VFM self-assessment workshop

Steve Smedley

Objective

To provide delegates with the tools and information to meet the regulatory requirement to publish a VFM self-assessment.

Content

• introductions• regulatory requirement & implications• what might the self-assessment look like?

– stepping through the process - issues, solutions– measuring VFM - issues, solutions

• round-upApproach – informal & interactive – to learn from each other

Specific requirements of smaller HAs• all the standards apply• expect little regulatory engagement – direct engagement by

exception in response to problem• where developing/procuring new stock, HCA may require

additional information to assess delivery risk• regulator will review:

– annual accounts– auditor’s management letter (not required if accounts are

independently reviewed)– shortened regulatory return (NROSH+)

• will not publish public judgement of compliance–v- standards (RJ) – other HAs get RJ on governance & viability every 2-3 years including comments on assurance

obtained on VFM

VFM regulation context• 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 (from 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

• Ability to drive VFM a key indicator of quality of governance

VFM regulation contextCurrently have assurance-based approach to regulation• aim to obtain sufficient assurance/evidence that standards are being met• starting point is HAs’ own assurance on:

– compliance with standards– delivery of plans– effectiveness of control and risk management frameworks

• ie HCA wants assurance that the board is assured! • HCA gets assurance via its 8 question engagement framework

– Q5 does the organisation demonstrate how it achieves VFM in meeting its strategic objectives?

• includes a review of assurance provided to board on the strategy for & achievement of VFM

• so VFM self-assessment is important as evidence/assurance– key focus for HCA assessment of VFM– principal means of understanding VFM

The VFM standard: delivering VFM• a comprehensive approach to VFM [across

operations (people) & physical assets (property)] – in the context of objectives– mindful of stakeholder interests

• 3 Es still relevant as means to achieve VFM• specific expectation of:

– robust approach to use of resources– understanding of the return on assets and a strategy for

optimising returns (ie a considered asset management strategy)

– effective performance management and scrutiny arrangements

– an understanding of service costs, outcomes & what drives those costs

….. in other words define value for yourself based on your social purpose (recognising stakeholder interests) & max out

The VFM standard: reporting VFM• “Boards shall demonstrate to

stakeholders how they are meeting this standard. … they will publish a robust self-assessment which sets out in a way that is transparent and accessible to stakeholders how they are achieving VFM in delivering their purpose and objectives.”

• assessment shall – enable understanding of return on assets – set out absolute & comparative costs of

specific services– provide a backward & forward look on VFM

gains

• included in operational & financial review (OFR) or ‘board report’

Round-up of implications• VFM was about services - this the whole business – all resources

including assets ………..VFM less of an ‘add on’ ?• value is tagged to your objectives not the regulator’s – to date this

principle is holding• but has to reflect the value perspective of stakeholders

– publicly listed businesses maximise shareholder value – social businesses maximise stakeholder value? - tenants key but not sole

• raises tension between stakeholder value perspective eg • existing v future tenants• government (build) –v- sector (beyond bricks ‘n’ mortar)board/exec reconcile this

• reality check – VFM & (social) business effectiveness are the same thing• can you measure the value you exist to produce?

Round-up of implications• greater emphasis on boards

• genuine engagement in strategic business planning …..• …..a more mature and holistic debate to improve business

effectiveness• opportunity for the sector:

• demonstrate its significance, maturity, avoid regulatory creep• define value positively, in social business terms – not just about

costs• regulator is not dictating terms:

• 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

Round up of self-assessment principles• board demonstrates ownership of VFM• approach to VFM is comprehensive and strategic across all

resources• achieved through 3 Es• HA determines the form and content of the self-assessment based

on its social purpose and stakeholder interest• self-assessment should:

– be robust and transparent• comprehensive account of how the association is faring with regards to VFM

delivery• self-assessment not a PR exercise but an accountability and improvement tool

– be accessible to stakeholders – infers that report is intelligible and its availability communicated to stakeholders

– address: a) return on assets, b) absolute and comparative costs and c) evidence of past and prospective VFM gains.

Observations on year 1• unhappy with sector response – VFM not taken seriously• downgrade G rating by one notch• presentational problem – how does it communicate

disappointment to sector without government using it as further evidence to beat unloved sector and regulator?

• HCA unlikely to be more prescriptive in its regulation – counter co-regulation – smacks of box ticking & avoiding responsibility for managing the biz themselves

Observations on year 1Determining 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 websiteRoles• extensive board sign-off but scope for more involvement in process

– shaping the SA – understanding & challenging output– special role for audit committee

• third used tenant scrutiny – obvious role here• little reference to input from other stakeholders

How was it for you?

