Draft Report – Probation Service

1. DRAFT – IN CONFIDENCE Draft Report – Probation Service

2. SECTION Executive summary Introduction Local effectiveness Opportunities to release resources Lean structures Capabilities, transparency and competition Implementation programme plan INDEX

3. EXECUTIVE SUMMARY

4. Executive Summary (1) • Conclusion. • We have concluded, on the evidence available to us, that there is overwhelming merit in: • Initiating a nationally-led, high-ambition improvement programme across Probation for the next 3 years, in order to put in place a more local level of delivery at the frontline of offender management, to deliver large scale efficiency savings and to establish a much more robust commercial and managerial structure across Probation. We believe that such a nationally-led programme is necessary to “jump-start” Probation’s progress towards a step change in local effectiveness, alongside managerial and commercial capacity. This change programme could not only deliver unprecedented benefits within the 3 year period, but it would create the transparency, local engagement and commercial capabilities to sustain further improvements thereafter through fully effective commissioning and competitiveness. In the future, the invisible hand of a flourishing market may drive success, but in the near future there is a need for a very visible hand to intervene. • (b) Facilitating this improvement programme by implementing a new version of the Trust Programme, which will set a much higher hurdle for providers to achieve a “license” to provide probation services. This will mean that by 2011 no services will be provided by Probation Boards and all parts of the country will be served by either licensed trusts or commercial / voluntary sector providers. Existing Boards ( and the 2008 pilot trusts) have the opportunity to earn their licence at any time between 2009 and 2011, whenever they are capable of passing 4 key tests. These tests are : local effectiveness; use of resources; capability; performance. • (c Driving through the benefits of the improvement programme and new structure of trusts as swiftly as possible, as the Probation Service appears hungry for a clarity of direction and it is vital that the new leadership is confirmed as quickly as possible to lead the service though the necessary changes. The improvement programme requires historic shifts in funding, expectations, culture and leadership. The scale of change required across probation by the proposed improvement programme is very ambitious and will need careful due diligence, design, management, resourcing and benefit realisation. It is likely that current providers will have to ask fundamental questions about their future organisation, considering mergers, joint ventures and radical internal change to deliver what is required. The NOMS Agency, whilst setting a very high hurdle for the licence, is committed to supporting all current providers to make the necessary changes, through direct support to individual bodies and through making national changes to the framework within probation services operate.

5. Executive Summary (2) • 2. Background. • These conclusions have been driven by the need to looking at future efficiency and effectiveness issues for probation by: • Identifying the key improvement opportunities for Probation in the next 2 or 3 years. It was agreed that the search for improvement opportunities would focus on: local effectiveness; stronger capabilities; cost reduction; greater transparency and competitiveness; future proofing; • Considering each of the key functions within probation (e.g. interventions, support services, offender management, etc) and how should each of them should best be developed; • Looking at the levers for change ( eg incentives, contracts, structural change, etc). • (d) We agreed with Ministers and Senior Officials a range of assumptions about Probation in the next 2 to 3 years, including: that the service will remain largely distinct, carrying a similar workload but with more demand and fewer resources; that the review should focus on economy and efficiency, rather than trying to address questions of effectiveness; that there need to be a range of trusts created and there must be more transparency and competitiveness; the next 2 or 3 years must deliver major improvements in their own right, whilst also preparing Probation for more ambitious change in later periods. • This report has been produced rapidly based on existing information and a range of high level discussions with local and national managers within the NOMS Agency and Probation Boards / Trusts. It aims to suggest a broad way forward, subject to due diligence on the information, detailed design, planning and consultation. • 3. Opportunities for improvement • There are 4 key areas of opportunity for improvement: • (a) Local effectiveness • Offender management is dependent on very local effectiveness – engaging with individual sentencers to shape demand and with other local partners to integrate solutions around the offender. We have identified the opportunity to organise the offender management function at local authority level – giving some 160 “local command units” (LCUs). This looks like the most appropriate level around which to plan the future structure of the Probation Service, rather than the 42 police force areas or the 10 regions.

6. Executive Summary (3) • It is envisaged that this is a highly empowered and accountable local unit (typically with about 70 staff) who work very closely with (an average of 2) magistrates courts, the BCU and the local authority based partnerships (LAA, CDRP, DAT, etc) and services (housing, social care, community safety, etc). The LCU would sub-divide further into 4 or 5 teams, each of which would focus on a more local level than the LCU. National performance management would compare success across the c.160 LCUs. Most probation boards operate in broadly this fashion already, but the LCU proposal would simplify the management layers above the local level, give new freedoms to the frontline units to find the best local solutions and provide local communities and partners with a consistent and local model of accountability for probation. • (b) Releasing resources • We have looked to identify the size of the prize for releasing resources across Probation. These prizes are gross benefits only and they assume that a fully effective change programme is put in place with the capability to deliver it. The prizes are sized to indicate where there should be further analysis and discussion about the net benefits of the change and the achievability of the change programme and capability required. On this basis, there appear to be, prima facie substantial opportunities to release resources across the current structure, amounting to some £190m per annum or c18% of total spend. There is about £1 billion of spend, comprising 60% core service and 40%overheads. The potential savings comprise up to £120m in driving consistent unit costs in core services across the 42 boards through changes to funding and productivity; up to £35m through reduced HQ costs, both national and local; up to £35m from support infrastructure in IT and property. We would suggest that these represent challenging, but realistic initial targets for the next 2 or 3 years. • (c) Better capabilities, transparency and competitiveness • Probation appears to be less well prepared for a tight financial and commercial regime than many other public services. There is a need to build businesses out of the current organisations before one can build an effective market. In part this can be driven by a programme to commercialise in-house provision and the phased introduction of a new funding approach. In order to create transparency and to create viable commercial functions, it is proposed that interventions and support services are managed as arm-length units, operating quasi-commercially and professionally.. At the heart of this improvement is integrating the management of activity and finance. .It is suggested that the total HQ function (between Ministers and the very local frontline) needs to be radically reshaped to ensure that it provides the frontline with appropriate direction, challenge and support. This streamlining should improve effectiveness and save money. • (

