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Business Planning Sourcebook

Business Planning Sourcebook. February 2006. Important context. Status of this document This document has been produced by the NHSFT Unit in the Department of Health to provide a framework, which Trusts can follow, to develop five year business plans in the context of System Reform

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Business Planning Sourcebook

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  1. Business Planning Sourcebook February 2006

  2. Important context • Status of this document • This document has been produced by the NHSFT Unit in the Department of Health to provide a framework, which Trusts can follow, to develop five year business plans in the context of System Reform • The Business Planning Sourcebook Sourcebook has been designed to complement those Sourcebooks already available from the NHSFT Unit in respect of Governance and HR arrangements, and complements the ‘Applying for NHS Foundation Trusts Status’, published jointly by DH & Monitor – the Independent Regulator of NHS Foundation Trusts (NHSFTs) • This document will be reviewed on a regular basis. If you have any comments that you would like to make, please feed them back to the NHS Foundation Trust Implementation Team, email: ftapplication@dh.gsi.gov.uk

  3. Foreword • Context • System Reform underpins significant change in the healthcare market, where increased choice and contestability will mean that Trusts can no longer rely on historic patient flow and activity patterns for their future stability • For Trusts to prosper in the new healthcare market they will need to become more outwardly facing in their business planning, to seek to exploit opportunities as they present themselves, and to adapt their operating environment to meet changing business needs and challenges. The new governance arrangements with NHSFTs will also provide an added impetus for directing feedback from the local population to the Trust about the strategic direction of the organisation. This will need to be underpinned by an effectively integrated and empowering culture of staff involvement and engagement if service improvements are to be realised for the benefit of patients. • Current policy is that by 2008 all NHS Trusts will be in a position to be eligible to apply for Secretary of State support to apply for NHSFT status. • Authorisation as an NHSFT is dependent upon Monitor – the Independent Regulator for NHS Foundation Trusts – being confident and able to provide assurance to Parliament and a wide range of stakeholders that NHSFTs will be legally constituted, financially sustainable, effectively governed and locally representative. These are essential requirements for NHSFTs to be able to operate with sufficient autonomy, to deliver national health priorities and to become increasingly responsive to local needs • This Business Plan Sourcebook is intended to enable NHS Trusts to begin the process of ‘business’ development that will make them fit for purpose as NHSFTs . This guide has been developed to help inform the NHS about commercially focused business planning, and builds on feedback and lessons learnt from those Trusts that have already been authorised. It is aimed at all individuals working within NHS Trusts, not only for the Chair, Chief Executive and the Trust Board, but also for clinicians and staff at the forefront of service delivery. These people have an active role to play in influencing and working with managers and Trust directorates to redesign and develop services to meet the needs of the local population. The organisational culture also needs to develop from being directing and controlling to being empowering and responsibility-led. Every stakeholder in the organisation has a vested interest in making this happen • This guide will also be a useful source of information for external stakeholders, as they work with Trusts to understand how an increased emphasis on ‘commerciality’, including identifying and managing risk – corporate, clinical and financial, will not undermine the working relations and partnerships that currently and will continue to exist. • Diagnostic – Application Guide p13.

  4. Foreword • What is a Business Planning Sourcebook? • Your Business Plan document with supporting appendices is the key submission you need to make to DH during the development phase of your application to seek Secretary of State support to apply to become a NHS Foundation Trust. It should be seen as a road map to take your organisation forwards over the next five years. It is not a strategy for your local health economy; it is a plan that will set out the best course of action for your Trust given the dynamics of your external environment, the strengths and weaknesses of your organisation and the needs of your stakeholders. All organisations, regardless of their size, industry or whether they are in the public or private sector should consider these basic elements when setting a strategic direction • A robust Business Plan should be underpinned by evidence-based rationale, consensus with internal and external stakeholders, sound financial discipline and a thorough understanding of the short, medium and longer term risks that face your Trust. Many NHS trusts will have never gone through this rigorous long term planning process • Purpose of this document • The aim of this guide is principally to help NHS Foundation Trust applicants develop their Business Plan’s in conjunction with advice and support from the Department of Health Implementation Team. However, this guide can also be used for all NHS Trusts that are looking to develop their business planning capabilities to enable them to operate these effectively in the new NHS landscape • This document outlines the characteristics of good strategic planning that are universal to all organisations. It then links to, introduces and explains the key sections that each NHS Trust should bear in mind when developing a Business Plan for example strategy, market assessment, services, finance, risk, leadership and governance. For each fundamental this Business Plan suggests templates, frameworks and guidance notes to steer you through the process of pulling your Business Plan together • This is a guide, and not a prescriptive collection of templates and tables that you must populate. Neither has this document been designed as a complete and exhaustive collection of guidance notes to take your Trust through the authorisation stage of your NHS Foundation Trust application with Monitor, though the principles will be relevant • The process of developing a Business Plan will draw on a wide spectrum of skills including strategic analysis, financial modelling, finance, business planning, forecasting, workshop facilitation, communication, stakeholder management, commissioning and project management. A key requirement for any organisation going forward as a more commercially focused business will be to ensure that such capabilities and capacity are represented at the most appropriate levels within the Trust • Feedback from early applicants • Feedback from early NHS Foundation Trust applicants suggests that preparing a Business Plan involves many new and testing challenges, but that the effort is worthwhile; Business Plan’s that have the buy in of stakeholders (e.g. staff, patients, commissioners, SHAs, local authority's etc) are hugely powerful documents, and in puling together the document many new NHSFTs have engaged with internal and external stakeholders at a level much deeper than before. In summary, the feedback sends a clear message that most NHSFTs are now in much better shape to control their futures as financially viable healthcare businesses • The content in this Business Plan has been developed following an interview programme that covered 25 of the 30 NHS Foundation Trust applicants in wave 1 and wave 1a, and canvassed the opinions of both Monitor and the NHS Financing Facility. Where appropriate, direct feedback from these sources has been highlighted in this document • An overview of the NHS Foundation Trust policy and implementation programme is set out in Appendix 1 which is titled “What are NHS Foundation Trusts?” It provides key facts and fundamental principals of NHS Foundation Trusts and sets out the reasoning behind the policy

