CARDIFF COUNCIL CYNGOR CAERDYDD EXECUTIVE BUSINESS MEETING

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8 MAY 2007

CONNECTING SOUTH EAST WALES SHARED SERVICES PROJECT – REPORT ON STRATEGIC OUTLINE CASE REPORT OF CORPORATE DIRECTOR
PORTFOLIO: CORPORATE Reason for this Report 1. This report has been prepared to advise the Executive of the outcome of the initial feasibility study on sharing certain “back office” functions across ten South East Wales local authorities. The report serves as a covering report for a more detailed position statement (Appendix 1), which is being considered by each of the ten authorities involved in the Shared Services project.

AGENDA ITEM: 5

Background 2. The Welsh Assembly Government’s Making the Connection’s agenda aims to bring about improvement across the whole range of public services. Specifically, it aims to make services more responsive, accessible, coherent, effective and efficient. Local Government in Wales, like many other public services, faces rising demands for higher quality services at the same time as increasing budgetary pressures. New ways of working are needed to cope with these demands and enable opportunities for efficiency savings to release resources for front line public service delivery. In response to the Making the Connections agenda, the Leaders and Chief Executives of ten local authorities in South East Wales have been meeting as the Connecting South East Wales Board. The Board, which is 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 Study for the 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 Debt Recovery. The study was overseen by a steering group with representatives of the ten authorities, was project managed by Cardiff Council, with the actual evaluation of the potential to share undertaken by Pricewaterhouse Coopers (PwC).

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The feasibility study has been designed to be undertaken in three phases: Phase 1 - To develop a Strategic Outline Case (SOC) examining all seven of the functions outlined above to determine which presented the greatest potential for sharing – essentially a fairly high level analysis of cost, performance, opportunities and barriers across the 7 functions and 10 authorities; Phase 2 - To develop an Outline Business Case for those services with the greatest potential for sharing – essentially a much more detailed analysis of one or two areas; Phase 3 - To produce an Outline Implementation Plan for consultation – essentially a road map which would allow the authorities to progress to sharing selected functions. Phase 1 was completed at the beginning of April and this report sets out the findings and advises Executive on those functions being progressed to Phase 2.

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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 and efficiency savings by learning from the best practices in South East Wales and elsewhere and standardising and streamlining existing processes; there is scope for sharing across all seven of the services considered; the largest scope (i.e. with the greatest potential for improvement and efficiency savings) falls within HR/Payroll including Training, Council Tax/NNDR and Internal Audit; There is a need for up-front investment in order for savings to be realised in the longer term.

• • • 7.

The Steering Group conducted a risk assessment on PwC’s findings in relation to each of the functions, examining issues such as the complexity of the barriers to sharing, the investment required, the savings predicted, the opportunities for service improvements and external factors which might influence the likelihood of success. Based on this assessment the Steering Group made its recommendations to the Board on 5 April. PwC’s analysis, and the Steering Group’s assessment are set out in more detail in the attached Position Statement. At the Board meeting on the 5 April the Board endorsed the Steering Groups recommendations, key among which are: • • Proceed to the Outline Business Case (Phase 2), reconfirming the scope for Training and, HR & Payroll services with external support; Proceed to the Outline Business Case for Internal Audit services. We proposed 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 external support. 9. The remaining recommendations, which place further work on the remaining functions on “the back burner” are: • Wait for the outcomes and learn the lessons from the North Wales Board Council Tax and Benefits shared services review before progressing to the Outline Business Case. Nevertheless, we recommend a Chief Executive sponsors Council Tax/ NNDR, working group to identify opportunities for each council to benefit from sharing best practice, improving the quality of management information and undertaking joint projects of mutual benefit, such as increasing council tax benefit take up; Do not progress the Procurement services project any further until the various 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, to identify opportunities to simplify and standardise the current ICT infrastructure, software and hardware and improve working practices; Do not continue to explore the opportunity of sharing Debt Recovery services as part of this project. The group may wish to continue to meet 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 to date and ensure we learn from the experience.

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• • 10.

Critically, progressing to Phase 2 does not commit any of the participating authorities to share services at the end of the process. Phase 2 is merely a more detailed study of the selected functions to create a clearer understanding of the feasibility of sharing, the barriers to be overcome, and the likely savings achievable at the end. The Phase 2 study would aim to provide sufficient detail to enable participating authorities to assess the attractiveness of sharing services in practice on an individual basis. The outcome of Phase 2 is expected to be reporting in June or July 2007. At this time the Executive’s consideration of the report can be informed by work of the Specialist Independent Advisor supporting the Fundamental Operational Review, who will advise on the Council priorities at around the same time.

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Reasons for Recommendations 12. The recommendations are to keep the Executive informed on the progress 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 this stage. Further advice will be required dependent on the options that may be considered in the future.

Financial Implications 14. The project has been part-funded by the Local Authorities in South East Wales, who have committed £10,000 each plus staff resources. It has also received a grant of (£135,800) from the Making the Connections fund in the Welsh Assembly. Cardiff has provided Project Management support from its Centre of Excellence, but this support will cease at the end of Phase 2 (approximately June 2007) to allow this resource to be redirected to other projects within Cardiff, including the Fundamental Operational Review. Progressing to Phase 2 does not place any additional financial burden on the Council, although a significant amount of staff resource will be required to collect information required for the feasibility study and to engage with colleagues in other authorities to evaluate the emerging findings.

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Any other Implications 16. Progressing to Phase 2 will require the development and implementation of a communications plan across the ten authorities to ensure that staff in the 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 Board’s agreement to the actions set out in paragraphs 7 & 8 of this report; receive further reports on this matter, in the light of the Fundamental Operational Review

(2)

STEVEN PHILLIPS Corporate Director 16 April 2007 The following Appendix is attached: South East Wales Shared Services Project – Position Statement The following Background Papers have been taken into account: Connecting SE Wales Strategic Outline Case – Shared Services Final Report

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APPENDIX

Project Steering Group Position Statement

Recommendations from Phase 1

March 2007

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APPENDIX

Contents

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Position Statement
Jo Farrar on behalf of the SEWSS Project Steering Group

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Background Benefits identified to date Strategic Outline Case- Findings Comments from Consultation Risk Assessment Steering Group Recommendations Next Steps Recommendations

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Appendices Appendix 1
Strategic Outline Case Executive Summary Conclusions from the Strategic Outline Case i ii

Appendix 2
Risk Assessment iii

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Position Statement
Background The Connecting South East Wales Board, comprising Leaders and Chief Executives of the ten Local Authorities in South East Wales, agreed a project to investigate the potential for sharing various “back-office” functions, with a view to releasing resources to invest in frontline services. The project has been part-funded by the Local Authorities in South East Wales, who have committed £100,000 plus staff resources (approximately £113,670 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 three stages. • Phase 1 - To develop a Strategic Outline Case (SOC) examining seven 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 consultation. produce an Outline Implementation Plan for

