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ITEM CG10 - ANNEX 1

CORPORATE GOVERNANCE SCRUTINY COMMITTEE – 27 JULY 2006

EFFICIENCY SAVINGS

Efficiency Savings Strategy

Introduction

  1. The original Efficiency Savings Strategy was agreed by the Efficiency Savings Steering Group (ESSG) in May 2005. This revised strategy builds on the progress already achieved and takes into account the experience gained from implementation of the original approach in 2005. It proposes a number of changes to the development of the strategy and governance arrangements for efficiency related workstreams and projects.
  2. Oxfordshire County Council continues to face a significant challenge to balance the Medium Term Financial Plan (MTFP); achieve lower increases in Council Tax as set out by the Cabinet; and to satisfy the requirements of the Annual Efficiency Statement (AES), whilst maintaining continuous improvement in service delivery and efficiency.
  3. The revised strategy reflects the moves towards Integrated Service and Resource Planning and the new proposals for an improved approach to Cost Centre Management (CCM). The strategy also incorporates the new Value for Money dimension of CPA, which links closely with efficiency gain, effective service delivery, benchmarking and service and budget planning.
  4. Objectives

    The core objectives of the revised strategy are:

  5. To provide clarity and certainty for Directorates by allocating all reductions in expenditure required to balance the Medium Term Financial Plan into directorate budgets, so that the sum total of directorate budgets equals the overall County Council budget.
  6. Directorates will have to propose how they allocate efficiency savings and revenue from income generation, within the context of integrated service and resource planning.
  7. Work to assist Directorates to achieve reductions in expenditure and develop more efficient working practices through improved procurement arrangements and increased income generation, which will be integrated into budget development and management.
  8. Accountability and responsibility for achieving efficiency savings and income generation will lie with Directorates, and will be cascaded down as the responsibilities of Cost Centre Managers.
  9. Directorates will receive support to ensure the full benefits of procurement expertise, income generation potential and Business Process Re-engineering (BPR) are utilised in their budget strategies to achieve organisational excellence.
  10. ESSG will no longer exist. Instead the AES Working Group will support and advise Directorates on achieving their AES targets and ensure deadlines for reporting on the AES are met. The AES Working Group will report progress to the Service & Resource Planning Working Group who will have the overall responsibility for monitoring this strategy.
  11. All aspects of CPA action planning and modelling within the work programme of the Corporate Performance Team will be fully integrated.
  12. Targets

    The core targets that are applicable to this strategy are:

  13. The primary target is to meet the reductions in expenditure required by the MTFP by £5m a year until 2008/9.
  14. The AES target of £8.1m a year, of which at least £4m must be cashable efficiency gains and the remainder of the target will be non-cashable efficiency gains. (A summary of AES requirements is given in annex 1).
  15. Directorate, Service and Cost Centre budgets will contain targets for efficiency savings and income generation, together with details demonstrating how and where they will be achieved, which will be determined by the Directorates. Progress of these targets will be reported by the Business Managers to the AES Working Group.
  16. Specific cashable and non-cashable AES targets will be contained within the overall budget targets established for each directorate.
  17. Income generation is a matter entirely for the Directorates (although some activity may range across a number of Directorates).
  18. Assumptions made in the development of this strategy

  19. Experience has shown that efficiency savings and/or income generation are best delivered when fully integrated into budget planning and owned by Cost Centre Managers.
  20. Managers must see a clear benefit for this service by way of identifying cost saving measures. There must be incentives to ensure full engagement in this process.