  5. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  6. Characteristics of good strategic planning Introduction • Introduction • Strategic plans provide essential direction to organisations. They define what an organisation wants to achieve within its planning horizon, and articulate how that organisation will achieve it from its current position. Strategic planning documents provide comfort to stakeholders (e.g. lenders, management, employees, trading partners and other interested parties) that tangible and achievable plans exist and that key risks have been identified and addressed. By distilling the high level strategy into more meaningful objectives, a strategic plan provides a benchmark against which actual results can be compared and benefits can be proven. Strategic plans enable businesses to progress – by taking stock, looking ahead, and aligning internal resources in a way that ensures the business will continue to prosper in constantly changing environments • All strategic plans need to be robust, shared, and ‘do-able’ regardless of the size, the industry, or whether the organisation sits in the public or private sector • These three characteristics are explained below and expanded on the following pages • Robust • For your Business Plan to withstand internal and external challenge it needs to be evidently the best course of action for your Trust given the long term vision of where you want to be, the dynamics of the healthcare sector in which you will operate and the strengths and weaknesses of your organisation. Opportunities and threats to operations need to be identified, assessed and evaluated. Strong strategic plans are living documents that actively recognise risks, then demonstrate how comprehensive and effective governance and accountability arrangements at the corporate level will minimise the likelihood of loss • This objective forms the basis of a strategic development framework upon which this Business Plan is based • Shared • In mutual organisations everyone is responsible for implementing the Business Plan, not just senior management. Indeed it would be difficult for senior management to implement a Business Plan alone. Successful implementation will demand active buy in from across your organisation and from your external stakeholders • Those responsible for implementing your Business Plan need to know what the plan is and what their roles and responsibilities are. Individuals, managers, clinicians and directors alike need to be clear on what ‘accomplishing the plan’ looks like. They must also agree that the direction taken in the Business Plan is the best discernable course of action • This is best achieved by involving such personnel in the formulation of your strategy • Deliverable • A do-able Business Plan is one where the high level intents, desires and objectives of your Trust have been translated into specific and measurable actions and outcomes that are understood at organisational, directorate and personal levels. Every person that works in your Trust will then know what he/she should be doing to help your Trust achieve its strategic objectives. Their roles and responsibilities will be clearly articulated, and the extent of their decision making capabilities clarified • As the Business Plan is implemented you then need to monitor performance to ensure you know whether you are drifting ‘off-course’ and when you should start to take corrective action. This is achieved through the design of performance management systems with clear key performance indicators (KPIs) that are in line with the strategic objectives set out in your Business Plan. • The active education and empowerment of staff within the organisation will encourage ownership of the strategic objectives and indicators of achievement, whilst nurturing an increased awareness of risk and risk management • These three concepts are illustrated further on the following pages

  7. Characteristics of good strategic planning Strategies must be based on robust, evidence-based rationale Define your vision • “What are we trying to achieve in the long term as a NHS Foundation Trust?” • Refer to the first fundamental (Strategy) on page 22 Analyse the external environment Document key elements in your Business Plan Shortlist most attractive future initiatives Identify key opportunities and threats • What opportunities match our vision, our external environment and our strengths and weaknesses? • What could we do differently? • What are the key threats to our organisation? • Refer to guidance around the SWOT tool on page 36 • What actions or initiatives should we set out that will enable us to achieve our strategy. Initiatives should: • build on our strengths • address our weaknesses • develop our opportunities • manage our threats • Refer to guidance on page 39 • What does our high level activity plan look like? • What level of detail do we need to include in the Business Plan for each supporting initiative? • Refer to guidance on page 40 • “What is happening in our external environment and how will this affect us?” • Refer to guidance around the PEST tool on page 31 Consider your strengths and weaknesses • Analyse the internal environment and ask, “What are we good or not so good at? What evidence do we have to prove this? And what are the implications for us?” • Refer to guidance around the SWOT tool on page 36 THE STRATEGIC DEVELOPMENT FRAMEWORK • A key characteristic of good strategic plans is that they are supported by evidence-based rationale • The strategic plan will be determined as a consequence of undertaking a staged process, as indicated above. Research and the resulting evidence will provide the rationale to shape the strategy • In the context of an NHSFT, this is important for the following reasons • Both DH and Monitor will expect to see evidence that your Business Plan is the best course of action for your Trust given your long term vision of where you want to be, the dynamics of the healthcare sector in which you will operate and the strengths and weaknesses of your organisation • Your Business Plan will need to withstand challenge throughout the consultation process, and will not be credible if you fail to clearly link these elements together • To help you achieve the necessary degree of ‘joined up thinking’ the guidance in this Business Planning Sourcebook Sourcebooks has been designed around the step by step approach set out above Feedback from early waves “It made us think in a more structured way and imposed discipline.” Feedback from early waves “The real benefit is forcing us to look further than one year ahead…It has changed the mindset of the Trust from reacting to thinking further ahead”

  8. In the context of an NHSFT, this is important for the following reasons A sense of stakeholder involvement, engagement and buy-in is an intrinsic component of good strategic plans. Successful implementation demands buy in from the personnel that work within your organisation and from your external stakeholders; the key is to involve the principal individuals responsible for delivery in the formation of plans The logic is simple: resistance is often driven by ignorance. Conversely, a co-designed approach will lead to greater ownership, commitment and chances of success Define your stakeholders and the best means of engaging with them Involve directorate senior management (i.e. those responsible for implementation) Involve external stakeholders (e.g. commissioners, SHAs, Oversight and Scrutiny Committees, Patients etc) who have a vested interest in the services of your organisation Involve staff; hold workshops and give presentations to get your workforce ‘on-side’ One pitfall to avoid is to try to consult with too many parties, of which many may not be central to the future direction/needs of your Trust Your goals in the consultation process should be to: Educate external stakeholders where necessary. Feedback from early waves of NHSFT applicants suggests senior board executives are likely to need to invest time hosting ‘Q&A’ sessions to allay fears and communicate intentions. It is then possible to build consensus and enhance commitment to plans among key players Reach broad consensus on activity levels over the next five years. This is a critical driver of impact on your financial modelling and future revenue. Foster creative thinking and bring new objective perspectives to strategic challenges Test the robustness of your strategy; does it withstand challenge? Engage your directorates in broad issues of Trust direction, and discourage silo mentalities Characteristics of good strategic planningStrategies must be shared with stakeholders • THE CORRECT APPROACHSenior Management works with key stakeholders to provide strategic direction based on common interpretation of facts Broad PARTICIPATION OR CONSULTANTION Narrow Analytic,Quantitative TYPE OFAPPROACH Qualitative,experience-basedvisionary • NOT RECOMMENDEDStrategic Planning Group or Consultants crunch numbers in isolation and document proposed strategy in a report • NOT RECOMMENDEDCEO sets vision in isolation Feedback from early waves “We made efforts to make sure we communicated with PCTs and our PCTs made efforts to come to our events and to stay in the loop. Our SHA was very much up to speed and we made sure that our SHA director was part of the steering board. We had a PCT director involved too.” Feedback from early waves It was very beneficial. It made us engage with customers, clinicians and PCTs. This made us fit for purpose and brought extra rigour and energy to planning.”

  9. THE ”PLAN-DO-REVIEW” CYCLE In the context of an NHSFT, this is important for the following reasons The previous page explained the importance of all individuals in your organisation feeling part of the scheme, and how communicating the results of the planning process throughout the organisation can help achieve this Strategic plans that are known and understood have a far higher chance of being implemented successfully, however the planning process does not end there As your external environment changes so your strategic plan should continuously evolve, otherwise its integrity will be compromised. Your Business Plan should not be a document that is written then forgotten. This ‘Plan-Do-Review’ cycle is illustrated opposite Explicitly align your shorter term ‘functional’ business plans to the longer term Business Plan your Business Plan should be a high level, clear, strategic document. Excessive detail will detract from the key messages and if too much effort is required to read and digest your document no-one will use it however individuals still need to understand where their daily contributions fit and therefore it is important that lower-level functional plans are aligned to the Business Plan Your governance procedures should include the regular monitoring of predetermined key performance indicators (KPIs) set out in your business plans. This ‘control process’ will inform when you are drifting ‘off-course’ and when corrective action is necessary KPIs should be congruent with your long term strategic objectives that, in turn, will be aligned to your overall vision This Business Planning Sourcebook Sourcebook provides guidance on setting long term strategic objectives (the first fundamental - ‘strategy’) and reiterates the need to set out the high level systems and controls that will enable your board to track progress as you go (the seventh fundamental - ‘governance’) Characteristics of good strategic planning Strategies must be deliverable at directorate level • “Plan” Annual directorate business plans are aligned to your Business Plan document • “Review” • Well designed monitoring and control procedures regularly track progress against plan • “Do” Accountable individuals implement your strategy by following directorate business plans Feedback from early waves “The five year financial plans are now living documents and tools.” Feedback from early waves “Workshops involved many people and made people more outward and forward looking. People can now align their actions with the hospital’s strategy.”

