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CARDIFF COUNCILCYNGOR CAERDYDD
EXECUTIVE BUSINESS MEETING: 8 MAY 2007
CONNECTING SOUTH EAST WALES SHARED SERVICESPROJECT REPORT ON STRATEGIC OUTLINE CASE
REPORT OF CORPORATE DIRECTOR AGENDA ITEM: 5
PORTFOLIO: CORPORATE
Reason for this Report
1. This report has been prepared to advise the Executive of the outcome ofthe initial feasibility study on sharing certain back office functionsacross ten South East Wales local authorities. The report serves as acovering report for a more detailed position statement (Appendix 1),which is being considered by each of the ten authorities involved in theShared Services project.
Background
2. The Welsh Assembly Governments Making the Connections agendaaims to bring about improvement across the whole range of publicservices. Specifically, it aims to make services more responsive,accessible, coherent, effective and efficient. Local Government inWales, like many other public services, faces rising demands for higherquality services at the same time as increasing budgetary pressures.New ways of working are needed to cope with these demands andenable opportunities for efficiency savings to release resources for frontline public service delivery.
3. In response to the Making the Connections agenda, the Leaders andChief Executives of ten local authorities in South East Wales have beenmeeting as the Connecting South East Wales Board. The Board, whichis serviced by the WLGA, includes Blaenau Gwent, Bridgend, Cardiff,Caerphilly, Merthyr, Monmouthshire, Newport, Rhondda Cynon, Torfaen,and Vale of Glamorgan. The group commissioned a Feasibility Studyforthe provision of shared back office services across the ten Authorities.The functions included in the study were Payroll and HR; Training;Council Tax and NNDR; Internal Audit; Procurement; ICT; and DebtRecovery. The study was overseen by a steering group withrepresentatives of the ten authorities, was project managed by Cardiff
Council, with the actual evaluation of the potential to share undertakenby Pricewaterhouse Coopers (PwC).
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4. The feasibility study has been designed to be undertaken in threephases:
Phase 1 - To develop a Strategic Outline Case (SOC) examiningall seven of the functions outlined above to determine whichpresented the greatest potential for sharing essentially a fairlyhigh level analysis of cost, performance, opportunities and barriersacross the 7 functions and 10 authorities;Phase 2 - To develop an Outline Business Case for those serviceswith the greatest potential for sharing essentially a much moredetailed analysis of one or two areas;Phase 3 - To produce an Outline Implementation Plan forconsultation essentially a road map which would allow theauthorities to progress to sharing selected functions.
5. Phase 1 was completed at the beginning of April and this report sets outthe findings and advises Executive on those functions being progressedto Phase 2.
Issues
6. Based on their analysis of the seven functions across the ten authorities,PwC concluded that:
even without sharing services, there is scope for improvements andefficiency savings by learning from the best practices in South EastWales and elsewhere and standardising and streamlining existingprocesses;
there is scope for sharing across all seven of the services considered;
the largest scope (i.e. with the greatest potential for improvement andefficiency savings) falls within HR/Payroll including Training, CouncilTax/NNDR and Internal Audit;
There is a need for up-front investment in order for savings to berealised in the longer term.
7. The Steering Group conducted a risk assessment on PwCs findings inrelation to each of the functions, examining issues such as thecomplexity of the barriers to sharing, the investment required, thesavings predicted, the opportunities for service improvements andexternal factors which might influence the likelihood of success. Basedon this assessment the Steering Group made its recommendations to theBoard on 5 April.
8. PwCs analysis, and the Steering Groups assessment are set out inmore detail in the attached Position Statement. At the Board meeting onthe 5 April the Board endorsed the Steering Groups recommendations,key among which are:
Proceed to the Outline Business Case (Phase 2), reconfirming thescope for Training and, HR & Payroll services with external support;
Proceed to the Outline Business Case for Internal Audit services. Weproposed that this project is sponsored by a Chief Executive and
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supported by a member of the Steering Group but with no externalsupport.
9. The remaining recommendations, which place further work on theremaining functions on the back burner are:
Wait for the outcomes and learn the lessons from the North WalesBoard Council Tax and Benefits shared services review beforeprogressing to the Outline Business Case. Nevertheless, werecommend a Chief Executive sponsors Council Tax/ NNDR, workinggroup to identify opportunities for each council to benefit from sharingbest practice, improving the quality of management information andundertaking joint projects of mutual benefit, such as increasingcouncil tax benefit take up;
Do not progress the Procurement services project any further until thevarious national studies are completed;
Ensure that the ICT working group continues to meet, sponsored by aChief Executive and supported by a member of the Steering Group,to identify opportunities to simplify and standardise the current ICTinfrastructure, software and hardware and improve working practices;
Do not continue to explore the opportunity of sharing Debt Recoveryservices as part of this project. The group may wish to continue tomeet to learn from best practice;
Continue to instruct a consultant to support the project on Phase 2,
and for the Steering Group to review the performance of PwC;
Review the management and delivery of Phase 1 of the project todate and ensure we learn from the experience.
10. Critically, progressing to Phase 2 does not commit any of theparticipating authorities to share services at the end of the process.Phase 2 is merely a more detailed study of the selected functions tocreate a clearer understanding of the feasibility of sharing, the barriers tobe overcome, and the likely savings achievable at the end. The Phase 2study would aim to provide sufficient detail to enable participatingauthorities to assess the attractiveness of sharing services in practice onan individual basis.
11. The outcome of Phase 2 is expected to be reporting in June or July2007. At this time the Executives consideration of the report can beinformed by work of the Specialist Independent Advisor supporting theFundamental Operational Review, who will advise on the Councilpriorities at around the same time.
Reasons for Recommendations
12. The recommendations are to keep the Executive informed on theprogress of the Connecting South East Wales Shared Services project.
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Legal Implications
13. This is an information report. There are no legal implications at thisstage. Further advice will be required dependent on the options that maybe considered in the future.
Financial Implications
14. The project has been part-funded by the Local Authorities in South EastWales, who have committed 10,000 each plus staff resources. It hasalso received a grant of (135,800) from the Making the Connectionsfund in the Welsh Assembly. Cardiff has provided Project Managementsupport from its Centre of Excellence, but this support will cease at theend of Phase 2 (approximately June 2007) to allow this resource to beredirected to other projects within Cardiff, including the FundamentalOperational Review.
15. Progressing to Phase 2 does not place any additional financial burden onthe Council, although a significant amount of staff resource will berequired to collect information required for the feasibility study and toengage with colleagues in other authorities to evaluate the emergingfindings.
Any other Implications
16. Progressing to Phase 2 will require the development and implementationof a communications plan across the ten authorities to ensure that staff inthe selected functions, and the Trades Unions locally, are kept informed
about the project and its development.
RECOMMENDATIONS
The Executive is recommended to
(1) note the Connecting South East Wales Boards agreement to the actionsset out in paragraphs 7 & 8 of this report;
(2) receive further reports on this matter, in the light of the FundamentalOperational Review
STEVEN PHILLIPSCorporate Director16 April 2007
The following Appendix is attached: South East Wales Shared Services Project Position Statement
The following Background Papers have been taken into account: ConnectingSE Wales Strategic Outline Case Shared Services Final Report
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Project Steering Group
Position Statement
Recommendations from Phase 1
March 2007
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Contents ___
Position Statement 3
Jo Farrar on behalf of the SEWSS Project Steering Group
Background 3
Benefits identified to date 4
Strategic Outline Case- Findings 4
Comments from Consultation 4
Risk Assessment 5
Steering Group Recommendations 6
Next Steps 6
Recommendations 7
Appendices
Appendix 1
Strategic Outline Case Executive Summary i
Conclusions from the Strategic Outline Case ii
Appendix 2
Risk Assessment iii
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Position Statement
Background
The Connecting South East Wales Board, comprising Leaders and ChiefExecutives of the ten Local Authorities in South East Wales, agreed a projectto investigate the potential for sharing various back-office functions, with aview to releasing resources to invest in frontline services.
