Figure it out.

    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.

      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

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