• •

The project is being overseen by a Steering Group, comprising senior managers from the ten authorities and the WLGA. The Steering Group has procured PricewaterhouseCoopers LLP (PwC), a consultancy with a background knowledge and expertise in shared services, to help with the feasibility study. Cross-cutting functional groups of Local Authority Officers and Directors of HR and Finance have been involved in discussions as the project has progressed. In addition, “Visioning Workshops” have been held with key officers and Members in all Authorities and update reports have been sent to Council Cabinets and Executives. The Connecting South East Wales Board has been regularly informed of progress. The project is now approaching the end of Phase 1. The Executive Summary and 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 but the Steering Group have already identified a number of benefits that have emerged as a result of the work carried out in Phase 1. These include: • Recognition of successful shared service relationships and best practice methodology currently undertaken by LA’s. All authorities have existing collaborations that share services. The project has reiterated the ability of LA’s to work with and alongside each other effectively, producing excellent achievements. Improved communications between colleagues, counterparts and LA’s through various methods. The project has provided invaluable opportunities to meet and network with representatives from other LA’s. These relationships developed, or furthered, have already extended beyond the project. Challenges to current status quos within councils. Project has highlighted areas within LA’s where efficiencies, and better practice, can be driven out. Data gathered and compared has given opportunities to evaluate current working methods, beyond the scopes and service areas of this project. Embedding of staff skills in the Shared Service sphere that can be utilised 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 in the Strategic Outline Case Executive Summary (Appendix 1). The main conclusions are: • even without sharing services, there is scope for improvements and efficiency savings by learning from the best practices in South East Wales and elsewhere and standardising and streamlining existing processes; there is scope for sharing across all seven of the services considered; the largest scope (i.e. with the greatest potential for improvement and efficiency savings) falls within HR/Payroll including Training, Council Tax/NNDR and Internal Audit; There is a need for up-front investment in order for savings to be realised 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 consultation has been undertaken with: Directors of HR, Finance and ICT; Regional Trade Unions Representatives; lead officers from the service areas being considered; and key officers and Members from each Authority. The main comments from this exercise relate to the accuracy of data. As a result, the Strategic Outline Case was altered to take account of the latest information received from Authorities. However, there is an issue about the consistency of data as a result of Authorities collecting data in different ways and/or providing different levels of detail. The Steering Group has considered this and has concluded that the data is sufficiently robust for a decision to be made about which services should progress to Phase 2. Phase 2 will allow a further study of a narrower range of services, including a more detailed analysis of data with a view to making this consistent, before a decision is made on how to progress to Phase 3.

Risk Assessment A risk assessment has been carried out by members of the Steering Group to determine the risks in taking forward each function to Phase 2 - Outline Business Case. This is attached in Appendix 2. This included a sensitivity analysis 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; potential significant changes affecting service. Potential service improvements limited to the scope of each function. The level of political support for sharing. This was determined from discussions at the Visioning Workshops. The opportunities for the recommended model to be used across a range of public sector bodies and services. The impact of operational factors including reliability of initial data, the ability to provide additional/better data, scalability, time to realise benefits, flexibility. The impact of implications such as a dip in performance (financial and otherwise) was also assessed. Current similarities between LA’s. This included ICT dependency, hardware/software used, benchmarking/unit costs and levels of performance.

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The complexity of the function including estimated timescales for implementation. Operational willingness to share including the extent of existing collaboration and feedback from functional workshops, and the willingness to fundamentally change approach to service delivery.

The Steering Group accept that there will be an element of risk in taking forward any shared services option to release benefits. The functions that present the lowest risk are: Training; Internal Audit and Procurement The two functions that were identified as having the greatest potential for sharing i.e Payroll/ HR and Council Tax /NNDR presented medium and high risk respectively. Steering Group Recommendations In summary, the Steering Group recommends that we: • • Proceed to the Outline Business Case (Phase 2), reconfirming the scope for Training and, HR & Payroll services with external support; Proceed to the Outline Business Case for Internal Audit services. We proposed that this project is sponsored by a Chief Executive and supported by a member of the Steering Group but with no external support; Wait for the outcomes and learn the lessons from the North Wales Board Council Tax and Benefits shared services review before progressing to the Outline Business Case. Nevertheless, we recommend a Chief Executive sponsors Council Tax/ NNDR, working group to identify opportunities for each council to benefit from sharing best practice, improving the quality of management information and undertaking joint projects of mutual benefit, such as increasing council tax benefit take up; Do not progress the Procurement services project any further until the various 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, to identify opportunities to simplify and standardise the current ICT infrastructure, software and hardware and improve working practices; Do not continue to explore the opportunity of sharing Debt Recovery services as part of this project. The group may wish to continue to meet 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 to date and ensure we learn from the experience.

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As part of the business case, the Steering Group will explore the amount of initial investment needed in order to break-even and consider approaches to accelerate the payback periods. Next Steps If the recommendations of the Steering Group are agreed at the Connecting South East Wales Board on 5 April, LA’s will need to take: • Recommendations with Cabinets/Executives in each Local Authority and with representatives from the Trades Unions, Local Authority Management Boards and Directors and Lead Officers from the relevant service areas. update the Welsh Assembly Government, Making the Connections team 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.

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Recommendations For the Connecting South East Wales Board to agree to proceed with Steering Group recommendations outlined above

JO FARRAR On behalf of the Steering Group Date 29th March 2007

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Appendix 2

Functional Risk Assessment

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No 1 2 3 4 5 6 7 8 9 10

Criteria Potential Savings Investment required External Factors Service Improvements Political Support Pan Public Sector opportunities Operational Factors Similarities between LA's Estimated timescale for implementation/ complexity Operational willingness to share

Weighting

Payroll & HR

Training

Ctax & NNDR

Internal Audit

ICT

Procurement

Debt recovery

15 15 5 15 10 10 10 10 5 5 TOTAL RISK

L H M L L L M M H M 28 Amber

H L L L L L M L L M 21 Green

M H M L M H M M H M 37 Red

H M L M L L L L L L 21 Green

H L L M L L M H H M 31 Red

H L M L L L L M L L 21 Green

H H L M M L M M M M 36 Red

Scoring Bandings
High Medium Low 31 22 10 60 30 21 Red Amber Green

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Government and Public Sector
March 2007

Connecting SE Wales Strategic Outline Case – Shared Services
FINAL REPORT
Version Author Date 3.0 Final MK 20 March 2007

Our report is addressed to, and prepared for, SE Wales councils and we do not accept any duty or responsibility to any other party. On this basis, this report should not be disclosed to any third party or be quoted or referred to without our prior written consent. Such consent will be granted only on the basis that such reports are not prepared with the interests of anyone other than SE Wales councils in mind 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 any greater significance than explanations of matters contained in the report. Any oral comments that we make do not constitute oral advice unless we confirm any such advice formally in writing.