  10. Characteristics of good strategic planningCritical success factors and potential pitfalls • This Sourcebook has been based on a series of interviews with early NHSFT applicants. Clearly the experience of developing Business Plans has varied between Trusts by virtue of the processes and people involved, however analysis of the experiences of early applicants has been summarised below CRITICAL SUCCESS FACTORS POTENTIAL PITFALLS • Agreeing the structure for the Business Plan early on, and populate it with accepted wisdom and existing knowledge where possible • Key stakeholder “buy in” (the Board, senior directorate management, staff and external stakeholders) – making sure they understand the nature of the process and what the results will be, both for them and for your Trust • Identifying underlying issues that are driving the need for the development of a strategic plan. This is more than just an application process • Identifying the key constraints to the execution of a new strategy (e.g. infrastructure or capabilities) • Developing performance goals and using the Business Plan as a standard for measuring success at the different levels of your organisation • By informing directorate business plans your Business Plan should form part of a continuous ‘plan-do-review’ cycle across all levels of the organisation • Your Business Plan should be developed to a strict timetable to minimise disruption to day-to-day business. However do not assume the Business Plan can be done easily alongside your everyday commitments. Demands on the time of senior planning and finance teams will be high • Base your Business Plan on activity forecasts that you believe in, and that have been discussed with commissioners. Highlight differences where they exist, and bottom them out • Base your plans on fact, and provide evidence that demonstrates the rationale behind your decisions and future course of action • Using appendices wherever possible to ensure a clear, concise structure is maintained • Writing the Business Plan “by committee” with not enough central co-ordination • Wasting time and effort by starting to perform detailed analyses before broad direction is agreed • Failure to maintain consistency of assumptions throughout your document • Failure to explicitly connect market developments to volumes and activity • Failure to connect volumes and activity to costs and capacity issues • Delays in engaging internal and external stakeholders in the planning process • Lack of challenge to assumptions • Lack of “out-of-the-box” thinking • No, or very limited, sensitivity analyses to test the robustness of your plans • Assuming the plan can be introduced without a critical appraisal of current ways of “doing business” • Lack of discipline in structuring and writing your document, leading to long and wordy passages that very few can or will read • Lack of ownership of the plan on the part of those who will be trusted with delivering it

  11. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  12. Getting started Introduction • If you have been made responsible for pulling together the Business Plan for your Trust you will need to plan your approach to the coming months. If you haven’t already, you will need to: • get up the learning curve so that you understand the extent to which strategic direction has already been established within your Trust • meet on an individual level with your board and senior management to flush out issues and concerns that will have an impact on your approach. This will also put you in a stronger position to facilitate future workshops involving these individuals • build a clear picture of exactly what you need to produce, by when • organise an effective project team around you and ensure that the Business Plan efforts are given suitable priority within your organisation • understand the respective roles and responsibilities of your Trust, the DH and Monitor in the application process • The task may seem daunting, however it is likely that a lot of the information you need already exists in some form. Pull together what you already have and slot this into whatever template or Business Plan ‘storyboard’ you have developed. This will get you moving and in a better position to address the task ahead

  13. Getting startedInitial steps 1. GET UP THE LEARNING CURVE • Depending on your personal background, building this understanding may or may not be necessary • It involves an initial data gathering exercise to understand what information already exists and to inform your ‘kick-off’ discussions with the Board and other key stakeholders Section 4 : Tips for initial data gathering GETTING STARTED You are responsible for pulling together the Business Plan for your Trust. Where do you start? This page should ensure you set off on the right foot 3. GET A SENSE OF WHAT YOU ARE AIMING FOR 4. ORGANISE WHO WILL DO WHAT Key: = Working tools • The process of pulling together the Business Plan must be led by a central ‘project office’ • The project manager needs to ensure a project management structure is in place to ensure consistency of assumptions across the document • The project manager is responsible for making sure the Business Plan ‘stacks up’ • It will be easier to tailor your approach to pulling together your Business Plan if you start with the end in mind • Once you have had time to assimilate the findings from your initial discussions with key stakeholders you should be in a position to pencil an outline of your Business Plan document • With a structure, or “storyboard” in place you can start to think about what analysis you need to populate it PAGE 13: A suggested project management structure PAGE 14: High level timetable for the process The first page of each “fundamental” section provides an illustrative storyboard for your Business Plan document • The following flow diagram presents a suggested approach for individuals who have the overall responsibility for developing the Business Plan. Whatever your position within the organisation, be it Chief Executive, Finance Director or Project Director, the following steps will mark the start of the business planning process 5. DOCUMENT WHAT YOU KNOW ALREADY 2. KICK OFF DISCUSSIONS WITH THE BOARD • In advance of engaging with external stakeholders meet with your Board and executive level management on an individual basis to: • promote a shared understanding of what your Business Plan needs to achieve • gather thoughts and reservations around strategic direction and supporting rationale • understand what they perceive to be the benefits and concerns of NHSFT status • These discussions will help you understand the different perspectives within your Trust, and plan for forthcoming workshops and communications • You will already have information to support many of the initiatives that need to be described in the Business Plan, so much of the work should be formalising the documentation of what you already know rather than looking for new information • Set out the rationale behind the main initiatives that are already underway (the ‘driver’ behind the initiative, key costs and benefits, timescales, key risks etc) • You will need to do the same for future initiatives PAGE 40: Documenting key initiatives in your Business Plan

  14. This project management structure is merely a guide The development of a business plan is not an easy task. As indicated earlier, a project team will need to be formed to manage the programme of activity. A suggested steering group structure is indicated below You will need to design the most appropriate structure given the specific characteristics of your organisations. However ensure you take into account the skills, capabilities and capacity of your people Getting startedA suggested project management structure • Whatever structure you choose, ensure the production of your Business Plan is given enough priority, resource and board-level support so that the iterative process of producing an Business Plan can be managed Elements of your submission STRATEGY DEVELOPMENT FINANCIAL AND BUSINESS MODELLING GOVERNANCE HR Wave 1a Feedback "Good project management is key to avoid the process of producing your Business Plan getting too time consuming.  Get a clear project plan that everyone can follow, with clear lines of accountability.  Ensure all meetings have clear agendas and minutes are taken.  You need a project team that will run this iterative process - a project manager with admin support)"

