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TRANSCRIPT
NDS Costing & Pricing
Tool Manual 2.4
March 2013
Developed by NDS and Curtin University
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Preface ...................................................................................................................... 3
Important General Notice ........................................................................................ 6
Glossary .................................................................................................................... 7
WA Procurement Reforms and Costing & Pricing .............................................. 10
Costing .................................................................................................... 10
Mark-up and Price ................................................................................... 11
Federal / State Inconsistencies ............................................................... 12
Preparing for Transparency in Funding Negotiations .............................. 13
Governance and the Costing & Pricing Process ................................................. 14
Hints and Tips......................................................................................................... 15
Microsoft Excel 2010 Compatibility ...................................................................... 16
Purpose of the NDS Costing & Pricing Tool 2.4 .................................................. 16
Navigating the NDS Costing & Pricing Tool 2.4................................................... 17
Cross-Hatched Cells................................................................................ 17
Data Integrity Check Cells ....................................................................... 17
How to Complete the NDS Costing & Pricing Tool .............................................. 19
1. Key Data ................................................................................................. 19
2. Awards ................................................................................................... 21
3. Payroll .................................................................................................... 21
4. Property.................................................................................................. 23
5. Transport ................................................................................................ 24
6. Direct Overheads ................................................................................... 25
7. Admin (indirect) Overheads ................................................................. 25
8. Program Pricing .................................................................................... 26
9. Accommodation Services ..................................................................... 26
10. Health Professionals ............................................................................. 28
11. Client Pricing Summary ........................................................................ 29
12. Commercial and Fund Raising ............................................................. 29
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Preface
Welcome to the National Disability Services (NDS) Costing & Pricing Tool Manual
(version 2.4) which supports the NDS Costing & Pricing Tool (version 2.4). This
revised Manual and the enhancements in Version 2.4 of the Tool have been built
upon the Version 1 structure and methodology developed for NDS Western Australia
(“NDS WA”) by Curtin University, School of Accounting (“Curtin”). NDS WA and
Curtin believe this suite of resources represents a major contribution to capacity
building in the Disability Sector in Western Australia and will contribute to the
Sector’s long term sustainability as it addresses the Western Australian
government’s procurement reforms.
In 2012, as groundwork for this initiative and to establish the framework for the
Costing & Pricing Tool, Curtin University undertook significant research, the results
of which are contained in the summary report “A Longitudinal Study of the WA
Disability Sector Part 1: Responding to Change – Costing and Pricing”. The
summary report is highly recommended as it contains findings relevant to all
organisations from micro to large. We hope that you agree that many of the findings
have been responded to in the development of the NDS Costing & Pricing Tool.
Significantly, the research found that organisations within the sample interviewed do
not always employ people with financial expertise, making costing and pricing within
a complex service model that is typical of disability services a formidable challenge.
For that reason it was decided early in the process to seek to build the Costing &
Pricing Tool with a focus on simplicity of use, flexibility and broad application.
As it is the responsibility and prerogative of organisations to manage their finances
as they choose, each organisation needs to decide whether to use the NDS Costing
& Pricing Tool fully or in part. Some may use other costing methods while some
sections of the Costing & Pricing Tool may be irrelevant to the service model of
others. Organisations are encouraged to obtain external advice if necessary in
reaching that decision.
In any event, NDS WA suggests that costing and pricing be undertaken in
conjunction with a 5-year strategic plan and 3-year financial plan to provide context
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to decision making. By having a clear view of future resource and capital demands
the required profit margins may be more clearly defined and more robustly
advocated.
Numerous people and disability organisations have assisted in the development of
the NDS Costing & Pricing Tool and we acknowledge in particular the effort of the
NDS WA Costing and Management Accounting Steering Group for their contribution.
They considered various versions of the Tool and Manual and provided significant
expertise at key stages without which the project would have been more difficult and
finalised in a less timely fashion.
The employers of the Steering Group participants are also thanked for their
generosity and putting the wider disability sector ahead of their own immediate
needs. This is greatly appreciated as the contribution of their time - a most precious
resource - ensures the results of this initiative are more closely aligned with the
sector’s needs.
The sector members of the Steering Group were:
Andre Shannon, Chief Executive Officer, Family Support WA
Brian Chapman, Executive Manger Corporate Services, TherapyFocus
David Legge, Finance Manager, Crosslinks
Giorgia Johnson, Finance Manager, Senses Foundation
Heather Blyth, Senior Accountant, Nulsen
Merv Williams, Director Finance, Rocky Bay Inc
Paul Goonting, General Manager Corporate Services, The Centre for Cerebral Palsy
Peter Seaward, Executive Officer, STRIVE Warren Blackwood
Overall we are very pleased with the outcome and expect it to be of great benefit to
the sector and, through that, the wider community of Western Australia. We would
welcome any suggestions for improvements and will attempt to make revisions
without adding complexity or losing its general application. This is an exciting phase
in the history of NDS WA and we look forward to fostering this and other initiatives as
part of capacity building within the sector.