Observations on year 1Return on assets• wide interpretation – what was expected? Clarity required?• methodological & contextual issues militate against useful KPI• I can bore you with this if you like• not sure a killer metric was wanted?• improving understanding of stock biz critical going forward

Absolute & comparative costs•HouseMark data•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 - better understand social value

How was it for you?

Observations on year 1Dissemination• 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 accountsBenefits• majority saw value in process as biz toolRegulatory improvements• clarify expectations – fine line prescription –v- clarity of

expectations

Worth a look…..in my opinion•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)•Helena** (infographic, varied approach to measuring asset and social return)•GreenSquare* (honest, comprehensive, had a bash at ROI, embedded VFM, bottom-up VFM - GreenState)•Adactus* (thoughtful & accessible use of data, see other Adactus docs for more)•Bromford* (good use of metrics, OFR as showcase stakeholder doc)•Plymouth CH tenant report (embedding VFM in tenant report, at a glance VFM heat maps)•Southern HG (easy to read canter through how runs an effective social housing biz)•Midland Heart** (framed around corporate priorities, comprehensive account of active asset management, case studies demonstrate other biz decisions, social value cost/benefit, carbon footprint)•Hyde, First Ark

* in OFR, ** separate VFM statement

The VFM standardWhat do you think?Any observations,

issues?

Implications: self-assessment• it’s your assessment

• there is no prescribed approach • build on what you’ve got

• like OFR it’s a narrative but focuses on the value you produce and how it’s been maximised for stakeholders

• but not a fairy story so data/evidence is important

• as is honesty – strengths & weaknesses• VFM is ultimately a qualitative judgement based on

intelligent assessment of evidence • ….. where whose value is critical. Different answers.• who are you trying to convince? …… assure yourself

• places importance on the process by which the judgement is made – the system of assurance and competence and honesty of those making judgement

Suggested approach: a

narrative backed by data

Narrative backed by data?OFRs too

• not convinced killer financial ratios and PIs alone will do it justice – won’t:• capture the full story - the subtleties – eg your mission, strategies & context• serve as a transparency tool• or business tool

• diverse info together in one place to check success?...• facilitate corporate understanding of business & decision-making for board, exec, staff,

involved tenants• so staff can link what they do to social mission

• the process will expose gaps in VFM assurance & measurement

• over-promise, under-deliver – self-assessment is a key regulatory doc

• if you are unclear about purpose, you are unclear about value

Implications: self-assessment

Some already do this: AESs, APSs,

etc

Different ways to crack a nut

HouseMark/S&P approach

VFM standard compliance approach

Corporate priority approach

Approaches

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 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 Corporate• definition of VFM in

context of purpose & objectives

• corporate objective #1• aim• arrangements to

ensure delivery• achievements• plans

• corporate objective #2• ditto

• etc• overall judgement

• a definition of VFM in context of the organisation’s purpose & objectives

• the strategic approach to VFM and use of resources

• ensuring VFM delivery – performance management and governance

• what has been achieved• plans for next year• board assurance

Telling the story – ‘template’ overview

Remember you don’t

have to do it like this at

all

STEPPING THROUGH THE PROCESS

Step 1. What VFM means to us: our VFM definition

your value is the social value that flows from your mission. Ultimately this is about well-being delivered via key value streams (or outcomes)….

• 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 – your audience & beneficiaries of your value!

– what do they value? – could briefly note that resource decisions and VFM judgements reflect competing

objectives

• based on above, assert a short VFM definition - essentially ‘for us VFM is maximising ‘our value’: more homes, better services, more lives improved…….’

Your mission

Your value

Your objectives

Your outcomes

• Anonymous HA is a real organisation with social purpose – it exists to create social value.

• Its mission sums up the value it produces: to make a positive difference in the lives of people, creating vibrant thriving communities

• Unpacking this (with help from the corporate plan) we have value streams:

– new homes for those in need– enjoyment of the home & neighbourhood through great

services, support & regeneration – improved life chances & a better quality of life through

community-based work, eg employment & training• All staff & board contribute to the value the HA is in business to

produce by achieving corporate objectives, including back office staff & those working on commercial activities.

• What the HA does is pretty amazing – it makes a difference. • VFM is about making a bigger difference: more homes, better

services, more lives improved• Need metrics that map to this value to measure outcomes

Value streams?: working through a real case

new

hom

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hom

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ExampleOur definition of VFM is simple – we want to produce as much value as possible for the money and resources we have available OR VFM means the delivery of our social objectives in the most cost effective way possible.