  21. The primary focus of the AES Working Group will be to deliver the Annual Efficiency Statement and monitor progress against it. The AES Working Group will continue to be supported by the Business Development Team.
  22. Only the strategic aspects of procurement and income generation remain within Finance and Procurement, reporting to the Strategic Procurement Board, SAP and Shared Services Programme Boards. Finance and Procurement establish permanent arrangements to enable Directorates to maximise the potential benefits from these areas, when agreeing Directorate budgets.
  23. Finance and Procurement will monitor the use of beneficial procurement arrangements within each Directorate to ensure compliance with corporate arrangements. Where new arrangements are introduced, the potential savings are calculated and targeted into Directorate budgets.
  24. Finance and Procurement will work with Directorates to assist in establishing a comprehensive database of income charging potential and use benchmarking data to assess Directorate and Service Area performance. This will ensure that appropriate income generation targets are included in Directorate budgets.
  25. Business Development will continue to build on the successful delivery and promotion of BPR. Proposals for developing in-house BPR capacity within Directorates were agreed by the Business Manager Group (BMG) in November 2005 and are attached in annex 2. The Business Development Team will support this work. It is assumed that the costs of implementing this work will be covered by the existing modernisation funds allocated to BPR.
  26. The Value for Money self-assessment and inspection arrangements were undertaken by the Business Development Team in 2005. Given the Corporate Performance Team’s remit for overseeing the integration of Service and Resource Planning and CPA this work will be undertaken by them. A programme of fundamental reviews overseen by the Service and Resource Planning Group and supported by the Corporate Performance Team and Finance will review all services over a five year period. There will be a defined methodology to produce distinct outputs; a key output would be identifying non-cash releasing and cash releasing efficiency savings for the AES. This information would then feed into the AES Working Group on a quarterly basis via the corporate performance manager. In addition the approach to service planning will be reconfigured. Plans will be produced at service manager level and contain a specific section on value for money which will indicate how the cost and performance of the service compares with other authorities together with their plans to achieve increased value for money, achieve efficiency savings and response to service pressures and the reprioritisation of services.
  27. The Fire and Rescue Service has a specific requirement to submit a separate Annual Efficiency Statement to the ODPM, therefore any AES savings identified do not contribute to Oxfordshire County Council Annual Efficiency Statements. Instead, the requirement on Oxfordshire Fire and Rescue Service is to contribute to an accumulative national efficiency target, equivalent to 5% of the Service’s budget, by 2008. This target equates to approximately £1 million ongoing cash releasing efficiencies in additional to any corporate requirements.
  28. How will the objectives be achieved?

    Re-focus ESSG

  29. The changes recommended to and accepted by ESSG in November 2005 will be implemented. These are detailed in annex 3.
  30. Integrate efficiency savings and income generation into budget planning, improving accountability, responsibility and autonomy

  31. Directorates have responsibility for all efficiency savings and these are included within Directorate budgets and cascaded down through the management structure to the appropriate cost centre manager.
  32. The annual budget setting process will be modified to include efficiency savings, procurement and income generation targets for each Directorate. (see below).
  33. Once Directorate budgets are finalised, this will enable Directorates to provide details to Finance and Procurement on how the budget, efficiency savings and income generation targets have been cascaded to cost centre managers.
  34. Directorates will be free to work within the overall budget figures agreed as they determine best. This would include developing additional efficiency savings ring fenced for re-investment within the directorate or to contribute to efficiency savings targets in later years.
  35. Provide support to maximise benefits of efficiency savings, income generation and procurement

  36. The role of Finance and Procurement will be to both support and challenge Directorates in terms of the use of procurement and income generation approaches, working as described in the ‘assumptions’ section above. This has three dimensions. First, there will be a clear understanding at a strategic level what the potential benefits from procurement and income generation might be and where these could potentially be applied. Second, Finance and Procurement will ensure that Directorates and appropriate service areas are aware of these benefits. Third, it will be ensured that these benefits are embraced within Service and Resource Planning arrangements.
  37. The principle vehicle for this third dimension will be the Star Chamber exercises undertaken as part of the budget planning cycle. This will require an earlier officer review session on efficiency savings to produce a report to go to Star Chambers.
  38. Maximising opportunities of income generation will be achieved by a review of the existing charging policy and a re-launch of this policy with a directed communications programme to ensure managers are aware of their responsibilities. This should be led by the existing work stream lead.
  39. The role of the Business Development Team will be to promote BPR as a method of achieving efficiency savings and support BPR exercises across the organisation. Business Development will continue to work with an external partner to achieve this and details are provided in the attached paper Annex 2. They will manage this relationship, which will support both aspects of the programme. (Please note annex 2 suggests that the partner will be Said Business School but we are in fact tendering this work out in April)).
  40. The programme has four core components. First, to continue to develop awareness at manager level of the advantages of BPR and its application in Oxfordshire. Second, to support the development of BPR consultants who will facilitate BPR exercises across the organisation and to project manage this work. Third, to continue supporting and facilitating specific BPR exercises as part of the on-going partnership programme with Said Business School and the programme of work generated from the in-house BPR consultants. Fourth, to ensure that potential and achieved efficiency savings are captured and recorded for both service and resource planning purposes and to satisfy AES requirements. This information will then be fed into the AES Working Group via the Business Development team.
  41. The management development aspects of the BPR strategy will be linked to implementation of the manager’s competency framework, cost centre management disciplines and related activity undertaken by Talent Management. This activity will become part of the strategy for Human Resources and monitored by the Human Resources Programme Board.
  42. Directorates and their BPR Consultants will identify suitable areas to undertake BPR. These will normally be undertaken by the BPR consultant in that Directorate but there will be scope for cross-directorate working. Business Development will monitor all Directorate BPR programmes for progress, provide support as required and make the appropriate links back to AES records. This work will be monitored by BMG.
  43. Some larger cross directorate BPR reviews may be identified and in these cases the BPR project manager, based in the Business Development Team will facilitate the exercise and in negotiation with BMG, allocate BPR practitioners to the review.
  44. BPR Consultants will be trained, developed and supported by both the partner and the BPR project manager.
  45. How should we prioritise activity and resources?