The project has been part-funded by the Local Authorities in South EastWales, who have committed 100,000 plus staff resources (approximately113,670 to the end of February 2007). It has also received a grant of
(135,800) from the Making the Connections fund in the Welsh Assembly.
The project is due to be completed by July 2007 and is divided into threestages.
Phase 1 - To develop a Strategic Outline Case (SOC) examiningseven functional areas with a view to sharing: Payroll and HR;Training; Council Tax and NNDR; Internal Audit; Procurement; ICT;and Debt Recovery
Phase 2 - To develop an Outline Business Case for services with
the greatest potential for sharing.
Phase 3 - To produce an Outline Implementation Plan forconsultation.
The project is being overseen by a Steering Group, comprising seniormanagers from the ten authorities and the WLGA. The Steering Group hasprocured PricewaterhouseCoopers LLP (PwC), a consultancy with abackground knowledge and expertise in shared services, to help with thefeasibility study.
Cross-cutting functional groups of Local Authority Officers and Directors of HRand Finance have been involved in discussions as the project hasprogressed. In addition, Visioning Workshops have been held with keyofficers and Members in all Authorities and update reports have been sent toCouncil Cabinets and Executives. The Connecting South East Wales Boardhas been regularly informed of progress.
The project is now approaching the end of Phase 1. The Executive Summaryand conclusions from the first phase of the Feasibility Study (Strategic Outline
Case) prepared by PwC is attached at Appendix 1.
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Benefits identified to date
A full Lessons Learned Review will be carried out at the end of the project butthe Steering Group have already identified a number of benefits that haveemerged as a result of the work carried out in Phase 1. These include:
Recognition of successful shared service relationships and bestpractice methodology currently undertaken by LAs. All authorities haveexisting collaborations that share services. The project has reiteratedthe ability of LAs to work with and alongside each other effectively,producing excellent achievements.
Improved communications between colleagues, counterparts and LAs
through various methods. The project has provided invaluableopportunities to meet and network with representatives from other LAs.These relationships developed, or furthered, have already extendedbeyond the project.
Challenges to current status quos within councils. Project hashighlighted areas within LAs where efficiencies, and better practice,can be driven out. Data gathered and compared has givenopportunities to evaluate current working methods, beyond the scopesand service areas of this project.
Embedding of staff skills in the Shared Service sphere that can beutilised in further projects and data gathering exercises.
Strategic Outline Case - Findings
The findings of the feasibility study, led by PwC, are set out in more detail inthe Strategic Outline Case Executive Summary (Appendix 1). The mainconclusions are:
even without sharing services, there is scope for improvements andefficiency savings by learning from the best practices in South EastWales and elsewhere and standardising and streamlining existingprocesses;
there is scope for sharing across all seven of the services considered;
the largest scope (i.e. with the greatest potential for improvement andefficiency savings) falls within HR/Payroll including Training, CouncilTax/NNDR and Internal Audit;
There is a need for up-front investment in order for savings to berealised in the longer term.
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Comments from Consultation
Before concluding the Strategic Outline Case, and the Steering Group
agreeing recommendations for the way forward, considerable consultationhas been undertaken with: Directors of HR, Finance and ICT; Regional TradeUnions Representatives; lead officers from the service areas beingconsidered; and key officers and Members from each Authority.
The main comments from this exercise relate to the accuracy of data. As aresult, the Strategic Outline Case was altered to take account of the latestinformation received from Authorities. However, there is an issue about theconsistency of data as a result of Authorities collecting data in different waysand/or providing different levels of detail.
The Steering Group has considered this and has concluded that the data issufficiently robust for a decision to be made about which services shouldprogress to Phase 2.
Phase 2 will allow a further study of a narrower range of services, including amore detailed analysis of data with a view to making this consistent, before adecision is made on how to progress to Phase 3.
Risk Assessment
A risk assessment has been carried out by members of the Steering Group todetermine the risks in taking forward each function to Phase 2 - OutlineBusiness Case. This is attached in Appendix 2. This included a sensitivityanalysis against the following criteria:
- Potential Savings from sharing the function- The level of investment required and the potential payback period.- External Factors including good practice initiatives across service
sectors; other potential providers; existence of other studies; potentialsignificant changes affecting service.
- Potential service improvements limited to the scope of each function.
- The level of political support for sharing. This was determined fromdiscussions at the Visioning Workshops.
- The opportunities for the recommended model to be used across arange of public sector bodies and services.
- The impact of operational factors including reliability of initial data, theability to provide additional/better data, scalability, time to realisebenefits, flexibility. The impact of implications such as a dip inperformance (financial and otherwise) was also assessed.
- Current similarities between LAs. This included ICT dependency,hardware/software used, benchmarking/unit costs and levels ofperformance.
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- The complexity of the function including estimated timescales forimplementation.
- Operational willingness to share including the extent of existing
collaboration and feedback from functional workshops, and thewillingness to fundamentally change approach to service delivery.
The Steering Group accept that there will be an element of risk in takingforward any shared services option to release benefits. The functions thatpresent the lowest risk are: Training; Internal Audit and Procurement
The two functions that were identified as having the greatest potential forsharing i.e Payroll/ HR and Council Tax /NNDR presented medium and highrisk respectively.
Steering Group Recommendations
In summary, the Steering Group recommends that we:
Proceed to the Outline Business Case (Phase 2), reconfirming thescope for Training and, HR & Payroll services with external support;
Proceed to the Outline Business Case for Internal Audit services. Weproposed that this project is sponsored by a Chief Executive andsupported by a member of the Steering Group but with no externalsupport;
Wait for the outcomes and learn the lessons from the North Wales
Board Council Tax and Benefits shared services review beforeprogressing to the Outline Business Case. Nevertheless, werecommend a Chief Executive sponsors Council Tax/ NNDR, workinggroup to identify opportunities for each council to benefit from sharingbest practice, improving the quality of management information andundertaking joint projects of mutual benefit, such as increasing counciltax benefit take up;
Do not progress the Procurement services project any further until thevarious national studies are completed;
Ensure that the ICT working group continues to meet, sponsored by a
Chief Executive and supported by a member of the Steering Group, toidentify opportunities to simplify and standardise the current ICTinfrastructure, software and hardware and improve working practices;
Do not continue to explore the opportunity of sharing Debt Recoveryservices as part of this project. The group may wish to continue to meetto learn from best practice;
Continue to instruct a consultant to support the project on Phase 2, andfor the Steering Group to review the performance of PwC;
Review the management and delivery of Phase 1 of the project to dateand ensure we learn from the experience.
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As part of the business case, the Steering Group will explore the amount ofinitial investment needed in order to break-even and consider approaches toaccelerate the payback periods.
Next Steps
If the recommendations of the Steering Group are agreed at the ConnectingSouth East Wales Board on 5 April, LAs will need to take:
Recommendations with Cabinets/Executives in each Local Authorityand with representatives from the Trades Unions, Local AuthorityManagement Boards and Directors and Lead Officers from the relevantservice areas.
update the Welsh Assembly Government, Making the Connectionsteam on emerging findings and decisions for Phase 2;
discuss and agree remit of PwC in relation to Phase 2; aim to commence Phase 2 by 23rd April 2007, to conclude 30th June
07.
