Universities' governing bodies should formally assess the sustainability of their institutions each year using a set of key performance indicators and submit a report of their findings to funding councils, a UK-wide study is set to recommend.

The "pro-active" approach would give governors and funders early warning of potential problems as universities enter the "volatile" new financial environment.

However, the report argues that the same set of indicators should not be applied to every institution because of the sector's diversity.

A draft of the report - Assessing the Sustainability of Higher Education Institutions - was presented this week at a Leadership Foundation for Higher Education conference in London.

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More than 30 universities contributed to the project, which considered how best to measure and monitor university sustainability in light of recommendations made by Sir William Wakeham's review of research efficiency.

The Wakeham Report suggested that governing councils should take a greater role in ensuring the financial sustainability of their university and that a "consistent set of metrics" should be developed to assess institutions across the sector.

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According to the recommendations made by the new study, which was prepared for a cross-sector forum of senior administrators, governors should carry out a formal assessment every year.

This would look beyond a narrow, short-term view of "financial health" and consider whether a university has the right strategy to meet the challenges of the funding environment over subsequent years.

Such sustainability, it is suggested, should be measured using a set of indicators in areas such as research, financial health and teaching and learning - although only those relating to finance should be "consistent" across the sector.

Geoffrey Crossick, vice-chancellor of the University of London and chair of the Financial Sustainability Strategy Group, which commissioned the report, said prescribing a single set of indicators across the board "would be unhelpful".

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But he said that if the sector agreed with the report's findings that sustainability should be reported annually, then it could help to shape the government's policy towards regulation and oversight.

"We know that a requirement (for regular assessment) is going to come forward - the government will want it and funding councils will want it," Professor Crossick said.

"What we're anxious to ensure is that the sector keeps control of this and shapes what is done, so that it is meaningful and also helpful to institutions, rather than have something that isn't very satisfactory imposed on us."

Jim Port, managing partner of JM Consulting, which compiled the report, said that although many governing bodies were already assessing sustainability, an annual requirement would encourage them to be "rigorous and comprehensive".

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Such annual reviews would, from a sector-wide perspective, also help to provide an "evidence base" for future prosperity, as well as early warning of institutions in potential difficulty, he said.

simon.baker@tsleducation.com.