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ITEM CG10
- ANNEX 1
CORPORATE
GOVERNANCE SCRUTINY COMMITTEE – 27 JULY 2006
EFFICIENCY
SAVINGS
Efficiency
Savings Strategy
Introduction
- 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.
- 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.
- 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.
Objectives
The
core objectives of the revised strategy are:
- 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.
- Directorates will
have to propose how they allocate efficiency savings and revenue from
income generation, within the context of integrated service and resource
planning.
- 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.
- 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.
- 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.
- 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.
- All aspects of
CPA action planning and modelling within the work programme of the Corporate
Performance Team will be fully integrated.
Targets
The
core targets that are applicable to this strategy are:
- The primary target
is to meet the reductions in expenditure required by the MTFP by £5m
a year until 2008/9.
- 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).
- 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.
- Specific cashable
and non-cashable AES targets will be contained within the overall budget
targets established for each directorate.
- Income generation
is a matter entirely for the Directorates (although some activity may
range across a number of Directorates).
Assumptions
made in the development of this strategy
- 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.
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
How
will the objectives be achieved?
Re-focus
ESSG
- The changes recommended
to and accepted by ESSG in November 2005 will be implemented. These
are detailed in annex 3.
Integrate
efficiency savings and income generation into budget planning, improving
accountability, responsibility and autonomy
- 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.
- The annual budget
setting process will be modified to include efficiency savings, procurement
and income generation targets for each Directorate. (see below).
- 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.
- 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.
Provide
support to maximise benefits of efficiency savings, income generation
and procurement
- 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.
- 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.
- 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.
- 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)).
- 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.
- 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.
- 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.
- 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.
- BPR Consultants
will be trained, developed and supported by both the partner and the
BPR project manager.
How
should we prioritise activity and resources?
- 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.
- 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.
- The partnership
to develop the wider aspects of BPR will be managed and progressed by
Business Development, drawing on resources from the Modernisation Fund.
How
will Service and Resource Planning be affected?
- 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).
- 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.
- 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.
What
governance and monitoring arrangements should be in place?
- 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.
- Business Managers
will report on the progress made towards the AES target to the AES Working
Group.
- 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.
- 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.
What
communication arrangements should be in place?
- 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.
Monitoring
- Implementation
and monitoring of the strategy and risk register will be undertaken
by the Service and Resource Planning Working Group on a quarterly basis.
- 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
- 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.
- 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.
- All activity towards
the AES will need to be auditable and measured against a quality cross-check
set by the government’s measurement taskforce.
- The AES will be
used as part of the Use of Resources component of CPA inspection from
2006.
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