  15. APPLICATION PROCESS FOR WAVE 3 • 9 months DH • 3 months Monitor • Timing DH development phase (DH) Authorisation (Monitor) • SofS Support • Assess-ment stage • DH Entry Point • Purpose • Provide developmental support for FTs in preparation for Monitor assessment • Endorse DH support for application • To authorise applicants for FT status • 2 or 3 star rating must be achieved to enter the process • Provide developmental/support (Integrated Business Plan, including Governance and HR) • Guidance for public consultation • Complete-ness check of authorisation requirements • Consideration of the diagnostic programme (Wave 3 only) and historical due diligence • Legal compliance • Financial viability • Short term (W/C opinion) • Long term • Governance proposals • Financial reporting (opinion) • Election process • Membership • Board structure • Scope • Third party assistance/support with development of the Integrated Business Plan • Third party report by independent accounting firm commenting on preparedness of applicant and covering commentary on: • Key issues on the Integrated Business Plan • Historical performance • Normalised position • FRP report and action plan • Consideration of the diagnostic programme • Third party report by independent accounting firm covering: • Working Capital Review • Conclusion on Financial Reporting Procedures • 3rd Party input

  16. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  17. Structuring and developing your Business PlanIntroduction • This section of the Business Plan Sourcebook introduces and explains the nine focus areas that are central to every Business Plan: • Executive Summary: where you want to be, and how you will benefit from NHSFT status • Profile: a summary of your NHS trust and how it currently operates • Strategy Goals: the trusts vision and plans for the future, the rationale behind them and an indication of what success would look like • Market assessment: a high level analysis of the current health economy including private providers • Service development plans: how services will change and how this is aligned to the trusts SWOT analysis • Finances: how the money stacks up • Risk what could go wrong and how you will mitigate against this • Leadership & workforce: how the trust board operates and the attitude surrounding the workforce • Governance: how you will stay in control • Do not regard the focus areas as mutually exclusive; the Business Plan is a holistic record of your strategic plan and there should be some overlap between the sections. The existence of overlap between the fundamentals is part of what will make your Business Plan hang together as one coherent document • Against each fundamental this Business Plan starts with an example ‘storyboard’, or contents page, in order to provide you with a high level impression of how each section of your Business Plan document should flow • you can use these storyboards as a start point, but don’t mistake them for a prescriptive list of everything you need to do • they will not be used to “score” your application, and they are deliberately less detailed than the evidence required in the Business Plan. As an aide memoire, a self-assessment checklist has been developed and is included in appendix 2 • Following each example storyboard, this Sourcebook sets out structured guidance around those areas of the Business Plan that early NHSFT applicants have found most challenging. In order to avoid confusing the key messages this document does not provide detailed guidance on the more straight forward areas • The process of developing your Business Plan will require input from across your organisation and from external stakeholders. Board level sponsorship will ensure this process is assigned suitable priority. To achieve this a project director, who is ideally a member of the executive board should support your project manager • Throughout this section you will see comments, links and tips from previous NHSFT applicants in wave 1 and wave 1a. Their experiences should provide some useful insights for your own process

  18. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  19. EXECUTIVE SUMMARY 1 Executive summary 1.1.1 Vision and strategic goals–Rationale for FT 1.1.2 Culture and environment to be created 1.1.3 Market assessment 1.1.4 Performance overview (historical & future) 1.1.5 Summary SWOT 1.1.6 Key risks and mitigation The Executive Summary section of your Business Plan Your background section should include a brief history of how your Trust has developed to where it is today. This provides essential context to your Business Plan. You should be able to do this without detailed guidance. The challenge is often to keep this section brief and succinct set out what characteristics (clinical, financial, cultural or otherwise) define your Trust from others give the reader a high level view of the underlying performance of your Trust When you set out your vision you need to articulate your high level ambitions as a NHS Foundation Trust so clearly articulate how your Trust is going to gain from the freedoms afforded to NHS Foundation Trusts (i.e. the compelling case for change) Make sure your vision statement, supporting strategic goals, and your definition of successful performance against these goals are brief and easily understood by patients, staff, the local population and your other stakeholders. Also, make sure that your organisation is aware of the risks that it may face and understand how your organisation will minimise these to operate within such an environment Executive SummaryStructuring your Business Plan EXAMPLE STORYBOARD Note: This example storyboard is not an attempt to order each of the Business Plan self assessment indicators within the framework of a document. Please refer to appendix 2 for the self assessment check list

  20. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  21. PROFILE 2 Example Profile of your NHS Trust 2.1.1 Overview 2.1.2 Range of Services 2.1.3 Activity 2.1.4 Protected Assets 2.1.5 Finance 2.1.6 Target performance 2.1.7 Summary of contractual relationships 2.1.8 Overview of other procurement arrangements 2.1.9 JVs and partnership arrangements The Profile section of your Business Plan This section will cover the basic details of who the Trust is and the type of services it provides to the local population. It should inform the reader of how these services are provided and an overview of the key achievements – clinical, performance and financial in recent years The range of services sections should include a table listing the services provided and an indication of the relative size to the Trust and a table listing the protected and non protected assets This section will include details of any current significant contracts or details of shared service agreements The any partnership arrangement or joint ventures (including section 31 contracts) also need to be outlined in terms of roles and responsibilities, key financial terms, duration and governance arrangements ProfileStructuring your Business Plan EXAMPLE STORYBOARD Note: This example storyboard is not an attempt to order each of the Business Plan assessment criteria within the framework of a document.. Please refer to appendix 2 for the self assessment check list

  22. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  23. STRATEGY 3 Strategic goals 3.1.1 Trust Vision 3.1.2 Strategic goals 3.1.3 Rationale for FT status 3.1.4 Summary of outcome of consultation process The Strategy section of your Business Plan This section will cover the vision of the Trust It should explain the reasons behind the FT application ie what FT status will mean in terms of delivering the strategy and vision of the trust by explaining how the freedoms given under FT status will be realised for the benefit of patients, the community, the staff and the organisation. This will also describe how the cultural environment will need to develop and change to operate as an independent body as well as describing how the new governance arrangements and membership will be exploited to further develop and enhance service provision. The strategic goals will describe the rationale and timeline of each strategic objective, with clear understanding and indicators of how success will be measured, the major risks to achievement and high level mitigation strategies. The consultation section should include details of the consultation process, including th timeline and provide further information on: the outcome of the consultation process, the type of information provided, response received to date and how this has influenced the final strategy any stakeholder analysis performed and how stakeholder relations are currently managed. Use of external advisors during the consultation section, if applicable Stakeholder analysis – summary of representation i.e. special interest groups (can be provided as an appendix to document) StrategyStructuring your Business Plan EXAMPLE STORYBOARD Note: This example storyboard is not an attempt to order each of the Business Plan assessment criteria within the framework of a document. Please refer to appendix 2 for the self assessment check list.

