VFM self-assessment workshop

1. VFM self-assessment workshop This presentation provides a VFM toolkit with a self-assessment template Steve Smedley Acuity Associate May 2014

2. Workshop aims To provide delegates with the tools and information to meet the regulatory requirement to publish an annual VFM self-assessment via: Understand the updated regulatory context and emerging lessons from Year 1 Take a look at the key ingredients of a VFM self-assessment Challenge personal thinking through debate

3. It’s your day …… informal and participative Part 1: morning – 10:00 – 12:45 Introductions Regulatory context brought up to date Observations & lessons from Year 1 What has the HCA been saying about year 2 What might a self-assessment look like? – overview Lunch (& registration for PM attendees): 12:45 – 1:30 Part 2: afternoon – 1:30 – 5:00 What might a self-assessment look like? – the detail Some thoughts from me Some thoughts from you - looking back and forward Last thoughts

4. It’s your day …… informal and participative 11am – 1pm - Part 1 Introductions Regulatory context brought up to date Observations & lessons from Year 1 What has the HCA been saying about year 2 1-1:45pm - Lunch 1:45 – 15:00pm - Part 2 What might a self-assessment look like? Some thoughts from me Some thoughts from you Last thoughts

5. Part 1

6. Before dropping into Wonderland • Who you are? • What you do? • What you want to get out of today? • Any particular issues, hang-ups?

7. Regulatory context …updated

8. Co-regulation Compliance

9. Horrible histories: VFM This assumption is what your self-assessment is trying to dispel. Wot no competition? Local monopolies? It’ll end in apathetic coasting….. Once upon a time, the government proclaimed that the public sector should be more efficient. Best value and VFM were prescribed and inspectors checked compliance.

10. Fast fwd: VFM regulation now • Review of Social Housing Regulation 2010 • we expect in future the regulator to be more proactive…on ensuring VFM…to achieve better returns for the taxpayer & support new affordable housing supply • Purpose of economic regulation (current Regulatory Framework): • to protect historic government subsidy, promote access to private finance, and help address the lack of competitive pressures on providers which might otherwise put pressure on service quality and efficiency

11. VFM regulation now Same set of standards apply to RASAs as 1000+ Assurance-based approach to regulation aim to obtain sufficient evidence (assurance) standards are being met starting point is HAs’ own assurance on compliance with standards HCA wants assurance that the board is assured! HCA guided by 8 question engagement framework Q5 does the organisation demonstrate how it achieves VFM in meeting its strategic objectives? requires a review of the assurance provided to board on the strategy for & achievement of VFM so VFM self-assessment is key evidence/assurance ability to drive VFM a key indicator of quality of governance

12. What the VFM standard is trying to achieve & what the HCA is seeking assurance on Desired outcomes are no more than what an effective board will already be doing - HCA looking for assurance that: providers have comprehensive & strategic approach to VFM that is board-led boards clear about: their strategy how the business is structured how its resources are applied to deliver their plan providers have effective performance management & scrutiny functions boards understand ROA, consider their use in the round &seek the best strategy for delivering value from them, whilst meeting organisational objectives providers operate efficiently & effectively as possible, seeking to control and optimise the relationship between costs and quality of services providers are as transparent as possible about the above and can be held to account by key stakeholders Matthew Bailes et al spring 2014

13. Round up of implications VFM now about the whole business – not just services valuetagged to your objectives not 3rd party but has to reflect the value perspective of stakeholders publicly listed businesses maximise shareholder value social businesses maximise stakeholder value? raises tension between stakeholder value perspective eg existing v future tenants government (build) –v- sector (beyond bricks ‘n’ mortar) board/exec reconcile this self-assessment is a stakeholder doc reality check – VFM & (social) business effectiveness the same thing can you measure the value you exist to produce? – your product

14. Round up of implications greater emphasis on boards opportunity for the sector: demonstrate it can do co-regulation define value positively, in social business terms not just about cost cutting counter anti-social housing sentiment with a better story assert significance of sector but avoid PR exercise HCA not dictating terms (yet): business model, allocation of resources: supply-v-services-v-support-v-community investment organisational form – group, merge, etc operating structure, suggested costs, service levels but there is dissonance between regulation and politics

15. HCA specifically interested in these specific expectations!..... especially the last 3…so specifically address them! Purpose of self-assessment = demonstrate to stakeholders how meeting the VFM standard VFM self-assessment - first principles • Any specific expectations? • ‘doing’ VFM • robust approach to use of resources • understanding RoA & strategy for optimising returns • effective performance management & scrutiny • understand service costs, outcomes & drivers • ‘reporting’ VFM • enable understanding of RoA • set out absolute & comparative costs of specific services • evidence VFM gains (backwards & forwards) • So what’s in standard? • ‘doing’ VFM • articulate & deliver a comprehensive & strategic approach to VFM to meet objectives • application of 3 Es • ‘reporting’ VFM • reflects stakeholder interests • robust • transparent • accessible