Recommendations
For the Connecting South East Wales Board to agree to proceed withSteering Group recommendations outlined above
JO FARRAROn behalf of the Steering Group
Date 29th March 2007
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Appendix 2
Functional Risk Assessment iii
Scoring Bandings
High 31 60 Red
Medium 22 30 Amber
Low 10 21 Green
No Criteria WeightingPayroll &
HRTraining
Ctax &NNDR
InternalAudit
ICT ProcurementDebt
recovery
1 Potential Savings 15 L H M H H H H
2 Investment required 15 H L H M L L H
3 External Factors 5 M L M L L M L
4 Service Improvements 15 L L L M M L M
5 Political Support 10 L L M L L L M
6Pan Public Sectoropportunities
10 L L H L L L L
7 Operational Factors 10 M M M L M L M
8Similarities between
LA's10 M L M L H M M
9Estimated timescale forimplementation/complexity
5 H L H L H L M
10Operational willingnessto share
5 M M M L M L M
TOTAL 28 21 37 21 31 21 36
RISK Amber Green Red Green Red Green Red
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Government and Public SectorMarch 2007
Connecting SE Wales
Strategic Outline Case SharedServices
FINAL REPORT
Version 3.0 Final
Author MK
Date 20 March 2007
Our report is addressed to, and prepared for, SE Wales councils and we do not accept any duty orresponsibility to any other party. On this basis, this report should not be disclosed to any third party orbe quoted or referred to without our prior written consent. Such consent will be granted only on thebasis that such reports are not prepared with the interests of anyone other than SE Wales councils inmind and that we do not accept any duty or responsibility to any other party.
Any oral comments made in discussions with you relating to this report are not intended to have anygreater significance than explanations of matters contained in the report. Any oral comments that wemake do not constitute oral advice unless we confirm any such advice formally in writing.
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Executive summary
1. Summary findings
1 This strategic outline case demonstrates:
That there is a strong strategic case for implementing shared services in Wales not just froma functional perspective (Council Tax, NNDR, HR etc) but also from a pan-public sectorperspective as espoused by WAG in its recent paper on LSBs. We consider that it is in this
area that most citizen (and ultimately) financial benefits would accrue.
The seven functions in question include 2,036 FTEs and budgets of 92m per annum theyare large in scale.
There is not one model or solution for all of the functions within scope our proposals at thisstage are based on a mixture of simplification, standardisation and shared services. In someareas we are suggesting that the option with the greatest potential is more based onsimplification and standardisation (such as in the case of ICT) and in others we are suggestinga more shared approach (such as for Council Tax). This would need further exploration in theOutline Business Case (OBC).
The potential cashable savings for the majority of the functions provide reasonable paybackperiods, however, exploration of alternative investment models will need to be analysed aspart of the OBC to identify if the speed of payback can be improved with greater up-frontinvestment.
The potential benefits from sharing are as follows:
Function 10-year grosssavings before
investmentrequirement (cash
m)
10-year grosssavings after
investmentrequirement (cash
m)
Annual steadystate % saving(compared to
annual cost ofservice)b
Training
Payroll and HRemployee Records
17.550m 12.295m 7.9%
Council Tax andNNDR
11.212m 7.829m 12%
Debt Recovery(Accounts Receivable)
1.834m (1.911m) 7.5%
Internal Audit 4.136m 1.925m 11.4%
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Function 10-year grosssavings before
investmentrequirement (cash
m)
10-year grosssavings after
investmentrequirement (cash
m)
Annual steadystate % saving(compared to
annual cost ofservice)b
ICT 0.438m (0.234m) 0.2%
Procurement 2.306m 0.954m 7.9%
Totals 37.476m 20.858m 5.6%
Improved performance is expected from the shared services however, these will need to bedefined during the development of the OBC.
There are a variety of governance models that can be utilised within a shared servicesarrangement, for the purposes of the SOC we are recommending a joint committeearrangement initially with the potential to move to a more formal entity arrangement subject to
certain criteria being met.
The councils need to consider which services move forward to the next stage taking intoaccount the costs, benefits and risks for each of the services.
2. Introduction
2 This SOC has been prepared in accordance with our engagement letter dated 13 November 2006.It discharges PricewaterhouseCoopers deliverables in relation to Phase 1 of the project.
Project vision
3 This project seeks to explore whether a meaningful partnership between the 10 local authorities inthe South East W ales region could be developed based on sharing back office services, to improvepublic service delivery.
Strategic context
4 The strategic context to this study includes:
Local Government in Wales faces rising demands for higher quality of services at the sametime as increasing budgetary pressures and requires means of releasing resources for frontline public service delivery.
The potential for sharing corporate and support services between organisations has been
widely discussed on the basis of Gershon and the Welsh Assembly Government reportMaking the Connections (October 2004) which states that The greatest gains are likely tocome from organisations introducing shared support functions.
The recent review of service delivery (Beecham July 2006) recommends that public sectororganisations in W ales should address capacity gaps and achieve improvements throughshared services.
WAGs paper on Local Service Boards (LSBs) suggests that in order to secure real publicservice improvement, there is a need to think on a pan-public sector basis joining up publicservices around the citizen.
5 This project is about functional shared services potentially bringing together 7 functions (somewith an external customer facing perspective, others more internal support services). But it isimportant in our considerations that we have regard for the bigger picture espoused by the WAG
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around one public service rather than one local authority.
6 The Connecting South East Wales Board (the Board), includes the Leaders and Chief Executivesof the ten local authorities in the South East Wales region, as listed below, and is administered bythe WLGA.
Blaenau Gwent County Borough Council
Bridgend County Borough Council
Cardiff Council
Caerphilly County Borough Council
Merthyr Tydfil County Borough Council
Monmouthshire County Council
Newport City Council
Rhondda Cynon Taf County Borough Council
Torfaen County Borough Council
Vale of Glamorgan County Borough Council
7 The Board has agreed to a project that will investigate the potential for sharing various services.The jointly agreed PID currently applies to Phase 1 of the Shared Services Study, which in total willcomprise three phases. This first phase is a Feasibility Study limited to seven service areas.Phase two of the project will develop business cases for services that have the best potential forsharing. Phase three will produce an Outline Implementation Plan for consultation.
Project purpose and outcomes
8 The jointly agreed PID and Project currently applies to Phase 1 of the Shared Services Study. TheProject purpose is to establish the Strategic Outline Business Case to identify need, scope and fit,determining the potential value and extent of joint working between the 10 member councils of theConnecting South East Wales Board. More detailed desired outcomes are set out in the body ofthe report.
9 There is a potential benefit that, irrespective of whether a strategic case is proven for sharedservices in any functional service area, individual Councils may identify cost savings, efficiencygains, etc., through other means (e.g. process standardisation). The project does not aim to
identify these benefits, but where they become apparent and no additional work is required,they will be logged by the Project Office.
10 The desired outcomes of sharing services between local authorities can be summarised asdelivering Improved service delivery to citizens and employees more efficiently whilst having regardfor the wider socio-economic and governance considerations applicable in Wales.
Background
11 PwC have assisted the S E Wales Project Team to identify an approach for collaborative workingacross seven functional service areas:
Training
Payroll and HR employee Records
Council Tax and NNDR
Debt Recovery (Accounts Receivable)
Internal Audit
ICT
Procurement.
12 These functions include 2,036 FTEs and budgets of 92m per annum.
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13 The study has three phases:
Phase 1, (this phase) Feasibility Study, which will produce a Strategic Outline Case (SOC) foreach of the seven functional service areas. This will capture high level baseline costs, sharedservices implementation costs and benefits, to a level of detail necessary to contribute to theprioritisation and identification of opportunities which will progress to Phase 2 of the study identifying which service areas should be progressed and for which councils.
Phase 2, Outline Business Case (OBC)
Phase 3, an Outline Implementation Plan and framework for the first wave implementation.
14 The overall desired outcomes will only be achieved following successful completion of all threephases.
The purpose of this document
15 It is very important to understand the nature of this document. This Strategic Outline Case (SOC) isthe outcome of Phase 1 of the study and is intended to provide:
An overview of the strategic context for the project and an assessment of whether theproposal would demonstrate strategic fit
An assessment of each of the seven functions in terms of their suitability for sharing and whatthe high level costs and benefits of that might be in practice.
