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Invest to Save Strategy
REPORT OF THE DIRECTOR OF CORPORATE RESOURCES TO CABINET 14th FEBRUARY 2007
INVEST TO SAVE STRATEGY
PURPOSE OF THE REPORT
1) The purpose of this report is to recommend that Members approve the establishment of an Invest-to-Save fund and approve a group of Invest-to-Save initiatives as part of the Council’s need to “modernise the Council’s systems to enable the […] Council to continue to improve services and make efficiencies”[1].
INTRODUCTION AND BACKGROUND
2) The Council has the challenge of delivering significant savings over the next few years in order to finance additional investment in front-line services.
3) A risk based reserves strategy has been used effectively to manage the financial risks that the Council faces. Following work done in recent years, the Council’s reserves are now adequate to manage risk, so this approach has been developed further to facilitate the proposals contained in this report and the separate 2007/8 Revenue and Capital Budget Report.
4) The 11th October 2006 Cabinet Report on the Financial and Service Strategy 2007-2010 described the need for an Invest-to-Save fund to provide financial support for change initiatives and that these would be a key requirement to support the Finance and Service Reviews as part of the Medium Term Financial and Service Strategy.
5) A Council Transformation Programme has therefore been implemented to help us continue to sustain and improve the effectiveness of our services, whilst also creating financial savings that will allow us to fund our service improvement plans. This programme is structured into 2 phases:
· Phase 1 – Review of support services across the Council, development of a revised operating model and organisational design, supported by 3 year implementation plans to deliver high performing support services and activity. This phase has been in place since September 2006 and will produce implementation plans by the end of March 2007.
Phase 1 has been delivered through a temporary SCC team supported by consultancy services commissioned from PA Consultancy Group, forming a joint team.
· Phase 2 – Delivery of implementation plans which will include:
o Project management, governance and support to efficiency projects in order to deliver identified savings,
o Further commissioned consultancy services on specialist areas,
o Project management, governance and support to organisational change projects,
o Overall coordination and delivery of a transformational plan.
o Development and support to a programme led process for the delivery of key strategic outcomes for the Council.
Approval for Phase 2 is being presented within this invest to save report.
6) The Council is also faced with responding to the increased efficiency targets set by Government. Currently Local Authorities and other public bodies are charged with achieving and evidencing a 2.5% efficiency gain year on year for 3 years. Half of this gain must be cashable (ie savings) and up to half can be non-cashable (ie productivity gain). From 2008 the target is increasing to 3% and all of the efficiencies that contribute to it must be cashable. Clearly this represents a significantly greater challenge for the Council and this report proposes how the Council can respond to this more challenging financial situation.
7) There are five main types of investment that are required to respond to the needs of the Council:
a) Core Infrastructure
b) ICT Applications
c) Directorate Invest-to-Save
d) Transformation Invest-to-Save
e) Outsourced Services Retender
8) Core infrastructure investment is required to create a sound platform on which to develop and implement Invest-to-Save initiatives. This covers ICT and related projects that are required to deliver the enhanced, stable and resilient platform the Council will require if it is to deliver the future Transformation initiatives. Core infrastructure initiatives may not themselves deliver financial savings, however, without them, further investment would be unlikely to realise its full potential.
9) ICT Applications initiatives will build on the Core Infrastructure to provide a suite of core business systems on which further transformation activity can take place. Some of the projects within this set will generate savings, whilst other may not. Projects that do not generate savings of their own are included as key enabling projects for further transformation activity.
10) Directorate Invest-to-Save initiatives will implement the recommendations of the reviews that are currently in progress within Directorates, for example Care4you and QISS. These initiatives will involve process and service redesign with the objective of moving the Council to more efficient ways of working. This could include a wide range of initiatives such as energy efficiency or other environmental initiatives. Projects in this category will be expected to generate cashable savings.