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 from a functional perspective (Council Tax, NNDR, HR etc) but also from a pan-public sector perspective 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 – they are large in scale. There is not one model or solution for all of the functions within scope – our proposals at this stage are based on a mixture of simplification, standardisation and shared services. In some areas we are suggesting that the option with the greatest potential is more based on simplification and standardisation (such as in the case of ICT) and in others we are suggesting a more shared approach (such as for Council Tax). This would need further exploration in the Outline Business Case (OBC). The potential cashable savings for the majority of the functions provide reasonable payback periods, however, exploration of alternative 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. The potential benefits from sharing are as follows: Function 10-year gross savings before investment requirement (cash £m) 10-year gross savings after investment requirement (cash £m) Annual steady state % saving (compared to annual cost of service)b

Training Payroll and HR employee Records Council Tax and NNDR Debt Recovery (Accounts Receivable) Internal Audit £17.550m £12.295m 7.9%

£11.212m

£7.829m

12%

£1.834m

(£1.911m)

7.5%

£4.136m

£1.925m

11.4%

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Function

10-year gross savings before investment requirement (cash £m) £0.438m £2.306m £37.476m

10-year gross savings after investment requirement (cash £m) (£0.234m) £0.954m £20.858m

Annual steady state % saving (compared to annual cost of service)b 0.2% 7.9% 5.6%

ICT Procurement Totals

Improved performance is expected from the shared services however, these will need to be defined during the development of the OBC. There are a variety of governance models that can be utilised within a shared services arrangement, for the purposes of the SOC we are recommending a joint committee arrangement 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 into account 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 in the South East Wales region could be developed based on sharing back office services, to improve public 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 same time as increasing budgetary pressures and requires means of releasing resources for front line 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 report “Making the Connections” (October 2004) which states that “The greatest gains are likely to come from organisations introducing shared support functions”. The recent review of service delivery (Beecham July 2006) recommends that public sector organisations in Wales should address capacity gaps and achieve improvements through shared services. WAG’s paper on Local Service Boards (LSBs) suggests that in order to secure real public service improvement, there is a need to think on a pan-public sector basis – joining up public services around the citizen.

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This project is about functional shared services – potentially bringing together 7 functions (some with an external customer facing perspective, others more internal support services). But it is important 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 Executives of the ten local authorities in the South East Wales region, as listed below, and is administered by the 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

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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 will comprise 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 for sharing. 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. The Project 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 the Connecting South East Wales Board. More detailed desired outcomes are set out in the body of the report. There is a potential benefit that, irrespective of whether a strategic case is proven for shared services in any functional service area, individual Councils may identify cost savings, efficiency gains, 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. The desired outcomes of sharing services between local authorities can be summarised as delivering Improved service delivery to citizens and employees more efficiently whilst having regard for the wider socio-economic and governance considerations applicable in Wales.

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Background
11 PwC have assisted the S E Wales Project Team to identify an approach for collaborative working across seven functional service areas: • • • • • • • 12 Training Payroll and HR employee Records Council Tax and NNDR Debt Recovery (Accounts Receivable) Internal Audit ICT Procurement.

These functions include 2,036 FTEs and budgets of £92m per annum.

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The study has three phases: • Phase 1, (this phase) Feasibility Study, which will produce a Strategic Outline Case (SOC) for each of the seven functional service areas. This will capture high level baseline costs, shared services implementation costs and benefits, to a level of detail necessary to contribute to the prioritisation 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.

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The overall desired outcomes will only be achieved following successful completion of all three phases.

The purpose of this document
15 It is very important to understand the nature of this document. This Strategic Outline Case (SOC) is the 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 the proposal would demonstrate strategic fit An assessment of each of the seven functions in terms of their suitability for sharing and what the 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 their suitability for sharing Enough information to allow the Board to decide whether it wishes to continue with the investigation and which, if any, functions it would like to be the subject of more detailed business cases.

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It is not the intention of this document to provide all the answers. In relation to each of the functions that 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 the potential to share. It is not intended to finalise how that sharing might work in practice – that is for later phases to explore. For information, the then Office of the Deputy Prime Minister’s Strategic Partnering Taskforce report included the following definitions: • Strategic Outline Case (SOC) - “A planning and scoping document that contains the results of a 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 chief financial officers from each of the councils. This includes the format of the SOC and the assumptions made in the financial modelling and analysis.

3. Strategic Case
18 19 We have set out much of the strategic background earlier in this Executive Summary. 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

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 are delivered. WAG’s response includes a commitment to ‘engage with all parts of the public service to establish Local Service Boards (on a local authority area basis)’ and to ‘work with Local Service Boards to develop, initially in selected areas, Local Service Agreements on service improvement’. The purpose of establishing Local Service Boards is to strengthen local public service leadership so that it can tackle fundamental and unmet challenges from a citizen, not a sector, perspective. Our sense is that for this to be a success, it requires collective understanding of demand, collective commissioning or supply and collective performance management based on outputs and outcomes rather than inputs and processes. Exploring these themes, as part of the visioning workshops we used the following slide:
Middle Corporate Small back office office core
Shared premises

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Ext School Joint commissioning

Councils
W hite Mail Telephon e SMS

JSC JSC
Face-to-face

Health Boards

Police

Shared services

Front office: contact centre (CRM)

Commoditised delivery

3rd Sector

“Direct services” Social care

JSC
Others
E-Mail Internet

Face-to-face

Schools Front office

Back office
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Middle office

This picture anticipated some of the LSB consultation paper thinking and was debated at each of the authorities’ visioning workshops. Our sense is that the LSB vision is a challenging agenda that will take time to deliver but that this aspiration is one that should be pursued. We consider that this agenda should be pursued but that the challenges should not be underestimated. The work currently being undertaken across Wales on the shared services agenda will feed into this thinking, but also has the potential to undermine a more cohesive and long-term vision for service delivery that is truly customer focused. There is a risk that by concentrating the effort of local public delivery organisations on functional solutions for mainly back office shared services that the bigger picture of better more efficient delivery of services to customers will not happen for many years. So, we would conclude that any shared services activity needs to consider the ‘bigger picture’ of how public services will look in five or ten years’ time.

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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 ongoing requirement to secure efficiencies and service improvements. This is the main focus of this aspect of the work. The strategic challenge asks: Is there a way to deliver these functions with improved performance and greater efficiency whilst having 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 there must be a demonstrable business case for change. Councils are not about doing shared services for the sake of it or as an end in itself. It is clear that in terms of the functions in question, some are more transactional and many have a customer interface, some external. Councils were of the view that where there was an external customer 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 as whole functions.

