Supplementary memorandum submitted by
the Cabinet Office
Question 87 (Mr Richard Bacon): Cabinet Office
Shared Services team
The team was established in summer 2005. It
initially was structured as follows:
— David Myers (former CIO at DEFRA)
— Two industry specialists—Chris
Price (Alsbridge), and Barry O'Connell (Hewlett Packard).
— Jo Clift (civil servant)
— Andrew Budge (independent consultant)
David Myers left in January 2007 with his role
being taken by a full time civil servant, Jo Clift (Head of Shared
Services)
From mid 2005 to mid 2007 the team employed
at various times a number of consultants on a variety of short
and longer term contracts. The last consultant left in July 2007.
It was deemed necessary to employ consultants in order to provide
the Cabinet Office team with the external expertise (shared services
are much more established in the private sector) and the capacity
to take this project forward. The skills mix comprised functional
expertise, initially in finance and HR, programme and procurement
experts and discipline skills in shared services and outsourcing.
During this period several consultants were
seconded to other departments to help them in the development
of their shared service proposals. This work was charged to departments
and paid back to the Cabinet Office. A team of five agency support
staff was also employed.
The core activities undertaken by the team included:
— Delivering the strategic business
case for shared services in the public sector. This including
detailed work to assess the estimated amount spent by central,
local and the wider public sector on HR and Finance (see separate
entry below).
— Detailed work on a common solution
framework for shared services across Government.
— Detailed work on tools, techniques
and methodologies to assist shared services programmes in their
implementation.
— Detailed work undertaken with the
private sector to understand their vision of shared corporate
services and how their experience can be used to best effect within
the public sector.
— Work undertaken to understand how
other international public sector models of shared services can
inform us and provide valuable lessons learnt.
— Variety of special interest groups
established eg charging, benchmarking, change management to assist
practitioners in learning from each other and from private sector
experts.
— Variety of fora set up to benefits
public sector stakeholders to learn from each other. Some of these
fora also involved the private sector stakeholders to ensure that
lessons already learnt from private sector experiences were also
shared.
— Specific work undertaken with central
government sector to allow them to carry out an options analysis
on whether to be a seller or a buyer and whether to buy internally
or externally.
— Work establishing a web site (this
has since had an annual average of 52,000 visits and 20,000 downloads).
The team is now focusing on the next stage of
shared services which concentrates on implementation, monitoring
and delivery. This work is undertaken by a team of four permanent
civil service employees comprising one Senior Civil Servant and
three Band As (Grade 7 equivalents).
2. ESTIMATE OF
THE OVERALL
COST OF
HR AND FINANCE
(£7 BILLION)
A key element of the business case work was
to gauge the potential size of the market for shared corporate
services in the public sector. This analysis, which was partly
funded by the OGC, built upon earlier research undertaken for
the Gerson Review.[5]
It was a focussed study analysing corporate services in detail
and involved accessing current published material but also collating
new original data and gathering information from stakeholders.
The work was subject to regular scrutiny and
review through a rigorous governance and project management structure
headed by the Shared Service Programme Board chaired by John Oughton
of the OGC. John Oughton presented an update on the OGC Efficiency
Programme to the Cabinet on 6 October 2006 which included reference
to the £7 billion.
The approach taken was to look at the most common
and developed elements of corporate services, namely HR and Finance
and estimate the total amount the public sector spent in these
areas.
Source Material
The data used was drawn from a representative
sample and covered a sufficiently wide range of programmes in
terms of size, type (central departments and wider public sector)
and function (HR, Finance and Enterprise and Resource Planning
programmes covering both Finance and HR).
Quantified information was provided by MoD,
DWP, Department of Health/NHS, Home Office (including Prisons,
and Police), DfES, Department for Transport, Northern Ireland
Civil Service, Transport for London, Cabinet Office / Treasury/
Office of the Deputy Prime Minister. Supporting information from
HMRC, Defra, DCA and a wide variety of Local Government organisations
was also used.
This material was complemented by views, facts
and opinion from our involvement in Pathfinder projects, interviews
and group workshops (eg Shared Services Forum, Finance Directors
Meetings). Information was also obtained from the private sector.
We estimated that there are over 1300 individual
public organisations responsible for definition and delivery of
HR and Finance services. This includes all Departments, Agencies
and Non Departmental Public Bodies (NDPBs), local authorities,
NHS Trusts and Police Authorities.
The great majority of these organisations comprise
less that 5000 employees and fall outside the traditional definitions
of central civil government. This is significant when examining
the nature of shared services. These smaller bodies can potentially
reap considerable benefits, both financially and from efficiency
gains, if they share corporate functions with other organisations.
Methodology
There are no definitive numbers available for
the operating costs of HR and finance in Government. The following
table and accompanying notes set out the approach used to getting
an estimate for these numbers.
| Central
Civil
Government
| Wider8
Public
Sector
| Total |
| Starting ratios—HR staff: No. of employees1
| 1:40 | 1:91 |
|
| Adjustments for average rather than median2
| 1:33 | 1:85 |
|
| Using broader definition of HR3 | 1:25
| 1:70 | |
| Total employees served4 | 550k
| 4500k | |
| Therefore HR employees | 22k
| 63k | |
| Average costs plus on-costs5 | £45k p.a.
| £42k p.a. | |
| Therefore total HR costs including advertising costs6
| £1090m | £3046m |
|
| Total finance costs7 | £945m
| £2381m | |
| Total HR and Finance costs (rounded down) |
£2,000m | £5,000m |
£7,000m |
Notes:
1 Ratios taken from the median of the EP-First (PWC—originally
Saratoga) survey (this survey was used as it is the one most quoted
by organisations in their plans).
2 Adjustments made as the larger organisations in the EP-First
survey showed considerably worse ratios. The average figure would
therefore be much less than the median figure
3 Processes and activities such as pension administration, training,
health and safety, payroll are not included in the EP-First. This
is estimated to add about 20-30% to total staffing and costs
4 Taken from central statistics and cover England and Wales (Scotland
and Northern Ireland are excluded)
5 Average costs from the EP-First survey with inflation from 2002-03
taken into account and then a standard 40% on cost for accommodation,
systems and infrastructure
6 Recruitment advertising costs have been estimated by an Office
of Public Service Reform report to be in the order of £0.5—£1bn
p.a. The figure of £0.5bn has been used here, apportioned
between Civil and Central Government and Wider Public Sector.
7 Figures for finance are generally less robust because there
are no reliable benchmarks in the public sector covering operating
costs. Estimates from the Police high-level data gathering and
other sources suggest that overall Finance expenditure is slightly
less than that on HR. However, figures from some of the larger
Government Department show finance equal to or in excess of HR
numbers. A figure of 90% of HR costs (excluding advertising costs)
has been taken
8 The "Wider Public Sector" column comprises areas such
as Local Authorities, Health, Education, Emergency Services etc.
The ratios developed in this area were checked through a series
of discussions with key stakeholders eg Local Authorities and
Police.
The financial models for our outline business case were based
on figures of around 150,000 employees and a reasonably conservative
figure for total finance and HR expenditure of £7bn per year.
This figure and methodology is in line with separate unpublished
work undertaken by PWC.
5
Releasing Resources for the frontline; Independent Review of Public
Sector Efficiency, Sir Peter Gershon, July 2004. Back
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