  24. Strategy An introduction to vision statements • VISION: “Where you want to be and how you will benefit from NHSFT status” • Early applicants have not found writing the ‘Trust Background’ sections of their submissions enormously challenging, however there has often been confusion around what a “vision statement” is. In short, setting out your strategic direction requires a clear understanding of: • where you are now (background) • where you want to be (your vision) • what you need to do to get there • Vision statements typically comprise a concise, high level, inspirational summary of where an organisation wants to be at the end of its planning horizon. A vision should be regarded as a unifying idea that is core to your organisation and links together each functional area • Vision statements are commonly geared towards meeting the needs of stakeholders - internal and external groups (e.g. patients, staff, commissioners etc) that have a vested interest in your organisation • Since vision statements are typically pitched at a very high level, they need to be underpinned by a number of more specific strategic objectives to be actionable and measurable within a timeframe. These objectives can be grouped thematically and mapped to broad categories of your stakeholders’ requirements (e.g. patient access, quality of clinical care etc) • In the context of applying for NHSFT status, it is important you include consideration of how you will take advantage of the additional freedoms and flexibility that comes with being an NHSFT. The onus is on you to show that being an NHSFT is an essential element of your future strategic direction. For example, your strategic goals should consider how you and your stakeholders will benefit from some of the following: • greater access to capital • the ability to enter into commercial partnerships • the ability to enter into joint ventures • greater staff, patient and community involvement • In turn, your strategic objectives should be assigned corresponding key performance indicators (KPIs) to enable you to measure progress. In this sense, KPIs are essentially a description of what ‘success’ or ‘achieving the plan’ might look like • This section of the Business Plan gives examples of vision statements from other NHS organisations, many of which are Foundation Trusts, and proposes a step process to help you develop your own unique vision statement and set of strategic objectives Feedback from early waves “Fantastically beneficial, it was a huge piece of work, but invaluable in terms of clarifying our vision and strategic direction for the next five years, which is why we are keeping it as a live document. We realised the full potential of the document as time went on.”

  25. StrategyExamples of high level vision statements • Below are examples of vision statements that have been developed by earlier waves of NHS Foundation Trusts. Not surprisingly a common theme to most is the focus on quality of care for the benefit of patients being served. Importantly the statements also include specifics that set their organisations apart from others • Strategic goals will flow from these vision statements and through into directorate-level business plans throughout the respective organisations Display sources for all reproductions of published material, including as much detailed information as possible, e.g. dates, author, page no. etc. If you are reproducing a large extract or a whole article please source fully and ensure you have obtained written permission from the owner. Do not reproduce newspaper/magazine articles by scanning unless you have obtained written permission from the owners. “It is the vision of all at the Liverpool Women’s Hospital to remain committed to developing and providing the best possible healthcare for women, babies and their families in Liverpool. In the case of our Specialist Services this extends to Cheshire and Merseyside, the North West of England, the Isle of Man and beyond” “As a new NHS Foundation Trust, Cambridge University Hospitals NHS Foundation Trust will be an academic clinical centre of international stature contributing to the wealth and well-being of the communities we serve through the provision of care; The generation of new knowledge; and the education of health care staff” Source: Liverpool Women’s NHS Foundation Trust Source: Cambridge University Hospitals NHS Foundation Trust “Sheffield Teaching Hospitals will maintain its position as one of the premier performing NHS, Academic and Teaching Centres in the UK and will do so as a partner organisation in the highly successful health systems in South Yorkshire” “UCLH is committed to delivering top quality patient care, excellent education and world class research” “We want to provide patient centred services, where each patient has the best support for their care and rehabilitation regardless of specialty or organisational boundaries.” Source: Sheffield Teaching Hospitals NHS Foundation Trust Source: UCLH NHS Foundation Trust Source: Royal National Hospital for Rheumatic Diseases

  26. To refine your Trust’s vision statement, try using this methodology The steps outlined below would work well in a strategic planning workshop you may wish to hold an internal workshop for senior executive and clinical management first, and then test the findings of that workshop with wider stakeholder groups both internal to your organisation (i.e. staff, consultants) and external to your organisation (e.g. patients, local authorities etc) to build consensus Your organisation may already have developed something that fits the description of a vision statement or set of strategic objectives, though this material is unlikely to incorporate specifics around how you plan to benefit from the greater freedoms afforded to NHS Foundation Trusts to avoid reinventing the wheel, this will still form a useful start point for the planning workshops or discussions participants In forming your vision, you will probably need to make decisions around which stakeholder requirements should take priority. This will be Trust specific, but should still be an objective exercise As you run through the process illustrated, the vision statements and strategic objectives of other trusts may help you check that you haven’t missed anything; however do bear in mind that the best vision statements are unique and set organisations apart from each other The next section provides a framework for developing strategic objectives StrategyDefining your vision and setting strategic goals • Brainstorm to clarify key stakeholder groups • Brainstorm to clarify what each stakeholder group requires/needs from you • Categorise stakeholder requirements(e.g. patient access, quality of clinical care etc) • Test how your existing vision maps to the categories of stakeholder requirements (anything missing?) • Develop strategic objectives and define “successful performance” against each stakeholder requirement • DEVELOP FINAL VISION STATEMENT Feedback from early waves “We found the consultation process really useful. It has certainly given our organisation a clear vision, which we could then share with our local health economy.”

  27. Strategy A template to structure your thoughts • The output of the exercise to refine your strategic objectives could be summarised in the following framework • The strategic objectives developed should, in turn, be devolved into operational objectives for individuals working within the organisation. This will make the link between the high level vision for the Trust, directorate plans and the day-to-day activities of employees Note: (a) These elements of the vision statement are indicative only to give you an idea of how a vision night be framed. You will need to draft your own statements based on the process you have been through and the particular circumstances of your Trust

  28. StrategyExamples of strategic goals: the Metropolitan Police • Clearly, examples of vision statements and strategic objectives can be seen in other non-NHS organisations. Below is an example of how the Metropolitan Police Authority has set itself five high level strategic objectives within its three year strategic framework document THE FIVE STRATEGIC GOALS FOR THE METROPOLITAN POLICE DEVELOPING SAFER COMMUNITIES • ‘Towards the Safest City’ is the Met Police’s three year strategic framework document. It is consistent with the National Policing Plan that sets out Government priorities to policing • The framework sets out five clear goals that form the basis for selection of the priorities and objectives that are published in annual plans. In addition, the framework helps to prioritise the allocation of resources – both people and capital expenditure • ‘Towards the Safest City’ goes on to set out for each strategic goal how the Met Police will achieve it, examples of key initiatives to drive forward its aims, and how the organisation will know if it has succeeded REVITALISING THE CRIMINAL JUSTICE SYSTEM • “We will make London a safer place for those who live in, work in and visit the capital” • “We will lead the drive to make the criminal justice system trusted and respected by victims, witnesses and offenders” REFORMING THE DELIVERY OF POLICING SERVICES DEVELOPING SAFER COMMUNITIES SECURING THE CAPITAL AGAINST TERRORISM • “We will deliver a programme of change in the way we deliver policing to London that reflects the principles of public sector reform - identifying and implementing first those elements we consider to be of greatest value to Londoners” • “We will seek to enhance the total number of police officers available for deployment, maximising the visible operational uniformed police family. We will provide effective leadership, train and deploy our inclusive workforce to meet the challenges and priorities facing us, and manage both the growth in numbers and the specialist requirements for employees with different skills and backgrounds” • We will prevent and disrupt terrorist activity, providing residents, workers and visitors with the reassurance that London is safe Source: “Towards the Safest City, The Strategy, Delivering Policing for Londoners”, Metropolitan Police Authority, 2003-2005

