Staying afloat in the volatile world of VET

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.

 

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About pauldrasmussen
Paul Rasmussen is one of Australia’s most widely read Vocational Education and Training Commentators. He provides deep, unbiased analysis and insights not only on topical issues, but also on the underlying structure and policy which supports the industry. His writing and analysis has been praised for its uncompromising and thought provoking style and its ability to focus on the issues of real importance to the sector. He has advised various government departments and ministers, training providers, public and private organisations, not for profits and small to medium enterprises on the VET sector and the issues and opportunities facing it. He is one of Australia’s most awarded learning professionals and a regular speaker at a range of conventions and forums. His extensive experience in vocational education, and learning and development coupled with formal qualifications in philosophy, ethics, business and education management allow Paul to provide a unique view of the road ahead and how to navigate it.

10 Responses to Staying afloat in the volatile world of VET

  1. basdenleco says:

    Good article
    Thank you

  2. Paul,

    I absolutely agree with what you say about diversifying services to reduce risk, however I would like to point a major factor that make this difficult. That is that when a government heavily funds the training in a particular market niche, and the products being offered are accredited courses with the main outcome for employers to comply with legislation, the market tends to develop a “training as a commodity” mindset. That is that all outcomes are considered equal and the only distinguish factors are price and time to deliver. Unfortunately, that also drives quality reduction.

    As a provider of services to those markets, you have a few options to compete:

    1. Compete as a commodity provider by building volume and efficiency and work hard at maintaining a good compliance record and reputation with the funding body. This leaves you exposed to sudden policy change, but you acknowledge that risk and have a contingency strategy which may include closing or suspending the business.

    2. Move or expand to other accredited training markets by investing in subject content areas and target markets. This might include offering skill sets or stand-alone units within your existing scope to a new market with different priorities.

    3. Add value in ways that a commodity provider will not and sell on the basis of that added value and the quality of the results (not price), or convenience of delivery (not speed). Non-accredited courses remove the “all training with this code on it is equal” factor, freeing you to tailor content to a particular market segment.

    Over the last 15 years of working as a service provider to a wide range of RTOs, I have seen all of these done in a wide variety of ways and with varied success. I have seen what happens when funding is arbitrarily or reduced or removed. Diversifying can seem expensive and risky, but the risk of not doing are just as high. Success however, can allow the business owners to sleep at night.

    Thanks again for the article. A very timely topic for all RTO managers to consider.

    • pauldrasmussen says:

      Martyn,

      You are certainly right with what you say. The problem for a lot of providers I think is that they are really stuck in that commodity mind set and that sell the qualification because that is where the funding is idea. I remember when I was in enterprise level L&D, I would get 10+ phone calls a week from providers offering exactly the same thing, ‘free training’ as long as it was done the way they and the funding body needed it to be done. And to be honest I don’t think I ever worked with one of those RTOs. All a lot of providers see when they think about diversifying is the risk and not the potential to at the very least stabilise their financial base.

  3. Just Brilliant! Great Communication 😄

  4. brendalminifie says:

    Thanks for your thoughts on the options for funding. The individuals and the organisations receiving training have also changed so it also seems to be about creating new markets.

  5. Tony Rowe says:

    Spot on, Paul – reliance on a single source of revenue (even as a major source) without viable alternatives, sets the entity up for a failure – we have seen, with each change of government, at both State & Federal levels, the funding model changes and that can impact heavily on the viability of RTOs who rely on that source (and sometimes, just a change of Minister can have the same outcome).
    The practices Martyn refers to, often come about because of that reliance; feed that reliance; and drive the quality practice down to ever-lower ‘lows’.
    Timely, and wise advice. Thank you.

  6. Agreed Paul – Hence the recent VETFEEHELP financially viability requirements are tightened a bit and it may be hard for lot of new providers to see funding as a major source and must have a contingency running a short courses for fee for service to survive.

    Timely, and wise advice. Thank you.

  7. JohnW says:

    An RTO is a business and a business needs a business plan and a business plan is not worth anything if it does not connect with the reality of what is needed out there. It is not uncommon for us to change direction and products in order to meet our business goals, but do our business goals always follow our ethics and values? Profit derived from working for your values creates passion and good business practice where profit derived from working against your values ruins your passion and turns your people sour and ultimately your bottom line.

  8. Great article Paul. Compliant not only on “paper but be really compliant” is resounding yes for me. It takes all your ethics and values in life to be really compliant. Hopefully, there is a political will to enforce the law more fairly.

  9. Tony Stone says:

    Timely article Paul. We operate as a private RTO in SA and have been re-engineering our services from 80+% reliant on government funding 2 years ago down to 25% of our income stream presently. Of course our sales volume has shrunk, and we have had to batten down, but had we relied on training subsidies, we would be in serious trouble. Your comment on compliance resonates with us as well. It is easy to forget that there are many RTO’s who operate above and beyond ASQA requirements; sadly the bad operators get the lions share of media.

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