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Terry Simpson
WA State Manager
National Disability Services
David Gilchrist
Industry Professor
School of Accounting
Curtin University
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Important General Notice
This document is intended to give users of the NDS Costing & Pricing Tool an
understanding of how to use the Costing & Pricing Tool, but it is not intended to be a
stand-alone resource. Rather, users should consult appropriate professionals when
they seek to utilise the Costing & Pricing Tool for their own organisation. Additionally,
this Manual does not include descriptions regarding all aspects of the Costing &
Pricing Tool nor does it necessarily provide information that is relevant to all
Disability Organisations in every situation. While every effort has been made to
design the Costing & Pricing Tool and the Manual to meet the needs of the widest
possible audience within the Disability Services Sector in Western Australia, it is
unlikely that these resources can mirror each exact situation or the experience of
every Disability Services Organisation or other organisations that might choose to
implement this resource. As such, every reader and user of these resources is
strongly encouraged to consider every aspect of the Costing & Pricing Tool in the
context of their organisation and to consider which elements fit or do not fit in that
context. It is the users’ responsibility to ensure they understand how to apply these
resources, to ensure they appreciate the suggested responses and outcomes of
calculations made by the Costing & Pricing Tool, that they understand how such
outcomes may be used or interpreted in terms of their funding arrangements and
relationships with funders and also that they undertake a review of the resources to
ensure they understand the extent to which there are gaps, errors or omissions
relative to their organisation.
All costs and prices are calculated and quoted without considering the effects
of the Goods and Services Tax (GST) and its particular application to disability
organisations.
No responsibility is accepted by National Disability Services or Curtin
University in relation to any errors or omissions, or any loss that might arise
out of the usage of these materials.
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Glossary
Allocation of Costs - the process whereby costs are assigned to operational units
and, ultimately, to Service Delivery Units. Direct Costs are readily allocated as
there is clear association with operational units. Indirect Cost allocation requires a
policy decision as to basis or Cost Driver (e.g. FTE, floorspace, revenue or share of
management time). There is inherent subjectivity to the allocation of Indirect Costs
and users need to decide the method most appropriate to their circumstances. The
method selected should be supported by logic and consistency.
Breakeven Point - is the point at which Service Delivery Unit volume is sufficient to
recover all fixed costs, as well as variable costs, but insufficient to generate a profit.
Breakeven Point Formula: Total Fixed Costs divided by the result of Unit Price
minus Unit Variable Costs.
Contribution Margin - is the difference between Unit Price and Unit Variable Cost
and is the denominator in the Breakeven Point formula shown above. It is called the
Contribution Margin because it is that portion of the Unit Price that contributes to the
recovery of Fixed Costs after deducting Unit Variable Cost. For example, if Unit Price
is $100 and Unit Variable Cost is $34 then the Contribution Margin is $66.
Cost - is the consumption of economic benefit associated with a past, immediate or
deferred outlay of cash. Examples of those different associations are:
Costs from Past Cash Outlay - Depreciation of assets
Costs from Immediate Cash Outlay - Wages and purchases from petty cash
Costs from Deferred Cash Outlay - Goods and service purchased on trade
credit (accrued costs)
All costs have two characteristics; Direct or Indirect and Fixed or Variable. All
resources consumed in the provision of a good or service must be included in the
calculation of the cost of that good or service.
Cost Driver - is the measurement unit common to all activities and programs that is
used particularly for the allocation of Indirect Costs. For example, a building may
accommodate several activities and programs so the best choice of cost driver to
allocate rent might be the floorspace or square meterage used by each activity or
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program. The choice of Cost Driver is inherently subjective and is never 100%
accurate. It should be based on simplicity, materiality, reasonableness and,
preferably, consistency from year to year. The reason for a choosing a Cost Driver
should be documented as a key assumption.
Direct Overheads – are operating expenses incurred regardless of the level of
actual activity and in direct support of that activity. Examples include rent of buildings
from which services are delivered, salaries of middle-management who oversees
service delivery and program acquittal audit fees (as opposed to corporate audit
fees). The essential features of Direct Overheads are (1) they are incurred in direct
support of service delivery, and (2) they are fixed regardless of activity level.
Fixed Costs - an expense that is incurred regardless of whether services are
provided or not (to be contrasted with Variable Costs). If the doors are not opened or
services not provided these cost are still incurred. Examples include rent, insurance
and corporate head office staff such as the CEO. These costs generally remain the
same (hence “fixed”) for the budget period. However, they will change over time and
when productivity rises beyond the current capacity of an organisation. Capacity
growth and additional Fixed Costs are key considerations when costing for new
initiatives under a 5-year strategic plan and 3-year financial plan.
Indirect Overheads – corporate administration expenses that are incurred
regardless of the level of Service Delivery Units (activity) and which are not incurred
in direct support of service delivery.
Mark-up - is an amount added to Unit Cost to arrive at Unit Price. It is usually
expressed as a percentage and should reflect a policy decision taken at Board level.
