Staying afloat in the volatile world of VET
July 8, 2015 10 Comments
RTOs, Funding and Financial Viability
We have seen a whole lot of changes in the VET sector recently, particularly around government funding and who is being expected to be paying for VET in Australia. A couple of weeks ago I looked at the major ways in which VET in this country is paid for, that is income contingent loans, entitlement style funding, trainee and apprenticeships and special purpose funding programs. In that piece I left out (on purpose) the concept of Fee for Service training, where a person or an organisation simply pays a provider to deliver a qualification, but in the context of what I am talking about today, fee for service training is an important element in how VET is paid for. So given all of the changes that have happened to funding in the sector recently, what does an RTO need to do in order to ensure that they are financially viable both now and into the future.
The first two things are obvious (well at least I think they are), but sometimes as we have seen spectacularly in some cases they are often overlooked or their important placed second to maintaining a constant flow of new students and financial considerations.
- Provide High Quality training, and
- Be compliant – Not just on paper, but be really compliant.
Anyone who doubts the importance of these two things in terms of continued financial viability, should perhaps think seriously about whether or not they have a place in this industry. It doesn’t matter whether you are a very large provider or a very small one, if you are not providing high quality training and maintaining your compliance you will pay for it in the long run. Take for example a large provider who is heavily reliant on VET FEE-HELP whose quality of training is called into question, or their compliance is off. Their risk rating for their Tuition assurance scheme might risk substantially or worse still it could be revoked, leaving them without the ability to utilse the funding source that drives their business. What about a small provider who is heavily reliant on government entitlement funding like Queensland’s Certificate III guarantee program, who is delivering courses that don’t meet time requirements (Volume of learning and nominal hours for example), who find as a result of this that the government decides to radically reduce the level of funding for the course, to match the amount of time it is being delivered in. Both of these circumstances would be extremely detrimental to the financial viability of an organisation, but also point to the next thing the providers really need to think about when they are thinking about their business.
- Don’t rely on just one source of income!
Unfortunately a lot of providers, both big and small and even both public and private rely far too much on single sources of funding or types of funding and fail to spread their exposure to variations in the market place. Contestable funding made things more difficult for the public providers because most of their delivery and services were based on a model where government funding remained constant. The proposed changes to the funding of training in South Australia, could have huge effects on those non-public providers that have relied on it for years. A change to how VET FEE-Help is paid (for example if it moved to a completion model rather than a census date model) would have an enormous effect on the cash flow for those providers for whom it is a substantial proportion of their income stream.
So what can providers do to ensure that they can be financially viable over time.
- Spread your funding risk
- Build income streams not related to funding sources.
If providers are going to rely heavily on funding, be it income contingent loans or other sources of funding, then they need to make sure that their risk is spread as much as possible, add special programs to your entitlement funding programs, become an apprenticeship and traineeship provider as well as a VET FEE-Help provider, make sure that if funding changes in one area that your business can absorb those changes through the income from the other funding streams. The most important thing you can do however, is to try to build income streams that don’t rely on government monies. All providers who want to continue to be viable should be ensuring that they look at things like
- Fee for service for individuals and organisations
- skill sets as opposed to full qualifications
- non-accredited training and
- partnerships with organisations and other providers.
Building your fee for service base is one of the best ways that providers can continue to remain financially viable as it untethers them from the vagaries of government policy and funding decisions. The problem is that most providers don’t do this very well at all. The biggest problem for most RTOs is that, that is all they see themselves as, providers of VET qualifications and in some cases skill sets. The best way for providers to build their fee for service business is to start to look at themselves as training organisations rather than just RTOs and look at developing their skills and programs in the non-accredited space. Look at what you are good at and capitalise on that.
Anyway that’s what I think.