Value for Money Self Assessment 2014-15

Value for Money Self Assessment 2014-15 Contents

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1. Context ............................................................................................................................. 2 2. Approach to VFM ............................................................................................................. 2 3. The Government's Summer Budget 2015 ........................................................................ 3 4. Progress since last year ................................................................................................... 3 5. VFM in decision making ................................................................................................... 5 6. Corporate Plan 2013-16 ................................................................................................... 5 7. Overview of Group strategies ........................................................................................... 5 7.1 Corporate Strategy: Asset Management (including Asset Maximisation) ................ 6 7.2 Corporate Strategy: Business Growth ..................................................................... 8 7.3 Corporate Strategy: Neighbourhoods ..................................................................... 9 7.4 Corporate Strategy: Independent Living ............................................................... 10 7.5 Corporate Strategy: Financial Health and Business Assurance ............................ 11 7.6 Corporate Strategy: Social Investment ................................................................. 15 7.7 Corporate Strategy: People................................................................................... 15 7.8 Corporate Strategy: Customer Access and Insight ............................................... 16 8. Benchmarked VFM performance and scrutiny ............................................................... 17 9. Conclusion...................................................................................................................... 20

Value for Money Self Assessment 2014-15

1. Context Futures Housing Group (“the Group”) undertakes an annual Value for Money (“VFM”) Self Assessment to evaluate its financial, social and environmental performance. It uses targets to drive VFM. Performance against these targets enables stakeholders to determine how the Group delivers VFM. The Group is committed to delivering VFM and this self assessment demonstrates compliance with the VFM Standard set out in the Regulatory Standards for registered providers of social housing. This also details how the Board has gained assurance over compliance with the VFM Standard, progress against areas identified for improvement in last year’s VFM self assessment and additional areas where the Board wishes to further enhance VFM. The Group’s website includes a summary of compliance against the VFM Standard (www.futureshg.co.uk/about-us). The Board recognises that there are some areas where the business is operating outside of target. In addition, the Government’s Summer Budget 2015 is likely to have an ongoing impact on some of the Group’s future value for money initiatives. Further details of this are contained within this self assessment. To enable transparency and accessibility, further publications on VFM have been provided to the Group’s stakeholders including a separate VFM document for the Group’s tenants. These publications can be found on the Group’s website www.futureshg.co.uk/about-us. Contact with and scrutiny by tenants continues through the year via Tenant Scrutiny panels. These provide feedback on services and desired improvements, which inform Board decisions and help shape the Group’s three year Corporate Plan and its eight strategies (“the Plan”). 2. Approach to VFM General approach VFM is an ongoing process within the Group’s systems and culture. There is a clear track record of driving cost reduction and improved performance whilst generating savings for reinvestment. What VFM means for the Group Strategically, the Group’s VFM target continues to be directly linked to its vision of being a strong, forward thinking regional housing group with its heart in the community. To deliver this, the Group’s VFM Strategy has the aim of achieving economy, efficiency and effectiveness across all Group operations. VFM Strategy The Group introduced a VFM Strategy in 2012/13 which was revised in January 2015. The VFM Strategy addresses how the Group intends to continue meeting the requirements of the HCA’s VFM Standard. The overarching aim of the VFM Strategy is to have upper quartile performance with costs at no more than the median level. Where this aim is not being met, the VFM Strategy requires an action plan to move an area into upper quartile or to articulate, through the VFM Self Assessment, why the Board has taken a strategic decision to either invest in an area or not seek upper quartile performance. 2