7. Executive Summary (4) d) Future proofing The changes suggested in this report aim to align Probation with important future opportunities – with localism rather than regionalism; with a real grip on demand management and frontlilne productivity to cope with future pressures on limited resources; with integration opportunities with the Prison Service, particularly in the delivery of programmes; with a readiness for full competition should that prove necessary; with greater knowledge of economy and efficiency allowing a better understanding of effectiveness; with the confidence of achieving a managed revolution within the next 2 years inspiring more ambitious change programmes in the medium term. 4. Implementation Between now and December 2008, it is proposed that there is more detailed design of the tests, the new funding approach and the licensing / contracting process. In parallel, to this current probation providers should begin considering how they will respond to the challenges. There will be then be a 7 gate process for the award of licences: Gate 1: Readiness assessment of Boards / Trusts ability to manage the change ahead ( by December 08) Gate 2: Boards of current providers formally consider strategic options for responding to challenges ( by December 08) Gate 3: Agreement with DOM to proceed in shadow form as an applicant for a licence ( by March 09) Gate 4: Assessment of readiness to go live with local change programmes ( for minimum of 12 months live operation) Gate 5: Interim review after 6 months of new structure and improvements in operation Gate 6: Assessment for and award of licences ( by 2011 at the latest) Gate 7: Award of contracts ( by 2011 at the latest)

8. 2. INTRODUCTION

9. The “Probation Service” will remain a very distinct service in the next few years, but there will some targeted integration of functions within the NOMS Agency. It will broadly deliver the same range of activities as now, but needs to better manage demand and costs to live within a smaller real terms budget at a time of rising expectations. We should assume that probation’s work is broadly effective and focus at the moment mostly on economy and efficiency. There does not need to be a significant shift between “make” and “buy” in the period, but there must be much greater transparency and readiness for competition, internal and external. There is a need to move away from boards to a range of trusts, working to contracts. Any organisational change in this period should deliver major improvements in effectiveness and efficiency within the period itself, as well as preparing the Probation Service for greater improvements in the period which follows. There is a need for a “settled will” giving clear national direction to the Probation Service and its stakeholders, based on empowering the frontline offender managers to find the right local solutions and giving them access to the best possible interventions and support services. In terms of the context for identifying an improvement programme and structural change, we agreed with Ministers and senior officials 7 big assumptions about the next 3 years.

10. The agreed approach taken has been to focus on identifying the best opportunities for improving priority areas and then seeing which structural options make it easier or harder to realise these opportunities. PRIORITIES FOR IMPROVEMENT OPPORTUNITIES FOR IMPROVEMENT DOES OPTION MAKE IT MORE / LESS LIKELY? TRANSITION RISKS LOCAL EFFECTIVENESS OPPORTUNITY LIST + / - / = TOP RISKS STRONGER CAPABILITIES OPPORTUNITY LIST + / - / = TOP RISKS WHAT YOU’RE TRYING TO ACHIEVE RELEASING RESOURCES OPPORTUNITY LIST + / - / = TOP RISKS TRANSPARENCY & COMPETITIVENESS OPPORTUNITY LIST + / - / = TOP RISKS FUTURE PROOFING OPPORTUNITY LIST + / - / = TOP RISKS FUNCTIONAL OPTIONS STRUCTURAL OPTIONS

11. The current 42 boards vary hugely in scale. There is therefore empirical evidence about operating at almost all sizes – big, medium and small.

12. We have identified 4 building blocks – the key functions of probation. Our approach looks for the right organisational solution for each function. We have found that the cornerstone of any new structure is the solution to offender management – the core service. We suggest that the answer to this should dominate the wider structure, as the other functions need to be organised so as to offer offender managers access to the right solutions and support. OFFENDER MANAGEMENT • Offender management • Court reporting & duty • Release reporting • Supervision • Choosing unpaid work opportunities • Victim contact • MAPPA INTERVENTIONS • Approved premises • Programmes • Unpaid work supervision 1 2 HEADQUARTERS • Strategy & policy • Specifications & funding • System management • Fit with national agencies & legislation • Leadership & professional development Mix of NOMS, NPS, ROMS, probation board HQ staffing & funding SUPPORT AND INFRASTRUCTURE • ICT • FM • Estates • HR • Finance • T&D • Communications & PR • Research, Info & IT • Other 4 3