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Key stakeholders and nature of their interest
29 The key stakeholders in this project are as follows: Local citizens; local businesses, Elected members; 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 developing thinking in authorities around the strategic vision that they are seeking to pursue. As part of this exercise, we explored the following spectrum of possible approaches:

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Status quo
Multiple locations

Collaboration
Joint working around certain agendas; Some standardisation; Common approaches Scale economies

Multi-site SSO
Shared services Some shared locations Some shared functions Common processes Common front office Common management & governance

Single site SSC
Shared services Shared locations Shared functions Common systems Single source support services Common processes Common front office Common management & governance

Private partnering
Shared services Shared locations Shared functions Common systems Single source support services Common processes Common front office Common management & governance Risk transfer

Multiple customer interfaces

Multiple processes – little standardisation

Scale economies etc not fully exploited Multiple costs of accommodation & management Duplicated systems / interfaces Duplicated systems / interfaces Residual costs from partial solutions Multiple costs of accommodation

Duplicated systems / interfaces

Requirement to implement medium to long term solutions

Requirement to implement medium to long term solutions

Cost base

Cost base Cost base Cost base Cost base

Investment required?

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The purpose of this exercise was to explore authorities’ thinking around where they saw each of the seven functions as potentially benefiting from a shared approach. More detail is contained in the main report but it is probably fair to say that in many cases (authorities and functions) the consensus was around ‘Multi-site SSO’ – sharing but on a more virtual basis that co-location. 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 were more mixed at that early stage.

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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 of services on a pan-public sector and citizen centric model rather than from a purely functional perspective. Any solution therefore needs to consider this desired medium-term outcome. Notwithstanding this point, there is a belief or hypothesis within WAG (and in some authorities) and echoing Beecham’s thinking that there are significant financial benefits that could accrue through more sharing and collaboration within the local authority community. There is a range of desired outcomes of sharing services between local authorities but these really centre on improved service delivery to citizens and employees, efficiency and appropriateness on solution. There are some fundamental issues and principles that were repeated in all authorities – the fact that local government is local and that insomuch as this is perceived by local people it should reflect local priorities, tailoring and approaches. That the councils are not about shared services for shared services sake – there must be a demonstrable business case to proceed. Visioning workshops suggested consensus around a multi-site SO but there was much less consensus around some of the key features of that SSO. There is a broad range of stakeholders whose views must be considered.

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4. Customer case
40 The customer case for change is, in many ways, the most important aspect of addressing service delivery and defining new ways of working. Local government is there to serve its citizens, just as business is there to serve its clients. In developing this SOC for the SE Wales shared services, we have reflected on the customers and the role of the different stakeholders whose interests must be taken into account in any proposed changes. The stakeholders comprise many different groups of people, all of whom will have concerns about change and for whom the ten councils will need to develop strategies for addressing their issues throughout any transitional phase and on into the shared service operation going live. We understand that the Council’s are keen to preserve and build on the sense of face to face services delivered locally, whilst creating synergies and other benefits which arise from co-location of staff and services in the back office. The ambition is therefore, for services to look the same to the customer, but to feel different in terms of the benefits and value which is being driven through changes in the back office. We have therefore considered the stakeholder and customer base as ‘internal’ and ‘external’ as follows: External stakeholders and customers External service users – Council tax payers, Businesses for NNDR, other sundry debtor activities Precepting bodies such as the Fire, Police and Parishes Government departments and other agencies in contact with council tax 42 43 We have included an analysis of each of the customer groups in the main report. For service users the experience of dealing with the council will be critical. A key requirement is for a customer centric front office and an efficient and effective back office (the SSO) all operating within the context of agreed strategy and policy (from the councils). Service users have a right to expect 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 where such complexity or transaction processing impact adversely upon the services being delivered. Elected members see some of the functions (such as council tax, benefits (affected even though out of scope) and debt recovery) as a key service for councils that impact upon the entire electorate. In moving to an SSO approach, members’ accountability and responsibility for services must be reflected and embraced in new governance and operational model. This would be effected through the SSO board and performance management arrangements. Efficient and effective support services are key to delivering success in the cross cutting corporate processes and front line services which deliver to the customer. Improvements driven through the SSO will need to be seen in the corporate context, however, if internal and external customer benefit is to be realised, and for this to occur, efficient and knowledgeable administration is key to the 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 the individual councils and the shared service operation, but also to discharge the councils’ accountability for the service, something that must always remain with the individual council. 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 their needs are being met. Internal stakeholders and customers Internal services users – all other internal departments within the councils Elected members

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We have included some critical success factors for customer satisfaction in the body of the report and 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 has been 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 arrangements compare with this and what is the recommended option. This section links closely with the Financial case which looks at the financial implications of the recommended option as compared with the status quo all over a 10-year time horizon. The Economic case is broken down into three main areas, the second of which has a number of sub-elements to represent each of the functional areas. This section of the SOC therefore comprises: • • • Approach and generic case Functional case Summary and conclusions

49

Approach and generic case
Methodology 50 The approach we have taken in developing the economic and financial case for each of the functional areas is represented schematically in the diagram below The thinking here is to review the ‘Scope’ as agreed by SE Wales council first then to explore the current service ‘Baseline’, then to develop the options for delivery, propose a solution and understand the implications of the solution.

Scope - What services should be included within the shared services operation?

Baseline - What are the current activity levels and costs of delivering these services?

Options - How may services be reconfigured if 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?

Baseline 51 In carrying out an assessment of the ‘baseline’ we have undertaken a number of key tasks, with a view 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 for establishing an SSO or whether any form of sharing would be appropriate. This is based on the following approach and analysis:

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Options or issues WHAT? (the scope of services to be included within the SSO) HOW? (the delivery model for the service) WHEN? (timescales for implementation) GOVERNANCE? (model for strategic decision making and accountability)

Analysis 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. 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. The consideration here is whether the implementation is big bang or on an incremental basis.

