2019: The year in review
Managing Partner, Simon Leighton, recalls the highs…Read More › ›
The overall theme of the new VfM standard is about the optimisation of the three Es: efficiency, economy and effectiveness, but these are not to be to the detriment of social housing assets or encourage RPs to take unnecessary risks.
Initially the board needs to agree an approach to the achievement of VfM in meeting the RPs’ strategic objectives, which will achieve the optimal benefit from the RP’s resources and assets, and which will be consistent with the objects of the RP and the wider purpose. It is important that the objects play a crucial role when considering VfM and risk.
Consideration of VfM must be regular, the approach robust and performance improvement option appraisals rigorous. Appraisals must cover matters such as inputs v outputs and comparisons against alternatives. While improvements could be made, however, two things should be at the forefront in these appraisals:
When making decisions, boards must consider VfM across the whole business, not in a vacuum. They must consider a wide range of matters, including the current structure, and full consideration of costs and benefits of alternative commercial, organisational and delivery structures.
When considering non-social housing activity, one consideration is whether the risk is outweighed by the reward. However, this is not the only consideration. Boards must look at where the non-social housing activity will be carried out within the group, whether it falls within the - often charitable - objects of the RP, and what risks there are of an activity being seen as ultra vires within the RP, or which might incur corporation tax.
Boards must have a measured approach to getting optimal benefit from all resources and assets, considering all of the HCA’s standards as well as ensuring long term financial viability. The board must demonstrate its complete understanding of the return from assets compared to the costs of maintaining them, and rationale must be given for the decisions to continue to support assets which are not achieving optimum results.
This must all be done against the backdrop of consistency with the RP’s objects (it is entirely possible that an RP may, with justification from the board, opt not to receive the maximum return for an asset because the acceptance of a lower return furthers the RP’s objects).
There must be systems in place for board members to know what their role is within the RP and to then be able to challenge the executive on implementation of projects, on having enough information, of a sufficient quality, to enable decisions to be made. The RP must also ensure there are systems in place for the recruitment of suitable board members and for the ongoing appraisal of both board members and the board as a whole.
RPs should be looking at the areas of their business where there could be VfM improvements. This includes looking at the potential benefits and limitations of what is already in place, such as corporate and group structures, major contracts, procurement, partnerships, intragroup arrangements, stock rationalisation, diversification and mergers. VfM is about understanding absolute costs and the drivers for those costs.
VfM brings with it the consideration of risk, and risk must be looked at in respect of a proposed activity, as against the risk it brings to other areas of the business and also to the RP as a whole. Risk is ultimately a governance matter, and failures in risk can bring with it governance failures, so RPs need to ensure that all bases are covered.
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