13. We have drawn on the lessons we have learnt in helping to implement highly relevant reform across the local public sector. We have summarised the key sources of that learning below. • Health – The creation of trusts (e.g. PCTs, FTs, Acute Trusts), the introduction of new funding regimes (e.g. PBR tarrifs and local commissioning), the introduction of new suppliers (e.g. ISTCs, JV for support services, etc.) and the reconfiguration of suppliers (e.g. mergers, rationalisation, specialisation, etc) • Social care – The introduction of a mixed economy in supply (since community care was introduced), the creation of multi-agency trusts (in care, mental health and children's services) and the development of financial and commercial grip to manage demand and supply within tight resources. • Local government – The introduction of unitary councils over the last decade, the experience of best value, the current policies around localism (LAA, etc), the creation of multi-agency partnerships (CDRP, LSP, DAT, etc) and the outsourcing to and partnering with the 3rd and private sectors. • Social housing – The introduction of a mixed economy in supply (the expansion of RSLs, the LSVTs of local authority provision, the creation of ALMOs, etc), the development of new approaches to managing demand (e.g. housing options) and the integration of support for individuals (e.g. supporting people). • Police– The creation of basic command units, the attempts at national reorganisation into larger forces, the organisation of specialised and non-operational functions. • Education & training – The variety of funding regimes for local institutions (LMS, LMC, FEFC, TECs, LSC, HEFCE, DSG, etc) and the institutional responses to those changes in regime (e.g. mergers, profitability models, mixed economy of supply).

14. 3. LOCAL EFFECTIVENESS

15. Inter-agency levels: the probation service works at a number of spatial levels to deliver effective offender management. Our analysis shows that the key levels are the local level (the 170 local authorities, 300 magistrate courts and BCUs, individual prisons) and the national level. There are less pressing demands for interaction at the regional or police force (42) levels.

16. Key roles and responsibilities by level: It is important to clarify what is needed at very local level and local systems level to deliver an excellent probation service and based on this what is needed regionally and nationally in terms of support and oversight.

17. Key roles and responsibilities by level contd.: This analysis suggests that there is clearly a different focus of activity at each level – with delivery focused at the local level, local strategy managed above this and oversight and policy managed nationally.

18. Increasing the focus on local offender management:Based on the importance of the local level we propose c.160 Offender Management local command units to focus offender management at the local authority level. • The local level is key to delivering an effective probation service • There has been unanimous support for the idea that in probation, the local level is the most important level to deliver an effective service and reduce re-offending. Working in close partnerships with the courts to develop suitable sentences for offenders and then with other key agencies – local authorities, the policy, RSLs, colleges, JCPs – to rehabilitate the offender into the community. On this basis: • The proposed local command units are based on the Local Authority level as the key building block – 150 in England and 22 in Wales. We think this is the most efficient way for offender management to be delivered. This is rationalised to c160 in the illustrative list, combining due to scale of some small local or low volume local authorities. Our proposed 160 local command units would ensure that these local links are made more focused on offender management. The appendix demonstrates how each new proposed command unit could look but we have included examples in slides 21 to 23, although there is a need for further discussion on whether to combine some more which are on a small scale, as well as possibly sub-divide a few larger ones, like Birmingham. • These units would focus entirely on core offender management and public protection. This will allow interventions and support services to be managed on a larger scale where efficiencies and cost savings can be made. And potentially in the future act as competitive bodies with whom the local command units can contract. • Although many key local accountabilities are taken care of in other structures (e.g. the LAA, the LSP, the CDRP, etc), it may be a good idea for each LCU to have a small steering group, critically including a leading politician from the main local authority and a leading sentencer (or more) from the local magistrates court. There is a detailed account of what this looks like for all the 160 local areas in Appendix One. There is a summary and some examples in the next few pages.

19. There is the opportunity to install about 160 “Local Command Units” (LCUs), based on similar principles to the Police’s BCU model and fitting in with local authority based partnerships ( eg LAA, CDRP, etc).

20. An illustrative list of local level offender management command units:Illustration the proposed c.160 Offender Management local command units, their potential size in FTE both locally and regionally(** to be split further?)

21. An illustrative list of local level offender management command units:Illustration the proposed c.160 Offender Management local command units, their potential size in FTE both locally and regionally (** to be split further?)

22. An illustrative list of local level offender management command units:Illustration the proposed c.160 Offender Management local command units, their potential size in FTE both locally and regionally (** to be split further?)

23. There is a full appendix showing the illustrative c.160 LCUs and how they match local partners –here is an example for one region, Yorkshire & Humberside. Humberside North Yorkshire South Yorkshire

24. 4. OPPORTUNITIES TO RELEASE RESOURCES

25. Overview of the total business as currently configured The data available gives a good sense of where Probation resources are currently expended. Some 39% of total spend is on offender management, 21% on Interventions with the balance (41%) on overhead costs. It is this total cost base we have used in identifying the scope for potential opportunities. The financial analysis above is not comparable basis with the statutory consolidated probation board accounts. This reflects, in particular, that (i) the above figures are based on the total costs associated with the provision of probation services, not all of which are accounted for by probation boards; (ii) the costs are presented on a gross, basis excluding income (such as in respect of secondments); and (iii) the need to estimate salary costs to enable the allocation of FTEs and costs on a functional basis. The overall result is that this overall gross cost analysis shows a significantly higher total cost for the probation service than the consolidated statutory accounts. The basis on which this data, and its subsequent analysis, is based is set out at the end of this section.