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 methodologies above, we then developed further the detail of the preferred solution delivery model of the shared services operation, this includes: • The staffing requirements for the functional service including the business process reengineering 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 the services including, but not limited to: • Development of a best practice model – our best practice models has been developed from hands-on experience with a large number of councils throughout the UK, and our experience with Private Sector organisations that have implemented the simplification, standardisation and 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 a best practice model BPR assumptions - whilst we have made assumptions around process improvement and the BPR savings that might accrue we have not undertaken detailed process review however, our understanding of councils and best practice models have led us to believe the savings we identify are achievable. We have relied on data provided by the councils to derive the overall solution which is driven by 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 be leveraged 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 as the 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 service solutions can be leveraged from the shared service, this is indicative. There may be other ways the councils may wish to configure the services and the phasing of the solution. This will be 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 summarise meaningfully here. We have therefore included the following table that includes both the nature of the proposed solution and its financial impact: Function Proposed solution Nature of the solution Phasing Indicative net financial benefit over 10 years (cash) £m £12.3m

Training;

Set up of a full SSO with a clear split of functions between the shared service and the councils. The councils deliver training with the SSO undertaking the administration of the training. Common ICT platform

Simplification, standardisation leading to shared services

4 councils in Year 1 Further 3 councils in Year 2 Final 3 councils added in Year 3

Payroll and HR employee Records;

Set up of a full SSO with a clear split of functions between the shared service and the councils. The councils deliver strategy with the SSO undertaking the operations. Common ICT platform

Simplification, standardisation leading to shared services

4 councils in Year 1 Further 3 councils in Year 2 Final 3 councils added in Year 3

Council Tax and NNDR;

One shared service centre for the back office processing supported by homeworking. Front office provides the local delivery to customers Common ICT solution.

Simplification, standardisation leading to shared services

4 councils in Year 1 Further 3 councils in Year 2 Final 3 councils added in Year 3

£7.8m (plus the impact of increasing collection rates and cash-flow)

Debt Recovery (Accounts

Full SSO based on a Hub and spoke model based on sundry debt.

Simplification, standardisation leading to

Phase each consisting of 5 councils moving into a shared service

Additional cost of £1.9m however, there will be additional

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Function

Proposed solution

Nature of the solution

Phasing

Indicative net financial benefit over 10 years (cash) £m benefits from:

Receivable);

Social services debt dealt with by the local authorities. One ICT solution

shared services

centre. Implementation takes 18months for each phase but benefits realisation is 6 months post implementation of each stage.

the reduction in aged debt across the authorities which is a one off benefit and the improvements in year on year current debt collection £1.9m

Internal Audit;

Collaboration of specialist resources then moving to a full SSO. Common ICT solution

Simplification, standardisation leading to shared services

Year 1 – Schools audit specialist resource Month 19 – Contract audit specialism Month 25 – ICT audit specialism Beginning of Year 4 – Full SSO

ICT; and

Collaboration for ICT procurements solely due to the wide range of systems currently in place across the board. We have identified a number of business cases for collaborative working. Potential to explore and ICT shared services in the future – based on other shared services implementation e.g. CTax and NNDR where common ICT platforms are utilised

Simplification

Inclusion of BPR resource for the first 2 years to work with the councils to develop the business cases for collaboration.

Additional cost of £237k

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Function

Proposed solution

Nature of the solution

Phasing

Indicative net financial benefit over 10 years (cash) £m £0.954m

Procurement

Hub and spoke model where there is a central Hub handling certain processes such as supplier management, benefits realisation processes, sourcing of corporate categories with the spoke providing local support to the councils on strategic procurement.

Simplification and standardisation.

3 phases: – Phase 1 – set up SSO arrangement, undertake spend analysis, agree benefits realisation approach – Phase 2 – corporate categories and supplier management – Phase 3 service expenditure reviews

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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 at the next stage (outline business case) and future stages. We have reviewed the data for each of the functional services and found a number of instances 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 implications for how the SSO might work for each of the services and we summarise below the what, how and when for the functional services:
Debt Recovery & procurement

C Tax C Tax & NNDR, HR HR & Int Audit

Model Model

What

Small scope Collaboration Incremental

Large Scope Full SSO SS Big Bang

ICT ICT ICT &Int Audit (3ys) Audit (3ys)

C Tax & NNDR, & NNDR, Debt Recovery, Recovery, HR

C Tax & & Int Audit NNDR, Debt recovery, HR / recovery, HR / Payroll and training, Internal Audit & Audit & Procurement

Model Model

How

Model Model

ICT ICT

When

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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 on sundry debtors whilst the procurement service is based on sharing of supplier management, benefits realisation approach etc.

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Large scope for Council tax and NNDR, HR / payroll and training and Internal audit with the majority of these services transferring into a shared services arrangement.

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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 and standardisation rather than sharing per se A specialist resource approach for the internal audit service until there is a move to a full shared service in year 3. A full shared service for Debt recovery, Council Tax and NNDR, subject to the front office providing the customer interface. A full shared service for HR, payroll and training which provides activities which are high volume, repetitive, transactional in nature, automated and standardised, with the councils providing activities / services which are unique to the organisation, potentially high risk, support development of Business / HR strategy.

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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 for collaborative working on ICT procurements. A big bang and incremental approach for all other service areas, big bang meaning all councils sign up to the shared service arrangement however, the implementation of the shared service is 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 functions and 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 for 4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds the final 3 councils to the shared service. Procurement is based on three phases of implementation involving all councils, at each phase there will be more functions added to the shared services arrangement Debt recovery is based on two phases of implementation. Phase 1 includes 5 councils moving to 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 for 4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds the final 3 councils to the shared service.

6. Financial Case
60 The economic case provided a modelled / proposed approach for each of the functional service areas. This section of the SOC supports the economic case in that it presents the financial case for establishing the modelled / preferred approach for each of the functional service areas SSO. In the time and budget available to conduct this review, and in accordance with scope, we were not able to undertake a detailed and in-depth audit of the finances. We have reviewed and analysed a wide range of financial information provided to us by all councils.

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Discussions with finance directors
62 We have met with the finance cross cutting team twice during the Strategic Outline Case development 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 service arrangement will be explored as part of the next stage. However, discussions have taken place on a cost sharing or benefit sharing basis.

Assessment of costs and benefits that would accrue, financial and non-financial from the SSO
64 Many factors will influence the costs and benefits to each council (see the main report), however, it is anticipated that the following general costs and benefits will apply Costs
 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 

Benefits
 Better collection of debt – current and previous years debt (these haven’t 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 the ability 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 made the following generic assumptions with regards to the budget information: • All staff included within the individual structure charts provided by the councils are included within 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 for the 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 the service.

