Doing more with less
Presented at the CIH 2010The size of the national debt is so great that for many of us it is impossible to imagine. In these circumstances it is easy to lose heart and believe that there is nothing we can do, or believe it is someone else’s problem. We like to blame governments. And of course governments across the world do have to take some responsibility – both for weak financial regulation and for failing to see this coming – remember - ‘there will be no more boom and bust’. But the reality of it is yesterday we were spending tomorrow’s money and tomorrow is now today. So all of us were hocking the future for the present and it is now pay-back time. And this is being brought sharply into focus by the budget today.
There are many ways of responding to this horrible truth, as we know, because in our line of work we sometimes deal with individuals who have run up major debts. Normal responses are to:
Pretend it isn’t happening – this approach is to stick your head in the sand and carry on racking up more debt
Run away – but it is a bit difficult for a whole country to do this
Recognise that we will have to manage on much less money. Prioritise the essentials, cut out the non-essentials and start making repayments. And these repayments are going to go on for years and years.
But before we prioritise what is essential we need to maximise the available money.
Efficiency can only be achieved by knowing where and on what you spend your money and on knowing what you get back for your expenditure. Efficient organisations are good at cost-benefit analysis. And in our world we cannot do cost-benefit analysis without engaging with our residents - for waste is doing what your customers don’t want no matter how cheaply or economically you do it.
This talk is divided into 3 sections:
Generating extra resources
Firstly - saving money. When making decisions on how to save money you first need to look at where you spend it. In our sector the big money is spent on:
Financing – paying interest on our loans
Maintenance of our homes
Pay, perks and pensions
At my organisation we know all about how making what seems a sensible decision at a particular point in time can have a huge impact on your overall finances over a long period of time. West Kent was one of the first LSVTs, and was created at the height of the last recession in 1989. Many of you will recall that at that time interest rates were very high in fact they rose to over 16%. The founders of West Kent decided to fix £50 million of the £64 million they borrowed to pay Sevenoaks District Council for the stock at 12.1% for 20 and 25 year periods. They made this decision because they knew the business plan, in terms of rental income, supported 12.1%, and bearing in mind the cost of finance at the time they thought they had a good deal -they therefore thought this was the least risky option. As we all know interest rates subsequently plummeted, and that decision has cost the organisation dear. Last year the first of those fixes – £20 million – fell in. And although the £50 million had become wrapped up in a much bigger portfolio of loans – the impact of applying today’s floating rates to that sum has been substantial – we are now £2 million per annum better off and on a turnover of just over £30 million that is a substantial saving. Indeed all Registered Providers are benefiting greatly by the reduction in base rate on their borrowings that are subject to floating rates. In a recent article published in Social Housing, David Bogle, Chief Executive of Hightown Praetorian & Churches Housing Association wrote: ‘A Registered Provider with a total debt of £100 million and with 60% of their debt on floating rates may have saved £2.5 million against budgeted interest payments for the year – far outweighing any savings they may have generated by working more ‘efficiently’’. David goes on to argue in his article against fixing too high a percentage of loan debt, he believes that as inflation and interest rates tend to go hand in hand the price of the ‘certainty’ given by fixed rate finance is too high and that 90% of the fixed rate deals done by Registered Providers over the past 20 years have been a mistake costing the sector hundreds of millions of pounds.
The increasing tendency to raise finance through the Bond market also has its hidden costs. However good a deal you get on the interest rate the problem with Bonds is that you get all the money up-front and therefore start paying interest on the total sum from day-one. Most organisations will not be using all the money immediately so there will be a considerable gap between the ‘interest’ the Registered Provider can earn on the money it cannot immediately use and that which it pays out. This can amount to large sums of money and so managing the cost of big finance well is a crucial aspect to saving money. If you make the wrong decisions it is very costly.
Another big expenditure item for all of us working in social housing is the money we spend on repairs, maintenance and improvements. This is always a hefty chunk of our budgets and so it is imperative that we think about how we can save money and spend it wisely in this area. I think knowledge is the key to saving money. In my organisation we know our housing stock really well and this enables us to implement a policy called ‘just in time’ within our Asset Management Strategy. ‘Just in time’ does exactly what it says on the tin. That is, we replace large investment items as and when they wear out, not because they have reached a certain age. A kitchen may be shot to pieces and need replacing after 10 years or it may last 25. It depends on a number of factors mostly relating to the people living in our homes and how they use their homes. Our extensive knowledge means that we can make sure our programme of replacements consists only of items that need replacing because of wear and tear, not because they have reached a certain age. Yes I know there are downsides to this – we appear to be rewarding tenants who don’t look after their homes so well and it makes programming replacement kitchens and bathrooms, doors and windows more complicated – because we don’t work our way through a whole estate at a time. But the fact of the matter is this policy saves us just over 12% of our maintenance budget, which is about a million a year and through it we can ensure that everyone really does have a decent home. And although it may seem counter-intuitive it actually impacts positively on residents’ satisfaction as resources are directed to the root of the problem rather than being wasted on premature renewals.