The NDS Costing & Pricing Tool uses (1) Base Margin; the minimum mark-up
required to ensure sustainability and achieve the Strategic Plan, and (2) Risk Margin;
to reflect risk associated with a particular program or service. Programs can have
different mark-ups which are entered on the purple tagged sheets.
On-Costs – are employee-related costs that are additional to gross salaries. These
include annual leave, long service leave, superannuation, workers’ compensation
insurance and award allowances and penalties.
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Unit Price - the charge paid by a client for a service and is the sum of Unit Cost and
Mark-up.
Safety Margin - is the difference between budgeted activity volume and the
calculated Break Even Point volume. It represents a buffer against an unexpected
fall in activity volume that could result in a potentially loss-making level of activity.
Service Delivery Unit (SDU) - is the term used to refer to each iteration of service
provision. In most instances an SDU will be an “hour of service” but in
accommodation services it could be an “occupied bed-day” and in transport maybe a
“trip”. An SDU is the basis for charging the Unit Price.
Unit Cost – is the cost of delivering each Service Delivery Unit after allocation of all
costs; both direct and indirect. Unit Cost calculation is the primary purpose of the
NDS Costing & Pricing Tool. Unit Cost plus Mark-up equals Unit Price.
Variable Costs - are those incremental costs that are incurred whenever additional
Service Delivery Units are supplied (to be contrasted with Fixed Costs) and are
uniform for each additional Service Delivery Unit. Generally, we would say that these
costs would not be incurred if the doors were not open and services not provided.
Examples include care staff costs, fuel for vehicles used in providing a transport
service, meals for clients in accommodation services and head office telephone
calls. An understanding of Variable Costs is desirable when using the Breakeven
Point analysis tool on the Program Pricing sheet but is not otherwise essential for
completion of the NDS Costing & Pricing Tool.
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WA Procurement Reforms and Costing & Pricing
The purposes of costing and pricing in the context of the Western Australian
Government’s procurement reforms are:
(1) To establish the true cost of each service delivered by disability services
organisations inclusive of all resources consumed in that process; and
(2) To enable disability services organisations to determine a service delivery
price that ensures long term organisational sustainability.
Costing
To assist in achieving those purposes the following general principles underpin this
Manual and the Costing & Pricing Tool:
Costing is a forecasting and iterative process. Changes to the operating
environment, particularly in industrial awards, as well as past costs from
previous financial records and statements are valuable guides to future costs.
Organisations need to forecast the cost of delivering each service they
provide (referred to as Service Delivery Units) and the cost of commercial and
fund raising activities.
In determining the cost of delivery for each service, decisions are required as
to allocation of costs to those services entailing inherently subjective
judgements particularly relating to Indirect Costs;
The allocation of costs is a subjective process involving arguable assumptions
that will never attain perfection;
There is cost incurred in undertaking a costing exercise in both time and
money and the more complex and detailed the process is, the more it will
cost. That cost incurred should always be outweighed by the benefit derived.
At times, it will be better to allocate costs less precisely than to expend time
and money in achieving unattainable perfection. Materiality is a key
consideration in this regard.
The allocation of costs entails apportioning costs based on cost drivers which
can be, for example, the number of staff involved in the delivery of each
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service, income produced by each service or hours of service delivery. Cost
Drivers must be relevant to all programs over which costs are to be allocated;
A decision on Cost Drivers should be underpinned by an objective of
equitable allocation ensuring that all service delivery programs, both funded
and non-funded activities (for instance, fundraising and commercial activities),
bear an appropriate share of costs; and
All costing and pricing assumptions, policies and calculations should be
documented and transparent.
Mark-up and Price
Once the costing process is completed, it is necessary to determine a mark-up and
derive a price. This may be a confronting and foreign challenge for organisations
given that previous funding and service delivery arrangements have been based on
set rules and parameters. There are few guiding precedents for setting margins and
prices and there is the ever present reality that margins will invariably be influenced
by the willingness and capacity of funders to pay. Funders will also be approaching
this subject from a standpoint of no prior experience.
Some strategic considerations may include:
That the overarching objective of a mark-up is sustainability - including
financial and service sustainability and ongoing capacity building and
development;
The unsustainability of pricing based on cost recovery alone;
A mark-up to reflect and contribute to the achievement of goals contained in
3-5 year strategic and similar length financial plans that are documented and
rationalised to withstand scrutiny;
An annual budget that reflects a 3-5 year financial plan with both costs and
prices translating into the annual budget;
A mark-up with two elements, one being a base margin to achieve financial
plan goals and the other a risk margin to reflect operational risks;
Whether to use pre-existing financial reserves instead of risk margins as a
buffer against unforeseen costs (e.g. program termination costs or under-
recovery of fixed costs due to lower than expected service delivery volumes);
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The importance, from a mission standpoint, that a particular service be offered
and the influence this may have on the margin for that service;
Probability that negotiations with funders will precede final agreement on
prices; and
Competition and funder expectations likely impacting upon the achievability of
a desired mark-up. Organisations should prepare for price negotiations with
funders.
NOTE: The Costing & Pricing Tool allows for different margins in circumstance
where the required return for individual programs or accommodation services vary.