The value we produce is directly related to our social purpose – our mission is to make a difference to people’s lives by:• providing quality homes• providing a range of outstanding services• improving the physical and social sustainability of estates and

communities

For us, therefore, achieving VFM is about making a bigger difference by providing the most quality homes, the best services and best neighbourhoods we possibly can with the resources available. We will do this mindful of the legitimate and sometimes competing interests of our key stakeholders: tenants, local community, local partner organisations, taxpayer and funders.

Issues? Solutions?

Step 2. Strategic approach to VFM & use of resources

• to show grip on VFM as a strategic issue. • set out key principles of VFM strategy

• state that it is a considered strategy, eg:• based on fact/previous assessment• corporate fit - strategic fit with risk, asset, people,

procurement etc.

• no VFM strategy ? - consider how the biz strategy drives biz effectiveness/VFM.

Our VFM strategy may be summarised as:

being clear about what we do recognising how our operating context influences what we do

o the needs & aspirations of our stakeholderso local and national context

ensuring the system of value production is optimised:o do the right things – a business strategy that focuses resources on

the right activitieso ensure we have the right physical and human assets for the right

costo do things righto the right tools to evaluate success and apply learning

Example

Step 2. Our strategic approach to VFM and use of resources

What can you say about how your HA ensures the right amount of money is spent on the right things?:

o rigour of business/corporate planning processo use of robust business cases - based on

evidence/data (and not historical costs)o quality of debate and challenge

Issues? Solutions?

Step 3. Ensuring VFM delivery

• governance & performance management arrangements associated with planning, delivery and evaluating VFM eg:• VFM roles of board, exec, other staff, tenants, eg

• respective roles in accountability & challenge • tenant involvement in VFM: agreeing priorities, shaping

services & scrutinising service performance and VFM • assurance and reporting framework for VFM eg

• how is VFM reported within the HA?• how is VFM measured? Which tools?

• extent VFM is embedded, eg performance management, cost control, procurement practice, etc

• strengths & weaknesses of your approach?

Issues? Solutions?

Step 4. VFM achievements

AssetsOperations

ProcurementTreasury

Surplus & intended use

How we did summary by stakeholder?

Total VFM scorecard?

Pithy commentary on key activity areas

Alternatively take each corporate

objective in turn.

+

+

Step 4. VFM achievements• Overall judgement/summary by stakeholder.

• A VFM scorecard/metrics as evidence base to hang story on

a) assets • assessment of key asset management decisions –v- asset management strategy/social

purpose• cost & social, financial and environment gains

• strengths and weaknesses of current approach to assets• highlight key VFM initiatives and (quantified) benefits, eg from VFM register

b) operations • S&P/HouseMark data as starting point (consider quadrant) plus

• local offer data, care indicators• beneficiaries of social investment• other qualitative evidence, eg awards, service assessments

• brief commentary on headline unit cost and performance indicators • assert comparisons, explaining key cost & performance drivers, direction of travel• don’t forget overheads• strengths and weaknesses• highlight key VFM initiatives and (quantified) benefits, eg from VFM register,

HouseMark data• ROI of commercial activity?

Step 4. VFM achievements

Issues? Solutions?

c) key procurement gains not already covered at a) or b)d) treasury management

brief ref to the cost of capital, debt management strategy and any evidence of savings from active debt management. How does the cost of capital compare?

use made of physical assets to achieve development outcomes. Could include brief reference to:o board’s agreed approach to risk and future business planso current borrowing capacity in the context of:

borrowing constraints – headroom, loan covenants access to affordable finance

NB this is about managing HCA expectations as much as reporting VFM

e) state surplus & how gains/surpluses will be used to produce more VFM

Track record: what’s the story?

Assets Operations

Procurement

Treasury Management

Surplus

financial benefit -savings,

income, etc

costs –v- service outcomes, social & economic benefits, environmental benefits

Borrowing capacity

looking ahead – even more social value

It’s all social value!

financial benefit -savings,

income, etc

Narrative backed by

data

Track record: data sources

Assets Operations

Procurement

Treasury Management

Surplus

Borrowing capacity

benchmarking/HCA regression analysisinternal scorecard

local offer performance

tenant scrutiny workaccreditation, service review, internal audit, etc

satisfaction

key asset management decisions – cost/benefit

key procurement items – cost/benefit

VFM register

Financial returns

impact assessments, SROI, etc

Alternatively, flicking over to ‘The Corporate’

• corporate objective #1– aim– arrangements to ensure delivery– achievements– plans

• corporate objective #2– ditto

• but need to ensure don’t lose sight of:– regulatory requirements– social outcomes/value @ expense of internal/back office

‘enabling’ corporative objective

Step 5. Improvement Plans for next year – where we need to be smarter

Issues? Solutions?