11) Transformation Invest-to-Save initiatives will implement the recommendations of the Transformation Reviews currently being undertaken by the Transformation Programme supported by PA Consulting. Projects in this category will be expected to generate cashable savings and will also be expected to cover the up-front costs of the Transformation Programme.
12) Outsourced Services Retender initiatives will conduct and implement an analysis and procurement exercise to determine how the Council wishes to respond to the end of the current Liberata outsourced services contracts in 2008.
11) Transformation Invest-to-Save initiatives will implement the recommendations of the Transformation Reviews currently being undertaken by the Transformation Programme supported by PA Consulting. Projects in this category will be expected to generate cashable savings and will also be expected to cover the up-front costs of the Transformation Programme.
12) Outsourced Services Retender initiatives will conduct and implement an analysis and procurement exercise to determine how the Council wishes to respond to the end of the current Liberata outsourced services contracts in 2008.
INVEST-TO-SAVE CONCEPTS AND PRINCIPLES
13) Invest-to-Save financing works by providing short term funding (essentially an internal loan) for projects that demonstrate an ability, through a business case, to pay the money back over a suitable period of time.
14) However, as stated above, Core Infrastructure projects may not be able to demonstrate cashable savings in their own right. Some of the projects, particularly ICT infrastructure investment, are required to facilitate further work, but do not themselves deliver savings. It will be important for the Council to balance carefully the mix of project that do deliver cashable savings with those that do not.
15) The Council currently has £1m per year contained in the Capital Programme for ICT investment. This funding is considered in the financial appraisal of the Core Infrastructure work to mitigate the costs of the projects. Contributions to this work will also be payable from the Housing Revenue Account to reflect the benefit that Housing services will receive from this work.
16) The financial support for these activities will be provided by technical changes to the way the Council accounts for PFI and other reserves that can be used (some of them on a temporary basis) to fund Invest-to-Save activity. An element of this funding can be made permanent through an increase in the base budget as described in the October Cabinet Report. The budget adjustment to cover this is included in the proposed 2007/8 Revenue Budget, which is due for approval by Full Council on 2nd March 2007.
17) The projects covered by this Report and other projects proposing to use the Invest-to-Save fund will all report to an appropriate body which will provide an appropriate level of project governance (in line with the Cabinet Report of 11th October), ensuring that projects:
a) remain on track to deliver
b) issues receive appropriate attention from Senior Officers and
c) deliver benefits and replenish the Invest-to-Save fund.
18) It is proposed that the following approval and governance process is implemented:
a) In future years, Invest-to-Save initiatives will be included as part of the annual budget process in much the same way as the Capital Programme is included currently. Members will be asked to approve a portfolio of projects for the coming year together with the funding that will support their implementation. As this is the first year of this scheme, this report describes the first set of projects and further reports to Cabinet will follow as necessary as other projects are developed.
b) Once projects receive Member approval, oversight will be via the Transformation Board (Chaired by the Chief Executive) and reporting to Members will be via existing Budget Monitoring processes.
19) A robust gateway process will be established to test proposals at various stages of development. This will ensure that assumptions, costs, benefits and deliverables are realistic, and to ensure that the overall risk of projects using Invest-to-Save funding is managed. This process will involve business, financial and technical challenges to projects. As part of this process, the Director of Corporate Resources will assess the financial implications of each project applying for Invest-to-Save funding. Directorate Invest-to-Save initiatives will require sign-off from Executive Directors and Directors of Resources with all benefits requiring Directorate action being signed-off by the relevant Director of Resources.
20) It is proposed that any project requesting Invest-to-Save funding must pay back the initial investment within 3 to 5 years as agreed by the Transformation Board as advised by the Director of Corporate Resources. Each project will be assessed according to its risk profile, the proposal itself and the position of the Council’s overall budget. This will reduce the risk to the fund of projects with very long pay back periods and will facilitate the recycling of Invest-to-Save funding to other projects over time.
