not achieving its KT mandate:

• The development of a new KT strategy for CIHR including an implementation plan and an evaluation plan; and
• The establishment of a core suite of CIHR KT programs as set out in the Health Research Roadmap.

Results Management

There is a risk that CIHR will be unable to evaluate and report on the results of CIHR's funded research inputs, outputs and impacts.

To mitigate this risk, CIHR management has implemented or is in the process of completing the following mitigation strategies:

• The development and implementation of a five-year Evaluation Plan to assess all programming over the period;
• The development of an Impact Framework to report on results in a consistent way to demonstrate impact; and
• The implementation of a research reporting system to allow the organization to access reports on results of CIHR funded research.

Future Financial Outlook: 2011-12

On June 6, 2011, Minister of Finance James Flaherty tabled in Parliament the Government budget for fiscal year 2011-12. Budget 2011 lays out a plan for new investments into the key drivers of economic growth - innovation, investment, education and training - and seeks to foster an environment in which all Canadians contribute to and benefit from a stronger economy. In doing so, the Government will reinforce Canada's comparative advantages. More specifically, Budget 2011 includes significant investments in innovation which will likely impact CIHR's future outlook, as follows:

• A $15.0 million permanent budget increase for CIHR to support advanced health-related research such as the Strategy for Patient-Oriented Research;
• A new investment of $53.5 million over 5 years to support 10 new Canada Excellence Research Chairs; and
• A $100 million investment over 10 years to help establish the Canada Brain Research Fund to support Canada's very best neuroscience and advance knowledge and treatment of brain disorders. Federal funding will be matched by resources from Brain Canada and its partners.

CIHR is expected to continue to remain in good financial position as the Government of Canada continues to make significant investments in health research and innovation to preserve Canada's comparative advantages. CIHR management anticipates that once all new funding initiatives are approved, its total Parliamentary authorities will once again reach $1 billion in 2011-12.