16. The VFM standard. What do you think? Any observations, issues?

17. Observations on year 1 unhappy with sector response – VFM not taken seriously VFM mood music changed last autumn failure of compliance rather than failure of VFM downgrade G rating by one notch HCA’s ‘presentational problem’ –communicating disappointment to sector without government using it to further beat unloved sector & regulator HCA unlikely to be more prescriptive – counter co-regulation smacks of box ticking & avoiding responsibility for managing the biz themselves BUT HCA has given us some pointers…….(to be revisited) sector appears unhappy with HCA’s handling risk of compliance mind-set resurfacing? Your take?

18. How was it for you? Observations on year 1 Determining what was required uncertainty about requirements level of detail? where and how to publish? accessible –v- comprehensive/technical? many opted for summary in accounts and detail on website Roles extensive board sign-off but scope for more involvement in process understanding, challenging, owning output shaping the SA special role for audit committee only third used tenant scrutiny – obvious role here little reference to input from other stakeholders or even their perspective

19. How was it for you? Observations on year 1 What data did you use? Return on assets wide interpretation – what was expected? Clarity required? methodological & contextual issues militate against useful KPI but killer headline metric not required improving understanding of stock biz critical going forward Absolute & comparative costs use made of HouseMarkdata sometimes limited in OFR but more elsewhere some not stated costs – difficult to understand Evidence of gains HouseMark data, VFM registers, procurement, commercial return tenant scrutiny, awards, accreditations not mentioned key issue – evidence your gains (& performance), better understand social value

20. Observations on year 1 How about you? Dissemination need to rationalise the docs that tell us about biz effectiveness? OFR+? improve accessibility & transparency tone down PR reporting non-financial outcomes – learn from social accounts Benefits majority saw value in process as biz tool Regulatory improvements clarify expectations – fine line prescription –v- clarity of expectations

21. Self-assessment structure: different strokes Corporate priority approach HouseMark/S&P approach VFM standard compliance approach You don’t have to do it like this!

22. Self-assessment approaches (templates) What kind of approach do you favour? The Compliant • background – ie HCA requirement • what VFM means to us & how seriously we take it in terms of strategy & delivery (ref standard) • return on assets • absolute & comparative costs • past & future VFM gains Some take a KLOE approach • distil standards’ principles • assess –v- criteria The HouseMark/S&P • definition of VFM in context of purpose & objectives • strategic approach to VFM and use of resources • arrangements to deliver VFM – performance management and governance • what has been achieved • plans for next year • board assurance on the VFM self-assessment The Corporate • overall judgement • definition of VFM in context of purpose & objectives • corporate objective #1 • aim • arrangements to ensure delivery • achievements • plans • corporate objective #2 • ditto • etc to be revisited

23. Good practice from the sector? Helena** (infographic, varied approach to measuring asset and social return) GreenSquare* (honest, comprehensive, had a bash at ROI, embedded VFM, bottom-up VFM - GreenState) Riverside** (honest, SA as improvement & accountability tool inc action plan, outcomes from stakeholder perspective, involved others in process) Notting Hill* (ROCE by business stream, active asset management, good use of G15 benchmarking and commentary) * in OFR, ** separate VFM statement Good Practice caveat: how consistent is HCA in its approach to assessment? up the ante - great expectations year 2 smaller HAs – need a proportionate approach

24. A VFM scorecard - for self-assessment & general biz tool? Evidencing (measuring) VFM performance Value achievement Value Process VFM scorecard • limited set of common metrics • emphasis on performance not context • but should be considered –v- context • comparable evidence base for: • credible VFM story • understanding business effectiveness • complements corporate scorecard (not always metric-based) Biz health People Value creation

25. Evidencing (measuring) VFM performance + local metrics, eg local offer = credible evidence base to hang narrative on + qualitative evidence, eg scrutiny, reviews, awards to be revisited

26. Any evidence of getting shirty with smaller HAs? What did HCA do? looked at around 240 self-assessments (ie 1000+ stock with March year end) 15 non compliant – 14 downgrades 160 got a partial compliance (naughty) letter threatening potential downgrade if no improvement why downgraded? insufficient assurance that there is a strategic approach to VFM not communicated to stakeholders in a transparent and timely manner (ie missed deadline) So key issue – the provision of sufficient evidence for HCA to be assured ‘VFM self-assessment is about evidencing the VFM story….’

