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2020 Global – who we are.

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Presentation on theme: "2020 Global – who we are."— Presentation transcript:

1 2020 Global – who we are

2 Drug and Alcohol Office WANADA FORUM 2 May 2012
Sustainable Pricing Tonia Swetman and Jon Petelczyc Jon and Tonia’s roles / experience

3 Presentation Aims To provide an awareness of organisational sustainability and pricing to: Develop your organisation’s capacity to determine a sustainable price for a community service. Assist you to prepare an offer as part of a request for tender process. Refer to Information Pack

4 Objectives At the conclusion of the session, you should be able to:
Understand the concept of organisational sustainability and factors that impact organisational sustainability. Apply financial governance principles to your own organisation and identify broad areas for improvement. Identify the key steps in responding to a tender with regard to sustainable pricing. Consider alternative frameworks for developing a pricing model for variable outputs. Refer to Information Pack

5 Objectives At the conclusion of the session, you should be able to:
Appreciate the importance of tracking and monitoring service delivery and costs to ensure sustainability. Appreciate the value in conducting internal and external audits. List major threats to organisational sustainability. Refer to Information Pack

6 What is Sustainability?
Sustainability is the ability to continue a defined behaviour indefinitely. Wikipedia Where a system is capable of being maintained at a steady level without exhausting natural resources or causing severe ecological damage to sustainable development. Collins English Dictionary – Complete and Unabridged© HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

7 Sustainability Sustainability is the attribute of a system that has the internal capacity to: achieve the sustainability of its internal workings; catalyse the achievement of the sustainability of its external environment; and / or adapt and survive no matter how unsustainable the external environment might be (ie. it can always 'ride the waves' down as well as up). This is an attribute that can only be aspired to by 'living' systems - species, ecosystems and societies. Philip Sutton, Green Innovations Inc 7

8 Sustainability Planet Profit People 8

9 Organisational Sustainability
A sustainable state is one in which utility (for consumption) is non- declining through time. A sustainable state is one in which resources are managed so as to maintain production opportunities for the future. A sustainable state is one in which the (natural) capital stock is non- declining through time. A sustainable state is one in which resources are managed so as to maintain a sustainable yield of resource services. A sustainable state is one which satisfies minimum conditions of (eco) system stability and resilience through time. 9

10 Factors that impact on Organisational Sustainability
Economic or financial sustainability, while critical, is only one aspect of an organisation's overall sustainability. Organisations must also build a broad range of organisational, technical, and human capacities. Many factors influence the sustainability of an organisation including the operating environment, such as: national and local politics and policy, the activities of other organisations, the availability of skilled personnel, and so on. 10

11 Factors that impact on Organisational Sustainability
Corporate Governance Authority, accountability, stewardship, leadership, direction and control Characterised by ongoing monitoring and evaluation Refer to Information Pack

12 Corporate Governance Effective corporate governance helps an organisation to achieve its objectives and desired outcomes and fulfil its obligations through sound: strategic and business planning; risk management; financial management and reporting; human resource planning and control; and compliance and accountability systems. Refer to Information Pack

13 Corporate Governance Conceptual representation of the four categories of good governance features. Corporate Governance Handbook for Company Directors and Committee Members 2nd Edition, June 2010 The Department of Families, Housing, Community Services and Indigenous Affairs, Australian Government. Refer to Information Pack

14 Corporate Governance Principles ASX Guidelines
Recognise clear roles and responsibilities; Structure the Board to add value; Ethical and responsible decision making; Integrity in financial reporting; Timely and balanced disclosure; Respect the rights of members; Recognise and manage risk; and Renumerate fairly and responsibly. Refer to Information Pack

15 Financial Monitoring and Management
Budget Cycle Planning Develop goals, objectives Development Estimate cost of attaining each goal Project revenues Implementation Record budget in accounting system General Ledger Monitoring Compare budget to actual revenue, expenditure Investigate variance Control Take corrective action P L ANN I NG H A S E CONTROL PHASE Refer to Information Pack

16 The Challenge for a Not-for Profit
Balancing the pursuit of community service objectives (the mission) with business objectives. A not-for-profit service provider organisation needs to achieve commercial outcomes as well as vocational, advocacy and other support outcomes for its clients / members. These dual roles can, however, create conflict when it comes to decision making. Refer to Information Pack

17 The Financial Imperative
A strong financial capacity provides the means to achieve a not-for- profit’s mission. The focus on vocational, advocacy and other support outcomes can sometimes be at the expense of business objectives of an organisation. In turn, pursuit of community service outcomes can then threaten the financial viability and sustainability of the organisation if the dual objectives are not properly balanced. Effective corporate governance can assist in achieving this balance. Refer to Information Pack

18 Consider What elements would you consider when determining a sustainable price? Refer to Information Pack

19 Sustainable Pricing Refer to Information Pack

20 Definition of a Sustainable Price
A sustainable price for a community service includes all real and anticipated costs incurred from: delivering; administrating; monitoring; and evaluating the service at a pre-determined quality, for a specified time period plus a component for profit and contingencies, less any programme subsidies or grants to be received. Refer to Information Pack