Federal / State Inconsistencies
Inconsistencies between the relative approaches of state and federal funding
agencies will be a feature of the Sector’s ongoing funding landscape. Foreseeably,
state funding agencies will be bound by the State Government’s procurement
reforms and federal funding agencies will likely continue using existing
arrangements.
In managing such inconsistencies it is suggested that costing and pricing be
undertaken regardless of the terms of particular funding arrangements.
Organisations should consider the prevailing arrangements between them and
funders a step beyond the costing and pricing process.
Organisations funded by state and federal agencies may be guided by the following:
(a) All costs should continue to be allocated according to cost drivers. Only then
may any cross-subsidisation or over- or under-funding of programs be
identified thus enabling remedial action. Accurate costing, regardless of
funding arrangements, is vital information to management and supports the
committee/board in their deliberations;
(b) Cross-subsidisation between state and federally funded programs will become
more apparent and potentially transparent as a consequence of using the
NDS Costing & Pricing Tool;
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(c) Historically, a funder’s requirement that certain business rules be adhered to
has been addressed by organisations at the acquittal stage which occurs
subsequent to the costing and pricing process. An example of this is a
requirement that administration costs be capped at a certain percentage of
funding.
Preparing for Transparency in Funding Negotiations
Procurement reform, and use of the NDS Costing & Pricing Tool, presents an
opportunity for greater transparency as to costs and prices. Such transparency may
well assist organisations in their negotiations with funding agencies.
Furthermore, inevitable differences in costs and prices arrived at within the
disabilities sector may well necessitate each organisation being more transparent
towards justifying particularly higher costs and prices.
Therefore, it may be wise to prepare for greater transparency and the opportunities
that could present. Such transparency could extend to substantiating methods of
cost allocation supported by documented assumptions, considered discussions, and
policies on reasonableness and consistency at Board and executive management
level.
Organisations should give consideration to the documentation they should keep
regarding the costing and pricing processes to ensure they can meet any funder
expectations as well as support their pricing submissions. Furthermore, the
documentation maintained should enable the passing on of knowledge in the event
of board and management personnel changes.
The keys to a system of costing and pricing are robustness and defensibility which
includes sound decision making processes and policies and record keeping and
documentation.
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Governance and the Costing & Pricing Process
Ideally, the costing and pricing process is part of a broader and integrated
organisational financial management process which would generally be comprised of
the following elements:
A strategic plan providing a three to five year overview of an organisation’s
aspirations;
A financial plan (usually three to five years) that describes the financial
resources required to achieve the strategic plan and the source and
application of those resources;
An annual budget showing how the financial plan is to be implemented each
financial year;
A costing and pricing model with the twofold purpose of (1) full recovery of
service delivery costs and (2) the generation of a surplus on that activity
consistent with the financial plan;
Policies and procedures for (1) the setting of cost allocation assumptions, (2)
identification of Service Delivery Unit volumes necessary to achieve cost
recovery and expected profit, (3) authorisation of margins and prices and (4)
periodic review of costs, margins and prices to ensure ongoing relevance;
A governance and reporting process ensuring the board and senior staff
become aware of cost recovery achieved and margins realised enabling
timely managerial focus on necessary remedial action.
Exercise of due care by executive management and board/committee
members in the discharge of their responsibilities.
Appointment of a Costs Committee by the Board
This suggested integrated costing and pricing approach minimises arbitrariness,
provides organisational context and relevance to decisions making, defines
responsibilities and strengthens discussions with funders through demonstrable logic
and transparency.
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However, to maximise the benefit of this approach constant managerial and Board-
level vigilance is required. Processes need to ensure that organisations become
aware at regular intervals of the effect of changes to the operating environment, both
internally and externally, to enable appropriate remedial action. Unanticipated cost
increases must be identified early and mitigating actions must be prompt.
As the operating environment of most organisations is dynamic, involving continually
changing costs, the calculation of costs and setting of prices just once annually is
discouraged. The review of costs by the Cost Committee or the whole Board should
occur regularly and may include the following considerations:
Whether forecasted costs materialised (with focus on under-estimated costs);
Whether forecasted service volume was achieved;
Whether surpluses as expected were resulted;
Whether costs allocated to commercial and fundraising operations were
recovered and, if not, the extent to which non-recovery impacted upon
capacity to achieve financial goals;
Identification of causes of cost variances and remedial action to be taken;
Renewal of forecasts going forward with a focus on reasonableness in an
historical context;
Reporting and documentation of review finds; and
Changes to governance processes.
Hints and Tips
When using this Manual, the Costing & Pricing Tool, the following tips might be
useful:
Always keep a blank master copy of the Costing & Pricing Tool. Prior to
entering data, save the Costing & Pricing Tool under another name and leave
the master copy untouched.
Develop a file naming convention to reflect different uses of the Costing &
Pricing Tool and to ensure that a history of costing exercises is retained.
Different uses could reflect, for instance, interim or final versions, stages of
Board scrutiny, alternative cost allocation methodologies, different service
volume levels or what-if scenarios.
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Keep working papers that support data entered in the Costing & Pricing Tool.
