Christmas in VET land.

Well it is coming to the end of another year and holidays are rapidly approaching for me at least.  So I thought that now was a appropriate time to look back over the year that was (and what a year it was) and to consider what has changed and what hasn’t for those of us who live in VET land.

Personally it has been an busy and fruitful year for myself and the organisation that I work for, not just in our training business but in our overall community services business as well.  Sure we are not a massive operation dragging in ever increasing amounts of money, but we are and continue to grow and be successful which I think for most of us is all we actually want.  We are a niche provider and the decision to focus more on particular parts of that niche (community services) has given us a number of highly successful income streams which will continue over the next year or so and which are not heavily reliant on either direct government funding or programs like VET FEE Help.

Now onto wider issues and perhaps the most pervasive and divisive issue of the year, VET FEE Help.  For a lot of us who have been questioning the prices, actions and activities of a range of providers in this sector, both public and private and who have expressed concerns over how the program has been run and managed, this year has (or at least I hope it has) been a bit of a watershed.  We are seeing prosecutions and regulatory actions taken in relation to a number of providers, again both public and private with at least a few more to come in the New Year.  We have seen changes made (whether or not they are the right changes I will not comment on here) to the system itself and a commitment to substantially change the landscape around VFH for 2017.  These are in my opinion all positive things.  I know that many of you, like me have despaired at the negative media publicity and what now seems to be almost daily stories about the horrors of the VET sector, but two things rise up in me when I think about it, firstly that the vast majority of these issues relate to the VFH side of the sector and those of us who either don’t access or only access sparingly the VFH system still stand with our reputations strong.  This is, or at least should be a business that is built on the strength of the reputation and outcomes of the provider, not the churn of endless new students recruited through unscrupulous brokerage firms.  This should not be take to condemn those who use VFH extensively or all brokers, it is to point out that even the best of us can be unfortunately be severely effected by the actions of a few bad apples.  The second thing that rises to my mind from this whole situation is the idea ‘this to shall pass.’   Change is part of this sector and always has been, not just around funding models, but compliance, training products, everything, change is part of what we do, and it something that most of us do and cope with well and we should be proud of that.

Of course it hasn’t been just the VFH side of the sector that has seen problems and changes.  We have seen changes to direct funding arrangements in SA and the beginnings of changes in Victoria ( a system and situation which even today I still struggle to make sense of both in terms of policy and operations).  We have seen the public sector shout loudly (some more loudly than other, I am looking at you AEU) about the horrors of having to be accountable and competitive and provide outcomes and services that people and business both want and need and to not just expect to governments to pick up the tab no matter how large it might be.  Queensland has acted to remove funding contracts quickly from providers who were doing the wrong thing and to sanction others in other ways.  In general we are I think finally starting to see the shift and progress towards to goals of the VET Reform project.

Now enough of what some of think might be a focus on the negative.  Again this year I have made some amazing friends and acquaintances and colleagues who along with those of you I have know for many years really are for the most part the best of the best.  You all care so deeply about this industry and about providing the kinds of outcomes that change the lives of people.  I am honored to humbled to know you all.  That is not to say that all of the people who I have met during this year have been peaches and cream, but hey you can please everyone all of the time and to be honest the good out ways the bad so much as to make it unimportant.

Some of my highlights of the year for me were the VELG conference in Adelaide and I think  tremendous amount of thanks need to go out to the VELGY bunch for their work not only on the conference but within the sector as well.  Being part of the VET Reform process; it was I know not only for myself but for a lot of other in the sector nice to feel that our thoughts and ideas were not just being aired but also listened to.  Which of course brings to the need to thank our previous Minister, now Minister for Educations, Senator Simon Birmingham.  It has been fantastic to have a Minister in this portfolio who actually seemed to genuinely care and want to make the VET sector as good as it can be.  Along with the team at VET reform and the department in general it actually felt like the sector was being listened to, something which had not seemed to happen for a long time.  I also feel sure that Minister Hartsuyker will continue the good work done by Minister Birmingham.  While on politics, we saw a senate inquiry where for some they could not separate their ideology from what is good for the sector (Yes Greens and Senator Rihannon I am looking at you) which is disappointing to say the least.