Value for Money Self Assessment 2014-15

The Group has a demonstrable track record in focussing on and delivering VFM across all operational areas and can demonstrate that VFM is embedded within its business culture. The Board recognises that VFM needs to be assessed continually and the Group’s operations adapted to enable continued VFM delivery. To monitor this, various measures exist to enable the Board to assess VFM during the year and track the overall direction of travel. These include:  monitoring delivery of the Plan and its associated eight key strategies;  inclusion of VFM in every report considered by the Board;  the Group Audit Committee having the role of VFM Champion in overseeing delivery against the VFM Standard and reporting back to the Board;  the assessment and monitoring of a suite of key performance indicators (“KPIs”) to track service delivery and VFM; and  quarterly VFM progress updates shared via the Group’s website. As a mature LSVT, with a consistent track record in delivering efficiencies, the ability to gain further savings through cost reduction is now limited, however robust cost control and reduction continues. The VFM Strategy now strives for efficiencies throughout the year using innovation in procurement, service transformation and organisational change. For example, to manage increasing repair costs, maintain service levels and further enhance its ethos of being a community based housing association, the Group has developed an innovative procurement solution. Under this solution, the Group benefits from long term preferential rates for materials and a supplier rebate, with local contractors undertaking asset management works. Savings from local contractors under the planned repairs framework totalled £833k across the first three years, with £238k (28.6%) being realised in 2014-15 from CPI savings and material savings. The Group has commenced its ‘How we work’ project. This project will utilise innovative methodologies to eliminate inefficiencies across the Group. The initial phase of this work is focussed on delivering a better customer experience. Initial VFM targets have been set which are included in the target gains detailed at section 7.5. Further efficiency savings are expected to be identified through the ‘How we work’ project. Targets for these are presently being set and will be incorporated into next year’s VFM Self Assessment. 3. The Government's Summer Budget 2015 In July 2015, the newly elected Government, through the Chancellor of the Exchequer, delivered its Summer Budget which introduced significant challenges for the sector. These challenges included further reductions in welfare benefits such as a lowering of the benefit cap to £20k, a four year freeze on working age benefits and limiting child tax credits to two children. Other challenges include the extension of the National Living Wage, the introduction of ‘Pay to Stay’ for households with income in excess of £30k and a 1% reduction in rents from 2016/17 over the next four years. The Board has set an initial efficiency target of £600k per annum across the Group. This in conjunction with a revised budget enables the Group to comfortably respond to the Summer Budget 2015 whilst maintaining its development programme. As above, further efficiency savings will be identified through the ‘How we work’ project. 3

Value for Money Self Assessment 2014-15

4. Progress since last year The Group had identified several areas where VFM could be further enhanced. Some of these have been actioned during 2014/15 whilst others are expected to continue into future years. Details of these are summarised in the table below, with details of monetary efficiency gains being set out under the Financial Health and Business Assurance section. Key VFM actions identified in prior year

Progress to date

Governance: Set up a Governance Task and Finish Group to assess the most appropriate governance structure in order to deliver business objectives and maximise efficiencies for the future.

Complete: The Governance Task and Finish Group have successfully implemented a new Governance structure, including a coterminous Board, which was implemented in July 2015. The new Board has a complementary skill set that meets the needs of the Group in delivering the Plan.

Customer offer: The Board were exploring how to enhance VFM in the customer offer, considering the Group's current and future customers, what services customers would like, what an acceptable standard of service is, what competitors are offering customers and what the cost differential is between offering a service which complies with legal and regulatory standards as a minimum and a value added service.

Ongoing: The Board has established the Group’s customer offer. This includes the quality of existing homes, the volume of new homes development, the level of tenancy management and community investment. Work is ongoing to realign current investment levels to those required by the Board. For example, additional finance has already been secured to deliver the Board’s new build requirements but the enlarged programme is yet to commence. Other completed actions include the introduction of self service options for tenants via the Group’s website; for example being able to manage their own account and to book repairs. The customer offer workstream has been further enhanced during 2014/15 through planned implementation of a unified communications platform. This will enable a multi-channel contact centre and call recording (for customer services). It is intended to reduce costs relating to call handling, travel and maintenance. This workstream will continue into 2015/16 and is expected to generate £127k savings over 5 years.

Health and housing: The Board will consider the extent to which the Group should play a role in health care and support and determine what level of risk / reward would be acceptable.