  29. StrategyExamples of strategic goals: Central Cornwall PCT • Some good examples of vision statements and strategic goals can be seen in other NHS organisations. Central Cornwall Primary Care Trust has produced a five year strategic document and though the terminology is slightly different the principles are exactly the same CENTRAL CORNWALL PRIMARY CARE TRUST

  30. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  31. MARKET ASSESSMENT 4 Market Assessment 4.1.1 Description of local health economy 4.1.2 Illustrative map of local health economy 4.1.3 Key factors driving demand (e.g.. demographics, population trends) 4.1.4 Objectives of LHE 4.1.5 Contribution of applicants strategy to the LHE 4.1.6 Major changes in external environment/competition 4.1.7 Summary PEST analysis 4.1.8 Competitive factors i.e. Impact of patient choice, ISTC & other 4.1.9 How the trust will address these factors 4.1.10 Summary of how the trust performs against competitors The Market assessment section of your Business Plan All Trusts must be ‘market facing’. This section of the Business Sourcebook illustrates how market issues and trends need to drive your decisions around the future services you will provide Ensure that the narrative, supporting graphics, charts and tables that you include in the market assessment section of your Business Plan collectively demonstrate a thorough understanding of your marketplace and your position in that marketplace, borne out by quality research your services should be aligned with changing demand and commissioning patterns. You will need to demonstrate that you have analysed, anticipated and responded to those patterns Neighbouring healthcare providers may provide similar services. You need to demonstrate that you have analysed, anticipated and responded to developments in the ‘supply base’ Specific guidance around the PEST analysis tool follows. PEST stands for Political, Economic, Social and Technological factors that may impact on your Trust Market AssessmentStructuring your Business Plan EXAMPLE STORYBOARD Note: This example storyboard is not an attempt to order each of the Business Plan assessment criteria within the framework of a document. Please refer to appendix 2 for the self assessment check list.

  32. Market AssessmentAnalysing the external environment • The PEST analysis • The PEST analysis tool is designed to help you demonstrate a thorough understanding of the external environment in which you operate and to articulate how future initiatives and service delivery plans are in line with issues, trends and developments at both the local and national level • You will need to brainstorm the external factors that may impact on your Trust, now and over the course of your projections • Set out the national issues, for example under system reform, affecting all trusts as well as particular factors that you will need to address locally • You may also wish to do this for select directorates, and then aggregate the results at Trust level ILLUSTRATIVE EXAMPLE OF PEST ANALYSIS POLITICAL (and regulatory) ECONOMIC Feedback from early waves “The Business Plan process was useful in that it forces the Trust employees to look more externally and understand the outside environment better.”

  33. Market AssessmentAnalysing the external environment (continued) • The PEST analysis (continued) • Don’t worry about what point goes in what box; just concentrate on capturing all the issues and thinking about what each factor means for you • in other words, run the “So What?” test against each point • The example has been included to help steer your thoughts and develop the rationale behind your plans. When populated whoever is responsible for writing your Business Plan document can use it as a guide • the completed template needs to be included as an integral part of Business Plan ILLUSTRATIVE EXAMPLE OF PEST ANALYSIS (CONTINUED) SOCIAL (and demographic) TECHNOLOGICAL

  34. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  35. SERVICES 5 Service Development Plans 5.1.1 Internal capability assessment / SWOT analysis 5.1.2 Commentary on SWOT analysis - Building on strengths - Addressing weaknesses - Exploiting opportunities 5.1.3 Summary of future initiatives 5.1.4 Summary of activity projections 5.1.5 Resource implication of activity plans The ‘Service Development Plans’ section of your Business Plan This section of your Business Plan should set out how your services will develop over the next five years, in response to your stakeholder needs (incorporated within your vision) your analysis of the external environment (your PEST analyses) your internal capability assessment (your key strengths and weaknesses) the opportunities and threats you have identified (the rest of your SWOT analyses) The analysis recommended in this section of the Sourcebook has been geared towards helping you set out a clear rationale to underpin your service plans. This is the section of your Business Plan where you document that rationale Against the main initiatives you choose to include you should also summarise at a high level the associated costs and benefits (i.e. that your initiatives are viable), the timescales, the key risks and mitigating actions and other operational implications You should demonstrate that adequate consultation has taken place and your key stakeholders are engaged and on board specifically demonstrate that your plans are compatible with your commissioners It is critical that any assumptions you make in this section are explicitly stated and consistent with the numbers and narrative throughout the rest of your Business Plan What follows is specific guidance around how to derive the most benefit out of the SWOT analysis tool, and how you might document key strategic initiatives in your Business Plan No specific guidance has been included in this Business Plan around the production of detailed activity, capacity and workforce plans, which are deemed to be core skills within NHS trusts ServicesStructuring your Business Plan EXAMPLE STORYBOARD Note: This example storyboard is not an attempt to order each of the Business Plan assessment criteria within the framework of a document.. Please refer to appendix 2 for the self assessment check list.

  36. Services An introduction to development plans • SERVICES: “How these will change” • The aim of your Business Plan is to link your activity forecasts and service plans to your financial projections and for those plans to be driven by a thorough understanding of your external environment and internal capabilities • This key section therefore concerns the need for you: • to demonstrate a thorough understanding of the external environment in which you operate (market assessment) • to perform a robust internal assessment and to articulate what the combination of both means for your future services (service development plans) • You should then be able to demonstrate clearly in your Business Plan that your service development plans: • are in line with issues, trends and developments at both the local and national level • ideally leverage relative strengths or address relative weaknesses, and that they are deliverable • The exercises and templates which follow have been designed as a process to help you achieve this. For example the SWOT template will force you to explicitly state what a particular strength means for your trust’s future direction. Similarly, the PEST template will force you to consider how a particular issue, such as peculiar local demographics, might impact on your Trust. This is often referred to as the “So What?” test. The challenge is to justify each major initiative that your are proposing with sound, evidence-based strategic rationale • It is good practice, regardless of industry or geography, to design your future strategy with these basic rules in mind. Follow them properly and you will be better placed to defend your Business Plan when it is challenged by stakeholders. Ignore them, and your Business Plan may lack coherence • Consider these exercises as an integral part of the process of developing your Business Plan and not a bolt on. Just because the detail may end up in an appendix does not mean you should treat the exercises as an afterthought. Indeed, many of the Business Plans in the early waves were criticised for including SWOT and PEST analyses that did not seem to link into longer term plans • Throughout this process you will need to liaise with your commissioners and SHA. They should ultimately support the activity projections you determine. This may be a difficult exercise, as acknowledged by earlier NHSFT applicants, but it will ultimately produce fruitful dialogue • It is also important that you provide evidence for the key assertions that you make, for example by referencing to performance benchmarking analysis or third party reports Feedback from early waves “Getting a handle on capacity and activity in the Trust and projecting this forward five years was the most difficult part of our Business Plan. We had not had to do this before”

  37. ServicesAnalysing internal strengths and weaknesses • Internal strengths and weaknesses • Brainstorming your trust’s relative strengths and weaknesses is the first step in performing a SWOT analysis. But as with the PEST analysis, going that extra step and asking what each finding means for your Trust (i.e. the “So What?” test) is where this exercise will deliver benefits to your Business Plan • Performing a robust assessment of your internal capabilities will help you demonstrate how your future plans might leverage key strengths or address key weaknesses • In a competitive environment it is more informative to think of strengths and weaknesses in relation to other providers. This is where any benchmarking evidence you can collect from the public domain is best put to use • Try to support each point with evidence. This will not always be possible, however in general you will be better placed to defend your strategy if you have a sound base of evidence to support the conclusions upon which it is based • The example has been included to help steer your thoughts. When populated whoever is responsible for writing your Business Plan document can use it as a guide • the completed template needs to be an integral part of your Business Plan EXTRACT FROM SWOT ANALYSIS (CONTINUED) Feedback from early waves “Thinking about the next step, “the so-what”, was a major breakthrough in the organisation. The local business school facilitated some sessions back in the hospital involving a wide tranche of employees. This produced a very rich SWOT and got a critical mass of key people involved in the application process.”

