Commercial Assessment

1. Commercial Assessment

2. Objectives • To understand the concepts and processes of Commercial Assessment of alternative ways to deliver service needs • To map out the process of creating a Business Case • To examine the process for examining the market in a given area of service provision • To understand the sources and costs of funds to deliver the service • To understand the viability of potential solutions

3. Links to other procurement programmes • This programme is the 1st Module in a series covering every aspect of the Do Buy Share approach • Completion of all the modules will provide the knowledge required for the ILM Level 3 Award in Service Improvement • A work based assignment is required to be awarded the qualification • Further details will be available on the Do Buy Share website • A link will be mailed to you shortly

5. Contract Relationship Management Contracting Solution Provision Commercial Assessment Identity Service Need 5 Modules Benchmarked to: National Occupational Standards for Purchasing Full attendance plus completion of assessment leads to ILM Level 3 Award in Service Improvement Learning Materials Programme supported by Workbooks and elearning via iLearn Dedicated Client service manager

6. Change Evolution? Revolution? Adaption?

7. What external factors affect service provision and procurement?SPECTRE ANALYSIS • Social • Political • Economic • Customer • Technological • Regulatory • Environmental

8. Caius Petronius AD 66 “We trained hard, but it seemed that every time we were beginning to form up into teams we would be reorganised. I was to learn later in life that we tend to meet any new situation by reorganising, and a wonderful method it can be for creating the illusion of progress, while producing confusion, inefficiency and demoralisation.”

9. Understanding the Market • What is a ‘Market’? • What do we need to know about marketing? • What is happening in the markets we might draw supplies or services from • Basic principles of marketing • How pricing works from the marketers point of view

10. What Marketing is not… Marketing is not Advertising but advertising is part of a marketing programme • Marketing is not Selling • selling is about personal persuasion • Marketing is not Publicity • but publicity will raise awareness • Marketing is not PR • Although marketers may seek to influence perceptions • through the media to achieve marketing objectives

11. The ACME Buggy Whip Company However hard you advertise or promote you will go out of business ! Why ? Here’s why !

12. Okay…, so what is marketing? • The identification and viable satisfaction of customer needs • Seeking those the organisation can serve best • Designing products (services) to meet their needs • Putting the customer first in everything the organisation does • A holistic approach to organisational success

13. Some key concepts • “Industry is a customer satisfying process, not a goods producing process.” • Theodore Levitt , Marketing Myopia, HBR 1966 • “Authentic marketing is not the art of selling what you make but knowing what to make. It is the art of identifying and understanding customer needs and creating solutions…Market leadership is gained by creating customer satisfaction through product innovation, product quality and customer service.” “Select and focus is Kotler’s driving message: organisations that compete for customers cannot succeed by trying to satisfy all segments.” • Philip Kotler, Principles of Marketing 1992-2010

14. Supply and Demand • How can we supply goods or services? • How do the suppliers differentiate themselves? • How can we match this to service needs? • Who else buys these goods or services?

15. Cobblers! • You are in charge of procurement for a national chain of traditional cobblers • Demand for repairs are falling • How will you react to this situation? • What other products or services might you need to source? • What delivery mechanisms might you need to explore? • Who would you have to work with within the organisation?

16. Competition & PositioningPorter’s Five Forces To analyse competition in a market, consider: • Existing rivalry between firms • The threat of new market entrants • The threat of substitute products and services • The bargaining power of suppliers • The bargaining power of buyers Also consider which position suppliers take in their markets: • Low cost advantage - Aldi/Lidl/Skoda/Value brands • Differentiation - M&S/Waitrose/BWM/Finest

17. Lifetime Value Consider the total value of the contract and the relationship to the market/suppliers • Continuity versus price… • The value of recommendations and references • Putting a price to ‘Goodwill’ • Further opportunities to extend service • Not having to look for further business • All that from just ONE customer ! • Contributes to the power of suppliers in Porter’s 5 Force model

18. How much?- how suppliers approach pricing • An office chair costs £53.00 to make and transport to the suppliers warehouse • How could the supplier work out what to charge the council?

19. Pricing Models • Cost plus • Unit pricing • Variable pricing by quantity • Market skimming • Market penetration • What the market will bear

20. The future of supply? “Business webs: communities of mutual business interest linked by the internet. These platforms of suppliers, distributors, service providers and customers will be the new business model, superseding the old vertical corporation.” Don Tapscott, Digital Capital, 2000 Examples?. • Interactive relationship marketing • The focus on intangible benefits • The value of choice rating higher than brand • The effect of real time in creating the ‘never-satisfied customer’ • Regis McKenna

21. Commissioning priorities • What's on our shopping list? • Does the need expressed actually fit our strategic objectives? • Do other departments have this need so we can bulk services? • Have we quantified it as precisely as we can? • Do we know how to quantify it? • Do we need to ask the market how they would quantify it? • If not how could we make sure it did?

