Modelling Shared Services

Ken Thompson worked with Alliance colleagues to identify savings through collaboration between different local councils. Each council delivers the same basic services to their citizens and the brief was to identify potential shared savings which would not compromise service quality. The team used a simple but novel design method to achieve this goal which is very relevant in today's harsh economic climate.

This method for shared services design is definitely cost-led but also takes into account both the adequacy of service of the best cost performer and also any regional environmental differentiating factors between the different councils. The team believe it achieves the best compromise possible between sharing around cost of service versus quality of service.

The issue, of course, is that as soon as the quality of service enters the discussion the whole debate moves from the quantitative (numbers) to the qualitative (opinions) and unless you are very careful may actually stall the whole design process.

The method, which Ken briefly overviews below, reduces this risk by deferring the quality debate until the cost numbers are in. The quality debate is then focused on one simple question - Is the lead cost performer in each service providing an adequate service in terms of scope and quality to become the target which the others should aim for? It is a simple 'Yes' or 'No' and if it's a 'No' we simply move on to the next lowest cost performer and so forth until we get agreement.

Here is a brief summary of the 5 key steps in the Public Shared Services Design Method. The good news is the only software technology needed is a spreadsheet and a willingness to share information.

STEP1 - Understand the environments each council must operate in

It is important to identify any regional factors which might differentiate between the councils over which they have little control. Examples include relative poverty indices, economic indices and rurality factors. All these will impact on the cost of service provision for a council to its constituents.

STEP 2 - Identify the services to be considered for sharing

It is important to identify the appropriate unit of service for each service. For example, in education some services would need to be compared by pupil and some others by school. In health some services would need to be compared by patient and others by hospital. In economic development it could be companies in some cases and jobs in other cases. It is then necessary to determine if it is the whole demographic group or a particular subset which applies to the specific service.

STEP 3 - Harmonise the service costing information across the different councils

It is vitally important to establish that "oranges are not being compared with apples" particularly in areas such as the treatment of fixed costs, depreciation, earned revenue, core funding, grant costs, pensions and severance. Sufficient time needs to be allowed to do this properly otherwise it will render any benchmarking comparison quite meaningless.

STEP 4 - Calculate the initial benchmarks for each service

Using the cost information for each service calculate the cost per unit of service where necessary adjusted by the relevant index as mentioned in step 1. In effect each service will display a "league table" with the lowest per unit cost at the top. The next step is to calculate the savings possible for each service using one of three different calculations:

• Best + x% - This is the saving possible if all authorities got to within x% of the best performer within the target period (e.g. 3 years)
• Delphi + y% - This excludes the top cost performer from the calculation (see STEP 5 for the rationale)
• Median + z% - This sets the improvement target as the median performer (basic statistics tells us that median calculations are less distorted by extreme outliers than the mean calculations)
• Note: x% >y% > z%

STEP 5 - For each service review the top cost performer's breadth of service and quality and agree the service cost target

When we review each service "league table" using the lowest cost performer we need to check whether their service is considered by the others to be of comparable scope and adequate quality for the other councils. If it is not we exclude it and move onto the second lowest cost performer and so on. If we eventually establish the lowest cost performer with an acceptable service it becomes the benchmark using the Delphi calculation. If the parties cannot agree on any of the services being adequate then we select Median + z as the target.

A Final Point

It is important to note that the target service must be acceptable and adequate but it does not have to be the best service of all the councils. To avoid the bar being raised unnecessarily high in the heat of discussion it is helpful to have something already written down about what "adequate" looks like, at least qualitatively as part of STEP 2.

Thank you to Ken Thompson for his permission to reprint this methodology - see Ken's blog on www.bioteams.com and read his two books:

1. Bioteams (High Performing Teams) and
2. The Networked Enterprise (Collaborative Enterprises and Networks)