An objective assessment of each of the services against pre-determined criteria as to theirsuitability for sharing
Enough information to allow the Board to decide whether it wishes to continue with theinvestigation and which, if any, functions it would like to be the subject of more detailedbusiness cases.
16 It is not the intention of this document to provide all the answers. In relation to each of the functionsthat are selected, the Outline Business Cases will flesh out what proposals would be in more detail.The SOC is a wide-ranging (from a functional perspective) assessment of whether there is thepotential to share. It is not intended to finalise how that sharing might work in practice thatis for later phases to explore. For information, the then Office of the Deputy Prime Ministers
Strategic Partnering Taskforce report included the following definitions:
Strategic Outline Case (SOC) - A planning and scoping document that contains the results ofa business review
Outline Business Case (OBC) A combination of business analysis and investment appraisal
to conclude on a way forward.
Agreements reached and positions adopted
17 We have worked closely with your project team including your project manager and the chieffinancial officers from each of the councils. This includes the format of the SOC and theassumptions made in the financial modelling and analysis.
3. Strategic Case
18 We have set out much of the strategic background earlier in this Executive Summary.
19 Making the Connections outlines four main principles:
Citizens at the Centre
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Equality and Social Justice
Working together as the Welsh Public Service
Value for Money
20 The efficient government outlined by Making the Connections - Delivering Beyond Boundaries:
Transforming Public Services in Wales is a step-change approach to the way public services aredelivered.
21 WAGs response includes a commitment to engage with all parts of the public service to establishLocal Service Boards (on a local authority area basis) and to work with Local Service Boards todevelop, initially in selected areas, Local Service Agreements on service improvement. Thepurpose of establishing Local Service Boards is to strengthen local public service leadership sothat it can tackle fundamental and unmet challenges from a citizen, not a sector, perspective. Oursense is that for this to be a success, it requires collective understanding of demand, collectivecommissioning or supply and collective performance management based on outputs and outcomesrather than inputs and processes.
22 Exploring these themes, as part of the visioning workshops we used the following slide:
23 This picture anticipated some of the LSB consultation paper thinking and was debated at each ofthe authorities visioning workshops. Our sense is that the LSB vision is a challenging agenda thatwill take time to deliver but that this aspiration is one that should be pursued. We consider that thisagenda should be pursued but that the challenges should not be underestimated.
24 The work currently being undertaken across Wales on the shared services agenda will feed intothis thinking, but also has the potential to undermine a more cohesive and long-term vision forservice delivery that is truly customer focused. There is a risk that by concentrating the effort oflocal public delivery organisations on functional solutions for mainly back office shared servicesthat the bigger picture of better more efficient delivery of services to customers will not happen formany years. So, we would conclude that any shared services activity needs to consider the biggerpicture of how public services will look in five or ten years time.
White MailWhite Mail TelephoneTelephone SMSSMS
Sharedservices
Councils
Health Boards
Police
Others
3rd Sector
Frontoffice:
contactcentre
(CRM)
JSC
JSC
Shared premises
Ext School
Smallback office
Corporatecore
Middleoffice
JSC
Schools
Direct services
Social care
Back office Middle office Front office
E-MailE -M ai l I n te rn etInternet
Face-to-faceFace-to-face
Face-to-faceFace-to-face
Commoditised delivery
Jointcommissioning
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Strategic context for functional shared services
25 Whilst the bigger picture represents what the public sector is seeking to pursue across Wales,there is no doubt that this will take significant time to address and in the mean time, there is an on-going requirement to secure efficiencies and service improvements. This is the main focus of thisaspect of the work.
26 The strategic challenge asks:
Is there a way to deliver these functions with improved performance and greater efficiency whilsthaving the regard for the special circumstances in SE Wales?
27 What is clear from the visioning workshops and the more detailed work with authorities is that theremust be a demonstrable business case for change. Councils are not about doing shared servicesfor the sake of it or as an end in itself.
28 It is clear that in terms of the functions in question, some are more transactional and many have acustomer interface, some external. Councils were of the view that where there was an externalcustomer interface this should be dealt with locally. However, the fundamental point here is that
just because certain aspects of a service require local input and local integration it should not mean
that the whole service cannot be shared. We need to think about parts of functions as well aswhole functions.
Key stakeholders and nature of their interest
29 The key stakeholders in this project are as follows: Local citizens; local businesses, Electedmembers; employees; trades unions; WAG and the WLGA.
Strategic visioning
30 As part of this project we have run 10 workshops (one in each authority) aimed at developingthinking in authorities around the strategic vision that they are seeking to pursue. As part of thisexercise, we explored the following spectrum of possible approaches:
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31 The purpose of this exercise was to explore authorities thinking around where they saw each ofthe seven functions as potentially benefiting from a shared approach. More detail is contained inthe main report but it is probably fair to say that in many cases (authorities and functions) theconsensus was around Multi-site SSO sharing but on a more virtual basis that co-location.
32 We also explored a range of other guiding principles or key features of the potential SSO (covered
in the main report) issues like location, investment funding, governance etc) and the views weremore mixed at that early stage.
So, what are the key strategic messages that we need to take forward?
33 There is a strong desire on the part of WAG and some local authorities to consider sharing ofservices on a pan-public sector and citizen centric model rather than from a purely functionalperspective. Any solution therefore needs to consider this desired medium-term outcome.
34 Notwithstanding this point, there is a belief or hypothesis within WAG (and in some authorities) andechoing Beechams thinking that there are significant financial benefits that could accrue throughmore sharing and collaboration within the local authority community.
35 There is a range of desired outcomes of sharing services between local authorities but these reallycentre on improved service delivery to citizens and employees, efficiency and appropriateness onsolution.
36 There are some fundamental issues and principles that were repeated in all authorities the factthat local government is local and that insomuch as this is perceived by local people it shouldreflect local priorities, tailoring and approaches.
37 That the councils are not about shared services for shared services sake there must be ademonstrable business case to proceed.
38 Visioning workshops suggested consensus around a multi-site SO but there was much lessconsensus around some of the key features of that SSO.
39 There is a broad range of stakeholders whose views must be considered.
Cost base
Duplicated systems /interfaces
Multiple processes little standardisation
Multiple customer
interfaces
Multiple locations
Status quo
Cost base
Duplicated systems /interfaces
Multiple processes little standardisation
Multiple customer
interfaces
Multiple locations
Status quo
Investment required?
Cost base
Collaboration
Joint working around
certain agendas; Somestandardisation;
Common approachesScale economies
Multiple costs of
accommodation &management
Duplicated systems /interfaces
Scale economies etcnot fully exploited
Cost base
Collaboration
Joint working around
certain agendas; Somestandardisation;
Common approachesScale economies
Multiple costs of
accommodation &management
Duplicated systems /interfaces
Scale economies etcnot fully exploited
Cost base
Multi-site SSO
Shared services
Some shared locations
Some shared functionsCommon processesCommon front office
Common management
& governance
Multiple costs of
accommodation
Duplicated systems /
interfaces
Residual costs from
partial solutions
Cost base
Multi-site SSO
Shared services
Some shared locations
Some shared functionsCommon processesCommon front office
Common management
& governance
Multiple costs of
accommodation
Duplicated systems /
interfaces
Residual costs from
partial solutions
Cost base
Single site SSC
Shared services
Shared locationsShared functions
Common systemsSingle source supportservices
Common processesCommon front office
Common
management &governance
Requirement to
implement medium to
long term solutions
Cost base
Single site SSC
Shared services
Shared locationsShared functions
Common systemsSingle source supportservices
Common processesCommon front office
Common
management &governance
Requirement to
implement medium to
long term solutions
Cost base
Private partnering
Shared services
Shared locationsShared functions
Common systemsSingle source supportservices
Common processesCommon front office
Common
management &governance
Risk transfer
Requirement to
implement medium to
long term solutions
Cost base
Private partnering
Shared services
Shared locationsShared functions
Common systemsSingle source supportservices
Common processesCommon front office
Common
management &governance
Risk transfer
Requirement to
implement medium to
long term solutions
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4. Customer case
40 The customer case for change is, in many ways, the most important aspect of addressing servicedelivery and defining new ways of working. Local government is there to serve its citizens, just asbusiness is there to serve its clients. In developing this SOC for the SE Wales shared services, wehave reflected on the customers and the role of the different stakeholders whose interests must betaken into account in any proposed changes.