21) It is likely that some projects will substantially exceed the savings target required to pay back the Invest-to-Save fund for the original investment. It is important to balance the need to provide incentives to Directorates to generate Invest-to-Save initiatives. It is equally important that savings are captured corporately to facilitate the additional spend required by the proposed PFI scheme for Highways and other priority investments. It is proposed that any savings over and above that required to repay the original investment are divided between the originating Directorate and Corporate on a case-by-case basis. The split would be determined as part of the Council’s overall budget process taking the project proposal, risk and the Council’s overall budget position into account.
PROPOSALS FOR CONSIDERATION
Proposal Summaries
22) The following Core Infrastructure projects are proposed in this phase:
ICT Infrastructure | · Network Security and Fabric · Active Directory · Server Consolidation · Microsoft Enterprise Licence |
ICT Applications | · WCFS Phase 1 · HR/Payroll Phase 1 · Graphical Information System · Document Management |
Directorate Invest-to-Save | · Care4you Review · QISS Review |
Transformation Invest-to-Save | · Core Programme Costs · Procurement |
Outsourced Services Retender | · Retender analysis and implementation |
Core Infrastructure
Network Security and Fabric
23) This building block is a fundamental infrastructure requirement needed to provide a secure network infrastructure. It provides the underlying network infrastructure on which the Council’s IT systems can sit.
Active Directory
24) This is a basic building block, which is required to allow centralised management of IT services. It is a prerequisite to allow the upgrade of the e-mail service, which is currently unsupported and therefore presenting an unacceptable risk to the Council.
25) This building block project provides the underlying directory services through which internal users access and request IT services. These directory services allow users to be grouped in terms of their role and for the access that they have to be managed centrally.
Server Consolidation
26) Server (large computers on which systems such as One World run) Consolidation updates and increases the flexibility of the Council’s server portfolio. It is expected that Server Consolidation will allow SCC to reduce the number of actual servers by at least 30% providing savings in power and associated hardware costs.
Microsoft Enterprise Licence
27) Sheffield City Council historically purchases Microsoft licences through a Select agreement using Northgate as the intermediary. The e-mail and Office Managed Service refresh has resulted in the requirement to purchase new licences to cover the upgrade.
28) A move to a Microsoft Enterprise Agreement should reduce the total cost of ownership of Microsoft licensing given current plans to upgrade multiple services.
ICT Applications
WCFS Phase 1
29) This project will replace the Council’s finance system (OneWorld) with the latest version of the product. The current system has been in place for 5 years and key components of the system are at the end of their lives. As a result of this and other issues, the Council faces three key risk areas:
· Business Risk – the current system no longer meets the changing requirements of the organisation.
· Technical Risk – the ICT infrastructure supporting the system is at the end of its life.
· Compliance Risk – the current system has a number of control weaknesses that require a new implementation to address.
30) As part of the upgrade, the system will be implemented so as to allow further modules, such as facilities management, purchasing and project costing to be implemented in the future and also the implementation will facilitate integration with other business systems such as HR.
31) If this work is not undertaken, the Council will face increased risk of system failure and continued business risk posed by some of the control weaknesses in the current system with potential consequences for the External Auditors opinion on the Council’s accounts.
HR / Payroll Phase 1
32) This project will modernise the way that Human Resources manage employee information by introducing an electronic personnel record and by rationalising the recruitment process. The key benefits are:
· Consistent and streamlined HR admin processes making use of IT systems to replace paper processes.
· Consistent and streamlined recruitment process making best use of on-line recruitment.
33) If this project does not go ahead, the Council will not achieve significant financial and non-financial benefits. The Council will continue to have inconsistent information relating to HR and will miss the opportunity to transform the HR function in the service required by the Council in the future.
Geographical Information Systems (GIS)
34) This is a series of project that together bring the Councils Geographical Information Systems (GIS) up to date. This work also facilitates compliance with a number of statutory requirements that the Council is currently not in a position to achieve.
