RSM Australia

How to afford staying in business under the NDIS

Income is critical in saving organisations from failure, and maintaining a positive balance sheet is one of the biggest concerns for disability service providers facing the National Disability Insurance Scheme (NDIS). The new fee-for-service funding model under the NDIS means that it has become more important than ever for organisations to have an accurate understanding of their costs. Moving from government block funding, there are two important questions which must be answered by every decision-maker:

  1. What will the gap be between block funding and new NDIS income?
  2. Will cash flow cover costs?

The easiest way to answer both questions is to use cost-modelling, which can pinpoint the hidden costs and pressures behind programs with seemingly healthy budgets. Many organisations are burdened by issues of program cross-subsidisation and inefficiencies, and these weaknesses can all be identified through the analysis of an expert. The cost-modelling process identifies all the costs which a business incurs (e.g. total wages) and then pinpoints all the cost drivers (e.g. hours worked) behind the delivery of specific services. This information is captured and combined with business rules and assumptions, ultimately providing an accurate picture of an organisation’s costs. Often, overlooked costs in administration and idle capacity will be brought to the surface, and the flaws in budgets revealed alongside inefficiencies. When it is compared with an organisation’s projected income, an image is provided of the financial future.

There are also few things more useful than a cost model in understanding the impact changing factors may have on your organisation’s financial health. Cost modelling is essential for sensitivity analysis. Since the basic rules governing your costs remain the same, simple adjustments to a cost model (such as the number of clients or hours worked) will reveal the impact of changes in revenue and costs. Similarly, adjustments to wage rates, will allow an organisation to see the resulting change in their total costs and bottom line. Modelling provides organisations the opportunity to test what impact the reallocation of resources could have on the organisation as a whole, and can act as an important tool in the decision-maker’s arsenal.

Through business records and assumptions, a cost model turns raw data into decision information. This information is essential to decision-makers in identifying problem areas, cutting unsustainable services, and improving organisation efficiency. With a thorough understanding of costs, funds can be smartly managed and reinvested into other parts of the organisation. From there, it is smooth sailing.