• pick up weaknesses identified in section 4

• what is the estimated (quantifiable) benefit in financial, social and environmental terms (future VFM gains).

Step 6. Board assurance

Issues? Solutions?

is the Board assured: this is a fair and balanced account of VFM? that it meets the requirements of the standard? of the robustness of this self-assessment

sufficient evidence/assurance? process - sufficient time to understand & challenge? if transparent, flag limitations of evidence/assurance

any concerns around the organisation’s ability to deliver VFM going forward?

invite challenge by stakeholders

Dissemination

• disseminate• who?• where?• summary plus full fat probably the way to go for now

• accessible?• find it?• understand it?

• language• graphics

Over to you…..Any other ideas for improving the approach?

MEASURING VFM

Building a picture of value with metrics

Social mission

Kind of value

Kind of objectives

Kind of measures

Metrics need to map to

value

• identify kind of value• new homes (V1)• great tenant services (V2)• care & support (V3)• added value (V4)• commercial return?

• map existing metrics• fill gaps

• metrics• other forms of evaluation

• reviews, awards etc• tenant scrutiny• impact studies

Customer

Community & LA

Regulator & government

• Net increase in stockV1

Average SAP rating* V2/4

Satisfaction neighbourhood * V2/4

Satisfaction with quality of new home* V1Satisfaction with overall services provided* V2Satisfaction with maintenance* V2% jobs right first time V2Net promoter* V2Fuel poverty PIs?

•# found employment V4•# apprenticeships created V4•# completing training course V4•# provided financial advice V4•satisfaction with intervention V4•£x invested of own money•£y leveraged

NB NHF audit categories as basis for typology

• Key local promise PIs (in accordance with consumer regulation) V2

Your key Care & support PIs (V3) could be included here too eg QAF.

Telling the story: where the value lies

Complement metrics with key reviews, awards, scrutiny, impact studies, social accounts?

• Regulatory rating

• Arguably, surplus, leverage

VFM scorecard: for self-assessment & general biz tool

VFM scorecard

• limited set of common KPIs – less is more• 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)

Process Value

People Biz health

Value delivery

Value creation

Which PIs might be included?Process Value

PeopleBiz

health

% rent collected % service charge collected

average re-let time (all voids)calls handled at first contact

or another key customer process PIrepairs at first visit/equivalent

net promoter with employer? or satisfaction

sickness absencestaff turnover

ratio top earner to bottom earner (Hyde)measures on say board effectiveness or

staff development?

growth turnovernet increase in stockoperating marginoperating costs as % turnover• management, maintenance, overheads non-social housing turnover% spend non-social% margin non-socialarrears as %void loss as %bad debt as %effective interest rateleverage

satisfaction with new homenet promoter/satisfaction with service satisfaction with repairssatisfaction with neighbourhood% tenants who think rent/service charge is good VFM #/% beneficiaries – employment?#/% beneficiaries - training & education?#/%/£ beneficiaries – income inclusion?

Vote: good idea….or not?

Business healthsource: accounts, SPBM, HouseMark

• business growth– growth in turnover– growth in assets– net increase in stock– new biz income

• debt servicing & use of assets– net leverage/gearing– debt per unit– EBITDA MRI interest cover– return on assets

• operating efficiency & profitability– margin eg

• operating margin• EBITDA MRI margin

– operating cost per unit• management cost• maintenance cost

– income protection• arrears as % rent due• FTA as % rent due• void loss as % rent due• bad debt/write off

– effective interest rate

Clearly lots more to choose from but what do you think are the key metrics?

Business processessource: local PIs, SPBM, HouseMark

• % rent collected• % service charge collected• % repairs completed in target time• % units vacant & available• % units vacant & unavailable• average re-let time• tenancy turnover• other key processes where effectiveness matters, eg

gas safety, ASB case handling, budget achievement?Clearly lots more to choose from but what do you think are the key metrics?

Peoplesource: local PIs, SPBM, HouseMark

• average days lost to sickness• staff turnover• staff/board satisfaction• could consider:

– customer service accreditation– local measures associated with training and

developing staff

Clearly lots more to choose from but what do you think are the key metrics?

ROUND-UP & FINAL ISSUES

steve.smedley@skillsprojects.co.uk07814 424426

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