26. Overview of the total business as currently configured: “The total HQ”Over the next few pages we analyse in greater detail the composition (staffing and costs) of the key functions starting with the HQ function (which excludes central costs and staffing attributable to support services)…

27. Overview of the total business as currently configured – Support ServicesThis slide shows in detail the main components of the service’s total spend on Support Services …

28. Overview of the total business as currently configured - Support InfrastructureAnd this shows what is included under the heading of Support Infrastructure ….

29. Overview of the total business as currently configured – Core Services Finally, this slide describes the key components of the spend on Intervention as well as the total costs of Offender Management and the salary costs of Trainee Probation Officers

30. Summary of potential opportunitiesWe have, taking the full cost base of the current probation service, identified the potential to release resources across the three broad headings of Productivity, the HQ and Support Services and Infrastructure … In the next few pages we set out the rationale and supporting analysis for this range, by opportunity area. We have in all cases proposed a range of potential opportunities to release resources, as further due diligence will be required to establish where within the range the service should set its overall target. And where the benefits are based on improving performance towards internal benchmarks we have calculated their potential on the basis of both upper decile and upper quartile performance. The use of these alternative bases onlyaffects the identification of Productivity savings. In all cases these potential opportunities to release resources are gross and do not reflect the implementation costs of the actions needed to secure these benefits.

31. Funding formula: does it provide the mechanism for securing change ?A summary of the key elements of the funding formulaindicates that the current mechanism attaches a low level of importance to actual activity. Moving to a more activity driven approach would require a potentially significant realignment of resources… The service uses a complex formula for allocating resources (which take the form of a block grant) to individual boards). A total resource limit is established for the year – and the mechanics of the formula seek to allocate that total across boards on the basis of a range of socio-economic and workload factors. The manner in which the formula works appears to give a relatively low weighting to expected activity / workload – with the majority of the allocation driven by either socio-economic factors and specific cost adjustments. Therefore the funding formula has a strong bias towards rewarding costs, rather than paying for expected activity / outcomes; and as such is very weakly aligned with the ‘commissioning’ focus which the business wants to bring to the way in which it secures outcomes. Accordingly, moving to a basis of buying services, rather than simply allocating resources, is likely to lead to the need for a potentially major realignment of resources between areas: a process which would be expected to be easier to accommodate within a regional structure (as the realignment of resources could net off to a more manageable amount) than within the current 42 individual board structure. Solely to illustrate of the scale of resource reallocation which could be involved in moving to a more activity based approach to paying for what you want to get we have – using recorded crime as a simple proxy of the scale of potential offender management activity – identified the level of mismatch between the level of resources individual boards receive under the current formula allocation approach, with those they would receive under an approach which was more directly driven by expected activity. We show below, using the proportional difference (as a % of formula funding), the potential gap between formula and activity based funding. The range of proportional funding difference runs from -42% to +45% of the current formula allocation …(the detailed analysis is at the rear of this section)

32. How big are the opportunities to release resources: how we identified potential opportunities and monetised them Sizing the prize Our analysis of the value chain – which sets out where the totality of resources allocated to the probation service are spent – together with an understanding of the relative performance of individual Boards allows us to form initial conclusions as to where the greatest areas of opportunity lie, and their potential scale. We have identified three broad areas of major efficiencies and improvement across the whole probation value chain: 1 – increasing productivity in the delivery of core activities, in particular around Offender Management and the better use of trainee probation officers across the business; 2 – significantly reducing the senior management and HQ overhead associated with the business; and 3 – achieving efficiencies in the use of support infrastructure – which largely relates to the consumption of ICT and property services. Increasing productivity Offender management … Analysis across the 42 individual boards demonstrates a high degree of variation in how productivity in delivering on OM caseload. The extent of the variation is too great to be explained by differences in local circumstances alone, as these OM processes would be expected to be mature, and to be substantially similar across the country. If all boards were to operate at the upper quartile (that of the 10thh best performer) level of ‘core ‘ OM productivity (i.e. excluding OM staff delivering services for Prisons, YOTs and CJIP)this would release some 1,823 FTEs, which using the average cost per FTE for each board would be equivalent to some £61 million per annum (before costs of implementation). This potential efficiency gain is based solely on already achieved performance in delivering core OM across the country and does not allow scope for the best performers to be further improved (i.e. it assumes the best are already as good as they can be). Therefore further resources could be released by targeting a re-engineered process benchmark. Nor does it allow for the scope to optimise the input mix used in delivering OM (i.e. reducing the average input mix used in delivering OM, through for example making better use of PSOs). In considering the impact of aiming for this improved level of productivity, it is notable that there is no apparent correlation between productivity and assessed performance. Securing these productivity improvements in practice will require the design of an optimal set of processes (based on the best), the base-lining and gap analysis against best practice of all OM functions across the country through a nationally managed programme and the implementation of effective financial incentives to deliver improved performance. Intervention: supervision of unpaid work Our analysis shows (using 2006/07 volumes and performance data) that there is, as for OM, a wide degree of variation across the country in the unit cost of supervising unpaid work – which is unexpected given the similarity of this activity nationally. It would therefore be reasonable to assume that all can aim to achieve the level of the best (defined as the upper quartile of performers). Implementing such an approach would give rise to total annually recurring benefits (on 2006/07 volumes of activity) of some £17 million, before implementation costs. Intervention: programmes The unit cost of completed programmes again shows significant national variation. Some of this variation may reflect local circumstances (e.g. the different mix of offenders dealt with by different localities) – but not of all of it. And this is consistent with the known composition of programmes – with high cost programmes (such as those for Sex Offenders] forming a relatively small (5-10%) proportion of the total. However, the degree of variation within similar groups [and the fact the degree of variation comparing one year with the next] suggests that a least a proportion of the variation in costs is due to factors which can be better managed. This would include the attrition rate on courses and the way in which local discretion as to what courses are provided is exercised. Achieving upper quartile performance on the unit cost of completed courses across the country would potentially release annual resources (on the basis of 2006/07 volumes) of £23.7, million before implementation costs.