The second major way we have saved money in this area is through our partnering contracts. In 2005 we moved from using 44 contractors with 3-year tendered schedule of rate contracts to 4 external contractors plus our own in house team. Our main partnering contractor, does our building and electrical works and receives 65% of the money we spend. This is a big contract and because of that we and the contractor both work hard to ensure that it continues to deliver for our residents on an on-going basis. By combining responsive, planned and cyclical contracts together we have reduced contractor overheads. We have streamlined our processes and share IT systems to remove duplication. All reductions in cost that we jointly achieve are rewarded. We split the benefit between us and the contractor for the first year, and then it feeds into the contract price for the following year. This way of working has resulted in us now paying 30% less than the market adjusted original tender price. The way we manage partnering is currently saving us £1.35 million per annum. And the contract is designed to deliver what residents want, the original steering group who were responsible for setting up the contracts consisted of 9 people (6 of whom were residents) and back in 2005 they ensured that it delivered two hour appointments, automatic compensation for residents if the contractor fails to turn up for an appointment in the allotted time without prior warning, and a ‘right first time’ requirement. The contract is also outcome focused rather than process driven – many processes – such as inspection by the client prior to sending in someone to do the job - have simply been jettisoned. The joint objective is to remove duplication and share risk and reward so that everyone benefits from it going right. The residents are still very much involved in monitoring the contracts and through their auspices we convinced all residents to accept a quid pro quo on compensation, that is, if residents fail to be there to give access for their 2 hour appointment they have to pay us compensation. This has resulted in a major reduction in ‘no access’ problems feeding through again into lowered costs.
I recognise that some housing providers are moving away from partnering - having tried it and not seen the results they expected. I firmly believe that if you implement partnering properly you will decrease cost and increase resident satisfaction greatly, but it needs serious on-going commitment and investment in the client/contractor relationship. We are talking 10 to 15 year contracts - this reduces procurement costs and allows investment by both parties so that you can develop trust, be focused on the same objectives and reap benefits over the long haul.
One final aspect of saving money that is connected to delivering a cost effective maintenance and indeed management service is stock rationalisation. What we do as landlords requires us or our contractors to visit people in their own homes – there is a limit to how much of the service can be done remotely. A Registered Provider with dispersed stock will find it really difficult to be cost effective – some organisations have already recognised this and are well down the route on stock rationalisation – as the emphasis on saving money grows – this route will be travelled by many more.
Now onto the politically provocative issue of pay, perks and pensions. After the cost of repairs and borrowing money our wage bill is our third largest expenditure. The fact is we work in a people intense service and whilst I’ve no doubt we can all sign up to increasing productivity the radical push for salary reductions and public sector pension reform is a much more bitter pill to swallow. And yet a 5% cut in pay is exactly what Spanish public sector workers have had imposed on them. Back in Britain in our sector many of us did take a pay freeze this year. For the spectre of pay cuts, restructuring and redundancies hovers over us all. The financial realities are making us all think carefully about how we manage our wage bill and however hard we are working I do think it is incumbent on all of us in senior positions to show leadership and exercise restraint. That said I loathe the current climate of scape goating. After the pillaring of bankers, and exposure of politicians over the expenses scandal, it is our turn. Indeed any one earning more than the Prime Minister, who works in the public sector will find the spotlight turned on them, and the likelihood is it will affect us all. The government is already talking about sorting out ‘gold-plated’ final salary public sector pensions and publishing the pay details of all civil servants earning more than £58,000. Now if you think that a person earning £60,000 or less can apply for shared ownership housing you realise that someone on £58,000 is not on the Sunday Times Rich list. However we do live in a low wage economy, the average salary of a full-time worker in England is £28,800 and only just over 10% of the population earn more than £40,000. My view is that we should welcome transparency and campaign for it to apply to everyone – this is what the Swedes do and maybe it has helped them create a more equal society.