41 The stakeholders comprise many different groups of people, all of whom will have concerns aboutchange and for whom the ten councils will need to develop strategies for addressing their issuesthroughout any transitional phase and on into the shared service operation going live. W eunderstand that the Councils are keen to preserve and build on the sense of face to face servicesdelivered locally, whilst creating synergies and other benefits which arise from co-location of staffand services in the back office. The ambition is therefore, for services to look the same to thecustomer, but to feel different in terms of the benefits and value which is being driven throughchanges in the back office. We have therefore considered the stakeholder and customer base asinternal and external as follows:
External stakeholders and customers Internal stakeholders and customers
External service users Council taxpayers, Businesses for NNDR, othersundry debtor activities
Internal services users all otherinternal departments within the councils
Precepting bodies such as the Fire,Police and Parishes
Elected members
Government departments and otheragencies in contact with council tax
42 We have included an analysis of each of the customer groups in the main report.
43 For service users the experience of dealing with the council will be critical. A key requirement is fora customer centric front office and an efficient and effective back office (the SSO) all operatingwithin the context of agreed strategy and policy (from the councils). Service users have a right toexpect a single and transparent process reflected in a symbiotic relationship between the front,middle and back office. Typically, they are not interested in internal complexities except wheresuch complexity or transaction processing impact adversely upon the services being delivered.
44 Elected members see some of the functions (such as council tax, benefits (affected even thoughout of scope) and debt recovery) as a key service for councils that impact upon the entireelectorate. In moving to an SSO approach, members accountability and responsibility for servicesmust be reflected and embraced in new governance and operational model. This would be effectedthrough the SSO board and performance management arrangements.
45 Efficient and effective support services are key to delivering success in the cross cutting corporateprocesses and front line services which deliver to the customer. Improvements driven through theSSO will need to be seen in the corporate context, however, if internal and external customerbenefit is to be realised, and for this to occur, efficient and knowledgeable administration is key tothe success of shared services, regardless of how provided, in the public or private sectors.Hence, contract management of a shared service operation will be of some significant importance,both as a means of ensuring that the service is supplied in accordance with the SLA between theindividual councils and the shared service operation, but also to discharge the councilsaccountability for the service, something that must always remain with the individual council.
46 For customer satisfaction to be successful there are a significant number of critical success factors a framework is suggested as a starting point in this section. Fundamentally, there will be a need
to engage customers in the establishment and ongoing operation of the SSO to ensure that theirneeds are being met.
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47 We have included some critical success factors for customer satisfaction in the body of the reportand this should be used as a check-list going forward.
5. Economic case
48 The economic case is the backbone of the SOC, setting out the key options appraisal that hasbeen conducted for each of the seven functions under review. This options appraisal looks at
where the service is now, what could be achieved as best practice, how current arrangementscompare with this and what is the recommended option. This section links closely with theFinancial case which looks at the financial implications of the recommended option as comparedwith the status quo all over a 10-year time horizon.
49 The Economic case is broken down into three main areas, the second of which has a number ofsub-elements to represent each of the functional areas. This section of the SOC thereforecomprises:
Approach and generic case
Functional case
Summary and conclusions
Approach and generic case
Methodology
50 The approach we have taken in developing the economic and financial case for each of thefunctional areas is represented schematically in the diagram below
Baseline
51 In carrying out an assessment of the baseline we have undertaken a number of key tasks, with aview to establishing where services are currently in terms of cost and performance.
Options appraisal
52 In this section of the SOC we examine in more detail whether there is an economic case forestablishing an SSO or whether any form of sharing would be appropriate. This is based on thefollowing approach and analysis:
Scope - What services should be included withinthe shared services operation?
Baseline - What are the current activity levels
and costs of delivering these services?
Options - How may services be reconfiguredif that is appropriate?
Solution - What could the new operating model
for these shared services?
What are the implications in terms of people,technology and accommodation?
The thinking hereis to review the
Scope as agreedby SE Walescouncil first then toexplore the currentservice Baseline,then to developthe options fordelivery, proposea solution andunderstand theimplications of thesolution.
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Options or issues Analysis
WHAT?
(the scope of services to be
included within the SSO)
The scope of the services to be included with the shared service could be
significant, medium or minimal the question therefore is to what extent the
existing services should be delivered through the shared service.
HOW?
(the delivery model for the
service)
The service could be implemented on either a deep, (highly integrated with
shared accommodation, systems and generic case load) or shallow
(collaborative working, separate systems, individual council based work load)
basis or some middle ground between the two.
WHEN?
(timescales for
implementation)
The consideration here is whether the implementation is big bang or on an
incremental basis.
GOVERNANCE?
(model for strategic decision
making and accountability)
This requires an understanding of the outcomes required by the councils in
delivering the shared service operation e.g. level of risk transfer, level of
decision making across democratic boundaries, wider trading opportunities
etc.
Solution and implications of the solution
53 Having identified our preferred solution for the what, how, when and governance methodologiesabove, we then developed further the detail of the preferred solution delivery model of the sharedservices operation, this includes:
The staffing requirements for the functional service including the business process re-engineering and transitional resource requirements
the ICT options and recommendations for achieving the shared services operation
the accommodation requirements for the shared service operation.
Overriding approach and assumptions
54 We have utilised a number of assumptions in developing the modelled solution for each of theservices including, but not limited to:
Development of a best practice model our best practice models has been developed fromhands-on experience with a large number of councils throughout the UK, and our experiencewith Private Sector organisations that have implemented the simplification, standardisationand sharing of services. We have undertaken a comparison between the councils and our best
practice models utilising a traffic light system to highlight where councils are on the scale of abest practice model
BPR assumptions - whilst we have made assumptions around process improvement and theBPR savings that might accrue we have not undertaken detailed process review however, ourunderstanding of councils and best practice models have led us to believe the savings weidentify are achievable.
We have relied on data provided by the councils to derive the overall solution which is drivenby scale and BPR efficiencies as a consequence of the shared service solution. At this stage,the assumptions we have made in relation to the extent of the efficiency savings which can beleveraged is cautious because our assessment of the data is at a high level. As a result we
would not expect the overall impact of the efficiency savings to be reduced but to improve asthe proposition is worked up in the OBC.
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Whilst the SOC sets out an example scenario of how efficiencies and added value servicesolutions can be leveraged from the shared service, this is indicative. There may be otherways the councils may wish to configure the services and the phasing of the solution. This willbe developed in more detail at the OBC stage.
Specific functions economic cases
55 There is a large volume of analysis in the main body of the report that is difficult to summarisemeaningfully here. We have therefore included the following table that includes both the nature ofthe proposed solution and its financial impact:
Function Proposed solution Nature of thesolution
Phasing Indicative netfinancial benefit
over 10 years(cash) m
Training; Set up of a full SSOwith a clear split offunctions betweenthe shared service
and the councils.The councils delivertraining with theSSO undertakingthe administration ofthe training.
Common ICTplatform
Simplification,standardisationleading toshared services
4 councils in Year 1
Further 3 councils inYear 2
Final 3 councilsadded in Year 3
Payroll andHR
employeeRecords;
Set up of a full SSOwith a clear split of
functions betweenthe shared serviceand the councils.The councils deliverstrategy with theSSO undertakingthe operations.
