Financial Model Start Up by dwb85900

VIEWS: 19 PAGES: 39

Financial Model Start Up document sample

More Info
									                    Introduction

The following chapter will review:

   –   Overview
   –   Model assumptions
   –   The Cost Proposal & Evaluation
   –   Payments methodology
   –   Financial Incentives/Disincentives
   –   Savings Calculation & Profit
Overview
   Financial Model – Objectives
• Reduction of welfare expenditure
• Reduction in income assurance recipients
• Transfer of resources from welfare payments to work
  support services
• Allocation of risk in welfare expenditure growth to
  operators
   Financial Model – Guidelines
• Ability to measure and monitor the investment and
  expenditure
• Simple measurement of performance
• Quality incentives
• Enhancement of the employment test
                      Budget Frame
160%
150%
140%
130%                                               Sa vi n g s
                       C o st o f C e n te r                           Go ve rn m e n t
120%
                                                                        In ve stm e n t
110%
100%
 90%                                           C o st o f C e n te r
 80%
 70%
 60%
 50%    We l fa re            We l fa re                We l fa re       We l fa re
 40%   Pa ym e n ts          Pa ym e n ts              Pa ym e n ts     Pa ym e n ts
 30%     100%                    100%                      65%            100%
 20%
 10%
  0%

         Current          Full Cost - No   Required                          Resources
       expenditure           savings     budget - 35%
                                           savings
Financial Model – Methodology
                               Welfare
                                Operations and services

• Fixed budget frame             Start up

• Financing the operation from the savings in welfare
  payments
• Managerial flexibility
• Simplicity
   – Performance measurement
   – Monitoring and control
Financial Model – Methodology Cont.

 • Geographical responsibility
 • Focus on long-term solutions
    – Risk Mitigation
       • Risk mitigation for the operator
       • Risk mitigation for the government
    – Community impact
   Geographical Responsibility

1. We draw a line around
   3,500 current recipients
2. A job center is given an      3,500 recipients
                                 Responsibility area
   area for operating
3. All Applicants in the area
   who are in the target
   population must claim their
   benefits at the job center
      Regional Risk Management
For each job center:
• The operator is responsible for all participants that reside
  in the area
• All new applicants must apply for their benefits at the job
  center
• The operator is responsible for the reduction/growth of
  income assurance payments to recipients in the area
• Failure to meet expenditure reduction objectives will
  result in penalties to the operator
Model Assumptions
                  Assumptions
• Population
   – Initial population - 3,500 income assurance recipients
     who are subject to employment test.
   – Without reform, implementation growth in recipients
     is - 0% annually
• Welfare Payments
   – Calculated at approximately NIS 138 million per job
     center for 24 months
              Assumptions Cont.
• The program will include the following caseload
  reduction ingredients:
   – Personal details verification
   – Diversion
   – Mandatory full work week assimilation
   – Compliance as a condition for eligibility
 Financial Model – Minimal Requirements


• The Operators of the Job Centers must:
   – Reduce expenditure on income assurance in region
     by at least 35%
   – Meet monthly expenditure reduction goals
   – Reduce the number of households dependent on
     income assurance in region by 40%
         Welfare Expenditure Reduction Graph

Benefit “Inventory”= 3,500 Participants X Average Benefit in the Region

     ₪ 7,000,000

     ₪ 6,000,000

     ₪ 5,000,000
                                                  35%
     ₪ 4,000,000

     ₪ 3,000,000

     ₪ 2,000,000

     ₪ 1,000,000
                            Minimum expenditure reduction requirement
            ₪0
                   1
                   2
                   3
                   4
                   5
                   6
                   7
                   8
                   9
                   10
                   11
                   12
                   13
                   14
                   15
                   16
                   17
                   18
                   19
                   20
                   21
                   22
                   23
                   24
Maximum Benefits Paid NIS 4m
             Resources and Utilization
       Resources                 Resource Utilization
    Income assurance          Income assurance Payments to
      Payments At the                  Participants
Signature Date (according            Start Up Costs
       to NII figures)
                                    Operational Costs
              +
                                  Work Support Services
     Balancing Budget
                                         Margin
  (In order that sufficient
     resources will be
  available for operation   Government           Operator
   operator must reduce     (Community)
 government expenditure
      by at least 35%)
Cost Proposal & Evaluation
            Cost Proposal in the RFP
Month                                1     2      3         4      5         6         7         8
Projected Welfare Payments
Reduction in Expenditure             6%    14%    26%       30%    33%       34%       35%       36%
Target for actual Welfare Payments



