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Paul Cook is an independent consultant who has run social services finance at five major authorities. He is the author of the Chartered Institute of Public Finance and Accountancy's finance guides on housing, housing benefit, supporting people and partnerships. He has also been director of finance at Westminster Council and chief executive of Daventry Council.

Dealing with unit costs is an integral part of managing performance. Appliances issued per thousand population, runs per wicket in bowlers' cricket averages, percentage of trains leaving Euston spotted per trainspotter and so on.

Social services unit costs are serious business. The government likes to report that national performance onÊkey social care indicators is improving yearly.ÊThese national average indicators are built up from the performance assessment framework that each social services department must complete locally. The framework is used to assess delivery of key targets in the NHS Plan.

Councils' star ratings include an element of how their unit costs look. Higher star ratings contribute to improvements in the council's overall comprehensive performance assessment.

A higher social services star or overall rating also creates more freedoms and flexibilities at local level. Particularly useful freedoms are the ability to use ring-fenced grants for any purpose, and fewer inspections or even an inspection holiday altogether.

Textbook performance management expects managers to set unit cost targets and see how actual results pan out. Unit costs should be compared with those of similar organisations. The upper quartile should be aspired to. Or, in the case of the performance assessment framework, often the lower quartile or even the safe middle ground between the two.

Unusually high or low unit costs should prompt more detailed investigation and analysis. Enlightenment and progressive service changes should ensue as the unit cost cuts away management fuddle and reliably measures the delivery of those infamous "efficiency gains".

Most councils practice limited textbook performance management. But there is no doubt that getting unit costs right for performance assessment is essential to improving or maintaining that all important star rating.

Achieving robust unit costs.

Every financial year the Chartered Institute of Public Finance (Cipfa) produces an edition of its Best Value Accounting Code of Practice - England and Wales. This includes a standard expenditure analysis for social services. This has been developed over several years to achieve consistency between councils' accounts and statistical returns. If you do not apply this analysis, your costs will not be comparable. The overriding principle of the standard expenditure analysis is to break down expenditure over client groups (children, older people and so on). There are three points to note:

First, Cipfa requires social services to bear its fair share of central overheads. Support service and management costs within social services need to be allocated out to individual services.

Second, there are strict rules about the bases of allocation. These should be applied consistently in budgets and accounts. Don't let the allocations be fudged to produce plausible unit costs.

Third, when completing Department of Health returns, read all the instructions thoroughly. Often there are changes from year to year. These usually affect which clients and which costs should or should not be included.

Common mistakes.

Here are some common errors in coding expenditure or producing activity data, identified from Cipfa's 2003 accounting code of practice. Getting these wrong can overload or underload your costs and finance data:

• Service strategy and regulation is a limited category. It must be restricted to the director's office and the complaints team.
• Sheltered employment does not count as social services for statistical purposes.
• Supporting People is a housing service. But you can include some Supporting People expenditure in social services if it is incidental to the main service in question. But you are entitled to strip it out of personal social services unit costs.
• Asylum is a service in its own right and should not be included in the cost of other client groups.
• Clients become older people for statistical purposes on reaching 65.
  
  Combining finance and activity data is where a lot of councils start panicking about their unit costs. A unit cost is the result of a finance numerator and an activity divisor.
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  For example, annual expenditure on older people's residential placements divided by number of placements weeks equals cost per week of a residential placement.
  
  Anomalies in either element of this calculation - finance or activity - will lead to anomalies in the result. Often it is only when the two are put together that it is clear one of the figures is bad. For example, "I drove for 100 miles" seems a reasonable statement, as does "I drove for 20 minutes". But "I drove at 300mph" does not.

Here are a few tips to avoid unit cost nonsense:

• Put together both elements of the unit cost calculation well ahead of the return date. This will allow time to resolve discrepancies and check out the figures. It is surprising how many councils leave the joining of activity and finance data until a few days before the return is due. Panic then ensues when the figures look odd.
• In many social services directorates, finance and activity input are collected by different sections. This puts a premium on good communication. Both teams need to own the unit cost result.
• Be self-critical and open about your own data quality. Often, when people are quizzed about their bizarre results, it becomes apparent they know only too well what is wrong.
• Similarly, recriminations, snide observations or open onslaught on somebody else's data quality really don't help. At worst, this will lead to teams attempting to hide their own misgivings on data quality.   

There is a series of short cuts that can be taken to test for accuracy:

• Check the correct budget figures and the correct final accounts figure are being used.
• Ask for a map showing how the total cost in the approved budget or final accounts is mapped into the boxes of returns. Inability to produce this is a sure sign things are wrong.
• Ask for a map showing how the activity data entered in boxes of returns is derived from approved systems and databases.
• A set of costs in a return may look plausible. But how do the figures look taking a succession of years together? If the unit cost of a placement oscillates wildly from year to year with no service reason, it is a fair bet that some or all of the unit costs are wrong. The same point applies to service activity data.
  
  The twice yearly delivering improvement statement demands a raft of finance and unit cost information. It is submitted electronically. The workbook you are required to complete prompts you if your entry shows an abnormal variation from previous returns. The spring 2004 delivering improvement statement was due on 31 May. The autumn version will probably be required in November. A more detailed expenditure analysis based on final accounts is the form PSS EX 1. This should be with the DoH by 31 July.

Abstract.

Unit costs are important because they have a big influence on directorates' star ratings. This article examines what they are and why they are important. It also considers the use of unit costs by the Commission for Social Care Inspection and the performance assessment framework. It also looks at the dos and don'ts to achieve robust unit costs, as well as short cuts to test a set of unit costs for accuracy.

The rest of the series.

• 24 June:  Grants are a big portion of social services income but they are complex beasts to administer. A look at how to keep track of your grant income.
• 1 July:  Weak forecasting and monitoring are the main financial danger areas for social services managers. How can you avoid disaster?
  

Further information.    

 Contact Paul Cook at dagnallcottage@ukonline.co.uk