Sector:

Provider of Outreach Services to Local Authorities. 

Concern: 
Government expenditure constraints coupled with changes to the welfare services model for disabled children meant that it had become increasingly difficult for this provider of Short Breaks and Care Plans to local authorities to continue to meet their contractual requirements. They were also concerned that due to contract complexity they were failing to fully recover contract income for service delivery. Contracts were operating at a deficit, and Reserves were depleted. Urgent assistance was requested to review the costing of services provided in order to identify a sustainable model. 

Background: 
The organisation operated from multiple sites across the UK with a lean central management team, and limited financial resource. While the care staff were dedicated and highly skilled, a strong silo mentality had developed in the regional operations, and there was a lack of cooperation with the central management team. Weak finance processes and an increasingly dysfunctional organisation had allowed contract tenders to be submitted outside of any formal review process. Poor financial information, lack of understanding of fixed and variable costs, and a poor budgeting process meant that the trustees were likely to be in breach of their fundamental duty to protect the assets of their charity. 

Challenge: 
The organisation was haemorrhaging cash, had inadequate reserves and was heading towards a situation of insolvency. Urgent action was required to avert disaster, and to achieve a stable platform to move forwards from. 

In a not for profit organisation, there is little or no margin for error. The consequences for such organisations of performing below targeted break-even are far greater compared to a shortfall against planned profit in a commercial venture. Not for profit organisations often do not have reserves to fall back on, and funding sources are generally far more limited with grant applications typically being awarded on an annual basis. Accordingly, the financial evaluation of contract proposals and the analysis and reporting of activities needed to be made subject to increased financial rigour in order to ensure that decisions could be based on sound information, and that pre-emptive action taken in the event that contracts were not performing as planned. 

Solutions: 
The process of introducing financial rigour between the operational and finance functions demanded close cooperation. Finance needed to be engaged at an early stage in the bid process and to be made responsible for approving the financial model on which any proposal was based, ensuring that systems and controls were in place to enable the reporting of income and expenditure in sufficient detail to provide financial oversight of the contract. Formal contract approval procedures were implemented to ensure peer review and provide segregation of responsibilities. 

Although constraints on resource limited what was achievable, the behaviours required to support this collaborative approach were not well developed. It was evident that the regional operations did not perceive that they received value for money from the Central and Regional charges, and this had probably discouraged the development of more purposeful working relationships between these teams. It was important that improved cross-functional cooperation could be developed between the Operational and the Central Services functions, and that Finance could be seen as a strategic partner in planning, tendering, and the provision of added value financial information. The development of a One Team ethos was encouraged as a strategic objective. 

Awareness of support provided by Central Services and Regional Management needed to be improved. Implementation of a Balanced Score Card was proposed to enable operational activities to be aligned to the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals. Internal communication of performance against objectives would support a broader view of the organisation and engender greater mutual respect. 

There was also a need to increase income for activities and a number of well-intentioned fund raising ideas had been put forward by staff. However, most of these were unlikely to further the strategic objectives of the organisation, and if allowed could have resulted in additional cost and risk against an uncertain outcome. More importantly, these proposals would have removed the focus and attention from the need to drive down hourly costs by increasing the number of service delivery hours. Given the current trend of annual reductions in Core Offer for Short Breaks and the move towards personal budgets, it was recommended that any available resource should be applied to enable the organisation to promote its services more aggressively. Competitive analysis of alternative providers would enable parents and carers to make more informed decisions, and could be used to actively promote the organisation when competing on price. 

Recommendations were summarised in a six-point plan as follows: 

1. Management Accounts to report activities separately. 
2. Basis of overhead apportionment to be reviewed. 
3. Hourly contract rate to be calculated ensuring recovery of fixed costs over planned number of service delivery hours. 
4. Renegotiate loss making Local Authority contracts to include provision to charge for transport and minimum number of service delivery hours. 
5. Processes and controls to be defined. 
6. One team ethos to be developed through the introduction of Balanced Score Card to leverage the benefits of a national organisation, and to create awareness of Central Services capability. Finance to be embraced as a strategic partner. 

Benefit: 
The organisation was able to continue to offer support to over 11,000 disabled children, young people and their families every year by delivering over 120 services throughout England and continues successfully today. 

Client Testimonial: 

"Steve has been supporting KIDS providing pro-bono operational and financial reviews on the performance of some of our major contracts. This independent support has been invaluable to the charity. Steve has produced high quality in depth expert analysis of our services enabling us to review the pricing structure of our services. All of Steve's work has been accurate and timely. I have no hesitation in recommending him". 

Caroline Stevens, CEO, KIDS