Month                                9      10    11         12        13        14        15    16

Projected Welfare Payments
Reduction in Expenditure             36%    37%   38%        38%       39%       39%       39%   40%
Target for actual Welfare Payments



Month                                17     18     19        20        21        22        23    24
Projected Welfare Payments
Reduction in Expenditure             40%    40%       40%    40%       40%       40%       40%   40%
Target for actual Welfare Payments
  Example
                    Cost Proposal

          Entry               Bid A   Bid B   Upper Limit
Profit Sharing proposal (%)    10      30         40
Start – Up costs              ₪5 M    ₪8 M       ₪10 M
Operational Costs             ₪20 M   ₪30 M     ₪33.5 M
Work Support Services         ₪20 M   ₪25 M      ₪27 M
Total                         ₪45 M   ₪65 M     ₪70.5 M
      Cost Proposal Evaluation

• Proposed allocation of savings between operator and
  government (rate)

• Proposed operating cost (operation + services)

• Bidder will not be able to exceed the figures in the
  proposal
  Update At Contract Signature
• Regional income assurance payments adjustment
   –Adjustment of budgeted welfare payments to match
    regional data
   –Conducted according to the average regional welfare
    expense of the three months preceding contract
    signature
          Update Following Contract Signature –
           Government Base Case Projections

 Month                                  1     2     3     4     5     6     7     8
 Projected Welfare Payments            5700
 Reduction in Expenditure               6%    14%   26%   30%   33%   34%   35%   36%

 Target for actual Welfare Payments    5358




  Month                                 9     10    11    12    13    14    15    16

  Projected Welfare Payments

  Reduction in Expenditure              36%   37%   38%   38%   39%   39%   39%   40%

  Target for actual Welfare Payments

Average expense on income assurance in the region for last 3 months= NIS 5.7 M
 5,700 – 6%= 5358
          Update Following Contract Signature –
           Government Base Case Projections

Month                                  1      2      3      4      5      6      7      8
Projected Welfare Payments           5700    5700   5700   5700   5700   5700   5700   5700
Reduction in Expenditure               6%    14%    26%    30%    33%    34%    35%    36%
Target for actual Welfare Payments    5358   4902   4218   3990   3819   3762   3705   3648

Month                                  9     10      11    12     13     14     15     16

Projected Welfare Payments

Reduction in Expenditure              36%    37%    38%    38%    39%    39%    39%    40%

Target for actual Welfare Payments
        Update Following Contract Signature –
         Government Base Case Projections
Month                                 1      2      3      4      5      6      7      8
Projected Welfare Payments           5700   5700   5700   5700   5700   5700   5700   5700
Reduction in Expenditure              6%    14%    26%    30%    33%    34%    35%    36%
Target for actual Welfare Payments   5358   4902   4218   3990   3819   3762   3705   3648

Month                                 9      10    11      12     13     14     15     16

Projected Welfare Payments           5700   5700   5700   5700   5700   5700   5700   5700

Reduction in Expenditure             36%    37%    38%    38%    39%    39%    39%    40%

Target for actual Welfare Payments   3648   3591   3534   3534   3477   3477   3477   3420


Month                                 17    18      19    20     21     22     23     24
Projected Welfare Payments           5700   5700   5700   5700   5700   5700   5700   5700
Reduction in Expenditure             40%    40%    40%    40%    40%    40%    40%    40%
Target for actual Welfare Payments   3420   3420   3420   3420   3420   3420   3420   3420
Payments
Payments of Start Up Costs
• Payments are made according to the bid
• Schedule:
   – Down payment of 10% of the start up bid following
     contract signature
   – Six equal monthly payments start at 3rd month
   – Down payment reduced from the sixth payment
   – Payments are subject to withholding and liquidated
     damages should the operator fail to meet milestones
              Month
                         Date                           Payment
               No.
                                             Following Contract Signature
                       1 January,
                1         2005
                                      Down payment - 10% of start up cost according
                                                        to bid
                      1 February,
                2        2005
                                                       No payment

                        1March,
 Start up       3        2005                      1/6 of start up costs
  period
                4     1 April, 2005
                                                   1/6 of start up costs
                         1 May,
                5         2005                     1/6 of start up costs

                6     1 June, 2005
                                                   1/6 of start up costs
                         1 July,
                1         2005                     1/6 of start up costs
Operational
  period               1 August,         1/6 of start up costs – reduction of down
                2        2005                             payment
Payments at Operational Period
• Payments for operational costs:
   – Made according to the bid
• Include:
   – Placement & training
   – Personnel
   – Overhead
  Payments at Operational Period Cont.

