Shaw Trust / CDG Merger Plan Support P Financing outcome funded contracts Preparing for Steps 2 Success 24 April 2013

Shaw Trust / CDG

Merger Plan SupportP

Financing outcome funded contractsPreparing for Steps 2 Success

24 April 2013

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Seminar objectives

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Develop an understanding of:

• Why financial modelling is so important for PbR contracts (such as Steps 2 Success)

• What the key features of an effective financial model are

• How the financial model should be used on an ongoing basis to drive performance

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Background...


About PublicCoEstablished in 2011 as a joint venture between Chris Melvin the Centre for Economic and Social Inclusion.

Our experienceWork with providers across the Welfare to Work, and Skills sectors to support the delivery of payment by results contracts

Key areas of support are:Bid support • Building and developing financial models to support bid opportunities

Performance improvement • Turning around performance and maximising outcomes from payment

by results contracts

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Why is financial modelling so important


Flexibility Drives performance

Efficiency Manages costs

PbR enables:

Innovation Minimises risk

Financial modelling:

Financial modelling allows providers to minimise risk and also understand performance

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Why is financial modelling so important


Financial modelling

Support investment

Assess risk

Validatebusiness

case

Drive performance

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What does a good financial model look like


Financial model will have four key features

1 – Flows

2 – Income

3 – Performance

4 – Costs

.

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Key features - Flows


Ensure you know what you are delivering and the likely market share

Be clear on the likely number of individuals referred to the Steps 2 Success programme – this is based on the contract package

Key considerations

• Total number of customers

• Contract size

• Rate of attachments

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Key features - Flows


Example reporting – ‘Flows’ tab

Flows

Year YEAR 1 YEAR 2 YEAR 3 YEAR 4 TOTAL

VolumesJSA 18-24 5,630 5,508 5,316 5,160 21,614 JSA 25+ 13,560 13,248 12,804 12,432 52,044 JSA EA 3,924 3,828 3,708 3,600 15,060 ESA Flow 3,684 3,684 3,684 3,684 14,736 ESA IB Vol 1,309 786 567 564 3,226 Total 28,107 27,054 26,079 25,440 106,680

Market share 33% 33% 33% 33%

JSA 18-24 0% 0% 0% 0%JSA 25+ 0% 0% 0% 0%JSA EA 0% 0% 0% 0%ESA Flow 0% 0% 0% 0%ESA IB Vol 0% 0% 0% 0%

VolumesJSA 18-24 1,858 1,818 1,754 1,703 7,133 JSA 25+ 4,475 4,372 4,225 4,103 17,175 JSA EA 1,295 1,263 1,224 1,188 4,970 ESA Flow 1,216 1,216 1,216 1,216 4,863 ESA IB Vol 432 259 187 186 1,065 Total 9,275 8,928 8,606 8,395 35,204

Forecast flows

Estimate market share to simulate size of contract

Revise by year and by group to simulate changes to flows

Outturn is participant flows for the contract

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Key features - Income


Be clear on the pricing

Model the timing and size of different payments

Key considerations

• Pricing of different groups

• Distribution/split of payments

• Cashflow of payments

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Key features – Performance


Forecast realistic performance

Run sensitivities where appropriate

Key considerations

• Identify existing benchmarks

• Identify sustainment

• Be clear on how performance will be increased

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Key features – Costs


Develop and establish a robust exercise

Identify start up costs, fixed and variable costs

Key considerations

• Start up costs

• Cashflow timings

• Changes in costs over the duration of the contract

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Sensitivity


Scenario Analysis - Summary Base Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5Model Flows -10% Perf. -10% Mgt fee 10% F & P -10% Flows +10%

Flows Total Total Total Total Total TotalStarts 32,388 29,149 32,388 32,388 29,149 35,627 Job Entries 10,027 9,024 6,427 10,027 5,784 11,029 Sustained job entries

Average - In work case load 7,443 6,698 4,742 7,443 4,268 8,187 Average - Out of work case load 26,727 24,054 28,756 26,727 25,880 29,400

Income (£'000)Attachment fees 12,698 11,428 12,698 12,698 11,428 13,968 Job Entry fees 3,692 3,323 2,336 3,692 2,103 4,061 Sustainment fees 15,142 13,628 9,336 15,142 8,403 16,657 Gross income 31,533 28,379 24,371 31,533 21,934 34,686 Less subcontract delivery 15,766- 14,190- 12,186- 15,766- 10,967- 17,343- Add management fee 2,365 2,128 1,828 1,577 1,097 2,601 Net income 18,131 16,318 14,013 17,343 12,064 19,944

Expenditure (£'000)Set up costs 600 600 600 600 600 600 Staffing costs 6,661 6,223 6,831 6,661 6,375 7,099 Variable costs - operating 4,129 3,991 3,634 4,129 3,545 4,267 Total expenditure 11,390 10,814 11,065 11,390 10,520 11,966 Cashflow 6,742 5,504 2,948 5,953 1,544 7,978

Profitability 37% 34% 21% 34% 13% 40%

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Principles


• Focus on the outcomes (what triggers revenue)

• Be realistic

• Validate

Ensures a no surprises approach – clear about the investment / finance required

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Contact


Joel Featherman

Director PublicCo

Telephone – 07739 119783Email – [email protected]

mailto:[email protected]

Documents

Shaw Trust / CDG Merger Plan Support P Financing outcome funded contracts Preparing for Steps 2 Success 24 April 2013