27. NB focus on 3 specific requirements What has HCA been saying is good?: key messages for 2014/15 Good self-assessments transparently permit stakeholders to understand performance against the specific requirements of the standard: sufficient detail to allow stakeholder to make own assessment balanced commentary - a reasonable interpretation of results clear info on ROA*andhow this has been used to inform decisions on the management of the asset base quantified evidence on cost of delivering specific services*, compared with: previous years relevant peer group & clear links between cost & quality of outcomes no cherry picking good stuff – consider cost & performance, strengths & weaknesses in context of overall spend systematic evidence of past VFMsavings and specific, ambitious, measurable targets for future. Links made between savings & gains & achievement of provider’s overall strategy. Matthew Bailes et al, spring 2014 * NB the principles of Regulatory Framework expect continuous improvement in use of assets and costs. HCA is looking for ‘sufficient evidence’ to enable judgements on this

28. …..& poorer self-assessments… ..did not

29. The HCA’s key messages for 14/15 signpost other key documents in your board report / OFR no room for complacency. For most what was good enough in 2013/14 won’t be good enough next year. NB raising the bar ..the sector should not underestimate the government’s & regulator’s interest in VFM…… Matthew Bailes, May 2014: ask yourselves does the self-assessment give the reader enough information to make a judgement on whether your organisation offers VFM in delivering your objectives compared to your peers? does it give them enough information to judge whether you are doing better or worse than last year? NB continuous improvement in VFM is about beneficial change in cost &/or performance

30. What might a VFM self-assessment look like?: the principles

31. Key principles for self-assessment include a comprehensive VFM self-assessment in OFR/board report signpost to even more comprehensive documents if required – make sure these documents are available and accessible in good time form & content of the self-assessment is based on HA’s social purpose and stakeholder interests there is no template suggest narrative backed by evidence (eg data, qualitative info) no evidence = fairy story but just killer metrics – fails to tell full story VFM ultimately a qualitative judgement based on assessment of available evidence

32. Key principles for self-assessment it is a stakeholder document – be clear about who you produce value for: what do they want and how much have you achieved for them? is it more or less than last year? invite challenge demonstrate board ownership of VFM – allow time for the board to consider, discuss and challenge the self-assessment: do they understand it? does it address the requirements of the standard? is it robust? sufficient evidence/assurance any limitations or gaps – if so what and how will it be addressed does it represent a true & fair VFM story or just a fairy story?

33. Key principles for self-assessment Key principles for self-assessment it should be robust and transparent comprehensive account of how the association is faring with regards to improving VFM, warts & all , strengths & weaknesses, in the round evidence-based! - provide sufficient evidence for stakeholders to make their own judgements – commentary should represent a fair and balanced analysis of evidence facilitating judgement self-assessment is not a PR exercise but an accountability and improvement tool it should be accessible to stakeholders infers that report is intelligible and its availability communicated to stakeholders. data visualisation key

34. Key principles for self-assessment Key principles for self-assessment Content: consider including a compliance statement - to what extent does the HA comply with the requirements of the standard and what does it plan to do about areas on non/partial compliance? demonstrate a strategic approach to VFM including a robust approach to use of resources the performance management & scrutiny arrangements to achieve strategy (including governance and tenant scrutiny). This is about demonstrating a grip on VFM via arrangements to ensure its delivery

35. Key principles for self-assessment Key principles for self-assessment Address HCA’s specific requirements: a) should enable stakeholders to understand the return on assets measured against the organisation’s objectives – provide evidence that you have a grip on asset management - that you: understand stock condition & associated investment needs understand maintenance costs understand demand, the communities & markets you operate in understand the return in financial, social and environmental terms at an appropriate level of detail: what level? What does the data tell you? demonstrate that the above understanding informs intelligent asset management strategy that aims to improve returns intelligent business decisions, eg hold, invest, dispose, convert, etc understand the benefit of investment on future rental stream/social outcomes & only invest where the return is clear….. …consider brief assessment of key asset decisions over year – cost/benefit flag weaknesses for transparency, remedial action?