33. How big are the savings opportunities Intervention (cnt’d): Approved Premises The data made available to date allows the comparison of the annual unit cost of making a bed space available – though it does yet not allow comparison of the more important indicator of the average annual utilisation of those bed spaces. The calculation of the maximum potential efficiency is therefore based solely on the extent to which the annual unit costs can be reduced – in the context of a national estates management strategy – rather than increasing average utilisation. On the basis that the unit cost of all assured premises could (over time) be brought into line with that of the upper quartile performers a potential efficiency gain of £4.2 million has been identified. In practice, driving down annual costs of provision and improving utilisation would require a managed move across the whole estate of approved premises to larger premises as well as the ability to optimise the relatively rich staff mix within units. Trainee probation officers Currently TPOs have very low levels of actual utilisation within the business. This is out of line with other trainee professionals (such as doctors, teachers, accountants etc.) where there is a clear expectation that a significant amount of the training period is productive. Data on the actual productivity TPOs is limited (estimates vary from 0% to 10%). Assuming that the current best case of 10% actual productivity is raised to 50%, the service would benefit (at the maximum) from the release of additional resources of some 412 FTE – which assuming they replace / free up more expensive staff would generate maximise potential annual benefits in the region of £13.8 million per annum. This opportunity could be realised relatively quickly in terms of additional resources being made available within the business – but would need a fresh approach being adopted to how TPOs are developed (to ensure there was sufficient non-study time freed-up to enable meaningful productivity gains). Reducing the other costs associated with TPOs (e.g. nationally negotiated training courses with providers) may take longer, as volume reductions through such arrangements may not be immediately available. As such no allowance has been made for such additional benefits. Rationalising the HQ The potential savings have been calculated by comparing the current level of resources absorbed by HQ functions (excluding those associated with the provision of support services such as finance, HR, procurement, estates and so forth) with those which would be required to effectively operate the proposed new model, as described later in this report. Therefore, in this context the HQ represents all the resources which sit between the Ministry of Justice (which is out of scope) and the Senior Probation Officer who will be managing front line delivery. These benefits reflect the implementation of best practice such as optimum spans of control, the elimination of duplicative tiers of management and challenging purpose. The design principles underpinning the proposed model (and against which the current allocation of resources has been compared) are based on best practice as successfully applied in the public sector. In arriving at the potential level of resources which could be released we have allowed for continuing significant investment in the business. In particular: • a significant build up in the Communications and PR function (from 37 to 80 FTEs) has been allowed for to improve the service’s contribution to increasing public confidence; • an additional 85 posts have been allowed for to enable each LCU to have a dedicated focus on partnership development; and • 30 additional senior officers have been allowed for within the regional structure to support performance improvement and change projects. The potential benefit identified, after allowing for this investment, is a reduction in FTE of 814 with an associated estimated release of resources – based on average salary costs – of £42.3 million, before implementation costs. To reflect an assumption that the data is only 80% accurate, this would give a reasonable indicative target of £35m.

34. How big are the savings opportunities Improving the efficiency of support services and infrastructure Support services The basis on which potential benefits have been calculated is by comparing the identified costs of the probation service to public sector benchmarks (upper quartile and average cost performance]. This shows that the potential financial benefits around support services such as Finance and HR are unlikely to be significant when considered in aggregate (though there remains relatively wide variations in such costs nationally and there is scope for improvement towards public sector best practice). This may be due to understatement of the costs allocated to these areas on the basis of the information provided. It will also reflect – at least in part – that major elements of the local costs of these services (namely senior management and ICT) have been allocated to different categories of spend (such as HQ and Infrastructure) – and the potential benefits which could be released determined in respect of that heading. As such the costs under consideration here relate predominantly to the transactional element of these support services. Given the known difficulties with successfully implementing common shared services functions to reduce costs and the need to manage the integration of currently fragmented functionsthis analysis would suggest the focus should be on improving overall performance and managing risk rather than considering these functions to be a source of major cashable savings or released resources in the short term. Support Infrastructure The two key components here are property and ICT – both of which are procured and managed on a national basis and then recharged to individual probation boards. However not all of the costs are recharged to Boards – with the centre retaining a substantial level of the costs associated with these services. In undertaking our analysis we have taken into account these additional un-recharged costs. ICT: compared to public sector benchmarks the costs of ICT in total are significantly above the public sector average, and over 5 times upper quartile performance. These costs will largely reflect the pricing within the national arrangement – as there is limited scope for locally controllable spend. Were ICT unit costs to be brought in line with upper quartile performance, resources equivalent to some £42.2 million could be released. Securing such benefits would require the agreement of the current ICT provider – but given the potential scale of the prize this is an issue the service should consider pursuing aggressively. Property: there is a wide degree of national variation in the consumption of property space (as derived from the central recharge). Were all boards to achieve upper quartile performance, potentially significant savings could be released. These savings would only be expected to be secured within the overarching framework of a national estates strategy – and would reasonably be expected to be, where possible, secured on an incremental basis. In monetising the potential scale of this opportunity we have taken into account total property spend – not simply that proportion of it which is recharged to individual Boards. Currently Boards are recharged at £178 per m2 which compares favourably with the public sector average of £249 per annum for property FM services. However, when all property related costs are taken into account the actual level of the recharge (were it to fully recover all costs) is some £312 per m2 – which is comparable with the worst 25% of public sector performers. Therefore in deriving the maximum possible benefits which could arise from rationalising consumption of property we have used the higher real rate of property costs (rather than the lower recharge level individual Boards are required to absorb). Our analysis indicates that if all Boards were to move to public sector benchmarks both for property consumption and unit cost total resources of the order of £73 million would be made available. To reflect underlying data quality and uncertain contractual position a reasonable indicative target would be £20m. When these benefits can be secured will be strongly contingent on the terms and conditions of the ICT and Property FM arrangements and an effective estates strategy.