35) The work involves the upgrading of a number of out of date ICT systems and the cleansing and consolidating of data to provide a single source for spatial data for the Council. These changes will improve access to information, reduce or remove existing paper-based processes and mitigate the significant risks that inherent in the current solutions.
36) If this project does not go ahead, the Council will fail to meet a number of Statutory and contractual targets, these include:-
· Local Land and Property Gazeteer - we will be in breach of a Mapping Services Agreement with the LGA that all Local Authorities are signed up to.
· Local Street Gazetteer - as above but this is also a statutory requirement
· Ordnance Survey Mastermap – this is the de facto mapping standard and we are unable to adopt it with current technology. There is no alternative to this standard after March 2008.
· Failure to achieve National Land Information Service Level 3 - not statutory in itself but Land Charges Service (which is linked to this) is and the Council’s ability to deliver this would be put at great risk through the unsupported hardware and software of the current platform.
· Failure to achieve required standards of information on Highways and Terrier Services which both have statutory components.
Document Management System
37) Document Management System (DMS) provides the ability to store documents electronically and then view them via a PC. The project will create the basic infrastructure and intake function (scanning) for Directorates and Sheffield Homes to map their business requirements onto.
38) This project is a key enabler for further initiatives, for example the Council’s accommodation strategy. If this work is not completed, the benefits of future transformation work will not be realised in full.
Directorate Invest-to-Save
Care4you Review
39) This proposal was approved by Cabinet on 13th December and is included here for completeness as it draws on Invest-to-Save funding.
40) The Care4you service comprises home support services, residential care homes and resource centres and city wide alarms. It employs 1,200 staff and has a revenue budget of £21.9m. This project will implement the recommendations of the review of this service as agreed by Cabinet on 13th December 2006. The Review’s recommendations will result in better outcomes for service users, improved quality services delivered to more older people than currently, re-investment into the service, whilst also securing year on year net revenue savings of around £1.8m.
QISS Review
41) The Quality, Improvement and Support Service (QISS) has been the subject of a transformational review in order to reshape provision to meet the requirements of new legislation and as a result to bring spending in line with other similar metropolitan authorities and improve value for money. This proposal will implement the recommendations of that review.
Transformation Invest-to-Save
Core Programme Costs
42) The Transformation Programme will provide the governance and management framework for the Invest-to-Save and support services modernisation programme for the Council.
43) It is essential that there is capacity outside of the service delivery teams for support services to ensure that there is continued visibility of the programme and that there is accountability for the delivery of the whole plan and the associated service improvements, modernisation and efficiency. The Transformation Programme Team will undertake this role.
Procurement and Partnering Efficiency Project
44) This project involves:
· Delivery of a plan to generate £1.5M in quick wins
· Undertake a detailed diagnostic of the Council’s spend aiming to highlight areas for improvement/generation of savings to identify further opportunities to achieve £8.5m and more
· Commence the journey to best practice
· Determining the best practice approach for large scale procurements / commercial management / project finance
Outsourced Services Retender
45) This work will be the subject of a separate Cabinet Report in the near future, but is included here for completeness. The future Cabinet Report will cover the use of the Invest-to-Save fund to support this activity.
46) Details of each project can be found in Appendix A to this report.
47) Members are asked to note that this report does not represent a completed list of the projects that will form the Council’s Invest-to-Save strategy. This report covers the projects where Officers have sufficient information and confidence in the financial position of the projects to recommend their approval to Members. Members are also asked to note that some of these projects represent the first phase of work in that area i.e., WCFS Phase 1 and HR/Payroll Phase 1. Further work in these areas is possible and desirable and will be presented for separate approval in the future, however, future phases are separate activities and do not become mandatory if early phases are approved.
Financial Analysis
48) The financial information in this section is the best estimate of costs and benefits available for each project at this time. Ongoing monitoring, as described above, will track costs and benefits and report variances to Officers and Members as appropriate.
49) Each of the project business cases covered in this report have been reviewed, challenged and agreed at relevant levels in the Council, including (in the case of Care4you) a separate report to Cabinet.