• Payment mechanism:
   – Down payment on first month of operations - 5% of
     the operational bid (excluding work support services)
   – Equal monthly payments according to bid beginning
     with month three and onwards
   – Down payment is reduced from last three payments
   – Payments are subject to withholding and/or liquidation
     of damages
Payments at Operational Period

• Work Support Services reimbursement
  – Reimbursement for use of services (actual).
  – Made 45 days after receipt of the report.
  – Total amount capped by bid
  – Monthly amount capped
  Payments Timeline to the Operator

                     Submission
                    of receipts for          Submission of
                    January work              receipts for
                        support                February
  Down                 services
 Payment                                Payment
  5% of                                                   Reimbursement
                                       for January
operational                                                 for January
                      No               operational
   cost                                                       services
                    payment



              1/1     15/1    1/2     15/2   1/3   15/3   1/4   15/4   1/5
Update at the End of Month 6 of Operation

• Update to the operational cost proposal
• Update to the welfare payments budget
Financial Incentives/Disincentives
      Liquidated Damages

• Start up period – failure to meet milestones
• Operator must meet service level standards

   – Quality standards
   – Appeals that have been accepted over a certain
     rate
           Withheld Payments
• Should the operator fail to meet:
   – Key schedule milestones during the start up period
   – Expenditure reduction objectives during operational
     period

• Withheld payments during operational period:
  the amount of deviation from the expected income
  assurance payments
                          Withheld Payments
        Month 4-8: over-                  Back to the line,                          Month 8-12: ₪1.6 M
        pay of ₪ 1.4 M                      full month                               saved withheld sum
        ₪1.4 M withheld                      payment                                     (1.4) paid
₪ 7,000,000


₪ 6,000,000


₪ 5,000,000


₪ 4,000,000


₪ 3,000,000


₪ 2,000,000


₪ 1,000,000


       ₪ 0
              1

                  2

                      3

                          4

                              5

                                  6

                                      7

                                          8

                                              9

                                                  10

                                                       11

                                                            12

                                                                 13

                                                                      14

                                                                           15

                                                                                16

                                                                                     17

                                                                                          18

                                                                                               19

                                                                                                    20

                                                                                                         21

                                                                                                              22

                                                                                                                   23

                                                                                                                        24
         Savings Calculation
• The following formula will apply:
    G = (PIA – IA)
    – G = Gross savings
    – PIA = Maximum income assurance
                    payments
    – IA = Actual income assurance welfare
            payments
• Operator will receive 10% of saving in services
                Saving Sharing
• Savings in Welfare Expenditure Sharing Formula:

   Percent       Operators Government
    Reduced       Share       Share
  0% to 35%:       0%         100%    Min. Requirement
  35% - 40%        70%         30%
                                       According to
   40% - 50%       X%        100%-X    Operators’ bid
                                       capped by 40%
   50% - 60%      X+5%      100-X-5%
                                      Shared also with
 60% onwards       10%         90%
                                      the Community
                                              Savings
₪ 7,000,000

₪ 6,000,000

₪ 5,000,000
                                                       Minimum requirement - 35%
₪ 4,000,000

₪ 3,000,000

₪ 2,000,000                                                           Savings to share
                                  Welfare paid
₪ 1,000,000

       ₪0
              0
                  1
                      2
                          3
                              4
                                  5
                                      6
                                          7
                                              8
                                                  9
                                                      10
                                                      11
                                                           12
                                                           13
                                                                14
                                                                15
                                                                     16
                                                                     17
                                                                          18
                                                                          19
                                                                               20
                                                                               21
                                                                                    22
                                                                                    23
                                                                                         24
                      Updates
• The government holds the option to top up the centers'
  caseload and maintain it on 3,500 ( the initial no. of
  participants)

• A financial update will be made

								
To top