35. How big are the savings opportunities For example it is not clear to what extent reductions in usage of ICT/Property can flow through as released resources over what time period. However, the scale of the potential opportunities would support an aggressive approach to securing improvements within the contract periods. Setting realistic targets over the next 3 years It is important that the target level of potential efficiencies is stretching, yet credible – and that the target does not impede the momentum towards change by having to be constantly revised downwards in the light of further evidence / due diligence. The indicative targets will send a strong message as to the service’s level of ambition. The data used within the review to this date on the resources absorbed, and performance delivered, by the probation service has been generated from a number of different sources, has not been subject to detailed verification or due diligence or subject to detailed challenge by local practitioners. However, our analysis does support the view that improved efficiency is consistent with good levels of operational performance. This supports taking a prudent approach to determining an appropriate level of target of resources to release – which is then driven hard. Confidence in the sizing of the prize for saving money. The level of confidence in the proposed savings target will reflect a mix of the assurance which sits around the data and analysis supporting it, the extent to which the organisation can control the issue and its inherent capability on delivering the savings. By reference to the three core areas of potential savings we would initially estimate the level of confidence as being: Productivity: 100% of the upper quartile benefit. This reflects that the data and findings have been exposed to a reasonable degree of challenge, excludes other OM activity (prisons, YOTs and CJIP which can be income generating) and that the target areas are the organisation’s core area of competence and within its control (with the potential exception of approved premises because of its property element). It also reflects that basing the potential benefits on an upper quartile level of performance significantly reduces the scope for assessed benefits being artificially inflated by outliers and data discrepancies. Therefore the size of the prize appears to be – subject to further due diligence and confirmation – around £120 million for Productivity Gains based on all boards / trusts equalling the productivity of the current 10th ( a prudent view of upper quartile performance; a weighted UQ average would suggest more) HQ: 80% of the expected benefit. This reflects that the data and findings have been exposed to a significant degree of challenge and that the level of resources which can be released are based on a high level design of the new organisation, which already allows for significant continuing investment in the business. But one has to allow for some data inaccuracy. It also takes into account that the level of challenge and change associated with implementing the new HQ will be the same whether one targets the total expected potential benefit. It would not appear sensible to invest the level of energy and commitment needed to deliver 50% of what might be possible. Therefore the size of the prize – subject to further due diligence and confirmation – is of the order of £35 million for Rationalising the HQ. Support Services Infrastructure: We have separately considered the potential benefits which could arise on ICT and Property. Whilst we clearly recognise that action to release resources will need to be undertaken in the context of national contracts – which are long term – the scale of the potential prize is such that it warrants indicative targets being set to incentivise securing some of those benefits as quickly and aggressively as possible. Meaningful indicative targets – subject to further due diligence and confirmation – would be: Property: £20 million, of which £10 million would come from reducing property consumption and £10 million from reducing the cost of property FM; ICT: £15 million, which whilst less than the level of the public sector average benchmark, does represents approximately 30% of total current spend. Therefore the size of the prize – subject to further due diligence and confirmation – is £ 35 million for Support Infrastructure.

36. Summary of potential opportunities: Core Service ProductivityBased on the data available summarised below is the range of potential opportunities by function / activity – monetising national variations in cost. Our analysis shows that that it would be reasonable to conclude resources of £90m (15%) is a reasonable size of the rpize *: this FTE and cost summary relates only to core OM and therefore excludes staff undertaking other OM (1,217 FTEs with a cost of £43.4 million).

