Revised financial planning framework

Report: 7
Date: 20 April 2006
By: the Treasurer and Commissioner

Summary

This report sets out a summary of the proposals for a revised financial planning framework to improve integration with strategic planning, ensure improved financial planning and budgeting for 2006/07 and future years, moving away from an annual bidding round and flagging up the financial challenges much sooner and over a three year time frame.

A. Recommendations

That members

1. Consider the outline proposals for a revised financial planning framework as set out in the report; and
2. Refer the report to Planning Performance and Review Committee and to Strategy and Policing Committee with any observations the committee may wish to make.

B. Supporting information

Introduction

1. The purpose of this report is to provide a summary of the proposals for a revised financial planning framework within the MPS, its interaction with other corporate planning processes, with the MPA, and with the Mayor and GLA.

Background

2. The current financial planning framework has been in place since 2000/01 when the new MPA /Mayoral/GLA and arrangements commenced, and has been largely unchanged since that time. The current arrangements and timetable are heavily influenced by the Mayor’s annual budget guidance and MPA committee timetable of meetings. The Chair of the Authority wrote to the Commissioner on 13 January outlining the possibilities that a more rigorous three-year financial plan could offer to both the MPA and the MPS, and that a more radical, more comprehensive and tighter regime would be needed in the forthcoming years, particularly as there was expected to be pressure on scarce resources to deliver improved services for Londoners. The letter is attached at Appendix 1.

3. A number of changes in the current financial climate such as two/three year funding settlements, likely future scarcity of resources, and need for enhanced efficiency planning; as well as wider organisational changes such as the development of medium term Strategic Planning and the Met Modernisation Programme, all suggested that a review of the framework should be completed before detailed financial planning for 2007/08 commenced.

Scope of the review

4. A review of the framework has recently been completed, encompassing the following areas of activity

• Charting of the current financial planning and budgeting process – and analysis of its strengths and weaknesses based on the last financial planning/budgeting round.
• An analysis and review of dependencies between other key planning processes such as the strategic assessment, strategic planning, setting of objectives and assessment of competing priorities.
• A review of currently produced budget documents and reports for the MPS/MPA/GLA to ensure that they are relevant and add value to understanding of budget proposals and decision making.
• A review of the current budget timetable (and its constraints) to allow more informed and considered assessment of new initiatives and re-direction of resources and efficiency planning.
• A review of current/emerging good practice in other organisations/ across the GLA Group.

Key financial issues

5. The following list of financial issues (although not exclusive) was also considered within the review:

• The move to two/three year government grant settlements - and to multi year financial planning and budgets. The current Medium Term Financial Plan (MTFP) is largely focused on Year 1 and only basic work is done for subsequent years.
• A scenario where there is more pressure on scarce resources, little future growth (or less than in the past) - and more pressure on the redirection of existing resources and for effectiveness, performance and efficiency planning.
• Moving away from a mainly incremental budget to one where the organisation’s objectives and priorities are determined prior to the financial planning process, with resources being shifted transparently to them (and tracked accordingly).
• Closer links with strategic planning (and performance) so that corporate objectives drive both the content and timetable for financial planning and budget changes (rather than vice versa)
• Moving away from annual bidding rounds for growth (and savings) and towards more rigorous assessment of business cases throughout the financial year with strong controls to assess against existing priorities.
• The need to develop a “cost morality” and Value For Money culture within the MPS and move to reducing the net unit cost of delivery and identification of savings on a rolling basis.
• The scope for the use of Activity Based Costing data in business case and budget formulation.
• Capital Programme block allocations to be replaced by sums based solely on scheme business cases allocated from a “single pot” and linked to asset management.

Operation of the review

6. The review was conducted by a series of interviews with key stakeholders and of existing documents and reports relating to the 2006/07 financial planning exercise. The review was overseen by the Director of Resources with regular discussion/consultation with the Treasurer. The detailed review has been co-ordinated by the former Director of Strategic Finance with assistance from an external consultant.

