Resource Management: 5 – Fairness and Feedback

Chapter 5

Fairness and Feedback

 

Monitoring and measuring equity

Equity of treatment between individuals and groups is regarded as being particularly important in situations where public funds are employed. Public service providers should incorporate stakeholder analysis into their management procedures and include equity monitoring as part of their Best Value review processes. They need to analyse the distributional consequences of their more significant management or investment decisions. In addition, they should seek to ensure that they run their affairs in ways that embrace the principles of equal opportunities.

An important equity aspect of financial management relates to the issue of how the incidence of debt impacts through time. This is really a question of intergenerational justice. Welfare economists have established a general principle that public and social businesses should ensure that current revenue spending is not financed from loans that will project the costs of current consumption onto future generations of service users. This “golden rule” that you should only borrow to finance investment also applies to sound private sector financial management.

Apart from intergenerational justice, there are a number things that need to be considered when seeking to provide an equitable service. In a social housing context, prominent amongst these are questions relating to equality of opportunity (including diversity issues) and balancing the interests of those who help to fund the service (e.g. tax payers) and those who use the service (e.g. tenants and leaseholders).[1]

 

Monitoring and measuring experience

The introduction of ‘best value’ into the public and social sectors has tended to shift the emphasis away from the cost of inputs to the quality of outputs. This shift in emphasis places a high value on the opinions of service users. Arguably the real experts on how a service is working are those who use it. This means that the well-run social enterprise will seek to acquire regular feedback from its service users and other appropriate stakeholders. Private firms often carry out periodic customers/client satisfaction surveys and then incorporate the findings into their planning review processes.

Public sector experience from the regulators and the Ombudsman Service indicates that the level of user complaints sometimes increases as real service improvements are instigated. We might refer to this phenomenon as the ‘User Satisfaction Paradox’. The paradox results from the fact that the very act of planning and implementing improvements will raise expectations so that user satisfaction can be thought of in terms of the following formula:

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The monitoring problem here is that it may be possible to find appropriate ways of recording complaints, charting satisfaction scores, and quantifying improved performance, but it is extremely difficult to measure any changes in user expectations.

 

The relationship between business planning and financial planning

Financial management is a continuous process by which an organisation seeks to plan and control its income, expenditure, debts, and cash flows.

Planning describes the process by which an organisation decides (1) where it wants to be in the future and (2) how it intends to get there.

Control describes the systems and procedures employed to ensure that the plans are (a) implemented appropriately, (b) monitored effectively, and (c) reviewed, refined and revised as necessary.

The politically astute have long recognized that “When reason rules, money is a blessing.” (Publilius Syrus, Ist c.B.C. Moral Sayings). All plans need to be resourced. In the modern economy, just as much as in the ancient world, this means that our plans have to be financially viable. In the contemporary world, well run businesses are required to demonstrate that their plans are cost effective as well as viable. It is not good enough that they ‘work’ – they must be seen to work in ways that demonstrate both value-for-money and long-term financial viability. This means that financial planning and management are at the heart of modern business planning.

 

Summary

The purpose of business planning is to apply experience, judgement and reason to the information we have at our disposal with a view to making decisions that further the interests of the organisation and its owners, shareholders or stakeholders.

The well-run firm should provide evidence of performance-based objectives, results-orientated outputs, and long-term financial viability. This means they must engage in business planning.

Business planning provides the strategic framework within which effective financial management can take place. Business planning should be thought of as a documented process that is systematic, flexible, and open to both inspection and comment by shareholders and stakeholders.

In essence business planning allows the organization to declare a statement of intent and then explain what it plans to do in pursuit of the long-term objectives that flow from this declaration of its mission and values. Over time it must demonstrate the extent to which it has achieved the promised outcomes cost effectively and on time.

Reasons for business planning:

  • Take a longer view.
  • Integrate ‘best practices’.
  • Learn from your own and others’ experiences.
  • Communicate intentions to shareholders, service users and the community (be accountable).
  • Reassure those lending funds or awarding grant aid.
  • Allow for external regulation and internal monitoring of progress and performance (where required).

We will now consider some of the issues surrounding the important topic of financial management.

 

Further reading

Garnett D and Perry J (2005), Housing Finance, CIH.

Garnett D (2015), A-Z of Housing, Palgrave Macmillan.

[1] See Garnett D (2015), A-Z of Housing for discussion of these topics.

 

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