It would I think also be remiss of me not to that Rod Camm and the wonderful people at ACPET.  Rod I think has done a fabulous job during very difficult circumstances and the ACPET team (at the very least the Queensland team) has been supportive and have worked to attempt to ensure that the great things that are done in this sector by non-public providers are not lost.

So all in all it has been a very very big year for the VET sector and I have to admit I am looking forward to having a couple of weeks off from the hustle and bustle of it all.  So thank you all for journeying along with me this year, through my rants (and there were a couple) my opinions and my other various scribblings.  May you all have a very happy and safe festive season, enjoy some time away from this world of VET and come back next year refreshed, happy and ready for the challenges ahead.  I know that is my plan.

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On the cost of a Diploma

I have written on a number of occasions, about the rise in costs to students around diploma and advanced diploma qualifications since the introduction of VET FEE Help.  The other day I suggested that I saw very little justification for pricing a diploma or even an advanced diploma at over $10,000 per student.  I was challenged about this statement by a number of people, so I thought it might be worth exploring again and pointing to my justifications for my statements.  Firstly I do agree that there may be some qualifications where due to the need for the RTO to have expensive equipment available for trainees that there could be a higher cost, however I think that these are not the norm and in the discussion that follows I will be considering average, highly accessed qualifications.  I think where a provider thinks that their costs are outside of what I suggest that perhaps the onus needs to be on them to show us why they think that and not the other way around.

Firstly let’s go back just a couple of years to around 2011/12, where most diploma level qualifications were around the $5,000 mark and advanced diplomas around $8,000.  At these levels providers seemed to be profitable and their business models seemed to be working.  Now if we scroll ahead to today and apply a CPI increase over that time of about 10% (it was actually a little less but lets just use round numbers shall we) that would make a diploma $5500 and an advanced diploma $8800.  However we are seeing prices in the market place above $10,000 for a diploma and in some cases above $15,000.  Which leads me to suggest that well one of three things must have happened.

  1. Costs of delivery have risen by something in the vicinity of 200-300%
  2. Previous business models were deeply flawed, unable to cope with all of the changes over the last 3 years and needed to be altered, or
  3. There is perhaps a lot more profit being made then there was 3 years ago.

Certainly one of the things I think has happened is that now providers are charging much higher prices and running courses with substantially lower numbers.  As we will see when I throw around some figures if the static cost of running a course is $30,000 then if you are charging $15,000 a student you only need two students to cover the costs, where as back in the old days (2011) you would have needed 6.  But it also means that after those two students, except for any small per student on costs everything else is profit.

So lets take a look at how much a diploma might cost.  Now remember I am just looking at what an average cost might be.

Firstly we have the costs associated with a trainer.  Now lets say we allow $45.00/ hour as a base rate and to calculate our day rates lets say that the ‘day rate’ is made up of 8 hours of teaching and 4 hours of assessment, support and other activities.  So that makes the per day cost of a trainer about $630.  Lets then allow 2.6 days per unit (face to face) with an average of 15 units making the total number of days 40.  This makes the total trainer costs for the course including marking and other activities around $25,200.

We have other costs apart from the trainer though don’t we.  For administration lets add in an additional 30 hours at the same rate, which given the efficiency of technology is I think pretty reasonable, that brings us up to $26,550.  But wait there is more lets add an additional 75% of that figure to cover general outgoings, management costs and all of those other little things including hopefully some profit.  Now we end up with a total cost to run the course of $46,462.  Now this is how much it costs to run the course whether there is one student or 15 students, save for perhaps a small resource cost per student.  So that total costs to run a face to face diploma course is around $40-50,000.  So I need 4-5 students at $10,000/ student to break even and make a little bit of profit (remember I built that in).  Any more students than that and the profitability of the course goes up.  At $15,000 a student we only need 3 students.

Trainer Costs
Daily Rate Including Training, prepartion and assessment $630.00
Days per course 40.00
Total Trainer Costs per program $25,200.00
Adminstration Costs
Hourly Rate $45.00
Administration hours/course 30.00
Administration Staff Costs/course $1,350.00
Subtotal of Costs $26,550.00
Management Fees
Costs related to management of programs $19,912.50
Total Direct costs per course $46,462.50

This brings a very serious question to my mind, are there really providers out there who are operating on minimum students levels of 2-3 in their classes for face to face? More than that though if we start to think about all of the courses and programs which are being offered online, with the same price tag, yet in some cases 100’s of students, a cost of $15,000 seems completely unjustifiable to me.

