Title: / Value for Money Strategy
Ref No: / GRSTRFN16 / Reviewed: / 01/11/2017 / Version: / 1
STRATEGY DOCUMENT
Service Area: / FinanceDocument Ref No: / GRSTRFN16
Subject Title: / Value for Money Strategy
Version: / 1
Date of Issue: / 01/11/2016
Last Review Date: / 01/11/2017
Next Review Date: / 01/11/2018
The annual review is due November 2018, however a further update will be completed on publication of the HCA’s Revised VFM Standard
1. PURPOSE
This document sets out the strategy for the Group’s approach to value for money (VFM). Progress Housing Group’s vision is to have a positive impact on people and communities by providing high quality homes, supporting independence and creating opportunities with one of our aims to build an even stronger organisation. VFM underpins the delivery of our vision and aims. Our overarching VFM objective is to achieve our VFM priorities in order to provide better services to our customers.
Our customer base and service provision is wide ranging. We own and manage over 4,600 social and affordable homes to rent and over 3,200 supported living tenancies in almost 1,000 schemes across 24 counties from the Scottish Borders to Devon. We provide affordable and easy to manage homes for people over the age of 55 who want to live independently for over 1300 customers. Our 40 units of supported housing provides short term accommodation and support to vulnerable client Groups such as homeless people, young people at risk of homelessness and women and their children escaping domestic abuse. Our charity, Key Unlocking Futures Limited provides flexible person centred services to a range of client Groups, across parts of Lancashire. Progress Lifeline service has been running for over 25 years and is the lead provider for telecare installation, monitoring and response in Lancashire.
VFM is important to us as we want to ensure we are able to achieve our priorities year on year in order to maintain our existing properties, manage our liabilities, improve our operating cash flows, not only protect but also add value to the services we deliver to customers and continue our development programme. Value for money is not only about achieving excellent quality services to the satisfaction of our tenants and customers but also helping us to subsidise important services e.g. capping of service charges.
“Value for money” is the term used to assess whether or not an organisation has obtained the maximum benefit from the goods and services it acquires and/ or provides, within the resources available to it. It not only measures the cost of goods and services, but also takes account of the mix of quality, cost, suitability and timeliness to judge whether or not, when taken together, they constitute good value. The strategy helps to inform decisions about our VFM priorities and we annually align our VFM targets to our 2022 strategic plan.
The Group VFM strategy is reviewed annually with annual reporting against VFM targets and objectives. VFM is incorporated into key strategies including Procurement, Asset Management and Community Investment. Decisions on VFM will always be taken within the context of the organisation’s social and business objectives.
2. PRINCIPLES
The Group’s VFM principles are to:
· Generate and maintain resources to support delivery of the objectives within the strategic plan. We seek to ensure our VFM activities link to the Group’s strategic aims and purpose of the organisation
· Demonstrate our accountability to our customers and stakeholders
· Provide a framework for staff to contribute to our value for money principles
· Provide assurance to our Non-Executive Directors that our strategy is effective and delivers our organisational objectives
· Ensure we understand the costs of our service provision to direct resources appropriately
3. PROGRESS HOUSING GROUP’S LINKAGES WITH VFM
We have set out our linkages from our Vision and Values through to our operational outcomes for delivery of VFM in the organisation as can be shown below.
4. OUR APPROACH TO DELIVERING VFM
We have reviewed and updated our approach to VFM and identified our priorities. To help us achieve our value for money objectives, we operate the strategy under 5 areas of activity. These activities are linked to our 2022 Strategic Business Plan.
The top 2 priorities for 2017/2018 continue to be Asset Management and Service Costs & Benchmarking and this is where the Group makes the largest investment and therefore provides the greatest opportunity to add value.
Our Active Asset Management Strategy helps us to deliver an important part of our strategic aim of ‘Providing More and Better Homes”. It provides a framework for the Group to manage stock proactively and support business plan objectives. It links the knowledge of the stock gained to date, the property requirements in response to local demand and customer aspirations and what is affordable in the Group’s business plan.
Understanding the costs of services, how they change over time and how we compare to others is crucial to managing our cost base. This activity underpins our strategic aim to ‘Develop a stronger organisation to deliver maximum results’.
We also then focus our activities on Performance Management and Scrutiny, Social Value and Procurement. These activities are our driver to efficiency within our operations.
Opportunities for partnerships and mergers are important to us with VFM an important element in any strategic decisions we make for our future growth.
Our Group Combination work and our continued IT investment are also important elements for our approach to deliver VFM.
4.1 ASSET MANAGEMENT
Our asset management priorities are to:
· maintain and improve existing properties, and provide energy efficient homes of a high standard that meet customer expectations
· develop new high-quality, well designed homes
· actively manage our asset portfolio to dispose of, remodel and improve poor performing stock so that homes continue to be fit for purpose and are located in sustainable neighbourhoods
· continue to review the number of independent living schemes we have to match changing demand.
· continue to implement our Active Asset Management Strategy. Our approach to investment recognises the Group’s customer profile and government challenges to our customers and its impact on demand, voids and repair costs. We aim to move towards investing more and repairing less by having links between the investment programme and repairs and maintenance.
Understanding the performance of our assets is essential for our decision-making. The latest assessment of the Group’s financial performance shows an above average 30 year Net Present Value (NPV) per unit, compared with North West regional averages – £13,833 compared to £10,850 (Source: Savills APE model benchmarking group). There are 243 individual properties with a negative NPV over 30 years. When comparing results to August 2015 the overall average NPV has reduced by £20,000 and the number of properties with a negative NPV has risen by 210.