37. Productivity: understanding the business mix (a view by FTE)Our starting point in identifying the scope for productivity savings was to first understand the extent to which the business mix varied by Board across the county. This analysis considered the proportion by board of three categories of front line activity: Core OM; Other OM (primarily support for prisons, YOTS and CJIP which is substantially externally funded) and Intervention. This showed a wide level of variation nationally as to what is done at a local level … Note: The Productivity Rankings run from highest to lowest. Therefore a ranking of 1 equates with the most productive board. This chart shows the different proportion of FTE time spent between Core Offender Management, Other OM, and Intervention by probation board. This clearly demonstrates a large national variation in what is undertaken with some Boards undertaking nearly as much as 50% more OM activity (as measured by cost) than others. There is also a significant degree of variation in the extent to which Other OM activity is undertaken. As Other OM activity is substantially funded externally, and largely consists of making skilled resources available to others on an ‘agency’ basis, we believe it should be separately considered (in particular in respect of the potential benefits of moving it to a contracted service rather than the ‘secondment’ model currently adopted) from Core OM. It also – by reference to the relative productivity of individual boards on Core OM and Weighted Intervention – does not appear that there is a correlation between the business mix adopted locally and productivity. We then considered whether there was reason to consider this degree of variation was due to the characteristics / circumstances of different boards. We therefore then considered whether this variation in business was also present within groups of similar boards (Most Similar Groups).

38. Productivity: understanding the business mix (a view by FTE and family)This analysis by family confirms that not only is there a large degree of variation nationally in the business mix, but that this variation is also manifested within groups of similar Boards. It therefore appears to be more an issue of local management, than specific local service requirements and again there is no obvious link between productivity and business mix within families … Family B Family C Family A Family D Family E The chart above shows FTE proportions for OM. Other OM, and Intervention across all 42 Boards and within family groups. This analysis was undertaken to understand if the degree of variation identified nationallycould be due to the need to configure services differently to respond to different sets of local requirements. We can safely conclude on the basis of this analysis that the level of variation in the business mix is real and does not appear to reflect local service requirements; nor within families thatthere is a strong link between the business mix adopted and productivity on either Core OM or Weighted Intervention. *: how MSGs have been derived, drawing on the approach adopted by the HO to comparing police authorities is described more fully at the end of this section

39. Productivity: understanding the business mix (a view by spend)We then considered the extent to which the business mix varied by Board across the country analysing the proportions of Core, OM, Other OM and Intervention on the basis of gross spend. This supports the analysis done on the basis of FTEs. It demonstrates indicates a large degree of variation across the country, as to what is delivered locally, and shows that there is no apparent link between the business mix and productivity … Note: The Productivity Rankings run from highest to lowest. Therefore a ranking of 1 equates with the most productive board. This chart shows the different percentage of spend between Core Offender Management, Other OM Activity (Prisons, YOTS and CJIP) and Intervention by probation board. This clearly demonstrates a large national variation in what is undertaken with some Boards undertaking nearly as much as 50% more OM activity (as measured by cost) than others. We then considered whether there was reason to consider this degree of variation was due to the characteristics / circumstances of different boards. We therefore then considered whether this variation in business was also present within groups of similar boards (Most Similar Groups).

40. Productivity: understanding the business mix (a view by spend and family)And as with the analysis based on FTEs, undertaking the analysis on the basis of gross cost and by most similar group supports the conclusion that there is significant variation nationally and across similar groups and that there is no obvious link between business mix and productivity … Family A Family C Family D Family E Family B The chart above shows the different percentage of spend between Offender Management and Intervention by probation board42 Boards and within family groups. This analysis was undertaken to understand if the degree of national variation identified by cost could be due to the need to configure services differently to respond to different sets of local requirements. We can safely conclude on the basis of this analysis that the level of variation in the business mix is real and does not appear to reflect local service requirements. *: how MSGs have been derived, drawing on the approach adopted by the HO to comparing police authorities is described more fully at the end of this section

41. Productivity: the Input mix Having identified the significant variation in what individual Boards do, we then sought to understand whether there was a similar degree of variation in how they staff themselves. We first considered the mix of senior and middle managers across the country and again found a a wide degree of variation nationally and within similar groups as to the ratios of senior : middle managers… Above this line, means there are 2 or more middle managers to every senior manager. This line, is the threshold at which there is 1 or more middle managers to every senior manager. Ratio of Middle Managers to Senior Managers This analysis demonstrates that there is a significant degree of variation in management layers and spans of control, which appears difficult to explain other than as being as a consequence of local discretion.

42. Productivity: the Input mix And this broad range of different staffing mixes extends beyond management. The ratio of management staff to other staff, and the underlying mix of non manager staff inputs, also demonstrates a wide degree of national variation … This chart show the ratio of Middle Management to all staff (i.e. all staff below middle manager grade). This ratio is a proxy for the spans of control inherent in the business. As shown the range is significant, running from 0 (where senior managers play the role of Middle Managers) at the lowest to16.3% at the highest, with the median (and average) being 7.7%. This means that at the average probation board there is one middle manager for every 13 staff; but that this ratio can reduce to as low as there being one middle manager for every 6.1 staff. With some 1,594 senior managers overall, even a small reduction could release major efficiencies.

43. Productivity: the Input mix And this broad range of different staffing mixes extends beyond management. The ratio of management staff to other staff, and the underlying mix of non manager staff inputs, also demonstrates a wide degree of national variation … Overall Performance: 1= Poor; 4=Excellent Ratio of PO + PSO to all staff Ratio of PSO to all staff Ratio of PO to all staff The mix of staff used to deliver services is a key driver of the businesses underlying costs. This chart shows the ratio of Probation Officers and PSOs and their combined total as a proportion of all staff. This analysis indicates that there isn’t a strong link between grades within the staff mix of individual boards (i.e. POs does not appear to link to lower number of PSOs, or vice versa). This would suggest that there is scope for efficiencies in optimising the staff mix. It would also appear that there is no clear link between overall performance (as assessed by the IPPF) and the type of staff mix implemented (i.e. richer staff mixes are not clearly associated with higher performance, nor is more efficient staff mix necessarily associated with poorer performance).