We also need to show that we understand the imperative – to protect front-line services we need to be innovative. The Total Place agenda which maps all the public money flowing into an area across all the statutory authorities working there and then seeks to remove duplication and save money whilst putting the customer first, has potential to save large amounts of money. Where we work Kent County Council has been one of the 13 pilots and we strongly support their development of Gateways both physical and virtual that enable customers to come to one place to access all the public services they need. The key to this is all parties signing up to the mission, that is, putting the customer’s needs and wants at the centre of the process, being absolutely open about all the resources available and where they are currently spent, and developing trust between organisations – so that one agency can rely on another to deliver a service to an agreed standard without having direct control. There are major similarities between Total Place and true Partnering as I described earlier – so I am convinced that provided agencies are willing to work hard at it, this sort of partnership working will deliver. Partnership working is not new but collaboration is being taken further than ever before. Some local authorities are leading the way by developing shared services and shared management teams. Preparing for 30% cuts has forced them to be more radical. Registered Providers also need to do more work on how collaboration, partnerships and outsourcing can help save money. We outsource debt advice to local Citizen Advice Bureaus, and we provide an outsourced management of the housing waiting list service to our home local authority, but I’m sure there is more we can do.
So moving onto spending money wisely – sensible procurement of goods and services has to be the starting point. This means joining procurement clubs so that all members can benefit from the discounts that arise from bulk purchasing, and this can include partnering contractors as well as housing associations and local authorities. West Kent are members of more than one procurement club – we use Procurement for Housing (PFH) and the South East Consortium for bulk purchasing and through involvement in these clubs we have achieved more than half a million pounds worth of savings – some of which are one off but many of which are on-going.
Another starting point is the customer. As I said earlier it doesn’t matter how efficient you are at providing a service if you are providing something that your customers/residents don’t want then you are not spending your money wisely.
At West Kent we work very closely with our residents. They are heavily involved in defining what they want and need and have a real understanding about budgets – everyone knows there isn’t a bottomless pit. We work with our residents so that they very much understand the level of service, quality and price equation, and they are therefore able to tell us what is acceptable. For example in recent times we have been having problems with our grounds maintenance service. For all our contracts we expect to please 95% or more of our customers. For grounds maintenance we were achieving satisfaction ratings of 72%. This was not good enough. We investigated the problem and discovered that the issue was a combination of inadequate specification and poor contractor performance. In essence we recognised that the number of grass cuts and collections needed to be increased as did the number of cleaning sweeps. Additionally the contractor had to manage his operatives more tightly. To unlock the situation we agreed with residents to fund the increase in specification out of general rental income for a year and then to review. If residents saw the benefit and wanted the specification to be retained then they would have to agree to an increase in service charge the following year, if not the service specification would be reduced to the current level. For the contractor we also offered support in helping him improve his management skills. This combined approach resulted in a partial success. We increased resident satisfaction to 84% however we could not get to our target 95% or above. In the end it was the residents that decided they were happy with a lower satisfaction target of 90%. They wanted the better specification and agreed to pay the increased service charge when the year ended but they were not prepared to increase the specification more or sack the contractor both of which would have had a further impact on the amount they had to pay. This sort of engagement helps you determine exactly how to spend your or indeed their money wisely.
Finally on doing more with less I will speak briefly about generating extra resources - all threats are also opportunities. We know the new government is looking for ideas, it is intent on rolling back the state, increasing self help and getting us all to tell them what we think the priorities for public spending should be. Those of us who are closely engaged with our residents and communities can try to ensure their voices are heard and are not drowned out by the chattering classes. The models we have for tenant involvement, and for using volunteers are ways to deliver on this agenda. We started a time bank scheme last year and have already seen over 5000 hours banked. We have pulled in hours from residents, staff, the Police, the Prison Service, a local leisure trust, our contractors and our local Football Club (Charlton Athletic). Time bank has enabled vulnerable tenants to receive help with their gardens and a free painting and decorating. What is great is that time bank is a scheme that enables people who give time for voluntary work to get something back and because of this at West Kent we have given our scheme the name Boomerang. Other self–help, includes income generating ventures such as WK Consulting, which I am about to move over to run; and our successful social enterprise activity, such as the furniture recycling project which we run within our community development charity, West Kent Extra, which definitely hits the self help, income generation buttons.
Despite the doom and gloom I am optimistic about the future whether it is the economy or the wasteful use of resources that impact on climate change we all need to learn to do more with less. Profligacy, waste and inefficiency need to be rooted out – we need to stop spending our children’s inheritance and if nothing else we have learnt that greed is not good. Rather than a threat we should see this as a golden opportunity to get us all back on track.
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