Introduction

This case study outlines the benefits that can be achieved when people within an organisation are given the chance to test how the business will perform under different scenarios. Most prominent amongst them is a tight control of costs. It features a Housing Trust cited by the Commission on Residential Care (CORC) as being one of the leading providers of ‘homes with care’ for the elderly in the country. The challenges facing the Trust are substantial. Predictions for the sector all suggest that traditional methods for care are unsustainable. Increased longevity amongst clientele and the more complex care requirements associated with age mean that the professional staff involved will soon be in short supply. The strategy involves strengthening resident communities in ways that will ease the load upon paid staff, and the delivery of almost all care to the resident in their own home (which will allow a high cost care home to be closed). A completely new model of care provision is needed as well as new homes laden with supportive technology, all of which have to be affordable. Much of this is unknown territory. The plan depends for its success upon the business keeping to an overall direction of travel but being able to adapt quickly and confidently to emerging opportunities, risks and unforeseen events. It is also all about cost. Looking ahead over the foreseeable future, income streams should remain intact. But they are unlikely to rise. Long term sustainability depends therefore upon finding better ways to visualise and maintain a tight grip upon costs. Develin was invited to develop the plan. This case study explains the approach.

Unshackle the Managers and Trustees

A planning document on its own wouldn’t do. Planning needed to take place with the aid of a highly interactive and dynamic model of the business, made available online and accessible by anyone with a relevant role to play. The idea is for strategy to ‘come alive’ and for Managers and Trustees to be confident of the space within which they can manoeuvre the business. It’s important therefore for them to explore and play, and have planning become a continuously evolving game within which options are created and tested to see which will deliver the greatest value. (‘Options’ are ways to make strategy happen e.g. changes to services, new services, new buildings.) The model contains the key drivers of value in the business (15 in total):

  • Drivers for income and cost;
  • Other value drivers such as staff training or the quality of services.

Drivers can be tested for their impact on the business. For example, the illustration below shows for each of three cost drivers, how much change is possible over the next 3 years before key financial limits are breached e.g. free cash, debt cover. Interest rates must change by no more than 4% and repairs to homes by no more than 16%. The model also shows (but not included here) how much they can change together before limits are reached.   All the remaining drivers are presented the same way. For most the links needed are straightforward. E.g. a higher level of care may equate to more care visits. Because each visit carries a cost the overall costs of care will increase. But some drivers are harder to predict. An increase in, say, staff training will lift cost but also service quality which may lift income as the Trust’s reputation for service quality grows. With sensitivities modelled, options such as new care services can be tested for their potential impact upon the drivers, and therefore upon the business as a whole.

Have them focus upon unit costs

The cost drivers attract the most attention. Each comes with one or more unit costs. If these can be reduced without affecting services too much, then the distance to be travelled before limits are breached will improve. E.g.

Cost Driver Unit Cost Reduced by (for example)
Level of care: Cost per care visit. More remote monitoring of residents receiving care.
Repairs to homes: Cost per repair. Less travel time through better visit scheduling.

To drive home the importance of managing costs each option must include a list of the activities that make up each unit cost. The challenge is to reduce the list rather than add to it. In other words to constantly pare unit costs down rather than allow them to build.

And let them plan

The outcome from using the model is a shortlist of options that will deliver the greatest value to the business. It specifies for example:

  • The number of homes to build;
  • The type of resident to whom they will be best suited;
  • The blend of technology, paid staff and community volunteers involved in services to residents.

Trustees and the Management Team are also in a much closer and more collaborative working relationship than ever before. The Management Team can articulate clearly what the strategy means to the business. And Trustees with relevant knowledge to offer now have a way to put it to good use. All Parties feel that they have a much greater understanding of the risks facing the business. And decisions, once made, are rarely revisited. As a result external Parties (e.g. Planners, the Local Authority, Philanthropists, potential lenders) quickly develop a very positive impression of the Trust. Some have also been included within the planning process. Lenders for example have used the model of the business when designing investment options to meet the Trust’s needs. There is little that is new about the concept of modelling drivers of value. But it may be unusual to place so much planning capability in the hands of Managers, Trustees and funding partners and to engage them in collaborative exploration of all the options. It has made a massive difference to this Trust’s ability to prepare for all the opportunities and uncertainties that lie ahead.

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If you would like to know more about how to bring your senior teams together to plan more dynamically and develop an even tighter focus upon costs, please get in touch.