It is sound practice to make notes regarding your off-spreadsheet
calculations, costing decisions and subjective judgements and assumptions.
Subsequent referral to your notes may be necessary when negotiating with
funders. The Key Data sheet in the Costing & Pricing Tool has some cells
dedicated to the recording of assumptions.
Always check for reasonableness when entering data in the Costing & Pricing
Tool and reviewing the costing results. Never assume the sheet is correct –
EVER. Ask questions like:
How do the costs compare to last year?
Is this income achievable?
Is this what I expected?
Does that make sense?
Are unexpected costing results explainable?
Always check to ensure that the pink coloured Data Integrity Check cells
throughout the Costing & Pricing Tool show the required results before
proceeding to the next sheet.
Historical accounting information and annual budgets are the best place to
start a costing exercise.
Costing and pricing is most effectively undertaken through enterprise-wide
engagement with all levels of management and should not be isolated within
the accounting department.
Microsoft Excel 2010 Compatibility
The NDS Costing & Pricing Tool is a spreadsheet that runs on Microsoft Excel 2010
or later versions. Earlier Excel versions do not support the drop-down-box data input
features embedded in the Costing & Pricing Tool.
Purpose of the NDS Costing & Pricing Tool 2.4
The Tool is designed for use within the disabilities service sector to capture all costs,
to allocate those costs to the delivery of units of service and apply a mark-up to
arrive at a price for those units of service. The spreadsheet is comprised of eleven
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subsidiary sheets some of which will not be relevant to all disability organisations.
Users should understand how each sheet works before relying on any inbuilt costing
and pricing formulae and ensure that all elements are the best resource for their
specific requirements before undertaking a costing exercise.
Navigating the NDS Costing & Pricing Tool 2.4
The Key Data and Awards sheets record information that either auto populates other
cells or influences calculations throughout the spreadsheet.
The Payroll, Property, Transport, Direct OH and Admin OH sheets are for entering
program-specific source cost data and conversion of those to annual costs.
The Program Pricing, Accomm. and Health Professional sheets use the annual costs
and other data collected by the Payroll, Property, Transport, Direct OH and Admin
OH sheets to calculate unit costs and prices.
The Client Pricing Summary sheet enables individualised quoting from a menu of
available services.
The Commercial and Fundraising sheet assists in checking that the internal
generation of funds occurs with full and appropriate cost recovery.
Cross-Hatched Cells
Cross-hatched cells, that is, cells that have diagonal crosses through them, indicate
where column or row headers are not applicable and where the user is required to
do nothing. If cross-hatched cells are seen, simply scroll down or sideways and the
relevance of those column and row headers will become apparent.
Data Integrity Check Cells
Data Integrity Check cells are coloured pink. They are provided to identify
elementary arithmetic omissions where possible. Each data integrity check cell is
accompanied by an explanatory note to indicate the required result and as a guide to
correcting errors where that result is not achieved. Users should check these cells
before moving to the next component sheet.
Users should not rely solely on these cells to ensure accuracy of work undertaken.
Unlike accounting systems, the NDS Costing & Pricing Tool does not utilise the self-
correcting feature of double entry bookkeeping. Hence, extra care is required to
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ensure that all costs are captured so repeated referral to historic costs recorded in
your accounting system is encouraged. The Data Integrity Checks cannot and do
not test for omitted or erroneously entered costs.
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How to Complete the NDS Costing & Pricing Tool
Follow these step by step instructions as a guide to completing the NDS Costing &
Pricing Tool. Leave blank any sheets that are not applicable to your organisation,
(e.g. Accommodation, Health Professional and Commercial & Fundraising), or which
you think can be undertaken outside of the Costing & Pricing Tool and in a way that
is more relevant to your operations.
Additionally, you should be aware that this Manual is likely to change in the future as
further refinement is made. Therefore, users should also review the NDS website for
updates before commencing a costing and pricing exercise.
1. Key Data
The Key Data sheet is the primary reference resource in the Costing & Pricing Tool.
Step 1.1: Enter organisation name and preparation date.
For example:
Organisation Name: XYZ Care Inc
Preparation Date: 26-Feb-12
Prepared by: Jane Smith
Step 1.2: Enter the beginning date of the costing period.
For example:
Costing Period From: dd/mm/yy To: dd/mm/yy
01-Jul-12 30-Jun-13
Step 1.3: Record any assumptions, with reasons if necessary, in the space allocated
for “Assumptions”, that contribute to your costing and pricing calculations. These
may be entered progressively as you work through the spreadsheet. From a
transparency perspective it will probably be important to record your assumptions.
Examples of assumptions include:
Choices concerning the allocation of indirect costs to programs (e.g. revenue,
FTE, percentage or floor space).
Your degree of reliance on historic costs from your accounting system and
estimates of future cost inflation.
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Any observations as to future sustainability of programs or your organisation
as a whole and any indicators of past unsustainability (e.g. erosion of
reserves, which have influenced your required profit margin or mark-up).
Any assumptions as to costs and prices that might be communicated to your
funding agency.
