How to assess the viability of your service models

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How to assess the viability of your service models

The National Disability Insurance Scheme (NDIS) has meant that disability service providers must continue to deliver an excellent product, offering a narrower range of services. These services must be efficiently-priced, competitive and attractive to customers to be viable.

This new ‘commercial landscape’ is complex. Many organisations find the change from being ‘caregivers to members and beneficiaries’ to running ‘client-service oriented businesses’ to be challenging, with clients now having the power to choose their provider.

Forecast your expected activity levels

The move to a competitive ‘fee-for-service’ model requires the forecasting of activity levels, which is a method that was traditionally used in commercial sectors.

Once you’ve conducted market research to help you to uncover potential new clients, you need to take a realistic look at likely activity levels for each service you offer. Refer to How to conduct market research for further information.

Start by calculating how many clients per service as well as individual occasions of service you are likely to deliver every year. This includes potential new clients.

Compare financial outcomes against future expenses

Look at activity levels and what you spent last year. Estimate the cost of future service delivery including the cost of attracting and retaining new clients. Ask yourself:

  • If your service model isn’t changing, will the commercial activity be the same next year?
  • Are there new competitors in the market?
  • Are other organisations likely to broaden their range of services?

If your service model is going to change, you will need to do a more detailed forecasting exercise.

Salaries and wages are the most significant component of disability services, be aware that if you offer more services, you will also incur additional costs.

Assess the skills required

With choice and control comes an increased need for a broader range of roles and skill sets within your organisation.

  • Do you have employees with expertise in business operations, marketing/branding, public relations, business/financial modelling and customer service?

You will need people with these skills to attract new clients now that you’re functioning in a more commercially competitive market.

You will need to assess any skills gaps in your organisation. You may need to employ more staff or create partnerships or alliances to fill these gaps. Also refer to How to develop alliances and partnerships for more information.

Revisit your mission and assess your service offers

Having the capacity to deliver quality services is no longer a guarantee of success. Consider your core mission. Can you continue to fulfil this, or does it need to change?  Identify what services you may need to drop or alter. You need to work out how all your ‘mission critical’ services can be delivered for an ‘efficient and sustainable’ price.

Also refer to How to create a compelling Value Proposition (Mission Statement)

Get your costings right

Cross subsidisation is the practice of charging higher prices to one type of consumer to artificially lower prices for another group – Disability service providers have traditionally used this practice to remain viable. Under the NDIS, this practice has significant risks and may mean operating at a loss.

Use the NDS/Curtin Costing and Pricing Tool to calculate realistic activity levels and service costs to work out precisely what each of your services cost.

Getting your costings right is one of the areas where critical skills are required to navigate the changes in the disability services sector successfully. Assessing the viability of service models based on sound financial modelling and market intelligence is essential.

Also refer to:

Resources

A national costing and pricing framework for disability services:

http://businesslaw.curtin.edu.au/wp-content/uploads/sites/5/2015/09/national-costing-pricing-framework-for-disability-services-Oct-2014.pdf

User manual for the NDS / Curtin costing and pricing tool version 4.0 (July 2017)

https://www.cplp.nds.org.au/tools?view=document&id=34:nds-curtin-costing-pricing-tool-manuel&catid=19:tools

Analysing time: A guide to understanding key elements of workforce costs under the NDIS

https://www.nds.org.au/images/resources/Report_WorkforceCosts-2017.pdf

NDS/Curtin costing and pricing tool 

https://www.cplp.nds.org.au/tools?view=document&id=35:nds-curtin-costing-pricing-tool&catid=19:tools

Costing and pricing learning program 

https://www.cplp.nds.org.au/learning-program

ATO Business viability assessment tool

https://www.ato.gov.au/Calculators-and-tools/Business-viability-assessment-tool/