• •

67 68

All figures are calculated in cash rather than an NPV basis. The financial case improves significantly for all councils if further savings for support service costs can be achieved The financial case is impacted if only half of the councils participate in the shared service arrangement The table and chart below summarises the 10 year financial (cost) / savings for each of the functional areas based on the core model and the sensitivity analysis:
Summary 10 year position
all figures in £000's

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70

ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

Core (234) 1,925 954 7,829 (1,911) 12,295

5 Councils (285) 288 453 1,171 (2,115) 5,059

10% support services 1,181 2,235 1,306 10,220 (1,128) 14,343

20% support services 2,595 2,545 1,658 12,610 (345) 16,390

HR efficiencies

7,920

Summary 10 year financial position for each functional area

20,000

15,000

10,000
£000's

5,000

0
ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

(5,000)
Functional service
Core 5 Councils 10% support services 20% support services HR efficiencies

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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 25,000 20,000 15,000 10,000 5,000 0 1 (5,000) (10,000) (15,000) (20,000)
Year ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

£000's

2

3

4

5

6

7

8

9

10

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The chart and table below illustrate the steady state savings for each of the shared services models, we have utilised the Year 6 annual savings position to represent the figures below:
Annual Budget 36,593 5,154 4,223 13,226 3,615 29,349 Year 6 Savings % saving 63 0.2% 587 11.4% 334 7.9% 1,581 12.0% 270 7.5% 2,315 7.9%

ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

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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2,500

2,000

1,500
£000's

1,000

500

0 ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

Service Year 6 Savings

7. Commercial case
73 Many of the aspects of the Commercial case involve legal or pseudo legal issues that need to be resolved, including, inter alia, vires and EU procurement issues. PwC are not lawyers and cannot provide legal advice in relation to this project. No actual or implied legal advice is given here and therefore the councils would need to seek legal advice accordingly. Any views expressed below are therefore for information purposes only. In this section of the SOC we have addressed: • • • 75 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.

74

Whilst formal objectives have not been set for governance of the partnership, based on our understanding, 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. The diagram below shows the options for SSO governance models as a continuum where the further the Councils move towards setting up a company or LLP, the more arm’s length it becomes to the decision making process.

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More arm’s length

Collaborative arrangements
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Joint Committee

Joint Board (legality)

Contractual partnership

JV/LLP

JV/LLP with private input

Typically, but not always, the more ‘arms length’ arrangements, could involve the private sector as a partner in the shared service context. This is, however, not an over-riding principle and it is possible that a private partner could be involved in any of these options to potentially add value around: • • • • 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 considered as part of the OBC stage. The criteria which must be taken into consideration in determining whether the governance model would be close to – or arms length from - the council’s decision making are: • • • • • • Control Risk transfer Cost/ value for money Trading Flexibility/scalability Financial decoupling

79

80

The main report provides greater explanation of these points and sets out the pros and cons of the options that we have considered for the governance of any shared services arrangements. We have 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 that would need to be delivered by the recommended or selected solution and how it would best fit with the 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 the public sector. This implies that, at least initially there will be no significant private sector involvement in the delivery of the SSO services – see our comments above about where the private 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 to establish and amend in the early stages of the SSO can be advantageous. We understand that the councils are attracted to this approach, and several have expressed willingness to act as ‘lead authority’ if a Joint Committee were chosen as the model. • EU procurement laws must be considered carefully and we have strongly recommended that the 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 in order to have the SSO discharge functions on their behalf. This requirement alone makes it difficult 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 would require successful EU procurement in order to discharge functions on the councils behalf’s There is a real need to reflect the role of elected members and provide proper accountability and responsibility for how services are delivered. Any governance arrangement must therefore reflect and accommodate these needs.

82

We have therefore 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 shared services – see suggested governance format for roles and responsibilities below. Phase 2 – subject to certain criteria, and in particular taking account of significant procurement issues, having a review stage when the project as proposed in the Economic Case is operational to assess whether further benefit could be driven by moving to a more formal entity 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 too protracted. The project should continue to be managed according to Cardiff Council’s Project Quality Assurance (PQA) standards, based on the OGC best practice PRINCE2 and Managing Successful Programmes (MSP), to ensure all councils are directly and equally involved in any decision-making to take the project forward. The Project should therefore be managed and co-ordinated as follows: • • • • • 86 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.

84

85

Governance and decision making will be provided by the South East Wales Shared Services Steering Group, reporting to the Connecting South East Wales Board. Local Authority Steering Group members will provide the strategic input and direction for each Local Authority. The Project Manager for the South East Wales project will be responsible for day to day management of the Project and contract management of the supporting consultants. Local Authority Project Managers will be responsible for coordinating the provision of local information and consultation during phase one.

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87

The following diagram provides a logical mapping of the project hierarchy:
Connecting South East Wales Board Connecting South East Wales Board

Procurement sub group

Shared Services Steering Group

Stakeholder groups

PwC

Shared Services Project Team

Local Authority Shared Services Project

Critical success factors
88 Based on our experience elsewhere, there are a number of critical success factors for the successful 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 to completion 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 when considering 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 full risk 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 with a project plan that covers the period from detailed business case development through to completion of delivery of the shared service operation. We would see the key issues going forward as being: • Signed commitment from all councils to the shared service project development to the next phased agreement point The business needs of all councils are fully reflected and articulated in the outline business

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case • If the partnership is to be addressed in incremental stages that the project is broken down into logical, 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 is affordable Development of appropriate joint risk management for the project and risk management within each council Tasking the suggested working groups in support of the issues highlighted in this strategic case to a clear timetable of deliverables Confirmation of project resources to allow it to be implemented, including estimates of advisers’ 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 they will 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 sound joint communication and consultation strategy to ensure the continuation of the current performance standards,

• • •

9. Conclusion
92 The overall conclusion is that all of the functions in question can benefit from sharing – either in terms of greater process standardisation and collaboration 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 consistent with WAG thinking and with many of the councils’ stated aims and objectives. Whilst the focus of this review is the 7 functions in question, we are strongly of the view that shared services in Wales should have wider regard for the pan-public-sector and citizen centricity agendas espoused by WAG and which would make a significant difference to citizens’ day to day lives – we see this as the UK and international direction of ‘best practice’ travel. As far as this case is concerned, the fundamental strategic question is whether there is a way to deliver these functions with improved performance and greater efficiency whilst having the regard for 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 and organisation. 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 the customer case is the need to be seen to be delivering local services locally. This means that where there 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 overall customer services function within those councils. This is about joining up around the customer rather than joining up across authorities. However, the fact that aspects of 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 less customer-intensive aspects are more suited to this functional sharing. All that said, we also reaffirm our view that there is a strong argument for both pan-public sector front and back offices to fully

93

94

95

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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 ICT What Small scope How Collaborative basis Shared service basis When Incremental basis

Internal audit

Large scope

On a mixture of incremental and big bang basis. Incremental in terms of approach but big bang meaning all councils participate On a mixture of incremental and big bang basis. Incremental in terms of approach but big bang meaning all councils participate On a mixture of incremental and big bang basis. Incremental in terms of approach but big bang meaning all councils participate On a mixture of incremental and big bang basis. Incremental in terms of approach but big bang meaning all councils participate On a mixture of incremental and big bang basis. Incremental in terms of approach but big bang meaning all councils participate On a mixture of incremental and big bang basis. Incremental in terms of approach but big bang meaning all councils participate

Procurement

Medium scope

Shared service basis

Council tax and NNDR

Large scope

Shared service basis

Debt recovery

Medium scope

Shared service basis

Training

Large scope

Shared service basis

HR / Payroll

Large scope

Shared service basis

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 the functions:
Annual Budget 36,593 5,154 4,223 13,226 3,615 29,349 Year 6 Savings % saving 63 0.2% 587 11.4% 334 7.9% 1,581 12.0% 270 7.5% 2,315 7.9%

ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

98

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

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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 will either need to pump prime the investment and transitional costs or seek grants, utilise existing capital resources to fund the shared services arrangements. The potential cashable savings for the majority of the functions provide reasonable payback periods, however, exploration of alternative 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. In the Commercial case we explored the issues around governance of the proposed SSO and it’s relationship with each Council. During our analysis there were a number of areas that influenced our recommendations: • • • • 101 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.

