The university has gone through a difficult period financially, with various cutbacks including a voluntary severance scheme for staff taking place as it has tried to improve its long-term health.

However, it managed to make a £0.6 million surplus in the last academic year and its turnover has now topped £200 million.

Prof Downes said that so far higher education institutions in Scotland were not facing the same “brutal” challenges as their counterparts south of the border.

Cuts and efficiency savings of more than £900 million had been ordered in England over the next three years, but the Scottish Government was increasing the funds being made available.

The principal said, “However, now is not the time for complacency as that budget only covers the period to April 2011 and the Scottish Funding Council has not yet provided universities with their funding allocations for 2010/11.

“The picture beyond spring 2011 is entirely unclear in Scotland.

“In a belt-tightening environment, institutions will succeed only if they are able to take hard decisions about the quality of their learning, teaching and research outputs and of the support services they provide.”

The university has been carrying out a strategic review, which has involved Prof Downes holding talks with senior academics, union officials and the students’ association.

While the review would highlight areas where the university was strong, it would also show where performance was not as good.

The principal cautioned, “In an ideal world this would provide the university with the opportunity and time to develop such areas to the standards to which we aspire.

“I believe the external financial environment is unlikely to provide us with that luxury and will require us to take more urgent action.”

An analysis of activity across the university is now being carried out and detailed proposals are expected to be presented to the university court — its ruling body — in April.