Step 1.4: Enter payroll days data (annual leaves days per annum, sick leave days
per annum, public holiday days per annum) in number of days.
Step 1.5: Enter payroll rates data (workers compensation insurance, compulsory
superannuation, annual leave loading, long service leave, uplift on backfill) as
percentages.
Step 1.6: Enter your Wage Inflation Rate estimate under “Wage Inflation Rate -
Forecast Estimate”. The Wage Inflation Rate influences spreadsheet calculations of
wages and salaries costs and should be based on your judgement and on the history
of wage inflation relating to your organisation. The official Consumer Price Inflation
(CPI) rate, which the Reserve Bank of Australia is required to keep within a band of
2% – 3% on average over the cycle, may be a guide to wage inflation but not
necessarily. Australian CPI rates in recent years were: 2008/09 - 3.6%, 2009/10 -
2.7 %, 2010/11 - 2.6%.
Step 1.7: Under “Programs”, for every program enter: (1) name, (2) projected annual
Service Delivery Unit (SDU) volume, (3) SDU description and (4) projected income in
the boxes provided.
Agencies may decide to consider a client to be a program for costing purposes. This
could entail adding additional program rows on the KEY DATA sheet and, in turn,
additional program columns on the subsidiary sheets.
Step 1.8: Under “Accommodation Services”, if your organisation offers
accommodation services then for every house enter: (1) house name, (2) beds
available and (3) budgeted average occupancy.
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2. Awards
This worksheet may be used to store award and EBA data, possibly in lookup tables.
3. Payroll
The Payroll sheet gathers all payroll costs (excluding those for accommodation
services and health professionals) and assumes fortnightly rostering. There are two
sections for different categories of employee:
Direct Service Delivery Personnel: for direct labour costs of staff like Disability
Support Workers who deliver direct client services.
Direct and Indirect Overhead Personnel: for direct or indirect labour costs of
staff who provide executive or middle management and administrative
support.
Step 3.1: List all employees or positions under “Position / Classification”. If several
employees work identical shifts for the same pay they may be grouped on one line
with the number of such staff recorded in the Staff Number column. Ensure that all
likely new positions been included having regard for new programs or changes in
client mix and intensity of support.
Step 3.2: For every employee or employee group listed in Step 3.1 enter data in the
following fields:
Key data
Award (information onlyy)
Pay Level (information only)
Standard hours per week
Rostered hours per fortnight
Headcount (a whole number, representing the number of people and not
FTE)
Start date (even if the start of the model year)
End date (even if the end of the model year)
Pay rate 1 per hour $ (the starting pay rate)
Pay rate 2 per hour $ (if applicable)
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Pay rate 2 effective date (if applicable)
Pay rate 3 per hour $ (if applicable)
Pay rate 3 effective date (if applicable)
Penalties
Does roster include public holidays? Yes/No
Public holiday penalty rate %
Calculated on-costs, benefits, provisions and allowances
Worker's comp. Insurance % (keep or overwrite the default value)
Super % (keep or overwrite the default value)
Long service leave % (keep or overwrite the default value)
Shift allowances %
Other allowances A % (if applicable, and a description)
Other allowances B % (if applicable, and a description)
Other allowances C % (if applicable, and a description)
Lump sum benefits and allowances
MV / Travel Allowance $ (annual amount)
Sleep Over Allowance $ (annual amount)
FBT (cash value) $ (annual amount)
Leave backfill
Proportion of annual leave backfilled % (assume all leave is taken, so this
represents purely the backfill proportion)
Proportion of sick leave backfilled % (you will know that historically your staff
use less than their entitlement so this proportion is to represent both the sick
leave utilisation rate and the proposed backfill proportion)
Proportion of backfill attracting rate uplift % (you entered the uplift rate in Step
1.5, now nominate the proportion of backfill labour that will attract that uplift
(eg, overtime, casuals, agency staff))
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The Other Allowances % columns are used to record the cost of a number of minor
award allowances such as Uniform, Equipment, 1st Aid, On-Call, Heat and District
allowances. Refer to your historical financial and payroll records to ascertain an
average cost for these allowances as a percentage of direct service delivery payroll
costs and enter the most appropriate rate.
In instances where shift and other allowances are earned on some but not all hours
worked use more than one line to record the shift and payroll of affected employees.
For example, in a 76 hour fortnight, 7.6 hours may accrue allowances at one rate,
7.6 may accrue allowances at another rate and 60.8 hours may not attract
allowances at all. This would require three lines of the worksheet to fully record.
Step 3.3: The “ANNUAL TOTAL OF ALL PAYROLL COSTS” column should now be
auto-filled. Do these total costs look reasonable compared to historical costs?
Step 3.4: Using subjective judgement assign cost to programs by entering
percentages in the “Cost Allocation Basis (%)” columns. Every row should be
allocated 100%.
Step 3.5: Ensure the pink Data Integrity Check cells under the column heading
“Check (should equal zero%)”, do show 0%. If other than 0% appears an “alloc
error” error message will display in the “Total Annual Cost Allocations ($)” columns,
hence, return to Step 3.4 and correct any under or over allocation.