  38. ServicesIdentifying key opportunities and threats • Opportunities and Threats • Once you have analysed the external environment and considered your key internal strengths and weaknesses, you will be in a position to develop a list of opportunities and threats and complete your SWOT • In many cases you will be able to validate each point by making reference to strengths, weaknesses or external factors you will have highlighted previously • In this template the “So What?” challenge is to align existing and future initiatives to opportunities and threats • ask yourself, “How can we exploit this opportunity?” or, “How should we manage this threat?” • Then summarise the high level benefits case of each initiative • when you are writing your document it will be informative to summarise the high level benefits case against each key initiative you describe • this would be a brief summary of the associated financial and non-financial costs and benefits • at this stage they may not yet be quantified, however you should still be in a position to point towards the source of those costs and benefits EXTRACT FROM SWOT ANALYSIS (CONTINUED) Feedback from early waves “SWOT is a robust analysis, you can’t go wrong with that.”

  39. DIRECTORATE ASSESSMENT TOPICS ServicesSWOT: an alternative approach • Evaluating the effectiveness of internal directorates • You will probably have a shortlist of clinical specialties/directorates that you intend to develop over the next five years • A series of directorate-level assessments may enable you to consider market issues, your competitive position, strengths and weakness, operational issues and future opportunities at a more useful level • You could simply use the PEST and SWOT templates already provided. Alternatively you might like to try this framework and see if it is useful • it is essentially a series of questions that could be used to prompt discussion and help draw out the issues and initiatives to be included in your Business Plan • Competitive position • Who are our competitors? • What is the basis of competition? • How do we perform versus other healthcare providers? • How do our costs compare with tariff, and against our ‘competitors’? • Strengths and weaknesses • What are the internal strengths and weaknesses of the directorate? • How do they help or constrain its performance • What are we doing to exploit/change these? • Operational effectiveness • What are our major opportunities to improve operational effectiveness • What risks must we mitigate/manage? • Opportunities and strategy • Which services, patient segments, and markets offer the greatest opportunities? • What is the strategy to most profitably serve those patients and markets?

  40. Your Activity plans should be supported by a shortlist of planned and ongoing initiatives Documenting key initiatives in your Business Plan Following the results of your SWOT and PEST analyses, and in consultation with your commissioners you will need to agree your activity plans for the next five years, achieving consensus wherever possible Your Business Plan should then set out a shortlist of the key initiatives that, taken together, will enable you to deliver this activity do not include every initiative in your Business Plan, only those that have the most impact determining which to leave out (so that your document remains of a manageable size) will be a subjective exercise if you have PFI plans in the pipeline, do integrate these into your Business Plan as this gives the reader a greater understanding of your Trust’s profile and intentions Some of these initiatives will already be underway and be supported by detailed business plans do not include every detail of those plans but do make sure that the headlines you do include are consistent and that the links to those plans are explicit this way, the individuals responsible for delivering detailed plans can see where their actions fit within the wider strategic context of your Trust ServicesShort listing and documenting key initiatives in your Business Plan Transfer of services to community settings Reconfiguration of local services Revision of protocols and care pathways Workforce initiatives Development of neo-natal unit ACTIVITY PLAN Joint working groups(demand and capacity management) New cardiac floor Rationalisation of clinical support services New diagnostic unit Remote patient monitoring(Partnership with technology provider) New car park Satellite outpatient clinics(Joint Venture) MIT system (joint procurement)

  41. ServicesShort listing and documenting key initiatives in your Business Plan (continued) • Documenting key initiatives in your Business Plan • You should document key initiatives in such as way that you demonstrate you have analysed your market and your organisation, and that you know what factors (external and internal) will impact on your business over the next five years • By supporting your key initiatives with sound rationale, you will make your Business Plan appear far more ‘joined up’ • As a guide, in addition to being aligned to your strategic objectives your initiatives should either: • build on proven strengths • address perceived weaknesses • exploit opportunities that have been validated • manage threats • This has been described as the ‘driver’ behind the initiative • You might also summarise • the high level benefits case as described above, but fleshed out to include specific associated costs and benefits • an indication of the timescales involved • the key risks associated with each initiative and how you propose to manage them • the high level operational, HR, governance and financial highlights from the more detailed plans • explicit links to those more detailed plans • This example takes one of the initiatives identified in the earlier illustrations and sets out a flavour of the key points that could be incorporated in your Business Plan • Ensure your narrative around the strategic initiatives you choose to include is consistent with your financial projections and activity, capacity and resource plans • The next step is to set out the financial projections that will test the validity and viability of future service provision

  42. Contents • Chapter Page • Characteristics of good strategic planning 4 • Getting started 10 • Structuring and developing your Business Plan 15 • Executive Summary • Profile • Strategy • Market assessment • Services • Finance • Risk • Leadership & Workforce • Governance • Other working tools • Appendices

  43. Finance Structuring your Business Plan • The “Financial Evaluation” section of your Business Plan • The main purpose of financial evaluation is to establish and measure the viability of your service development plan and the cash resources you will need to survive over the next five years • Your activity assumptions, capacity plans, staffing and resource requirements, and financial projections should all hang together. Performance will also need to be underpinned by a clear capital programme • Five year balance sheets and cash flow projections will demonstrate that your Trust will remain financially viable over the period • You will have made many assumptions along the way. It is critical that you realise where you have made assumptions, that you document them clearly, and that you ensure the projections and associated commentary are consistent • This section focuses on providing guidance to address areas where both Monitor and the NHS Financing Facility commented that standards were lacking in the Business Plan documents that they reviewed • consequently the following slides focus on methods to support the clear communication of complicated financial information and on high level advice to underpin the construction of your financial models EXAMPLE STORYBOARD • 6 FINANCIAL EVALUATION • 6 Financial plans 6.1.1Historical performance analysis 6.1.2 Income and expenditure 5 year projections (to reflect Service Development Plans) 6.1.3 Cash flow 5 year projections, with commentary on key assumptions 6.1.4 Balance Sheet 5 year projections 6.1.5 PFI analysis (if applicable) Note: This example storyboard is not an attempt to order each of the Business Plan assessment criteria within the framework of a document. Please refer to appendix 2 for the self assessment check list.

