Guidance Note: Cost and Financing Analysis in VET

Cost and Financing Analysis in VET: Guidance Note

This note describes a country-led five-step methodology to analyse and document the costs of envisaged (initial) VET reforms, as input to multi-stakeholder dialogue on VET system reform.

Short description:

Competition for public funds has created a need for systematic approaches to estimating and documenting the cost of VET service provision and the benefits it provides. In particular, the need has arisen for methods that support multi-level dialogue with VET system beneficiaries, with whom costs can potentially be shared.

This note explains the rationale and timeliness of taking such a cost-based approach to the challenge of VET reform. It lists conditions for success and describes how to obtain buy-in for this approach from key stakeholders in the VET system.

The text outlines a five-step process developed by the ETF to structure analysis of the current and future costs of the VET system and the benefits it provides to individuals, business and society. It is intended to provide an aid for the introduction of dialogue on finance as an essential step in planning for and implementing VET reform.

• Step 1 provides a shared quantitative and financial assessment of the system as a basis for the costing exercise. It identifies functional parameters of service delivery and the use of cost formulae.

• Step 2 describes how to approach the analysis of costs and current financing mechanisms. It outlines a macro-approach to calculating costs and a micro-approach to estimating unit costs and aggregate recurrent spending.

• Step 3 addresses the assessment of benefit or value created by VET services in terms of their efficiency and impact.

• Step 4 looks at the elaboration of policy options on the basis of a cost-benefit analysis. It examines the strengths and weaknesses of different cost formulae, as well as describing the elaboration of consolidated assessment based on a combination of cost-benefit and cost-efficiency analysis.

• Step 5 deals with the use of cost analysis as input to a simulation model for the planning and budgeting of preferred scenarios.

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