The Value For Money standard from and asset perspective.
The regulator’s Sector Risk Profile 2018 (published in Oct 2018) has also reinforced the importance of the new VfM Standard and the regulator will be looking for organisations to evidence that they are getting to grips with these new requirements through its programme of in-depth assessments (IDA).
In terms of the VfM standard from an asset perspective it is worth noting the following points taken from the VfM Standard and Code of Practice and how 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 and optimise economy, efficiency and effectiveness in the delivery of your strategic objectives:
By understanding the actual financial performance being achieved by your assets using modern modelling techniques such as measuring net present value (NPV) you will be able to examine the opportunity cost of using 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 a robust approach to decision making 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 to either invest, change tenure, transfer to a better-placed provider or dispose on the open market that 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 of 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 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 return generated from your assets compared to the costs of maintaining these assets and demonstrate 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, like 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 cost and future major repair investment on a financial return by each asset.
In summary, creating a well-developed asset management strategy is essential. Supported by well-defined policy, working methods, clear performance measures and that strong focus on value for money in property appraisals, contract procurement and management.
SDS’ recommendation is to always to create a baseline position statement of the financial performance of your assets using NPV modelling and reflect the findings back to the business, Senior Management Team and Board to both inform and determine future business planning priorities based on actual asset performance. 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 and evidence you have VfM gripped.
To help you achieve this SDS StockProfiler is an active asset management system used to deliver portfolio asset management as part of a property holding organisation’s asset strategy.
StockProfiler calculates the Net Present Value (NPV) of each individual rental unit of a property portfolio, using unit level income and expenditure cash flows. The user can view the portfolio using a suite of reports and carry out scenario testing.
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