  44. Finance An introduction to the finance section • FINANCE: “How the money stacks up” • Your Business Plan document needs to be underpinned by an integrated financial model that incorporates detailed income and expenditure, balance sheet and cash flow projections. This model should dovetail neatly and explicitly with your activity, capacity and resource plans • Feedback from early waves suggests that this is usually the most challenging aspect of the application and that applicants would have appreciated earlier warning of the levels of rigour demanded by Monitor. In turn, Monitor has commented that levels of modelling rigour need to improve within applicants. In particular: • inconsistencies have often existed between different elements of the same application, leading to financial and operating projections that ‘don’t make sense’ • many applicants have struggled to deal with the uncertainty surrounding what ‘inputs’ to use or assumptions to make • the underlying financial position (ignoring one-off and non-recurring items) has not always been transparent • the drivers of enhanced financial performance over the period of the projections are often unclear • too often, applicants failed to clearly link historic financial and operating performance to projected performance in their documents • Early NHS Foundation Trusts have commented that finance team resources are often the most stretched by the application process, particularly as applications progress and Monitor becomes involved. An honest and early assessment of the capabilities of your finance team is recommended Feedback from early waves “The financial modelling was technically complex. Our finance team had no modelling experience. We had management accountants and financial accountants but no-one in the middle that could link operating and financial info and build a model that produced the outputs Monitor was requiring.” Feedback from early waves “The most difficult part of the Business Plan process was balancing the different models. Such an enormous amount of numbers go in. You can’t underestimate the number crunching needed to get assurance that the plans were robust.” Feedback from early waves “The financial modelling and re-modelling were the most difficult part of producing our Business Plan. We spent hundreds of hours on this.”

  45. FinanceLinking historical to projected financial performance • Ensure your Business Plan document clearly sets out your underlying financial track record, without any one-off or non-recurring items • Both DH and Monitor will want to see the ‘financial starting point’ for the development of your plans and associated projections as a NHS Foundation Trust • Experience of the early waves of applicants has shown that it is frequently difficult to establish this baseline position, particularly if historic financial performance has been distorted by one-off items such as capital to revenue transfers or asset disposals that are not separately analysed • Without a clear picture of underlying financial performance it will be difficult to clearly articulate the benefits of becoming a NHS Foundation Trust Feedback from the NHS Financing Facility “A key area for us is getting under the skin of the numbers. I’d like to see more clarity around underlying performance (e.g. by stripping out the effect of non-recurring items). This is an area I have spent a lot of time getting to grips with" Monitor Feedback “It would be helpful to get a clearer understanding of what the underlying financial position is, after exceptional and one-off items have been stripped out. It is not always easy to see this"

  46. FinanceLinking historical financial performance to projected performance (continued) • Compare your financial track record to projections as if you were to gain NHS Foundation Trust status but also as if you were to remain an NHS Trust • However this does not mean that you need to produce two sets of projections in your Business Plan document • The rationale behind this exercise is to enable you to articulate the financial benefit to your becoming an NHS Foundation Trust, in addition to less tangible benefits in other areas. You will need to supplement this with clear messages around what you will be doing differently in the future to deliver this enhanced performance • Overview of financial performance G:\Admin\586\586_Graphics\Proposals\Business Plan\graphics.xls table one and chart one As an NHS Foundation Trust • Your enhanced projections will illustrate the financial effect of what you will do differently as an NHS Foundation Trust • These projections will include any additional costs of your becoming a NHS Foundation Trust (e.g. the cost of changes to internal systems and processes), in addition to any financial benefits TRACK RECORD PROJECTIONS 'Baseline' projections • You need to set out what you feel would be achievable if you were to remain an NHS Trust • Establishing a robust baseline will enable you to articulate what becoming an NHS Foundation Trust will mean for you • Your 'vision' is likely to remain the same under each scenario

  47. FinanceLinking historical financial performance to projected performance (continued) • Linking operational and financial metrics will help illustrate that your strategy is deliverable • The same guidance applies to operating information. Tie historic operating performance and projected operating performance together in the same place • Additionally, if you set out how financial performance will develop alongside the key ‘drivers’ of that performance (e.g. average lengths of patient stay or staff ratios) your document will appear more ‘joined up’ and you will have greater comfort that your strategy is ‘do-able’ These slides can be found in the Business Plan/Client Format/Dump/Business Plan (client reformat) PRINT SCR 180505 G:\Admin\586\586_Graphics\Proposals\Business Plan\graphics.xls charts two, three and four Feedback from the NHS Financing Facility “There tends to be not enough around the historic numbers. I would want to see trends over the past three years and, as importantly, a clearer link between historics and projections”

  48. FinanceThe use of performance ‘bridges’ • The use of ‘bridges’ or ‘waterfall charts’, whether they are in graphical or tabular form, are a useful method of communicating changes in a key area over the course of your projections. When supplemented by narrative they communicate clearly to the users of your Business Plan document how you plan to get from “a” to “b” • This technique usually supplements the more classic presentation of Income and Expenditure accounts. We have set out above an example of how a potential NHS Foundation Trust might illustrate how it expects to generate an additional £27million of income in two years • If you take this approach, be sure to include the source of the data used in your illustrations These slides can be found in the SDS/Client Format/Dump/SDS (client reformat) PRINT SCR 180505 G:\Admin\586\586_Graphics\Proposals\SDS\graphics.xls Projected income (3) Monitor Feedback “Assumptions around the base case are often unclear, as are the ‘sources’ of growth or increased profitability through the period of the projections. We are left asking, “Where is this enhanced performance coming from?”

  49. FinanceThe use of performance ‘bridges’ (continued) • The same approach can be used to illustrate cost pressures over the period • You may also wish to use a performance bridge to set out • how your results might differ between your ‘basecase’ projections (as a NHS Trust) and your ‘NHSFT’ projections • how profitability is projected to improve between the latest actual results and year five These slides can be found in the SDS/Client Format/Dump/SDS (client reformat) PRINT SCR 180505 G:\Admin\586\586_Graphics\Proposals\SDS\graphics.xls Projected expenditure (3)

  50. FinanceFinancial modelling • The importance of sound activity plans • The diagram on the next page illustrates the approach to producing an integrated financial model (on the right) from the various low level assumptions (e.g. number of spells per period and tariffs, by HRG) on the left • Note how critical the activity assumptions are to the whole process. Activity plans drive your capacity plan (e.g. beds, facilities etc) and resource plan (e.g. headcount) which in turn determine the cost base of your organisation. Under PbR, activity is clearly also the prime driver of revenue, with productivity and innovation providing the scope to improve margins • Ensure your activity plans have been informed by the strategic direction that is set out in your Business Plan. The sooner you start the consultation process with commissioners, the sooner differences can be resolved and the sooner your Board can sign off the long term activity plan • Once this has happened the financial planning process can move forwards with far greater certainty. Without it, constantly changing activity projections will frustrate the financial planning team and complicate the process Feedback from early waves “We had PCTs telling us they had not looked at what we had sent because it was too complicated…With the benefit of hindsight we would engage with the PCTs much earlier and probably be clearer as to what was going on in year one and be less specific as you got up to year five." Feedback from early waves “You need to be clear about the gritty issues that need to be tackled early. Drawing a line underneath activity plans and getting them signed off by the Board enables everything to move on"

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