  46. Work to progress procurement and income generation will fall within the ‘business as usual' programme of work for Finance and Procurement. The Head of Finance & Procurement will determine the priorities for this programme.
  47. Directorates will determine which service areas should be prioritised for BPR and will call on the assistance of the Business Development Team. Business Managers will also review the overall programme of BPR projects periodically. It will be ensured that BPR focus is applied with a view to addressing budget and investment pressures within Directorates. Where cross directorate areas are identified by the Business Development Team or Business Managers, this will be incorporated into an overall plan and discussed at BMG. Such BPR exercises will be investigated by the Project Manager.
  48. The partnership to develop the wider aspects of BPR will be managed and progressed by Business Development, drawing on resources from the Modernisation Fund.
  49. How will Service and Resource Planning be affected?

  50. The budget setting process with Directorates will allocate efficiency savings targets required to balance the MTFP. There will be no ‘corporate’ efficiency savings targets as in previous years. (See annex 4).
  51. Within the overall budget for each Directorate a set of targets will be established for reductions in expenditure created from more efficient working, changed procurement arrangements and the level of income generation.
  52. Within the ‘star chamber’ exercises, each Directorate proposal for how these targets will be achieved will be scrutinised by Finance and Procurement. Benchmarking data will help to form the basis of this challenge, with specific comparator information on procurement and income. Where Directorates expect to develop efficiency savings from BPR exercises, Business Development will work closely with Directorates to support the rationales behind this. Business Development will be able to contribute to the ‘star chamber’ exercises by providing a commentary on progress with individual exercises and the future programme of activity. Cross cutting BPR reviews will potentially yield efficiencies across service areas. Where this is the case Business Development will offer support to identify how efficiencies could be extracted.
  53. What governance and monitoring arrangements should be in place?

  54. The Service and Resources Planning Working Group will monitor the Efficiency Savings Strategy. The AES Working Group will deliver and monitor the Annual Efficiency Statement and manage the linkages between Value for Money and AES and any resulting action plans. The AES Working Group will report to the Service and Resources Planning Working Group. The initial meeting of the new AES group produced revised terms of reference to reflect the changes in this strategy.
  55. Business Managers will report on the progress made towards the AES target to the AES Working Group.
  56. The strategic aspects of procurement and income generation remain within Finance and Procurement, reporting to the Strategic Procurement Board, SAP and Shared Services Programme Boards.
  57. BPR activity will be monitored by the Business Manager Group and the developmental aspects of BPR (including management of the relevant partnership arrangements) will be monitored by the HR Programme Board.
  58. What communication arrangements should be in place?

  59. There are a number of streams of activity within the efficiency savings strategy that will require communication to the organisation. The timing, method and delivery of any communication will need to vary according to the area of activity. This will be led by the lead officers and groups in each of the work strands. For example, communication on Cost Centre Management will be delivered by the lead officers within Finance & Procurement. Communication around Procurement will similarly be led by the Corporate Procurement Team and the relevant programme board. This work will be co-ordinated into a Communications Plan and overseen by the Service and Resources Planning Working Group.
  60. Monitoring

  61. Implementation and monitoring of the strategy and risk register will be undertaken by the Service and Resource Planning Working Group on a quarterly basis.
  62. Finance and Procurement will undertake a review at the end of each budget round to determine what improvements in the process should be made and how effectively efficiency savings have been integrated into budget planning. Changes will be recommended to the Service and Resources Planning Working Group as appropriate.

Annual Efficiency Statement Requirements

  1. Some guidance has been issued for the AES but some questions over the exact requirements and implications remain. Cashable savings can be defined as savings that are achieved through a reduction in inputs/ resource whilst maintaining or improving the level of service delivery. Savings can be invested elsewhere in the organisation.
  2. Non-cashable savings can be defined as a maintained level of input/ resource for an increase in service delivery, subsequently allowing more activity to be achieved for the same resource. Non-cashable savings can be re-used within the service in which they are found. The level of performance or service must be maintained or enhanced for them to count as efficiency savings.
  3. All activity towards the AES will need to be auditable and measured against a quality cross-check set by the government’s measurement taskforce.
  4. The AES will be used as part of the Use of Resources component of CPA inspection from 2006.

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