7. The list of key interviewees has included:

• Chair of MPA, Chairs of Finance and PPRC Committees, Richard Barnes and MPA Chief Executive and MPA Treasurer;
• MPS Management Board members (or their nominees);
• A number of MPS Business Managers and other senior staff;
• GLA Director of Finance and Performance and finance staff;
• Corporate Planning and Finance Services leads and other leads of key dependencies to the financial planning process and timetable;

8. In addition, meetings have been held between Chair of the MPA and the Treasurer/Director of Resources, and between the Treasurer and Director of Resources/Director of Finance Services to discuss key issues and progress.
Key features of the proposed framework

9. Planning horizons and integrated planning framework

• The vision is of an integrated strategic and financial planning framework to ensure that business needs drive financial planning. This means that the development, outputs produced and scrutiny will not just be run in parallel but be undertaken as a single exercise. This cannot be achieved immediately. The objective is to make rapid continuous improvement, starting in this planning round with continued joining up of processes. Delivering the full vision may take several years.

10. Principles of the proposed framework

• Three year rolling corporate strategy, corporate business plan and firm Medium Term Financial Plans (MTFP) - with the first year having a detailed budget and agreed parameters for Years 2 and 3. This will give more certainty over future years’ demands and incorporate all known and agreed growth and savings items (including efficiencies) into the agreed forward budget.
• Integrated strategic and financial planning framework.
• Earlier start, with more measured, certain and transparent process that aligns closely with emerging issues.
• Move away from incremental focus on growth bids and savings (“growth plan”) to business/financial plan for entire business.
• Increased transparency, enabling more effective scrutiny and accountability, with MPA scrutiny to start earlier (early/mid September) with priorities and efficiencies being identified.
• Increased Business Group engagement in, and ownership of, the business, financial and efficiency planning process.
• MTFP largely fixed at Business Group level, with increased flexibility retained corporately to deal with change programmes and exceptional events at MPS level.
• Integrated capital and revenue budget processes
• Business cases for all new growth proposals to be considered by Investment Board (Chaired by the Deputy Commissioner) with significant items passed to MPA Finance Committee for approval, with the urgency / priority of the item being assessed against the overall financial framework guidelines.
• Reflect a smarter, better way of presenting the budget to the Mayor and to other stakeholders, including the London Assembly and London boroughs.

11. MTFP development phase – April to July

• Earlier start of corporate strategy and financial planning processes and more joint sessions of the MPA Finance and PPRC Committees.
• April: Process and timetable to be agreed by the MPS, MPA, and the Mayor.
• April: Three year financial envelope reported to Finance Committee (slightly later this year), with estimates made for the precept and size of capital programme, and corporate planning start work to inform three year corporate business plan.
• Early June: Management Board away day to consider how the Corporate Strategy proposed for next three year period will drive business planning by Business Groups and wider change programmes.
• Early June: Investment Board to agree a range of control totals for Business Groups (from combination of outturn reviews, trend analysis, forecasting, current budgets, corporate strategy, MPA view etc) and areas requiring analysis of the base budget. A progress report would be provided regularly to the MPA Finance Committee.
• June/July: Business Groups to develop rolling 3 year medium term business/financial plans:
  • to deliver the agreed corporate strategy (following MB Away day)
  • working within a range of control totals e.g. nil growth to 10% savings
  • with embedded efficiency planning within the Business Groups
  • undertaking analysis of pressurised areas of the base, (as identified and agreed by Investment Board in June)

12. MTFP scrutiny phase – August to October

• August to September: Investment Board to undertake scrutiny/drive revision of Business Groups’ business/financial plans, (focusing on the whole rather than just incremental growth/savings). Further mechanisms to keep the MPA Treasurer updated on scrutiny business will be subject to further discussion.
• MTFP documentation to be structured around the business and revised to enhance transparency/user friendliness and subsequent MPA Member scrutiny of material items.
• September: refinement of MTFP in light of MPS scrutiny and new inputs e.g. draft National Policing Plan.
• Mid Sept/October: MPA member scrutiny. It needs to be decided whether a small member led group might need to be set up to lead MPA scrutiny, building on continuous involvement throughout the year. MPA agree final budget submission.