Common ICTplatform
Simplification,standardisation
leading toshared services
4 councils in Year 1
Further 3 councils inYear 2
Final 3 councilsadded in Year 3
12.3m
Council Tax
and NNDR;
One shared service
centre for the backoffice processingsupported by home-working. Front officeprovides the localdelivery tocustomers
Common ICTsolution.
Simplification,
standardisationleading toshared services
4 councils in Year 1
Further 3 councils inYear 2
Final 3 councilsadded in Year 3
7.8m (plus the
impact ofincreasingcollection ratesand cash-flow)
DebtRecovery
(Accounts
Full SSO based ona Hub and spoke
model based onsundry debt.
Simplification,standardisation
leading to
Phase eachconsisting of 5
councils moving intoa shared service
Additional cost of1.9m however,
there will beadditional
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Function Proposed solution Nature of thesolution
Phasing Indicative netfinancial benefit
over 10 years(cash) m
Receivable); Social services debtdealt with by the
local authorities.
One ICT solution
shared services centre.
Implementationtakes 18months foreach phase butbenefits realisationis 6 months postimplementation ofeach stage.
benefits from:
the reductionin aged debtacross theauthoritieswhich is a oneoff benefit and
theimprovementsin year onyear currentdebt collection
Internal
Audit;
Collaboration of
specialist resourcesthen moving to a fullSSO.
Common ICTsolution
Simplification,
standardisationleading toshared services
Year 1 Schools
audit specialistresource
Month 19 Contractaudit specialism
Month 25 ICTaudit specialism
Beginning of Year 4 Full SSO
1.9m
ICT; and Collaboration forICT procurementssolely due to thewide range ofsystems currently inplace across theboard. We haveidentified a numberof business casesfor collaborativeworking.
Potential to exploreand ICT sharedservices in thefuture based onother sharedservicesimplementation e.g.CTax and NNDRwhere common ICTplatforms areutilised
Simplification Inclusion of BPRresource for the first2 years to work withthe councils todevelop thebusiness cases forcollaboration.
Additional cost of237k
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Function Proposed solution Nature of thesolution
Phasing Indicative netfinancial benefit
over 10 years(cash) m
Procurement Hub and spokemodel where there
is a central Hubhandling certainprocesses such assuppliermanagement,benefits realisationprocesses, sourcingof corporatecategories with thespoke providinglocal support to thecouncils on strategic
procurement.
Simplificationand
standardisation.
3 phases:
Phase 1 set upSSO arrangement,undertake spendanalysis, agreebenefits realisationapproach
Phase 2 corporatecategories andsuppliermanagement
Phase 3 serviceexpenditurereviews
0.954m
56 From this economic case we can draw the following conclusions:
The strategic outline case is, as the name suggests, a case that will require a lot more work atthe next stage (outline business case) and future stages.
We have reviewed the data for each of the functional services and found a number ofinstances where there is an inconsistency in the data provided by councils, this will need to be
resolved at the next stage.
We have considered options in relation to the what, how, when and governance implicationsfor how the SSO might work for each of the services and we summarise below the what, howand when for the functional services:
57 In summary, we have identified the following with regards to the What for the functional areas:
Small scope for the ICT service, based on ICT procurement solely
Medium scope for the debt recovery and procurement services. Debt recovery is based onsundry debtors whilst the procurement service is based on sharing of supplier management,benefits realisation approach etc.
What
How
When
Model
LargeScope
Full
SSO
Big
Bang
Smallscope
Collab-
oration
Incre-
mental
Mod
el
Model
LargeScope
Full
SS
Big
Bang
Smallscope
Collab-
oration
Incre-
mental
C
Ta
x
&
NND
R,
Debt
Recove
ry,
HR
&IntA
udit
ICT&Int
Audit(3ys)
C
Tax
&
NNDR,
HR
&IntAudit
ICT
C
Tax&
NNDR,Debt
recovery,HR
/
Payrolland
training,
Internal
Audit&
Procurement
ICT
Debt
Recovery&
procurement
What
How
When
Model
LargeScope
Full
SSO
Big
Bang
Smallscope
Collab-
oration
Incre-
mental
Mod
el
Model
LargeScope
Full
SS
Big
Bang
Smallscope
Collab-
oration
Incre-
mental
C
Ta
x
&
NND
R,
Debt
Recove
ry,
HR
&IntA
udit
ICT&Int
Audit(3ys)
C
Tax
&
NNDR,
HR
&IntAudit
ICT
C
Tax&
NNDR,Debt
recovery,HR
/
Payrolland
training,
Internal
Audit&
Procurement
ICT
Debt
Recovery&
procurement
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Large scope for Council tax and NNDR, HR / payroll and training and Internal audit with themajority of these services transferring into a shared services arrangement.
58 We have identified the following with regards to the How for the functional areas:
A collaboration approach for the ICT service for ICT procurement based on simplification andstandardisation rather than sharing per se
A specialist resource approach for the internal audit service until there is a move to a fullshared service in year 3.
A full shared service for Debt recovery, Council Tax and NNDR, subject to the front officeproviding the customer interface. A full shared service for HR, payroll and training whichprovides activities which are high volume, repetitive, transactional in nature, automated andstandardised, with the councils providing activities / services which are unique to theorganisation, potentially high risk, support development of Business / HR strategy.
59 We have identified the following with regards to the When for the functional areas:
An incremental approach for the ICT service based on the development of business cases forcollaborative working on ICT procurements.
A big bang and incremental approach for all other service areas, big bang meaning all councilssign up to the shared service arrangement however, the implementation of the shared serviceis on an incremental basis. The below summarises the approach per service:
Internal audit is based on a 4 stage process. Stage 1 to 3 is based on specialist audit functionsand stage 4 is the move to the full shared service arrangement.
Council Tax and NNDR is based on a 3 stage process. Stage 1 includes all the processes for4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds thefinal 3 councils to the shared service.
Procurement is based on three phases of implementation involving all councils, at each phasethere will be more functions added to the shared services arrangement
Debt recovery is based on two phases of implementation. Phase 1 includes 5 councils movingto a shared services arrangement and phase 2 adds the final 5 councils
HR, payroll and training is based on a 3 stage process. Stage 1 includes all the processes for4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds thefinal 3 councils to the shared service.
6. Financial Case
60 The economic case provided a modelled / proposed approach for each of the functional serviceareas. This section of the SOC supports the economic case in that it presents the financial case forestablishing the modelled / preferred approach for each of the functional service areas SSO.
61 In the time and budget available to conduct this review, and in accordance with scope, we were notable to undertake a detailed and in-depth audit of the finances. We have reviewed and analysed awide range of financial information provided to us by all councils.
Discussions with finance directors
62 We have met with the finance cross cutting team twice during the Strategic Outline Casedevelopment and agreed the basis on which this financial analysis will be completed further
details are in the main report.
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63 The approach for determining the price to be paid by each council within the shared servicearrangement will be explored as part of the next stage. However, discussions have taken place ona cost sharing or benefit sharing basis.
Assessment of costs and benefits that would accrue, financial and non-financialfrom the SSO
64 Many factors will influence the costs and benefits to each council (see the main report), however, itis anticipated that the following general costs and benefits will apply
Costs Benefits
Set-up costs for implementing the project
including council staff time and shadow
management arrangements.
Related overhead costs production of any
procurement documentation for example.
New ICT for a common technology base
New management structures, and
recruitment for new skill sets Accommodation for the shared service
operation
Performance management systems
Training for all staff for new systems and
related work processes
Advisers costs.
Senior management monitoring of project
performance.
Redeployment and severance costs for staff
Better collection of debt current and previous
years debt (these havent been quantified or
factored into the financial case)
Reduced costs longer-term and increased
value for money.
Common systems providing easier installation
of updates, training, and problem resolution
Better utilisation of council assets including theability to trade and deliver services to other
councils, improving sustainability.