22. Risk Assessment • Is the market small or large? • Developed or new? • Are the potential suppliers sound? • Are there opportunities to grow the market to suit our needs? • How can we assess and manage the risks involved

23. The Risk Management Cycle Risk Identification Monitoring Risk Analysis Risk Management Prioritisation

24. Prioritisation Objective: To assess accurately the relative significance of risks We gave each risk a score:- Likelihood / Probability X Impact / Severity Risk Identification Monitoring Risk Analysis Risk Management Prioritisation

25. Risk management profiling • Assess the risk of the scenarios set out in the workbook

26. The Risk Profile Template What the colours mean: Red -Existing levels of internal controls are inadequate Amber -Existing levels of internal controls are weak Yellow -Existing levels of internal controls are adequate Green -Existing levels of internal controls are strong

27. Management Action Plan

28. Monitoring Extension of the action plan Historic record Supporting documentation Ownership Regular Review Audit Risk Identification Monitoring Risk Analysis Risk Management Prioritisation 28 28

29. Market shaping or developing • Can we really influence the market? • If so what would we want to achieve? • What profit streams could we create in the future? • How is it changing? • Are their new entrants/suppliers – (Porters 5 forces) • Are there external impacts which will change the market? • Are Technological changes which will impact on the market

30. Generating options Challenging the status quo

31. Single loop learning tries to keep up!

32. Double Loop Learning – seeks to create

33. Sources and costs of funds • Where is the money coming from? • Existing budgets? • Shared existing budgets? • External funding PF!/CREDITS/PPP? • Grants or other inputs? • Government initiatives, funding, voluntary sector investments in service delivery or capital projects • Capital bid – as part of bid for specific resources

34. Private Finance Initiatives The private finance initiative (PFI) has been a way of creating "public–private partnerships" (PPPs) by funding public infrastructure projects with private capital. . . . Labour's PFI model is flawed and must be replaced. We need a new system that doesn't pretend that risks have been transferred to the private sector when they can't be, and that genuinely transfers risks when they can be . . .. We need a more honest and flexible approach to building the hospitals and schools the country needs.. The current system – heads the contractor wins, tails the taxpayer loses – will end. George Osborne -Chancellor of the Exchequer

35. Public Works Loan Board • This lends money to local government at low rates for capital projects over periods of 60 years • Recently interest rates have been put up to give the government a better return.

36. What’s in a business case • A description of the need • Why we should provide the need? • What if we did not? • The proposed solutions • How will we chose between them? • How the solution will be delivered • How the solution will be funded • How it will deliver value for money • How sustainable is the solution • What is it’s environmental impact

37. Comparison of : Costs of making a change Benefits of making a change

38. Extra salaries & wages Higher utility costs Extra rent Higher interest charges Lower staff morale Higher staff turnover More stress Higher postage Extra phone calls New equipment needed Damage to the environment Redundancy Users dissatisfied Complaints Confidentiality risk Less income Lose grant What costs might be involved ?

39. Extra income Savings in expenses Lower interest charges Less stress Extra financial help Customer care improved Happier staff Less complaints Greater security for staff and users Lower working hours for staff Lower staff turnover Improved service Lower delivery costs Better for the environment More professional Service available to additional users What might the benefits be ?

40. Hard and Soft Benefits Examples: Tangible (Hard) benefits: • Saving in costs • Extra income • Cost effective delivery • Measurably improved service delivery Intangible (Soft) benefits: • Higher staff morale • Environmentally sustainable • Supports vision and values

41. Social Cost benefits • Support for policies, values and vision • Beneficial or negative impacts on population, local economy, or environment • Long term impacts • Secondary impacts • Sustainability issues

42. Opportunity Costs Any choice may have a down side - you have to give something up or lose in some way as a result of the decision The negative effects of the decision are called the opportunity costs Example: • You decide to move in with a new partner and give up your flat Benefits are many: • Saving in rent and travel costs • Saving in phone • Saving in gas/electric But the opportunity ‘costs ‘will be: • Privacy • Independence

43. Syndicate Exercise • Put together a draft business case for buying a classic car

44. Rich PicturesWhat does your ideal future look like?

45. Yellow Bus Diagram

46. The 5 ‘whys’ An example: My car will not start. (the problem) Why? - The battery is dead. (first why) Why? - The alternator is not functioning. (second why) Why? - The alternator belt has broken. (third why) Why? - The alternator belt was well beyond its useful service life and has never been replaced. (fourth why) Why? - I have not been maintaining my car according to the recommended service schedule. (fifth why, root cause)

47. Business Process Mapping What does the service look like? What happens first, what happens next? From the providers view From the Customers view Get input from all and get people to draw simple flow charts Compare them, discuss the differences Decide what it needs to be against what it is now (Gap analysis) Draw the improved process

48. The Service Chain – looking for the weak links

49. The Kano Questionnaire What value is added at each stage of the process?

50. Triaging work • Cost of 5 minute interview with middle manager in an interview room • Cost of dealing with transaction by email • Cost of dealing with transaction by phone • Cost of dealing transaction by website +COST- -SPEED+