13. MTFP finalisation and approval phase – November to February

• December: MPA reviews MTFP in light of discussions with Mayor and grant settlement.
• December: Investment Board agree final allocations to Business Groups.
• December: detailed budget build to be brought forward (assumes Mayor will continue to get his budget agreed in February).
• February: Mayor/GLA approves final one year precept and budget allocation.
• February: Final MPA approval of corporate business plan/business plans and one year budget and MTFP.

14. Enhanced Role of Investment Board

• To set control totals and areas of base budget to be scrutinised, and reviewed.
• To undertake a quarterly “balance sheet” review of the corporate business plan and financial envelope, and re-prioritising accordingly, (but still reviewing business cases monthly).
• Transparency about submissions to, and decisions by, Investment Board i.e. new Business Case and Approvals Process rolled out.
• Regular reporting /approval from MPA Finance Committee, as required.

15. Benefits for the Authority

• More strategic and earlier overview of the financial planning process, ensuring more confidence in forward planning, and better planned approach to scrutiny.
• Better understanding of new growth bids, how they are to be funded and the effect on the overall financial framework guidelines/envelope.
• Ensures that the MPA/MPS corporate strategy drives planning and finance, and that planning and finance are more joined up/integrated in approach.
• Encourages a cultural change away from an annual bidding process, flagging up financial challenges much sooner, as we move into a tighter financial and government grant regime.
• More transparent accountability to stakeholders.
• Better planning around scrutiny of the budget and ability to drive out efficiencies.

16. Next steps/timetable

• The MPS review is planning to produce its detailed report and implementation plan for internal MPS use by mid April. Further reports will then be provided to Investment Board and MPA Finance Committee as the revised framework is implemented.
• Significant discipline will be needed both by the MPS Management Board and the MPA to ensure the timetable is adhered to and that proper monitoring of the programme is undertaken.

C. Race and equality impact

1. There are no direct equality and diversity implications arising from this report. Individual business cases will take account of race and diversity issues as they are brought forward.

D. Financial implications

1. There are no additional costs arising from this report.

E. Background papers

None

F. Contact details

Report author: Sharon Burd, Director of Finance Services MPS, and Ken Hunt, Treasurer, MPA

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1

Letter from the Chair of the Metropolitan Police Authority to Commissioner of Police of the Metropolis

13 January 2006

Dear Ian,

Moving forward with a new financial framework

I know you are well aware of the bleak outlook for future government grant and precept funding. Pressure on scarce resources to deliver our shared vision will be unyielding. Certainly the budget growth we have seen in the last five years will become a thing of the past.

I have written to you previously, and your predecessor, about the opportunities that a more rigorous three year financial plan would offer us both. While the existing medium term financial plan goes some way towards this a more radical, more comprehensive, tighter regime is needed in the coming years.

Can I ask you to consider how best you think we could develop a new financial framework which:

• Fixes the budget for a 3 year rolling period
• Allows the MPA/MPS to plan forward with confidence
• Avoids the rush to consider growth/savings proposals late in the budget cycle
• Has rigorous controls on growth proposals arising ‘in year’
• Brings the budget process forward for both MPA and MPS benefit
• Allows assessment of competing priorities between growth/savings proposals
• Allows proper scrutiny of the budget, again early in the process
• Has a properly funded budget
• Allows transparent reporting/accountability of proposed budget changes
• Has strong controls to ensure compliance

It would probably be helpful if Ken Hunt and your resources team worked together on the detail of such a framework.

I would like to be able to report to the Authority by February at the latest and have the new approach implemented as soon as possible after that. A copy of this letter goes to Graham Tope.

Yours sincerely,

Len Duvall AM, OBE
Chair of the Metropolitan Police Authority

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