1. Self assessment - the lessons learnt Value for Money Lynn Dexter Head of Consultancy 9 April 2014

2. Session aims To provide update delegates on the lessons from the first year of VFM VFM self-assessment. 1.Refresh understanding of the updated regulatory context 2.Discuss the emerging lessons from Year 1

3. Regulatory context … updated

4. VFM regulation context “to protect historic government subsidy, promote access to private finance, and help address the lack of competitive pressures on providers which might otherwise put pressure on service quality and efficiency”  The purpose of economic regulation (Regulatory Framework 2014) “we expect in future the regulator to be more proactive…on ensuring VFM…to achieve better returns for the taxpayer & support new affordable housing supply “ -Review of Social Housing Regulation 2010

5. VFM regulation 2014 update Remains an assurance- led approach to regulation To obtain sufficient assurance/evidence that standards are being met starting point is HAs Board assurance on:  compliance with standards  delivery of plans  effectiveness of control and risk management frameworks Critically the HCA wants be assured that the board is assured! The ability to drive VFM is a key indicator of the quality of governance therefore business critical to get it right!

6. VFM regulation 2014 update Co-regulation thrust remains consistent Underpinned by three principles: 1.Assurance led compliance 2.Risk based and proportionate 3.Joined up Main updates: A refined its risk assessment methodology to focus attention on areas and providers that are more complex or exposed to greater risks that impact viability Non-compliant viability straplines updated to reflect ‘gradings under review’ WARNING! Model relies on data accuracy and timeliness of submission – don’t be late!

7. HCA “less tolerant” of poor VFM Self Assessments … does your approach cover the bases? In reaching assurance the Regulator will ask … 1.Do you have appropriate strategic business plan? 2.Understand operating environment and markets? 3.Financial plan/position support strategic objectives? 4.Understands risks around delivery of objectives, and assured by controls? 5.Demonstrate VFM in delivering objectives? 6.Clear measureable objectives and track record of delivery? 7.Transparent and accountable? 8.Effectively led and controlled?

8. Financial Reporting Council guidance -Audit and Assurance Increasingly complex and risky financing arrangements Decreased receipts from HB … bad debts … voids … impact on business plan, ability to raise finance Diversification into non- social housing activities Partnerships and joint ventures Sustained focus on home improvement programmes Pension liabilities Need for commerciality of Boards skills

9. So… what does the VFM Standard say?

10. The VFM standard:delivering VFM a comprehensive approach to VFM across all assets  in the context of your objectives  mindful of competing stakeholder interests 3 Es still relevant as ever specific expectation of:  robust approach to use of resources  understanding of the return on assets (and a proactive approach to managing them and understanding future gains)  effective performance management and scrutiny arrangements  an understanding of service costs (in comparison to peers), outcomes & what drives those costs

11. The VFM standard: reporting VFM The acid test! The Self-Assessment shall:  enable understanding of return on assets  set out absolute & comparative costs of specific services  provide a backward & forward look on VFM gains Accounts Direction specifies that providers must include a self-assessment in the Operating and Financial Review or Board Report. “Boards shall demonstrate to stakeholders how they are meeting this standard. … they will publish a robust self-assessment which sets out in a way that is transparent and accessible to stakeholders how they are achieving VFM in delivering their purpose and objectives.”

12. Round-up of implications - the importance of a strategic approach to value 2004 VFM was about services 2012 VFM is the whole business all resources including assets …VFM less of an ‘add on’ value is tagged to your objectives not the regulator’s – clear strategic direction is vital but has to reflect the value perspective of stakeholders We exist to maximise shareholder value Stakeholder

13. Round-up of implications - the importance of a strategic approach to value Reconcile the tension between stakeholder value perspective existing v future tenants government (build) –v- sector (beyond bricks ‘n’ mortar) VFM & (social) business effectiveness are the same thing can you measure the value you exist to produce?

14. Round-up of implications - the importance of a strategic approach to value greater emphasis on boards opportunity for the sector regulator is not dictating terms

15. Round-up of implications - VFM SA principles Board ownership VFM is comprehensive and strategic across all resources 3 Es Form and content of VFM SA determined by your social purpose and stakeholder interests self-assessment should:  be robust and transparent comprehensive not a PR exercise  accessible to stakeholders  address: a) return on assets, b) absolute and comparative costs and c) evidence of past and prospective VFM gains. OFR Accessible and transparent September deadline

16. Lessons from Year 1

17. HCA reflections on Year 1 HCA generally unhappy Presentational problem HCA unlikely to be more prescriptive in its regulation downgrade G rating by one notch

18. HCA Reflections on Year 1 “Generate surplus, generate capacity” -Julian Ashby, HCA February 2014

19. HCA reflections on Year 1 “The sector’s ability to use its resources efficiently to deliver its objectives is an increasingly important reputational issue” Matthew Bailes Executive Director, Regulation, HCA February 2014

20. Importance of on-time quality reporting “We will treat lateness of submission of any statutory returns and data as a significant governance control weakness and grade accordingly.” Matthew Bailes, Executive Director, Regulation, HCA February 2014

21. HCA letter to Chairs (Feb 2014) “The Regulatory Framework sets an expectation that providers should develop a strategy to deliver continuous improvement in: Running costs Return on assets Evidence of gains Transparency

22. HouseMark survey 2013 said … Determining what was required uncertainty about requirements many opted for summary in accounts and detail on website Roles extensive board sign-off but scope for more involvement in process only a third used tenant scrutiny little reference to input from other stakeholders

23. HouseMark survey 2013 said … Return on assets wide interpretation contextual issues militate against useful KPI improving understanding of stock biz critical Absolute & comparative costs HouseMark data limited in OFR some not stated costs Evidence of gains data Impact of scrutiny, 3 rd party accreditations key issue - better understanding of social value

24. HouseMark survey 2013 said … Dissemination need to rationalise the docs that tell us about biz effectiveness? OFR+? improve accessibility & transparency tone down PR reporting non-financial outcomes – learn from social accounts Benefits majority saw value in process as biz tool Regulatory improvements clarify expectations – fine line prescription –v- clarity of expectations

25. Emerging schools of thought

26. Three emergent approaches … HouseMark approach VFM standard compliance approach Corporate priority approach

27. Three emergent approaches … The ‘HouseMark’ definition of VFM in context of purpose & objectives strategic approach to VFM and use of resources arrangements to deliver VFM – performance management and governance what has been achieved plans for next year board assurance on the VFM self-assessment The ‘Compliant’ background – ie HCA requirement what VFM means to us & how seriously we take it in terms of strategy & delivery (ref standard) return on assets absolute & comparative costs past & future VFM gains Some take a KLOE approach distil standards’ principles assess –v- criteria The ‘Corporate’ definition of VFM in context of purpose & objectives corporate objective #1 aim arrangements to ensure delivery achievements plans corporate objective #2 ditto Corporate objective #3, ditto overall judgement

28. Measuring VFM

29. A final word … Value is determined by you … there is no template!

30. We can help … Return on Assets Early bird benchmarking and scenario planning VFM Self Assessment support Embedding VFM in the organisation culture Board Assurance Operational accreditations Repairs VFM toolkit Bespoke Clubs  Welfare Reform  Voids  Active Assets  Business Assurance … specialist Consultancy

31. Thank you for listening Lynn.dexter@housemark.co.uk 079 6767 6767