21 Definition of a Sustainable Price
A sustainable price also considers organisational strategic initiatives, current and planned, where relevant costs are allocated across relevant programmes. Refer to Information Pack

22 Cost Analysis – Why? To: Identify and prioritise cost saving initiatives. Fundraise from donors to cover the true costs of delivering a programme. Price the community service at a level that covers the true costs of providing the service. Report the true costs of a programme. Make adjustments to programme delivery, if necessary. Refer to Information Pack

23 Costing Considerations
Before the costing exercise: Determine objective in costing (outcome / output). Define the service. Identify the processes associated with the service delivery. Determine the time period. Consider ALL cost components (inputs) in the accounting system. Understand the difference between cash and accrual accounting. Consider costs not identified in an accounting system. Refer to Information Pack

24 Categories of Costs Direct Indirect (or overhead costs)
Capital related costs Depreciation Taxation Opportunity Cost Services and resources received free of charge Refer to Information Pack

25 Cost Drivers: Allocating Indirect Costs
The building blocks for unit costs. A cost driver has an effect on costs. For example, in service provision, the number of hours for providing care is a cost driver for labour. You will need to determine your indirect costs allocation method, based on the cost driver. You must apply your model: Accurately Consistently Refer to Information Pack

26 Calculating Costs Total Cost
Direct + Indirect + Other Costs + Other Factors = Total Cost Unit cost Total Cost divided by number of units Capturing Costs Historical Data Research Assumptions (based on trends and other factors) Refer to Information Pack

27 Refer to Information Pack

28 Top-Down and Bottom-up
Refer to Information Pack

29 Pricing Schedules SERVICE DESCRIPTION UNIT (e . g hourly, daily,
EXAMPLE 1 : LUMP SUM SERVICE DESCRIPTION UNIT (e . g hourly, daily, weekly) ESTIMATED USAGE PRICE/RATE (Inc GST) Total Cost (insert rows as necessary) TOTAL (Lump Sum) EXAMPLE 2 : SCHEDULE OF RATES SERVICE DESCRIPTION hourly, daily, weekly) (insert rows as Refer to Information Pack

30 Completing the Tender Document
Step 1 Consider the Request for Tender / Expression of Interest (Ask the nine questions) Step 2 Define the community service delivery programme to be costed Determine community service delivery scope Step 3 Consider and determine pricing options Identify / collect data for the relevant time period and modify source and format of data, where necessary Step 4 Allocate direct costs by community service programme Step 5 Identify cost drivers Allocate indirect cost Refer to Information Pack

31 Completing the Tender Document
Step 6 Allocate 'other costs' (capital related, opportunity cost, depreciation, amortisation, taxation, outcomes measurement) Step 7 Check data - accuracy and logical soundness Assess results by conducting a bottom-up costing exercise and consider implications for the organisation Step 8 Consider market conditions and organisation objectives Finalise Pricing Step 9 Demonstrate value for money (include services and resources provided free of charge) Step 10 Consider the tender evaluation process to ensure you have allocated appropriate detail / emphasis relevant to the weightings. Refer to Information Pack

32 Costing Model Example Refer to Information Pack

33 Financial Reporting and Recording
Recording Costs Tracking Costs Monitoring Price Sustainability Refer to Information Pack

34 Financial Information Tasks and Objectives ‘Accounting’
Collection Collection (in money terms) of information relating to transactions that have resulted from operations. Recording and Classifying Recording and classifying data into a permanent and logical form. This is usually referred to as “Bookkeeping”. Summarising Summarising data to produce statements and reports that will be useful to the various users of accounting information - both external and internal. Refer to Information Pack

35 Financial Monitoring and Management
Interpreting and Communicating Interpreting and communicating the performance of the business to the management and its owner. Forecasting and Planning Forecasting and planning for future operation of the business by providing management with evaluations of the viability of proposed operations. The key forecasting and planning tool is the budget. Refer to Information Pack

36 Accounting System Components
People Procedures and instructions Data Software Information Technology infrastructure Internal controls and security Refer to Information Pack

37 Financial Monitoring and Management
Accounting Financial Accounting Management Accounting Internal Users Custom reports Government Agencies Customers Donors / Investors Other Stakeholders Directors and CEO External Users Set Report Line Managers Employees Refer to Information Pack

38 What is an audit? External Audit: For External Stakeholders
The purpose of an external audit is to form an independent view on whether the information presented in a financial report, taken as a whole, reflects the financial position and performance of the organisation at a given date, for example: Are details of what is owned and what the organisation owes properly recorded in the balance sheet? Are profits or losses properly assessed? Refer to Information Pack

39 What is an audit? Internal Audit: For Internal Stakeholders Internal auditing is an independent and objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Refer to Information Pack

40 Types of External Audit Opinions
Unqualified Qualified Adverse Disclaimer Refer to Information Pack

41 Financial Sustainability Threats
Unrealistic service targets – trying to deliver more than is sustainable (quality and output) Under pricing Over pricing Inadequate / poor financial recording and reporting Inadequate / poor management and monitoring Failure to have regular independent audits External factors (competition, demand, reputation, etc) Refer to Information Pack

42 Costing and Pricing Questions?
Refer to Information Pack

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