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CIH Delivering Value for Money Event

London, 13 August 2014

Richard Medley, Director, CIH Consultancy

Delivering VfM in asset management

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Asset management…

It’s a

whole

new

ballgame


The pendulum has swung

Delivering for the asset • Asset performance

• Asset value

Delivering for the customer • Decent homes

• Customer experience


Asset Management - the key drivers

Demand & Supply

• Demographic changes, including ageing population

• Fluctuations in demand for particular locations and property types (impact of welfare reform)

• Growing emphasis on choice & increasing customer

demands/expectations

Stock Condition & Sustainability

• An ageing stock profile & ‘fit for purpose issues’ with some property types

• The pressure to a deliver higher, local determined standard (Decent Homes +)

• Neighbourhood & economic sustainability

Funding, Financing & VfM

• The imperative for assets & asset planning to support the Business Plan

• The need to optimise value & use of assets (economic regulation)

• The need for proactive solutions to improve stock portfolios & their performance


What is VfM in asset management terms?

Asset Management definition

Ensuring that current and future assets (houses, land, garages, shops etc.) fully support the organisation’s objectives – working towards having the right assets, of the right quality, in the right place, at the right time generating appropriate value to the business plan and 30 year cashflows.

Scottish Housing Regulator, Strategic Asset Management, Aug 2012, Recommended Practice


What is VfM in asset management terms?

What’s the ultimate objective?

To manage assets to create the optimum balance between cost, quality and utilisation in the organisation’s own context.


What’s expected of us? (by the Regulator)

• An understanding of the value of assets including details of financial, social and environmental return at a detailed enough level to enable analysis of differing values of different stock according to location or type (e.g. Net Present Values or NPVs)

• That an understanding of such returns underpins strategic asset decisions, for example:

whether to hold particular stock in its current form, dispose of it to another provider or (when vacant) on the open market, or convert it to another tenure, etc .

investment and management and maintenance spend

• A proactive approach to asset management.

Asset

management

is at the heart

of economic

regulation


The challenge

• With the combination of regulatory requirements and the economic climate, the imperative for all social landlords to take a more ‘intelligent’ approach to asset management has never been greater.

• Through a robust process of assessment & evaluation, the ultimate objective should be to re-configure your asset base to ensure a stock of the right properties, in the right place, in the right condition which meet the right standards and which are used in the best way

But,

easier

said

than

done?

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So what comprises Asset Management?

Strategy

Performance

appraisal

Stock

condition

survey

Stock

condition

data

Neighbourhood

performance

NPV analysis Procurement

Energy Efficiency

& fuel poverty

Redevelopment

New build

Yield


The key ingredients of VfM in asset management

• The Asset Management Strategy as the essential framework

Designed to unlock the potential of the housing stock

Delivering for the business & the customer

Built around a set of clear strategic priorities

Shaped & informed by sound stock condition survey data and the organisation’s own knowledge

1. A comprehensive, strategic approach



• The Asset Management Plan as the delivery vehicle

What you’re going to do

How you’re going to do it

How much it’s going to cost

When you’re going to do it by

Who’s going to do it

• Demonstrably delivering against the strategic objectives

• Shaped by and shared with residents

2. A clear delivery plan



• The use of Asset Performance Tools – but what is ‘performance’, what does it mean? Financial performance measures

• Net Present Value (NPV)

• Yield

Non-financial performance measures

• Meeting social objectives

• Meeting political objectives

• Economic/regeneration objectives

• But which approach is best? Which value measure should you use?

3. Understanding the ‘performance’ of your assets


Net Present Value Analysis

(£10,000) (£5,000) £0 £5,000 £10,000 £15,000 £20,000 £25,000 £30,000 £35,000

GLEBE ROAD

DRYLEAZE COURT SHU

UPPER PARK ROAD

TANNERS PIECE

WILLOW ROAD SHU

HAZELWOOD

GLEBELANDS

DRAYCOTT

CHAPEL LANE

THE CORRIETT

CAMBRIDGE HOUSE

GROVE PARK ROAD SHU

SPRINGFIELDS COURT

THE LONG GROUND

GEORGE PEARCE HOUSE

BURDETT HOUSE

GRANGE VIEW

Per unit

NPVs can

vary

dramatically

within a

property

group,

ranging from

+£32k here

down to -£5k


Net Present Value Objectives

Effective

asset

management

will lead to

incomes

increasing at

a faster rate

than the level

of

investment,

returning a

larger NPV

over time


The Yield Curve

How should we go about

setting targets and moving the

yield to the right?

Gross Yield: The

annual return on

your investment

(the income ÷ the

value)



• Using performance information to inform option appraisal

Identifying the actions that will generate more value or fresh potential

Continue to invest & retain in current use

Change of use

Redevelopment

Disposal

• Identifying where the potential lies to unlock asset potential, release value, provide for reinvestment

• Balancing economic motives against social responsibilities

4. Optimising cost, quality & utilisation



• Evaluating your approach

• Monitoring its impact/return Increase in average NPV

Increase in average yield

Meeting tenant needs/demands

Impact on neighbourhood sustainability

Local economic impact

• Providing clear information and assurance to boards, elected members, residents & other stakeholders

5. Accountability – providing assurance



• Using approaches that add real value to the asset

• Shifting the balance of risk to contractors & manufacturers

• Securing greater inter-organisational and inter-personal trust

• Promotion of a culture to support innovation, learning and development of mutual advantage

• Lifecycle considerations

Landlords – long lifecycle, reduced maintenance, lower carbon and improved NPV

Residents – safety, great performance, good looks and reduced call outs

Contractors – easy to fit, reliable and offer savings and predictability when taking on long term liabilities

6. Effective, efficient procurement

“Lifecycle isn’t taken seriously by the sector and is not considered a critical component of procurement” Steve Coleman,

TakeParts



• As a ‘social landlord’ the value your assets bring also needs to be measured in broader ways:

The cost of energy efficiency works versus the benefits for reducing fuel poverty

The value of delivering local training & employment

The regenerative benefits of your asset approaches

The creation or sustaining of stronger communities

• But how to measure and monitor progress in these areas and demonstrate VfM? There are many impact tools, but CIH is developing a ‘balanced scorecard’ approach

7. Delivering wider sustainability


Summary

Delivering VfM in Asset Management 1. A comprehensive strategic approach

2. A clear delivery plan

3. Understanding the ‘performance’ of your assets

4. Optimising cost, quality & utilisation

5. Accountability – providing assurance

6. Effective, efficient, procurement

7. Delivering wider sustainability

It’s not rocket

science, but nor

is it simple –

social landlords

are complex

organisations

operating in a

complex

environment


What’s CIH doing?

Intelligent Assets

A package of support designed to

unlock the potential of your

housing stock • Asset strategy development

• Stock condition data quality

review

• CIH Asset Performance Tool

• Business planning

A collective, collaborative initiative

with up to 15 organisations working

with CIH & each other to define and

develop a new model that redefines

the way the sector approaches asset

management


Thank you for listening

Any questions or anything you’d like to discuss?

Richard Medley

[email protected]

07799 115571

www.cih.org/assetmanagement

Asset Management…

it’s a whole new

ballgame

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