The regulator’s updated Value for Money (VfM) standard came into effect from April 2018. The standard aims to drive improvements in value-for-money in the sector and, more importantly, be incorporated into the strategic objectives which are measured in your business.
The regulator’s Sector Risk Profile 2018 (published in October 2018) has also reinforced the importance of the new VfM standard, and the regulator will be looking for organisations to have evidence that they are getting to grips with these new requirements through its programme of in-depth assessments (IDA).
From an asset manager’s perspective, it’s worth noting the following points taken from the VfM standard and code of practice. An active approach to asset management can help you address and embed these points in your strategic approach and service delivery model:
- You must ensure that optimal benefit is derived from resources and assets. You must optimise economy, efficiency and effectiveness in the delivery of your strategic objectives.
By understanding the actual financial performance of your assets using modern modelling techniques, such as measuring net present value (NPV), you will be able to examine the opportunity cost of using the assets and resources in their current function in terms of their worth to your organisation.
- You must demonstrate a robust approach to achieving value-for-money – this must include demonstrating an effective decision-making process, and a rigorous appraisal of potential options for improving performance.
By using asset performance to set a policy decision framework, supported by a property option appraisal process, several key policy options can be applied to poor performing properties. These are: do nothing (see point 3); invest, change tenure, transfer to a better-placed provider; or dispose on the open market. This will allow you to compare these alternative options and demonstrate VfM decisions.
- You may at times opt not to receive maximum return from an asset, instead taking the decision to accept a lower return in furtherance of your social objectives – the rationale for this decision should be clearly articulated and justified.
By modelling the NPV performance of your assets, you will be able to understand your best and worst performers and apply policy options to improve performance, but importantly demonstrate those circumstances where your business is happy to retain assets with lower financial performance, because it is more important to your organisation to retain affordable homes in a specific location or where covenants and other restrictions would make it difficult to realise the estimated market value.
- You must also be able to demonstrate that you have a full understanding of the net return generated from your assets, and show how this return varies across your asset base.
By measuring the financial performance of your assets using NPV modelling, you will be able to compare and report performance across your property portfolio against your business archetypes, including property type, tenure, and geographical location. When comparing the NPV of these different assets, such as a house, flat or bedsit, you will be able to demonstrate which asset type is more valuable in financial terms across your property portfolio. NPV modelling will allow you to understand the impact of current day-to-day maintenance costs and future major repair investments on a financial return by each asset.
In summary, creating a well-developed asset management strategy is essential, supported by well-defined policies, working methods, clear performance measures and a strong focus on value-for-money in property appraisals, contract procurement and management.
SDS recommend that housing providers create a baseline position statement of the financial performance of your assets using NPV modelling. The results should be reported back to the business, senior management team and board to both inform and determine future business planning priorities. This will help your organisation to create the right approach to active asset management, and create measures to demonstrate how you obtain the maximum return from your assets, evidencing you have the VfM standard gripped!
Rowley Maggs is a director of SDS.