Improved service standards and a contractual
obligation to each council to realise continuous
service improvements.
Meeting objectives in relation to being seen as
a modern deliverer of services.
Greater career opportunities for staff in a larger
enterprise with a wider market share.
Commonality of approaches to areas of
discretion across the councils, addressing
equalities.
Efficiency Review (cashable Gershon)
Approach to the modelled financial case
65 The approach we have taken in developing the financial case for each of the functional areas is:
Assessment of the current annual cost for delivering the service by council and in totality
The annual and the total cost of the modelled / preferred approach
The assumptions used in developing the modelled / preferred approach
Sensitivity analysis on the basis agreed with the finance cross cutting team on the modelled /preferred approach.
66 For the purposes of evaluating the financial case for each of the functional areas we have madethe following generic assumptions with regards to the budget information:
All staff included within the individual structure charts provided by the councils are includedwithin the above budgets
All contracts can be terminated without penalty or transferred to the SSO
The costs stay static over the 10 year period of our evaluation of the SSO
We have not taken into account any capital budgets or other allowances the councils may
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have set aside.
The investment figures provided within the business case are deemed to be prudent.
The staff efficiencies built into the modelled solution are on the basis of the average salary forthe service.
We have not included any redundancy / redeployment costs within the financial case.
We believe that each of the modelled approaches are a prudent assessment of the cost of theservice.
67 All figures are calculated in cash rather than an NPV basis.
68 The financial case improves significantly for all councils if further savings for support service costscan be achieved
69 The financial case is impacted if only half of the councils participate in the shared servicearrangement
70 The table and chart below summarises the 10 year financial (cost) / savings for each of thefunctional areas based on the core model and the sensitivity analysis:
Summary 10 year
positionall figures in 000's Core
5
Councils
10%
support
services
20%
support
services
HR
efficiencies
ICT (234) (285) 1,181 2,595
Internal Audit 1,925 288 2,235 2,545
Procurement 954 453 1,306 1,658
Council Tax and NNDR 7,829 1,171 10,220 12,610
Debt recovery (1,911) (2,115) (1,128) (345)HR / Payroll and training 12,295 5,059 14,343 16,390 7,920
Summary 10 year financial position for each functional area
(5,000)
0
5,000
10,000
15,000
20,000
ICT Internal Audit Procurement Council Tax and
NNDR
Debt recovery HR / Payroll and
training
Functional service
000's
Core 5 Councils 10% support services 20% support services HR efficiencies
71 The chart below summarises the cumulative net financial (cost) / savings for each of the functional
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areas based on the core model:
Cumulative cashflow benefits for each functional area
(20,000)
(15,000)
(10,000)
(5,000)
0
5,000
10,000
15,000
20,000
25,000
1 2 3 4 5 6 7 8 9 10
Year
000's
ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training
72 The chart and table below illustrate the steady state savings for each of the shared servicesmodels, we have utilised the Year 6 annual savings position to represent the figures below:
AnnualBudget
Year 6Savings % saving
ICT 36,593 63 0.2%
Internal Audit 5,154 587 11.4%
Procurement 4,223 334 7.9%
Council Tax and NNDR 13,226 1,581 12.0%
Debt recovery 3,615 270 7.5%HR / Payroll and training 29,349 2,315 7.9%
The table identifies that the greatest value () savings are Council Tax and NNDR and HR,Payroll and training, However, from a % of the annual budget perspective, the greatest %savings are Council tax and NNDR and internal audit.
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0
500
1,000
1,500
2,000
2,500
ICT Internal Audit Procurement Council Tax andNNDR
Debt recovery HR / Payroll andtraining
Service
000's
Year 6 Savings
7. Commercial case
73 Many of the aspects of the Commercial case involve legal or pseudo legal issues that need to beresolved, including, inter alia, vires and EU procurement issues. PwC are not lawyers and cannotprovide legal advice in relation to this project. No actual or implied legal advice is given here andtherefore the councils would need to seek legal advice accordingly. Any views expressed beloware therefore for information purposes only.
74 In this section of the SOC we have addressed:
Issues to be considered in developing the governance model for the SSO.
Governance models for shared services the options.
A recommended approach to the governance model for the SSO.
75 Whilst formal objectives have not been set for governance of the partnership, based on ourunderstanding, they are on the lines that any new arrangement should be relatively straightforward,sustainable, cost effective and recognise that different councils may wish to be involved in different
ways.
76 The diagram below shows the options for SSO governance models as a continuum where thefurther the Councils move towards setting up a company or LLP, the more arms length it becomesto the decision making process.
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More arms length
Collaborativearrangements
JointCommittee
JointBoard(legality)
Contractualpartnership
JV/LLP JV/LLP withprivate input
77 Typically, but not always, the more arms length arrangements, could involve the private sector asa partner in the shared service context. This is, however, not an over-riding principle and it ispossible that a private partner could be involved in any of these options to potentially add valuearound:
Risk transfer
Input of innovation and capacity
Financial decoupling funding investment requirements
Changing the pace of change.
78 We have not undertaken an analysis of where this might help because this should be consideredas part of the OBC stage.
79 The criteria which must be taken into consideration in determining whether the governance modelwould be close to or arms length from - the councils decision making are:
Control
Risk transfer
Cost/ value for money
Trading
Flexibility/scalability
Financial decoupling
80 The main report provides greater explanation of these points and sets out the pros and cons of theoptions that we have considered for the governance of any shared services arrangements. Wehave set out below one approach to moving forward.
One suggested approach to governance
81 In considering the options for governance we have reflected upon the governance outcomes thatwould need to be delivered by the recommended or selected solution and how it would best fit withthe service solution being proposed. These can be summarised as follows:
We understand that the councils favour a solution which is a public sector solution for thepublic sector. This implies that, at least initially there will be no significant private sectorinvolvement in the delivery of the SSO services see our comments above about where theprivate sector may add value. . We emphasise delivery because it is inevitable that some
external support will be required in terms of ICT and transition management.
We have set out the advantages of an incremental approach to developing the governance
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model in particular that less formal structures, which have flexibility, and are less costly toestablish and amend in the early stages of the SSO can be advantageous. We understandthat the councils are attracted to this approach, and several have expressed willingness to actas lead authority if a Joint Committee were chosen as the model.
EU procurement laws must be considered carefully and we have strongly recommended thatthe councils seek legal advice on the implications of recent judgements in the European Court.
The councils would not at this stage want to go through a full EU procurement exercise inorder to have the SSO discharge functions on their behalf. This requirement alone makes itdifficult to establish a new body corporate from Day 1 because, were this to be, for example, a
joint venture company, that company would not be deemed an emanation of state and wouldrequire successful EU procurement in order to discharge functions on the councils behalfs
There is a real need to reflect the role of elected members and provide proper accountabilityand responsibility for how services are delivered. Any governance arrangement must thereforereflect and accommodate these needs.
82 We have therefore concluded that the best balance to address the above drivers would be twophases:
Phase 1 Joint Committee umbrella committee with all authority composition for all sharedservices see suggested governance format for roles and responsibilities below.
Phase 2 subject to certain criteria, and in particular taking account of significant procurementissues, having a review stage when the project as proposed in the Economic Case isoperational to assess whether further benefit could be driven by moving to a more formalentity structure.
8. Project management case
83 Developing a major project of this nature will require dedicated resources for project management,a sound project plan that is monitored and reported against, appropriate budget allocation and a
dynamic approach to overcome staff concerns that will only increase if development is tooprotracted.
84 The project should continue to be managed according to Cardiff Councils Project QualityAssurance (PQA) standards, based on the OGC best practice PRINCE2 and Managing SuccessfulProgrammes (MSP), to ensure all councils are directly and equally involved in any decision-makingto take the project forward.