Complete: During the year, the Board has examined the opportunities available in support and health care, the associated risks and the financial returns. The Board decided not to invest in care but to continue to invest in low level support.

Tenure diversification: The Board will provide a range of tenancy types based on a mixed development model, providing a balanced portfolio of housing tenure where social rent, open market rent, open market sale and shared ownership units are all developed.

Ongoing: The Board has made significant progress in this area. The first mixed tenure development sites have been appraised and approved by the Diversification Task and Finish group and will begin on site during 2015/16, with delivery planned in 2016/17. Funds from refinancing will be used to enter into new commitments for a mixed tenure development programme, which is expected to reach c. 300 units per annum by 2016/17.

This diversification model is designed to generate surpluses to further the Group’s objective of delivering social housing. How we work: The Board will review its operating structure to ensure it is appropriate for current and future needs. In developing this, it will assess the impact of new technology, current and future working practices, location and type of office accommodation, whether further efficiencies can be obtained and what funds are available so the Group can determine the balance between providing new homes and/or a social return on investment.

Ongoing: The Group has completed scoping on a change (continuous improvement) project. This will be implemented over the next three years and incorporate the existing transformation programme.

Financing the Group: The Board will identify the most appropriate mechanism for obtaining additional funds to support

Complete: The refinance within the Group is continuing with funds expected to be available from the end of 2015.

The Board approved a £270k investment to implement an electronic document management system. This project is expected to generate a £279k return during the first full year of implementation through cost reduction in relation to staff time, storage, photocopying and stationary. A review of office accommodation is ongoing. This will incorporate the use of mobile working technology and the associated reduction in office accommodation needs.

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Value for Money Self Assessment 2014-15

Key VFM actions identified in prior year

Progress to date

growth plans. Asset Performance - Return on assets: Integrate the asset performance evaluation tool and use it to inform investment decisions.

Ongoing: This tool was implemented during the year. More information on how the system will be used to inform decision making is detailed under the Asset Management strategy section.

The Group has recognised that it can improve the clarity with which progress against VFM actions is articulated within the VFM Self Assessment. Consequently, this VFM Self Assessment highlights future actions and we will reflect on these in subsequent years. 5. VFM in decision making VFM is embedded in decisions across the Group. At high level, the Board undertakes an annual review of the Group’s strategic direction and the performance against delivering the three year Plan after taking account of the requirements and expectations of key stakeholders, including tenants. The Board’s review includes the allocation of available funds to deliver the Plan. The Plan is communicated to stakeholders and team members and is also available on the Group’s website (www.futureshg.co.uk/about-us). Tactical and operational decisions also consider VFM, through a robust internal control framework. For example, this requires staff to assess and document VFM when procuring goods and services. 6. Corporate Plan 2013-16 The Group is now at the end of the second year of its three year Plan. The Plan outlines the following eight key strategies, each of which has continued to demonstrate delivery of the Board’s objectives and a track record of exceeding targets and generating savings: 

Asset Management

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Financial Health and Business Assurance

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Business Growth

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Social Investment

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Neighbourhoods

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People

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Independent Living

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Customer Access and Insight

The Plan has been updated for 2015/16 and achievement against revised strategic aims will be considered in preparing the VFM Self Assessment 2015/16. 7. Overview of Group strategies This section provides a VFM self assessment in relation to each of the eight corporate strategies that deliver the Plan. Each self assessment is based on a combination of performance, financial and benchmark data and the following ratings: 

Performance significantly out of target

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Performance not meeting target

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Performance at or above target 5

Value for Money Self Assessment 2014-15

A balanced scorecard suite of KPIs has been developed and these KPIs are detailed in section 8. Detailed under each corporate strategy below are future plans to further enhance VFM. These are embedded into a VFM Action Plan that includes timescales for delivery. This Action Plan can be found on the Group’s website. 7.1 Corporate Strategy: Asset Management (including Asset Maximisation) Key targets  Maintain the quality of properties in line with the 30 year asset plan.  Implement an active asset management strategy and a unit by unit comprehensive performance evaluation tool to support investment decisions.  Deliver measurable VFM, adopting a holistic approach to asset management inclusive of the immediate surrounding environment and utilising energy efficient technologies and ‘green’ deals. Performance 2014/15 The Group has invested £16.3m in its homes, in line with the 30 year asset plan.