36. Key principles for self-assessment Key principles for self-assessment b) set out the absolute and comparative costs of delivering specific servicesand demonstrate you understand service costs, cost drivers and associated outcomes, ie that you have a grip on operational cost and performance. evidence here includes benchmarking data, business metrics and qualitative info eg: tenant scrutiny, service reviews, accreditation, feedback. Acuity/HouseMark data key evidence base – compare self over time and against others but avoid gaming brief commentary on headline unit costs, PIs, other evidence what can you do about your cost drivers? what are you doing to contain overheads? what can you say about the efficiency/effectiveness of operating model? strengths & weaknesses explain direction of travel – costs/value up or down

37. Key principles for self-assessment Key principles for self-assessment c) evidence of past and prospective VFM gains set key gains against overall cost base and in context of mission quantify the gain financially, socially (performance, satisfaction, # beneficiaries, etc), environmentally how was it achieved? own up to any negative impacts, costs etc what will you use surplus for? future gains what will you do? what is the anticipated financial, social, environmental gains in context of mission – can you quantify these? are there any costs or diminution in service associated with them? over-promise, under-deliver is a risk – self-assessment is a record

38. Overall, we meet the requirements of the standard…notable achievements include x. We need to address y... 1. Overall summary statement of VFM performance & compliance with standard Dropping the principles into a template? You don’t have to do it like this! 2. Define VFM in context of objectives & stakeholder interests For us VFM means…… 3. Provide assurance about ‘how you do’ VFM Our arrangements for ensuring VFM are… to be revisited 4. Evidence-based VFM reporting (warts ‘n’ all) – ‘how we did and what we plan to do’ Narrative that draws on data & qualitative evidence & addresses specific HCA reporting expectations

39. Thoughts, observations?

40. Lunch

41. Part 2

42. Recap & agenda Part 1: morning • Introductions • Regulatory context brought up to date • Observations & lessons from Year 1 • What has the HCA been saying about year 2 • What might a self-assessment look like? – overview Part 2: afternoon – 1:30 – 5:00 • What might a self-assessment look like? – the detail • Some thoughts from me • Some thoughts from you - looking back and forward • Last thoughts

43. Exercise 1 – How was it for you? In small groups, reflect on your organisation’s experience of producing a VFM Self Assessment last year: What kind of structure and evidence? What worked well? Outstanding difficult issues? What lessons have you learnt? Write brief flipchart notes Be prepared to feedback as part of discussion

44. Stepping through the process

45. Overall, we meet the requirements of the standard…notable achievements include x. We need to address y... 1. Overall summary statement of VFM performance & compliance with standard Dropping the principles into a template? You don’t have to do it like this! 2. Define VFM in context of objectives & stakeholder interests For us VFM means…… 3. Provide assurance about ‘how you do’ VFM Our arrangements for ensuring VFM are… 4. Evidence-based VFM reporting (warts ‘n’ all) – ‘how we did and what we plan to do’ Narrative that draws on data & qualitative evidence & addresses specific HCA reporting expectations

46. Focus on step 1. Compliance & summary statement, including board assurance • high level summary of VFM performance – key strengths and weaknesses, is VFM improving? • compliance statement • to what extent does the HA comply with the HCA’s VFM requirements? • is the Board assured: • this is a fair and balanced account of VFM? • of the robustness of this self-assessment • sufficient evidence/assurance? • limitations or gaps? • how will non-compliance be addressed? • invite feedback & challenge by stakeholders How we did summary by stakeholder? Issues? Solutions?

47. Focus on step 2. What VFM means to us: our VFM definition • assert social mission, vision and objectives - it’s why you exist! • unpack key ‘value streams’ (outcomes), ie new homes, great services, community well-being, care & support • identify key stakeholders and what they value – your audience & beneficiaries of your value! • based on above, assert a short VFM definition - essentially ‘for us VFM is maximising ‘our value’: more homes, better services, more lives improved…….’ • great opportunity to boldly assert your value proposition

48. Focus on step 3.Arrangements to ensure VFM – a strategic approach & the means to deliver it to demonstrate grip on VFM strategically and operationally set out key principles of VFM strategy - state that it is a considered strategy, eg: based on fact/previous assessment has meaningful improvement actions linked to it (pick these up in step 4 when reporting past/future gains!) corporate fit with key strategies: risk, asset, people, procurement etc. no VFM strategy ?- consider how the biz strategy drives biz effectiveness/VFM

49. If you have a VFM strategy this is where it probably fits?..... Purpose, objectives… VFM Self Assessment Corporate strategy Financial plan VFM strategy Strategic planning Asset strategy Procurement strategy People strategy Operations VFM action plan Service delivery plan

50. Focus on step 3.Arrangements to ensure VFM – a strategic approach & the means to deliver it What can you say about how you ensure the right amount of money is spent on the right things (social biz objectives)?: • rigour of business/corporate planning process • use of robust business cases - based on evidence/data (and not historical costs) & understanding of benefits • quality of debate and challenge