4. Property
The Property sheet gathers the costs of all owned, mortgaged and rented buildings
excluding those used for accommodation services. Accommodation building costs
are entered on the Accommodation sheet referred to in following Manual notes.
Step 4.1: List all buildings in the “Property Description” column.
Step 4.2: Enter Rent, Notional Rent, Loan Interest OR Loan Repayments OR
Building Depreciation in the relevant columns. Enter data in only one of those cost
categories for each building.
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Step 4.3: Enter all other annual costs for each building in the remaining columns.
Add more columns if required. Upon completion of Step 4.3 the “Total Annual Cost”
column should display values.
Step 4.4: Ensure the pink Data Integrity Check cell (“Check - compares vertical and
horizontal additions - should be zero”) at the base of the Total Annual Costs column
shows zero. If a result other than zero appears follow the guidance note adjacent to
the cell to find and correct any errors.
Step 4.5: Choose a basis for allocation of building costs to programs and enter the
allocation base (total sqm, FTE, revenue or % etc) in the “Program Allocation Base”
column.
Step 4.6: Distribute the Program Allocation Base entered in Step 4.5 to individual
programs columns (“Program 1”, “Program 2”, “Program 3” etc.).
Step 4.7: Ensure the pink Data Integrity Check cell (“Check – ensures allocation
basis is fully distributed – should be zero). If a result other than zero appears return
to Step 4.6 and correct any under or over allocation. Failure to make this correction
will cause an “alloc error” message to remain in the Total Annual Cost Allocations ($)
columns.
5. Transport
The Transport sheet gathers the costs of owned, leased and rented motor vehicles
used for any purpose. Vehicles used for accommodation service may alternatively be
costed on the Accommodation Services sheet.
Step 5.1: List all motor vehicles in the “Vehicle Description” and “Registration No.”
columns.
Step 5.2: Beside each vehicle, enter Depreciation OR Annual Lease OR Rental in
the relevant column. Enter data in only one cost category for each vehicle.
Step 5.3: Enter all other annual costs for each vehicle in the remaining columns.
Add more columns if required. Upon completion of this step the “Total Annual Costs”
column should display values.
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Step 5.4: Ensure the pink Data Integrity Check cell (“CHECK – compares vertical
and horizontal additions – should be zero”), at the base of the Total Annual Costs
column shows zero. If a result other than zero appears, follow the guidance note
attached to the cell to find and correct any errors.
Step 5.5: Allocate the cost of vehicles to programs by entering a percentage of use
for each vehicle to individual programs in the “Cost Allocation Basis - by % of Use”
columns.
Step 5.6: Ensure the Data Integrity Check (“Check (should be zero)”) cells, show
0%. If a result other than 0% appears an “alloc error” message will display in the
“Total Annual Cost Allocations ($)” columns, hence, return to Step 5.5 and correct
any under or over allocation.
6. Direct Overheads
The Direct Overhead sheet gathers all costs (other than Payroll, Property and
Transport costs) that are incurred on specific programs.
Step 6.1: Enter all overheads incurred directly on individual programs in the
appropriate column. Upon completion of Step 6.1 the “Total Annual Costs” column
should automatically display values.
7. Admin (indirect) Overheads
The Admin Overhead sheet gathers all indirect costs that cannot be immediately
allocated to programs which are typically associated with executive management
and admin support. Middle management costs can be included here. However,
some of those costs may be more appropriately entered as Direct Overheads.
Step 7.1: Enter indirect overheads in the relevant column. Upon completion of Step
7.1 the Total Annual Costs cell will display a value.
Step 7.2: Choose a basis for allocation of indirect overheads to programs and enter
the allocation base in the “TOTAL (FTE, $, % etc)” column.
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Step 7.3: Distribute the allocation base entered in Step 7.2 horizontally to individual
program columns.
Step 7.4: Ensure the pink Data Integrity Check cell shows zero. If a result other than
zero appears return to Step 7.3 and correct any under or over allocation. Failure to
make this correction will cause “alloc error” to remain in the Total Annual Costs row.
8. Program Pricing
The Program Pricing sheet collects the cost data entered on the Payroll, Property,
Transport, Direct OH and ADMIN OH sheets, and calculates Unit Cost and Unit Price
of services (other than for accommodation and health professionals). As such, it
provides focus to the ultimate objective of the NDS Costing & Pricing Tool.
Step 8.1: Note the critical Cost Per SDU row which should be auto-filled.
Step 8.2: Enter the desired profit and margin target percentage for each program.
Step 8.3: Note the critical “Price Per SDU” row which should be auto-filled.
Further Analysis…..
Step 8.4: The "Expected Program Income & Profit ($)” section enables users to
assess, at a glance, the profitability of individual programs after a price has been
determined and all costs have been allocated.
Step 8.5: Break Even Analysis and Safety Margin (units) . The Break Even Point
is where SDU volumes are sufficient to recover all costs but insufficient to generate a
profit. The Safety Margin is the difference between budgeted SDU volume and
Break Even Point volume and represents a buffer against a fall in SDU volume to a
potentially loss-making level of activity.