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The Group has implemented an Asset Performance Evaluation tool (“APE”) to drive its Active Asset Management Strategy.

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DDH has not met its target of 90% repairs satisfaction.

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Completion of Environmental Standard BS8555. This included vehicle fleet replacement, with £137k fuel efficiency saving and carbon reduction (125 tonnes).

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The Board has approved a £375k investment to replace communal door systems at properties with a communal entrance, improving the safety and security of tenants.

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Return on assets Properties continue to generate a healthy return on investment, averaging 27.9% before major, planned and void works and 20.6% after. The majority of homes generate returns between 20% and 50%. The return on a property by property basis is known with the number of homes generating an in-year loss remaining low at 85. Whilst these measures indicate strong asset management performance, they are not used in decision making on future asset use. Instead, decisions consider a combination of asset sustainability and net present value (“NPV”) and this is now embedded in the Active Asset Management strategy. Active Asset Management strategy During the year an Active Asset Management system (‘APE’) was implemented. This performs an NPV calculation on a unit by unit basis, taking into account the next 30 years income and expenditure per unit, including management and repairs costs. In addition to the NPV, the APE system has attributed sustainability scores to each property based on various measures shown below: 6

Value for Money Self Assessment 2014-15

Sustainability measure

Indicators

Income

Rent arrears / SAP rating and Heating type (as an indicator of fuel poverty)

Housing Management

Anti-social behaviour (‘ASB’) levels / Data from Indices of Multiple Deprivation on levels of crime / Distance from managing office

Demand

Resident satisfaction / Turnover rates / Access to local facilities & amenities / Waiting list & demand / Garage availability / open space / Development potential / Community feeling

APE output is shown below. Each ‘bubble’ on the graph represents an asset Group, with the size of the bubble determined by the amount of stock in the asset Group. The horizontal scale sets out the 30 year NPV of the asset groups and the vertical scale shows the “sustainability rank”. BACK TO MENU

Asset Group by Company

BACK TO INDEX

NPV per Unit by Sustainability Index (Bubble size - No. of Units) 3.00

POOR NPV

POOR NPV GOOD SUSTAINABILITY

GOODNPV NPV GOOD

GOOD SUSTAINABILITY

GOOD SUSTAINABILITY

GOOD SUSTAINABILITY 2.00

1.00

(£10,000)

£0

£10,000

£20,000

0.00 £30,000

£40,000

£50,000

£60,000

-1.00

-2.00

-3.00 POOR NPV POOR SUSTAINABILITY

POOR NPV

GOOD NPV POOR SUSTAINABILITY

GOOD NPV

-4.00

The chart highlights that all of the Group’s properties have a positive NPV over 30 years, with most stock having an NPV of £25k or more. This is indicative of strong financial performance. Most of the asset groups cluster towards the centre of the chart, indicating consistent performance.

POOR SUSTAINABILITY

POOR SUSTAINABILITY

The strategic action that the Group may take will depend on where each property type is populated within the APE model. These considerations are detailed below. Each property will however be reviewed individually with any decision to invest or dispose being made after a detailed assessment. Strategic considerations GOOD NPV GOOD SUSTAINABILITY

POOR NPV GOOD SUSTAINABILITY

GOOD NPV POOR SUSTAINABILITY

POOR NPV POOR SUSTAINABILITY

Asset retention to support future business growth or asset disposal if the market value is high enough to generate additional business growth.

Possible investment in assets to improve NPV or asset disposal if investment would not improve NPV.