100

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 shared services – see suggested governance format for roles and responsibilities below. Phase 2 – subject to certain criteria, and in particular taking account of significant procurement issues, having a review stage when the project as proposed in the Economic Case is operational to assess whether further benefit could be driven by moving to a more formal entity structure.

102

In the Project management case we have concluded that the Councils should continue manage the project according to Cardiff Council’s Project Quality Assurance (PQA) standards, to ensure all councils are directly and equally involved in any decision-making to take the project forward. As part of the next stages of the project there will need to be the creation of an implementation strategy that is robust and appropriate with a project plan that covers the period from detailed business case development through to completion of delivery of the shared service operation.

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In the event that, pursuant to a request which you have received under the Freedom of Information Act 2000 (as the same may be amended or re-enacted from time to time) or any subordinate legislation made thereunder (collectively, the “Legislation”), you are required to disclose any information contained in this report, we ask that you notify us promptly and consult with us prior to disclosing such information. You agree to pay due regard to any representations which we may make in connection with such disclosure and to apply any relevant exemptions which may exist under the Legislation to such information. If, following consultation with us, you disclose any such information, please ensure that any disclaimer which we have included or may subsequently wish to include in the information is reproduced in full in any copies disclosed. © 2007 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to the PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. This proposal is protected under the copyright laws of the United Kingdom and other countries. It contains information that is proprietary and confidential to PricewaterhouseCoopers LLP, and shall not be disclosed outside the recipient's company or duplicated, used or disclosed in whole or in part by the recipient for any purpose other than to evaluate this proposal. Any other use or disclosure in whole or in part of this information without the express written permission of PricewaterhouseCoopers LLP is prohibited.

Government and Public Sector
March 2007

Connecting SE Wales Strategic Outline Case – Shared Services
FINAL CONCLUSION
Version Author Date 3.0 Final MK 20 March 2007

Our report is addressed to, and prepared for, SE Wales councils and we do not accept any duty or responsibility to any other party. On this basis, this report should not be disclosed to any third party or be quoted or referred to without our prior written consent. Such consent will be granted only on the basis that such reports are not prepared with the interests of anyone other than SE Wales councils in mind 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 any greater significance than explanations of matters contained in the report. Any oral comments that we make do not constitute oral advice unless we confirm any such advice formally in writing.

Conclusion

Strategic case
1 There is a strong desire on the part of WAG and some local authorities to consider sharing of services on a pan-public sector and citizen centric model rather than from a purely functional perspective. Any solution therefore needs to consider this desired medium-term outcome. Notwithstanding this point, there is a belief or hypothesis within WAG (and in some authorities) and echoing Beecham’s thinking that there are significant financial benefits that could accrue through more sharing and collaboration within the local authority community. The desired outcomes of sharing services between local authorities include: • • • • • • • • Improved service delivery to citizens and employees; Achieving economies of scale; More productive, better trained and motivated staff; Cashable savings which can be channelled into frontline services; Improvements in business processes and systems; Sharing good practice across the ten local authorities; Improved quality services at reduced costs; Opportunity to produce new workforce models and take full advantage of flexible and home working; and Firm basis for further developing collaboration, including other public service providers.

2

3

• 4

There are some fundamental issues and principles that were repeated in all authorities – the fact that local government is local and that insomuch as this is perceived by local people it should reflect local priorities, tailoring and approaches. That the councils are not about shared services for shared services sake – there must be a demonstrable business case to proceed. Visioning workshops suggested consensus around a multi-site SSO but there was much less consensus around some of the key features of that SSO. There is a broad range of stakeholders whose views must be considered.

5

6

7

Customer case
8 From the customer case we can conclude the following;

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External service stakeholders or customers which need to be considered: • External service users – Council tax payers, Businesses for NNDR, other sundry debtor activities Government departments and other agencies in contact with council tax

• •

Internal stakeholders or customers that need to be considered include • • Internal services users – all other internal departments within the councils Elected members

9

For service users the experience of dealing with the council will be critical. A key requirement is for a customer centric front office and a efficient and effective back office (the SSO) all operating within the context of agreed strategy and policy (from the councils). Service users have a right to expect 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 where such complexity or transaction processing impact adversely upon the services being delivered. Elected members see some of the functions (such as council tax, benefits (affected even though out of scope) and debt recovery) as a key service for councils that impact upon the entire electorate. In moving to an SSO approach members accountability and responsibility for services must be reflected and embraced in new governance and operational model. This would be effected through the SSO board and performance management arrangements. Efficient and effective support services are key to delivering success in the cross cutting corporate processes and front line services which deliver to the customer. Improvements driven through the SSO will need to be seen in the corporate context, however, if internal and external customer benefit is to be realised, and for this to occur, efficient and knowledgeable administration is key to the 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 the individual councils and the shared service operation, but also to discharge the councils’ accountability for the service, something that must always remain with the individual council. 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 their needs are being met.

10

11

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Economic case
13 From the 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 at the next stage (outline business case) and future stages We have reviewed the data for each of the functional services and found a number of instances 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 implications for how the SSO might work for each of the services and we summarise below the what, how and when for the functional services:
Debt Recovery & procurement

C Tax C Tax & NNDR, HR HR & Int Audit

Model Model

What

Small scope Collaboration Incremental

Large Scope Full SSO SS Big Bang

ICT ICT ICT &Int Audit (3ys) Audit (3ys)

C Tax & NNDR, & NNDR, Debt Recovery, Recovery, HR

C Tax & & Int Audit NNDR, Debt recovery, HR / recovery, HR / Payroll and training, Internal Audit & Audit & Procurement

Model Model

How

Model Model

ICT ICT

When

14

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 on sundry debtors whilst the procurement service is based on sharing of supplier management, benefits realisation approach etc. Large scope for Council tax and NNDR, HR / payroll and training and Internal audit with the majority of these services transferring into a shared services arrangement.