A desktop review of all properties with an NPV of £10,000 and under was completed identifying the majority of properties as independent living schemes. The cause of this result in the model is a combination of the impact of the rent reduction, void loss assumptions and high investment requirements based on the lifecycle of major components. The Independent Living Strategy recognises the need to reduce the number of independent living units coupled with a modest growth in our extra care provision. There are nearly 2,300 properties with an NPV of £10,000 or less (increased from 1,000 properties in 2015/16). Our initial focus has been on the bottom 25% (533) performing properties which generate NPVs of £3,072 or less. Each property has been reviewed and the factors contributing to their performance has been assessed. As a result, 14 properties have been subject to an options appraisal, of which three properties were recommended for disposal. The open market values of the top 2% of the Group’s stock have been reviewed. There are no unduly high value properties in the general needs and independent living portfolio that could be sold and reinvested to meet housing need or other business objectives. For our supported living accommodation, the option of sale is assessed as part of the scheme appraisal review process.
Our key priorities for investment
We have the following plans for 2017/18:
· we will invest over £5 million into improving existing homes and will deliver 946 component replacements
· we will establish a set of priorities for investment in the long term sustainable stock, prioritising essential health and safety compliance first and then in priority order: maintaining decent homes, reducing long-term repair costs, carrying out external and communal area redecoration every five years and regular estate improvements. We can then use these priorities to develop short, medium and long-term investment priorities which can be updated on an annual basis to meet any changing priorities or budget constraints
· we will work with residents to develop a standard for the component replacements and monitoring the delivery of the Asset Management Strategy
· we will further develop the procurement plan to enable delivery of a Group Dynamic Purchasing System covering major component replacements, repairs and maintenance and smaller planned works items
· we will apply investment tests on an annual cycle to all our properties to identify poor performers requiring options appraisal, medium performers requiring some investment or other action and good performers where we will continue to invest
· we will further develop the Supported Living Asset Performance Model to evaluate the short-term viability of leased properties to reflect the wider issues of demand, the Green paper and exit strategies
· we will develop interfaces between core IT systems Keystone, Integra and Aareon QL to allow more automation of processes to drive efficiency.
4.2 SERVICE COSTS AND BENCHMARKING
For effective use of resources and delivery of VFM we:
o Understand our costs so there is clarity of cost drivers for our services.
o Set budgets to allocate resources to corporate priorities and achievement of departmental objectives.
o Manage expenditure through effective budgetary control.
o Ensure that all significant business decisions have a robust option appraisal or business case for new investment which at least meets a target rate of return. Where we do accept a lower financial return to achieve other strategic objectives, we justify this approach. For such decisions outcomes are monitored and reported.
We set out to provide excellent services that meet customers’ aspirations and needs, and match the top quartile i.e. being within the top 25% of performance amongst organisations of a similar size and type.
Our key priorities for service costs and benchmarking performance
Our strategic plan includes focus on:
· arrears management
· voids reduction
· repairs and customer satisfaction
· social operating cost per unit
Understanding our social housing operating cost per unit
We have been analysing our social housing operating cost per unit since 2015. Our 2015/16 position shows that we appear to be above the sector indicators at £4,151 against the sector average of £3,570. However, as we are the 4th largest provider of supported housing in the country and the largest provider of supported living accommodation for people with a learning disability or autism, when adjusted for this stock profile, we are significantly below the sector average which stands at £5,276.
The trend shows a small increase year on year with 2016/17 at £4,230, and the budgeted position for 17/18 at £4,339 which is in line with our long-term plan assumptions. However, at 2020, the financial plans show a reduction in this position to £4,318 after taking into account inflationary increases and efficiency savings.
Our analysis clearly demonstrates that the scale of our supported housing activity is the reason for our higher than average costs. We have analysed the various components of our overall operating costs and have found that our management and major repairs costs are below the sector average but our service and maintenance costs are above, reflecting the nature of our main client group.
Our managers will be updating their service cost plans based on the Group’s updated data. This data will then help us to update our financial plans with focus to 2022.
Our 2017 self-assessment details the full range of our cost analysis and benchmarking. We will report our 2018 figures based on the VFM sector scorecard indicators once they have been finalised by the regulator.
4.3 PERFORMANCE MANAGEMENT AND SCRUTINY
Building a stronger organisation requires us to know how we are performing, what our customers consider important and our regulatory compliance.
We have a comprehensive performance management framework in place and we have clearly identified the performance level we wish to achieve, its likely cost and how we will achieve it.
At March 2016 end of year arrears performance improved and was better than the sector average by 0.4% at 4.3%. There have been further improvements in performance at March 2017 with arrears at 4.1%. The higher proportion of supported living accommodation affects our position within the sector so to be able to understand our performance better we use internal and HouseMark data. When comparing data by activity type we see that performance within supported living has static arrears – higher arrears for current tenants and extremely low former tenant arrears. General needs and independent living arrears have remained static with low arrears for current tenants and higher arrears for former tenants, compared to our peers. Income collection has also been challenged by welfare reform. Our target for 17/18 is 5.1%.
At March 2016 our voids figure was 3.2%, which was an improvement from last year by 0.4% but this has dropped to 3.8% at March 2017. Performance is worse than the March 2016 sector average which is 0.9%. The difference is mainly due to being the fourth largest provider of supported living accommodation across the country. Supported living units tend to have a larger number of voids due to nominations and compatibility required within the accommodation. When comparing the data by activity type we can see that performance within general needs and independent living has remained static from March 2016. Supported living performance is worse at March 2017 compared to previous years. Void rent loss is showing an overall reduction as at March 2017 to 5.73%, compared to 6.14% last year. Our target for 17/18 is 3.7%.