85 The Project should therefore be managed and co-ordinated as follows:
Project Mandate to give overall direction for Project;
Project Manager & Senior Responsible Officer appointed;
Steering Group to determine scope;
Project Initiation Document updated for each phase to give direction; and
Project Team Identified.
86 Governance and decision making will be provided by the South East Wales Shared ServicesSteering Group, reporting to the Connecting South East Wales Board. Local Authority SteeringGroup members will provide the strategic input and direction for each Local Authority. The ProjectManager for the South East Wales project will be responsible for day to day management of theProject and contract management of the supporting consultants. Local Authority Project Managerswill be responsible for coordinating the provision of local information and consultation during phaseone.
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87 The following diagram provides a logical mapping of the project hierarchy:
Critical success factors
88 Based on our experience elsewhere, there are a number of critical success factors for thesuccessful implementation of the shared service arrangements. These include:
Buy-in from the councils to the overall strategy
A clear measure of what would make the shared service a success
Agreed methodology for dealing with issues, disputes, risk, and change
Engagement of staff in the project and an agreed joint approach to communication and
consultation
Delegation of decision making to the right people for the right situations
Appropriate resourcing provided and a budget for specialist resources as identified
A robust project plan that covers the detailed business case development through tocompletion of delivery of the shared service operation.
High-level risk assessment and risk management strategy
89 The main report outlines an initial assessment of the key strategic risks faced by the councils whenconsidering the development of any shared service. The report also provides details of actions
which could mitigate the risk. The assessment needs to be updated on a regular basis and a fullrisk management approach developed within the project.
Project development
90 There will need to be the creation of an implementation strategy that is robust and appropriate witha project plan that covers the period from detailed business case development through tocompletion of delivery of the shared service operation.
91 We would see the key issues going forward as being:
Signed commitment from all councils to the shared service project development to the nextphased agreement point
The business needs of all councils are fully reflected and articulated in the outline business
Shared ServicesProject Team
Shared ServicesSteering Group
Connecting South East Wales BoardConnecting South East Wales Board
Local Authority SharedServices Project
Procurementsub group
Stakeholdergroups
PwC
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case
If the partnership is to be addressed in incremental stages that the project is broken down intological, sequential steps
Keeping the project under control by sound project management techniques
Development of a structured business change management plan
Establishing value for money tests for both councils and confirmation that the project isaffordable
Development of appropriate joint risk management for the project and risk management withineach council
Tasking the suggested working groups in support of the issues highlighted in this strategiccase to a clear timetable of deliverables
Confirmation of project resources to allow it to be implemented, including estimates ofadvisers costs and access to other skills necessary for the implementation.
Recognition of the burden that moving forward will create for councils and the fact that theywill need additional capacity to take forward the shared service agenda
There will be many staff concerns and these will need to be well managed through a soundjoint communication and consultation strategy to ensure the continuation of the currentperformance standards,
9. Conclusion
92 The overall conclusion is that all of the functions in question can benefit from sharing either interms of greater process standardisation and collaboration
93 From the Strategic Case we can conclude that adopting a more standardised and shared
approach to public service delivery across Wales would enjoy strong strategic fit. It is consistentwith WAG thinking and with many of the councils stated aims and objectives. Whilst the focus ofthis review is the 7 functions in question, we are strongly of the view that shared services in Walesshould have wider regard for the pan-public-sector and citizen centricity agendas espoused byWAG and which would make a significant difference to citizens day to day lives we see this asthe UK and international direction of best practice travel.
94 As far as this case is concerned, the fundamental strategic question is whether there is a way todeliver these functions with improved performance and greater efficiency whilst having the regardfor the special circumstances in SE Wales. The SOC indicates that there is and that that solution
needs to be tailored to the functions in question some solutions focusing on standardisation,others with a focus on shared service operations typically based on virtual structures andorganisation.
95 In the Customer case we have seen that there is a wide range of stakeholders all of whose views
and expectations will need to be managed. Perhaps the most significant conclusion from thecustomer case is the need to be seen to be delivering local services locally. This means that wherethere is a significant external customer interface (and Council Tax would be the best example)these aspects of the service are more likely to be successful managed as part of the overallcustomer services function within those councils. This is about joining up around the customerrather than joining up across authorities. However, the fact that aspectsof a service require local
customer service does not mean that the others aspects (ie, the more commoditised aspects)cannot be shared, in fact, on the contrary. So, as a general rule, our conclusion here is that lesscustomer-intensive aspects are more suited to this functional sharing. All that said, we also reaffirmour view that there is a strong argument for both pan-public sector front and back offices to fully
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deliver more customer centric services.
96 In the Economic case we have assessed each function around the options available according to
what, how, and when. We can conclude from this assessment that:
Service What How When
ICT Small scope Collaborativebasis
Incremental basis
Internal audit Large scope Shared servicebasis
On a mixture of incremental andbig bang basis. Incremental interms of approach but big bangmeaning all councils participate
Procurement Mediumscope
Shared servicebasis
On a mixture of incremental andbig bang basis. Incremental interms of approach but big bangmeaning all councils participate
Council tax andNNDR
Large scope Shared servicebasis
On a mixture of incremental andbig bang basis. Incremental interms of approach but big bangmeaning all councils participate
Debt recovery Mediumscope
Shared servicebasis
On a mixture of incremental andbig bang basis. Incremental interms of approach but big bangmeaning all councils participate
Training Large scope Shared servicebasis
On a mixture of incremental andbig bang basis. Incremental interms of approach but big bangmeaning all councils participate
HR / Payroll Large scope Shared servicebasis
On a mixture of incremental andbig bang basis. Incremental interms of approach but big bangmeaning all councils participate
97 The Financial Case for each function presents opportunities for cashable savings. However, the
payback period for each function varies significantly due to the potential investment required to
obtain the savings. The table below outlines the potential steady state savings from each of thefunctions:
Annual
Budget
Year 6
Savings % saving
ICT 36,593 63 0.2%
Internal Audit 5,154 587 11.4%
Procurement 4,223 334 7.9%
Council Tax and NNDR 13,226 1,581 12.0%
Debt recovery 3,615 270 7.5%HR / Payroll and training 29,349 2,315 7.9%
98 The table identifies that the greatest value () savings are Council Tax and NNDR and HR, Payrolland training, However, from a % of the annual budget perspective, the greatest % savings are
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Council tax and NNDR and internal audit.
99 Our analysis shows that the payback periods start from year 6 onwards, therefore the councils willeither need to pump prime the investment and transitional costs or seek grants, utilise existingcapital resources to fund the shared services arrangements. The potential cashable savings forthe majority of the functions provide reasonable payback periods, however, exploration ofalternative investment models will need to be analysed as part of the OBC to identify if the speed of
payback can be improved with greater up-front investment.
100 In the Commercial case we explored the issues around governance of the proposed SSO and its
relationship with each Council. During our analysis there were a number of areas that influencedour recommendations:
In general, the Councils favour public sector solution for the public sector;
The Councils are attracted to an incremental approach to developing the governance model;
EU procurement laws must be carefully considered;
There is a real need to reflect the role of elected member.
101 We have concluded that the best balance to address the above drivers would be two phases:
Phase 1 Joint Committee umbrella committee with all authority composition for all sharedservices see suggested governance format for roles and responsibilities below.
Phase 2 subject to certain criteria, and in particular taking account of significant procurementissues, having a review stage when the project as proposed in the Economic Case isoperational to assess whether further benefit could be driven by moving to a more formalentity structure.
102 In the Project management case we have concluded that the Councils should continue manage
the project according to Cardiff Councils Project Quality Assurance (PQA) standards, to ensure allcouncils are directly and equally involved in any decision-making to take the project forward. Aspart of the next stages of the project there will need to be the creation of an implementationstrategy that is robust and appropriate with a project plan that covers the period from detailedbusiness case development through to completion of delivery of the shared service operation.
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