Possible community investment to improve the desirability of the location and the Group’s ability to deliver sustainable communities or asset disposal if investment is not economically viable.

Possible asset disposal as demand may be low or investment in the asset and community / neighbourhood if economically viable. 7

Value for Money Self Assessment 2014-15

A cross-Group panel is now focussing on the asset Groups falling into the “poor NPV and poor sustainability category”, starting with sheltered housing properties. These options will be fully reviewed and evaluations will be considered by this panel with recommendations being made to a new Investment Committee, due to be set up during 2015. Analysis has already been made on 10 DDH homes as these have a poor NPV due to high maintenance costs. When these homes become void, they will be sold and the proceeds invested in new homes growth. The Group has invested c. £16m into its asset base during the year, with return on investment between 20% and 50%. The APE system has been implemented to support the Group’s Active Asset Management strategy. This considers asset sustainability and NPV to inform decision making around future asset investment. Environmental and social investments and efficiencies have also been made.

VFM self assessment

Satisfaction with repairs has been lower than target. Future plans exist to improve satisfaction levels.

Future plans  Invest a further £39m over the next 3 years in maintaining and improving homes.  Continue to embed the APE system to identify opportunities for asset investment or disposal and to use surpluses to subsidise business growth.  The Group has started a transformation review of its repairs service. This focusses on the end to end customer process and is using lean techniques to identify and remove waste, deliver process efficiency and improve customer satifaction.  Progress environmental improvements to achieve the ISO 14001 standard. This will help the Group to demonstrate its commitment to reducing its carbon footprint. 7.2 Corporate Strategy: Business Growth Key targets  Invest £80m into building 968 new homes over the next 4 years. This will be funded through existing and new loan facilities and surpluses generated through active asset management and diversified tenures.  Extend new home tenure offer to include open market rents and sale and use surpluses generated to drive down the average cost per new affordable home.  Increase the supply of affordable homes through private sector leasing ("PSL”).  Further develop delivery of social enterprises, training and education for communities. Performance 2014/15 158 PSL units are now in management, an increase of 68 during the year.

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The Group completed 69 new homes in 2014/15 and entered into commitments to deliver a further 206 starts on site in 2015/16 (DDH x24 / FHL x182). Investment in new homes is under target due to ongoing planning approval negotiations. To address this, the Group has restructured its development team to support the 4 year

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Value for Money Self Assessment 2014-15

development programme. Of 206 starts on site planned for 2015/16, 27 (13%) relate to open market sale.

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The average cost of a new build unit (net of grant and sales receipts) has reduced from £96k to £86k.

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The Group operates 13 in-house traineeships / apprenticeships.

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The Group owns a 1/3 share in associate company Access Training which has delivered apprenticeships, work based and classroom learning to 703 candidates.

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Investment in new homes is currently performing under budget and therefore impacting on financial and environmental performance. The Group has restructed its development team to drive the enlarged development programme over the next 4 years.

VFM self assessment

Future plans  Set up an Investment Committee to consider all future investment decisions.  The Group has joined a development benchmarking club. An annual report will be available next year which will allow a comparison of costs and an assessment of whether the Group’s development costs are in line with median. 7.3 Corporate Strategy: Neighbourhoods Key targets  Provide clear guidance and proactive support over rent payment and money advice.  The adoption of a firm and supportive approach to Anti-Social Behaviour (“ASB”) and Tenancy Management.  Create cleaner, safer, greener neighbourhoods.  Deliver a clear and transparent tenancy offer relating to tenure type and lettings policy. Performance 2014/15 The Group has invested into its Money Advice Service to deliver financial advice to tenants, including debt management, welfare and benefits advice. This includes 809 money advice referrals, increasing disposable income for tenants (£0.56m), £79k additional benefits claimed (e.g. through DHP) and £51k reduction in rent arrears.

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The Group has applied a RESPECT Charter for ASB cases which has involved a multiagency approach to tackling ASB, improved outcomes for victims and an increased number of ASB cases resolved out of court (