44. Indicative productivity measures The range of variation as to what Boards do and how they staff themselves suggested that there it would be reasonable to expect variations in how well different boards undertook their work. We compared the indicative productivity of individual boards, for both ‘core’ OM (i.e. excluding prisons, YOTs and CJIP) and Intervention. This initial analysis highlights a wide variation in productivity across the country. Below we set out the analysis for ‘core’ OM and the unit cost per bed for Approved Premises To assess ‘core’ OM productivity we converted notified annual caseloads into standard units to derive a total ‘core’ OM activity measure per Board. We then compared this with annual ‘core’ OM FTEs (i.e. excluding prisons, CJIP and YOTs staff). The analysis shows a wide degree of variation, with the spread ranging from a best of 130 units per FTE to a worst of 52 units per FTE (with a Median of 83 units per FTE). The ‘productivity gap’ – if all ‘core’ OM functions were to operate at the level of the last member of the upper quartile (shown in green) is some £61 million nationally. Core Offender Management Interventions: Approved Premises To allow for the fact that some Interventions are externally procured the measure used to assess relative productivity was the total cost per Intervention (by type –; Approved Premises; Unpaid Workand Programmes. Again large national variations are indicated by this analysis – even allowing for outliers.

45. Indicative productivity measuresAnd on this slide we consider the relative productivity of Supervising Unpaid Work. In all cases there appears to be significant variations in how well different Boards are performing on efficiency, which would indicate that major benefits could be released if all moved towards the performance of the best. There is only a very weak correlation between poor productivity being offer by lower non completion rates… Interventions: Cost per unit of supervision of unpaid work and rate of non-completion Level of non-completions (%) This chart shows by Board the unit cost of unpaid work supervision (blue columns) and the associated percentage rate of non-completions (2006/07 actual per IPPF). We have also shown the trend line of the rate of non completion. Clearly there is a wide variation in the relative unit costs across the country; and there is, at best, only a very weak link between poor productivity being associated with lower rates of non-completion. Were the two most inefficient Boards to be excluded the trend line would be flat – indicating that across the rest of the country the link between productivity and non-completion rates is effectively random.

46. Indicative productivity measures And on this slide we consider the relative productivity of Supervising Unpaid Work and of Intervention Programmes. In all cases there appear to be significant variations in how well different Boards are performing, which would indicate that significant efficiency savings could be secured if all moved towards the performance of the best … Interventions: Cost per unit of supervision of unpaid work Interventions: Cost per unit of programmes, based on actual volumes for 2006/07.

47. Productivity – can these national variations be secured as efficiencies?To help ensure the potential gains which would arise from requiring all meet the standards of the best we considered whether there were other factors at play. We compared the indicative productivity of individual boards, for core OM, and the mix of staff they use (as indicated by the average salary cost per OM FTE) … This analysis sought to identify whether in practice Boards were trading off between higher productivity and a richer staff mix. If that was the case the extent to which efficiency improvements could be monetised would be reduced – as higher productivity would then require more expensive staff. But the analysis above shows this is not the case. There is no clear correlation between better productivity and a richer (and therefore more expensive) staff mix. Rather it would appear that some boards appear to achieve high productivity with a relatively cheaper staff mix. Therefore it is reasonable to conclude that the productivity gains on core OM can be monetised and secured in practice.

48. Productivity – can these national variations be secured as efficiencies?We also considered whether improving productivity could overall impair performance. We therefore sough to understand whether there is a link between performance (as reported on by board) and their level of overall costs and sickness absence… Excellent performance = 4, Poor =1 This chart shows there is no indicative evidence that larger boards deliver better performance and that overall the link between size and performance is not strong. There is an indication that smaller boards overall deliver better assessed performance – though overall performance is variable across all scales of board. We have also considered the extent to which there is a link between performance an sickness absence (which is higher than the average for the UK workforce). Again, though levels of sickness absence vary nationally – there does not appear to be a strong link with performance, though the very highest performers have amongst the lowest levels within the service (even if they still exceed best practice benchmarks (7 days) by some way.

49. Productivity – can these national variations be secured as efficiencies?And in view of the scale of potential financial opportunities around OM productivity we have specifically considered the extent to which there is a link between OM productivity and OM performance across all the boards… Excellent performance = 4, Poor =1 This analysis is not conclusive as to there being a strong link between productivity and performance. However, it is interesting that at the extremes of performance there appears to be an inverse correlation with productivity (i.e. excellent performance is associated with lower productivity). There are also examples of high productivity and good performance, though overall the chart shows lower productivity is associated with better performance. It would therefore appear reasonable to conclude that a significant proportion of the productivity gain associated with OM can be secured without impairing performance – especially as the basis of assessing the level of gain is be reference to internally achieved performance, rather than a theoretical best practice process benchmark.

50. Support Services and Infrastructure: efficiency opportunitiesHaving identified the full costs actually incurred by the probation service on support services and infrastructure we can compare them with public sector benchmarks to understand the scope for future efficiency gains…