15

We have identified the following with regards to the ‘How’ for the functional areas: • • A collaboration approach for the ICT service for ICT procurement A specialist resource approach for the internal audit service until there is a move to a full shared service in year 3 A full shared service for Debt recovery, Council Tax and NNDR, subject to the front office providing the customer interface. A full shared service for HR, payroll and training which provides activities which are high volume, repetitive, transactional in nature, automated and standardised, with the councils providing activities / services which are unique to the organisation, potentially high risk, support development of Business / HR strategy.

16

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 for collaborative working on ICT procurements A big bang and incremental approach for all other service areas, big bang meaning all councils

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sign up to the shared service arrangement however, the implementation of the shared service is 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 functions and 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 for 4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds the final 3 councils to the shared service. Procurement is based on three phases of implementation involving all councils, at each phase there will be more functions added to the shared services arrangement Debt recovery is based on two phases of implementation. Phase 1 includes 5 councils moving to 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 for 4 councils, stage 2 adds a further 3 councils to the shared service and stage 3 adds the final 3 councils to the shared service.

17

The financial case that follows summarises the financial consequences for the modelled solution for each functional area.

Financial case
18 From the financial case we can draw the following conclusions: • The financial case has been developed using prudent cost assumptions based on the modelled / preferred approach for each of the functional services included within the economic case, in agreement with finance representatives. Redeployment / severance costs have not been factored into the financial model The financial case improves significantly for all councils if further savings for support service costs can be achieved The financial case is impacted if only half of the councils participate in the shared service arrangement The table and chart below summarises the 10 year financial (cost) / savings for each of the functional areas based on the core model and the sensitivity analysis:
Summary 10 year position
all figures in £000's

• •

ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

Core (234) 1,925 954 7,829 (1,911) 12,295

5 Councils (285) 288 453 1,171 (2,115) 5,059

10% support services 1,181 2,235 1,306 10,220 (1,128) 14,343

20% support services 2,595 2,545 1,658 12,610 (345) 16,390

HR efficiencies

7,920

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Summary 10 year financial position for each functional area

20,000

15,000

10,000
£000's

5,000

0
ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

(5,000)
Functional service
Core 5 Councils 10% support services 20% support services HR efficiencies

 The chart below summarises the cumulative net financial (cost) / savings for each of the functional areas based on the core model:
Cumulative cashflow benefits for each functional area 25,000 20,000 15,000 10,000 5,000 0 1 (5,000) (10,000) (15,000) (20,000)
Year ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

£000's

2

3

4

5

6

7

8

9

10

19

The chart shows that the payback periods start from year 6 onwards, therefore the councils will either need to pump prime the investment and transitional costs or seek grants, utilise existing capital resources to fund the shared services arrangements. • The chart and table below illustrate the steady state savings for each of the shared services models, we have utilised the Year 6 annual savings position to represent the figures below:

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ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

Annual Budget 36,593 5,154 4,223 13,226 3,615 29,349

Year 6 Savings % saving 63 0.2% 587 11.4% 334 7.9% 1,581 12.0% 270 7.5% 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.
2,500

2,000

1,500
£000's

1,000

500

0 ICT Internal Audit Procurement Council Tax and NNDR Debt recovery HR / Payroll and training

Service

20

Year 6 Savings

Commercial case
21 From the commercial case we can conclude 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 shared services – see suggested governance format for roles and responsibilities below. Phase 2 – subject to certain criteria, and in particular taking account of significant procurement issues, having a review stage when the project as proposed in the Economic Case is operational to assess whether further benefit could be driven by moving to a more formal entity structure.

Project management case
22 From the project management case we can conclude the following:  Sound programme and project management will be critical to the effective implementation of the shared service. The councils should continue to utilise the current governance framework in place to develop the shared service arrangement

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 All councils should consider the establishment of the project structure that will fulfil their requirements and jointly appoint to the various groups and teams.  It is possible that the councils will need additional capacity to take forward the shared service agenda  There are significant risks involved in developing the shared service and these need to be identified, managed and mitigated.  There will be many staff concerns and these will need to be well managed through a sound joint communication and consultation strategy to ensure the continuation of the current performance standards.

Overall conclusions
23 We assessed the current services based on the following criteria: Criteria Includes aspects such as: Proposed assessment approach

Quality of service

-

Customer centricity Propensity for improved service quality Scalability Staff / job satisfaction Readiness Ease of implementation Project delivery risk Delivery skills / capability (to deliver the project and the final service) Affordability Financial Benefits (ROI) Investment required Sensitivity analysis Quick win / self financing projects Fit with national agenda Fit with Councils’ strategic aims Spatial planning issues (economic impact, regeneration, sustainability, etc.) Political risk (impact on Council reputation amongst citizens, staff, etc.)

H

M

L

Deliverability

H

M

L

Net Financial Effect

H

M

L

Strategic fit Governance

H

M

L

-

H

M

L

24

The weightings are based on the following scale: • • • Low– means that the function is less suited to sharing Medium – means that the function has a medium impact High – means that the function is more suited to sharing

25

Our summary assessment of the functions is as follows: Low Medium High

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ICT

Internal audit

Procurement

Council Tax and NNDR

Debt recovery

HR / Payroll and training

Quality of service

Deliverability

Net Financial effect

Strategic Fit

Governance

26

The above identifies that the majority, if not all, services have the potential to move towards shared services from a quality of service, deliverability, net financial effect, strategic fit and governance perspective. The services that score the highest are Council Tax and NNDR and HR, payroll and training. . However, at SOC stage we have not provided a weighting to the criteria, for example governance is equal to the criteria however, if governance was significantly weighted then Council tax and NNDR may not be so highly scored. The overriding financial benefits in monetary terms are the highest for shared services. However, from a % of annual savings in a steady state environment perspective Internal audit and Council tax and NNDR appear to deliver the highest % savings. The councils through the steering group will determine the services to move forward to the next stage.

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In the event that, pursuant to a request which you have received under the Freedom of Information Act 2000 (as the same may be amended or re-enacted from time to time) or any subordinate legislation made thereunder (collectively, the “Legislation”), you are required to disclose any information contained in this report, we ask that you notify us promptly and consult with us prior to disclosing such information. You agree to pay due regard to any representations which we may make in connection with such disclosure and to apply any relevant exemptions which may exist under the Legislation to such information. If, following consultation with us, you disclose any such information, please ensure that any disclaimer which we have included or may subsequently wish to include in the information is reproduced in full in any copies disclosed. © 2007 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to the PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. This proposal is protected under the copyright laws of the United Kingdom and other countries. It contains information that is proprietary and confidential to PricewaterhouseCoopers LLP, and shall not be disclosed outside the recipient's company or duplicated, used or disclosed in whole or in part by the recipient for any purpose other than to evaluate this proposal. Any other use or disclosure in whole or in part of this information without the express written permission of PricewaterhouseCoopers LLP is prohibited.