50) The high-level cashflow (costs less cashable savings) profile for the proposed projects above over this and the next 5 years is as follows:
51) The table shows that the group of projects in this report represent a positive cashflow to the Council of £18.7m over 5 years, but that a maximum of £9.8m short term cashflow is required in 2007/8 to cover the short term funding requirements of the projects. Once the benefits of some of the projects start to be delivered (the positive numbers in the chart), the cashflow situation improves. In line with the proposals earlier in this report, this means that the Invest-to-Save fund would be repaid by 2009/10.
52) The overall profile of our reserves has been projected into the future and this shows that the investment described above can be met from a combination of the temporary use of earmarked reserves and borrowing supported by technical accounting changes relating to PFI and other reserves. As described in the 11th October Cabinet Report, releasing these reserves for investment will involve up to £1m of additional revenue spend per year. This additional spend has been built in to the 2007/8 revenue budget proposals.
53) Detailed financial calculations can be found in Appendix B.
FINANCIAL IMPLICATIONS
54) The detailed financial implications arising from this report are contained in the body of this report and the appendices. In summary, this report asks for temporary funding of £9.8m to be released from reserves subject to that funding being repaid from resultant savings.
55) Clearly, there is a risk that one or more of the projects covered by this report will not deliver the required savings, which in turn places the Invest-to-Save fund at risk. It is therefore proposed as part of this report that appropriate governance structures are put in place to monitor the projects – both at Officer and Member level. This is designed to ensure that projects remain on track and that any issues are identified as soon as possible enabling corrective action to be taken.
56) As described above, releasing funding for these projects will involve additional revenue spend of up to £1m per year. This proposal is included in the 2007/8 Revenue Budget proposals due for approval by Full Council on 2nd March 2007.
56) As described above, releasing funding for these projects will involve additional revenue spend of up to £1m per year. This proposal is included in the 2007/8 Revenue Budget proposals due for approval by Full Council on 2nd March 2007.
EQUALITIES IMPLICATIONS
57) There are no equalities implications arising directly from this report, however, projects resulting from these initiatives will be required to complete their own equalities impact assessments as part of the normal project management process.
CONCLUSIONS
58) This report sets out and Invest-to-Save strategy that will provide the Council with the mechanism it needs to finance and manage the transformation activity required to deliver the Council’s investment priorities.
58) This report sets out and Invest-to-Save strategy that will provide the Council with the mechanism it needs to finance and manage the transformation activity required to deliver the Council’s investment priorities.
59) The proposals above represent the first group of initiatives which will require Invest-to-Save funding as outlined in the 11th October Report to Cabinet.
RECOMMENDATIONS
60) Members are asked to:
- Approve the establishment of an Invest-to-Save fund as described in this report.
- Approve a change to the Council’s budgeting process that would see Invest-to-Save activities considered as part of the Budget setting process from 2008/9 onwards as described in this report.
- Approve Invest-to-Save funding for the projects listed in this report.
- Note that the projects in this report represent first set of projects that will form the Council’s Invest-to-Save strategy. Further projects will be presented for approval in the future.
- Delegate authority to the Director of Corporate Resources through Transformation Board to monitor these proposals and resultant projects to ensure that the net impact to the Council as listed in this Report is not exceeded.
- Approve the reporting of progress on these projects through existing quarterly budget monitoring processes.
- Delegate authority to the Director of Corporate Resources and the Assistant Chief Executive, Legal and Governance in consultation with the Cabinet Member for Finance and Performance to enter into any necessary contracts for the completion of the projects in this report subject to the completion of appropriate procurement processes.
[1] Report to Cabinet: Financial and Services Strategy 2007/8 – 2009/10 – 11th October 2006
Downloads
This is a document containing Appendix A to the Invest to Save Strategy report (113 KB)
This is a document containing Appendix B to the Invest to Save Strategy report (99 KB)
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