9. Accommodation Services
The Accommodation sheet is for dedicated residential services only. There are two
sections that are assembled vertically. These are:
Payroll – Position / Classification: for labour costs of direct delivery
accommodation service staff; and
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Other Direct Costs (Annual): for all other non-labour direct costs.
Cross-hatched cells, that is, cells that have diagonal crosses through them, indicate
where some column headers are not relevant. If cross-hatched cells are seen, scroll
down or sideways and the relevance of those column headers will become apparent.
Step 9.1: List all accommodation employee / roster positions in the “Payroll –
Position / Classification” column. Where several employees work identical shifts at
the same pay rate these may be grouped on one line with the number of such staff
recorded in the “Staff Number” column.
Step 9.2: Repeat Step 3.2 above for accommodation staff.
Step 9.3: Choose a House Name from the drop down box in the column “House
Name (drop down box)”.
Step 9.4: The “Total Annual Cost Allocation ($)” columns should now be auto-filled
with respect to payroll costs.
Step 9.5: Scroll down the sheet and to the left margin to find the “Other Direct
Costs (Annual)” label. Then scroll sideways past the cross-hatched section to the
“Total Annual Costs ($)” column.
Step 9.6: Enter all direct accommodation service costs for each house in the
relevant columns (“House 1”, “House 2”, “House 3” etc.). The “All Houses” column
will auto-fill.
Step 9.7: Ensure the pink Data Integrity Check cell found at the right margin that
aligns horizontally with each “Other Direct Costs (Annual)” line item shows zero. If a
result other than zero appears return to Step 9.13 and correct any under or over
allocation.
Step 9.8: Note the critical “Cost Per Bed Day” cells for each house and All Houses
which should be auto-filled.
Step 9.9: Reflect desired profit by entering “Base Margin” and “Risk Margin”
percentages for each house in the relevant columns. The “All Houses” margins will
auto-fill as averages of margins entered for individual houses.
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Step 9.10: Note the critical “Price Per Bed Day” cells for “All Houses” and each
house, which should both be auto-filled.
Step 9.11: Ensure the pink Data Integrity Check cell found at the right margin that
aligns horizontally with the “Estimated Income” row approximates zero.
Step 9.12: Break Even Analysis and Safety Margin (units). The Break Even Point is
where SDU volumes are sufficient to recover all fixed costs but insufficient to
generate a profit.
The Safety Margin if the variance between expected SDU volume and the Break
Even Point volume. The Safety Margin is a measure of risk in the event of an
unexpected fall in residents’ numbers.
10. Health Professionals
The Health Professionals sheet gathers costs of allied health professionals such as
Occupational Therapists, Podiatrists and Physiotherapists. There are two sections
of the sheet as shown in figure 41 that are assembled vertically. These are:
Full-time and Part-time Professional Staff: for employed health professionals;
and
Consultant Professionals: for external consultants.
Step 10.1: List all health professional positions. For example:
1 Occupational Therapist
2 Podiatrist
3 Physiotherapist
Step 10.2: Repeat Step 3.2 above for health professional staff.
Step 10.3: Enter the number of consultations per annum for each health
professional under the “Number of Consultations per Annum” column. This should
agree with the Key Data consultation numbers.
Step 10.4: Ensure that the two pink Data Integrity Check cells linked to the
“Number of Consultations per Annum” column, show zero. If a result other than zero
appears return to Step 10.10 and ensure that there is agreement with the SDU
numbers entered in Key Data.
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Step 10.5: Note the critical Cost Per Consult (SDU) column should be auto-filled.
Step 10.6: Reflect the desired profit by entering Base Margin and Risk Margin
percentages for each health professional in the columns under the heading “Mark up
/ Margin”.
Step 10.7: Note the critical Price Per Consult (SDU) column should be auto-filled.
11. Client Pricing Summary
The Client Pricing Summary enables individualised client quotes from a menu of
available services.
Step 11.1: Enter the number of weekly Service Delivery Units required by the client
in the “SDUs Per Week” column.
Step 11.2: If allied health consultations are to be quoted, enter the position code of
the chosen practitioner by referring to the left hand column of the Health
Professionals sheet.
12. Commercial and Fund Raising
The Commercial and Fundraising sheet assists in checking that the internal
generation of funds occurs with full and appropriate cost recovery and also provides
transparency for funders seeking to ensure that the cross-subsidisation of activities
does not occur.
Step 12.1: Enter all overheads incurred directly on commercial and fundraising
activities in the column “Direct Commercial & Fund Raising Overheads”, ensuring
that there is no duplication of costs entered on other sheets, in particular the Direct
Overheads and Admin Overheads sheets.
Step 12.2: Note the profit or loss on commercial and fundraising activities in the
summary section of the sheet as follows:
Total Commercial & Fund Raising Costs $
Expected Revenue $
Commercial & Fund Raising Profit / (Loss) $
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For further assistance please call NDS WA on (08) 9242 5544 or visit
www.nds.org.au