Case Studies Make Sense of Unit Costing
Tuesday, 27th January 2015 at 9:22 am
Accurate and timely costing of services is becoming increasingly important in the Not for Profit sector as the trend to pricing of services continues, writes Mick Devine CEO of software specialists Calxa.
Unit costing, or understanding the full costs of the activities an organisation performs, has become a hot topic lately, particularly in the disability services and aged care sectors.
This has been largely driven by preparation for the National Disability Insurance Scheme (NDIS) and other customer-directed care initiatives. The NSW Family and Community Services department has recently updated their advice on this topic with the inclusion of a series of real-world case studies.
Calculation of unit costs can be complex and overwhelming for many already-stretched finance staff but these examples demonstrate that choosing the appropriate systems to manage costs and reporting is within the reach of most organisations.
The case studies covered a range of seven organisations with revenues from as low as $1.8m up to $50m. The smaller ones use MYOB for their accounting while the two largest use Sun Systems and Australian Business Manager.
Before the study, all participants were either doing no unit costing at all or managing with ad hoc reporting from complex and unreliable spreadsheets. The response of the Royal Institute for Deaf and Blind Children was typical of the comments after the study: “MYP replaces cumbersome spread sheets and allows reporting of ‘actual vs budgeted’ time spent”.
The case studies are based on the implementation of new systems to manage unit costing and all seven organisations experienced significant time savings and better accuracy compared to their previous spreadsheets.
These systems supplemented rather than replaced the existing accounting software, minimising any disruption to the systems in use and strain on the finance department.
This integration with the core accounting software was one of the key benefits to all the systems studied as reflected in the comments from Mercy Services: “Information will be accurate as manual processes are replaced with automated processes”.
Accurate and timely costing of services is becoming increasingly important in the Not for Profit sector as the trend to pricing of services continues. It is important to be able to accurately manage costs and compare them to the revenue earned and to do that in a timely manner. This then provides management information they need for decision-making: Is the service making a gain or loss? Is this service priced correctly? Should we continue to provide this service?
All of the study participants reported improved decision-making ability with the implementation of the new systems. Some comments specifically mentioned the benefits of improved reporting at the board level, helping board members ensure the sustainability of their organisation in the face of the new challenges to their environment.
In summary, these studies demonstrate that regular, accurate and reliable unit cost reporting is within the reach of even the smallest organisations (one of the tools reviewed, Calxa, is available as a donation to smaller Not for Profits through Connecting Up) (http://www.connectingup.org/calxa).
The introduction of the NDIS and customer-directed care will throw up many challenges for the sector but also significant opportunities for those who are well-prepared with the right systems in place.
About the author: Mick Devine is the CEO of software specialists Calxa. In 2012 Calxa Australia has won an industry iAward recognising the contribution its software had made to the community sector in Australia. Calxa Australia has partnered with DonorTec and TechSoup New Zealand to provide $1,000,000 worth of budgeting software to grassroots Not for Profit organisations across Australia and New Zealand.