Here is my honest opinion, I would probably not run a face to face program for a cohort of only 4-5 students, mainly because I struggle to see how with that small number you are going to get any real social, group learning going on.  It is really just going to be a chalk and talk, here are the answers to the questions style program isn’t it?  Please someone correct me if I am wrong.  Also if I was only attracting that number of students into a course I would be asking myself whether or not there was a market, or if I was doing something radically wrong with my marketing.

Of course I have purposely left something out of this equation.  The one single thing that in my opinion has not only caused the massive jump in prices for diploma and above qualifications, but also the thing that has had an incredibly detrimental effect on the sector as a whole and that is education brokers.  With brokers taking  between 25% and 50% of the cost of a qualification (I recently hear of one who was marketing 79 students who would enrol in any qualification you like, but his cut was 75% of the course fee) it is really easy to see why prices have gone up.  At 50% a $15,000 qualification cost become $7,500 for the RTO.  It is this cost, the costs providers have been willing to pay brokers, just to get students through the door that has more than anything driven prices up and in my opinion has provided nothing to industry except for numbers.

 

Anyway, that’s just my opinion.

Some comments on the VET FEE HELP emergency measures

So as a lot of us has been saying for some time now the VET FEE HELP system is broken.  The fact that it is broken and far to open to abuse, should not be taken to suggest that there is anything wrong with the concept of utilising income contingent loans to provide a vehicle for those students who for what ever reason fail to qualify for direct government funding.  Conceptually income contingent loans are a fantastic idea.  The problem is that the current system for administering these loans either simply doesn’t work or has been badly administered or applied.  For what ever reason though, what remains is a mess, a mess that putting any kind of party politics aside simply needs to be cleaned up.  Both the previous Minister for VET, Senator Simon Birmingham and the currently Minister Luke Hartsuyker, should at least in my opinion be applauded for taking steps to address these issues. In particular I think Senator Birmingham deserves recognition for his work in guiding the sector through this troubling year.

But enough of that, lets look at the so-called ‘emergency measures‘ that Minister Hartsuyker announced yesterday.  The first is the limiting of claims to 2015 levels.  While this has been criticised by some at least what it does is close the flood gates.  It will give the government a relatively solid maximum dollar figure for the next 12 months. Yes it does mean that someone who claimed $50 Million last  year will still be able to claim that amount this year, when you add to this the ability to place providers on a payment in arrears based on actual enrolments rather than estimated enrollment, plus making it easier to pause or withhold funds, it should allow the government to better control the system and to deal with anomalies and problems as they arise .  Tightening the reigns on new providers into the system is also a good thing.  I have long said that unless providers have been around for at least 5 years they should not have access to the system.  There needs to have been a history of providing high quality training in order for a provider to be able to qualify.  Add to this some form of capping of loan levels, as I have said previously I struggle to see a reason for people to be charged in excess of $10,000 for Diplomas and Advanced diplomas, and I think things will start to calm down.

While I agree in principle with the sentiments of Rod Camm from ACPET that perhaps a risk based approach would have been better than a freeze of funding levels approach, I think that a risk based approach is something to be unpacked as part of any reshaping of the program for 2017 onwards.  In the shorter term I think the current approach has a greater appeal as it does allow the government to limit runaway funding in a much easier way.  I think a tight risk based approach is the way forward along side in arrears payments on actual enrollment numbers, (I would personally prefer a completion payments models as is often used with direct funding), where numbers of students enrolled is a critical risk factor, because as we have seen from the data, in general it has been the providers with the largest numbers of students, and therefore the highest amount of loans,  who seem to have had the most difficulties with the system.

As far as the call for a training ombudsman goes, while I think the idea has merit and should definitely pursued, I don’t think again in the short-term it is going to make all that much of a difference.  Certainly as part of a longer term reform plan yes definitely have an ombudsman, but lets just get some measures over the line first that might at least start to slow down the hemorrhaging which is currently happening.

 

Anyway that’s just my opinion.

 

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