BBC response to CMS Committee on follow
up questions to BBC Annual Report hearing
I have pleasure in enclosing the BBC response
to your Committee's follow up questions following the hearing
on the BBC's annual report.
The Trust has co-ordinated this response to
the Committee's questions and submits the BBC's response as the
BBC's sovereign body. We have indicated which answers were provided
by management and which by the Trust. The Trust has reviewed all
answers submitted by management and in some cases added additional
clarification.
ROLE OF
BBC THREE IN
ENCOURAGING DIGITAL
TAKE-UP
In reply to Q3, Sir Michael Lyons said that
the BBC Trust took the decision to support BBC Three following
advice from the Director-General "that it was important both
as one of the instruments of getting to a younger audience but
also in terms of providing a choice and therefore to encourage
people to move more actively to digital take-up" (emphasis
added).
1. What evidence is there that BBC Three
has encouraged people to take up digital TV? How many have done
so?
BBC Management response:
In 2007-08, BBC Three's overall reach increased
from 14.0% (7.8 million viewers) to 17.3% (9.7 million). BBC Three
regularly has the highest share of any non-terrestrial channel
in the hours that it transmits and digital take-up amongst 16-34-year-olds
increased from 83% to 87% between Q2 2007 and Q2 2008, a higher
percentage increase than in the population as a whole.
Additional BBC Trust response:
As the chairman noted during his evidence, the
Trust took the decision in October 2007 to support BBC Three as
a means of reaching a younger audience with public service content
and offering them a choice, which would help encourage digital
take-up. The rise in reach mentioned above is encouraging but
the Trust will continue to monitor BBC Three's performance and
will review the service in depth as part of the review of service
and content for younger audiences which has just begun.
REACH
In reply to Q5, Mark Thompson stated that the
BBC does set a reach target for each of its television services
and that "we can lay them out for you. I think we have met
or exceeded our reach targets this year for pretty much every
channel across BBC television."
2. What were the reach targets set for each
BBC television service in 2007-08 and what reach was achieved
in the year?
BBC management response:
The Trust's target is that all BBC services work
towards the BBC maintaining overall 90% reach. And as part of
its approval of the BBC's six year plan, the Trust set an overall
objective for the Executive "to maintain the maximum reach
consistent with its purposes and values". In 2007-08 all
the BBC's television services broadly maintained or increased
their average 15 minute reach as follows:
| 2006-07 reach |
2007-08 reach |
| BBC One | 78.4 |
78.2 |
| BBC Two | 57.0 | 57.6
|
| BBC Three | 14.0 | 17.3
|
| BBC Four | 5.6 | 7.0
|
| CBBC | 4.4 | 5.6
|
| Cbeebies | 6.6 | 7.7
|
| BBC News | 5.7 | 7.5
|
| BBC Parliament | 0.2 | 0.3
|
PUBLIC DEMAND
FOR MORE
VS FEWER
BBC SERVICES
In reply to Q12, Mark Thompson said that "the idea that
the public want fewer services from the BBC is flawed" and
that they in fact want "more". He then referred to aspects
such as better local services, more investment in programming
from the nations, and strengthening and broadening of BBC services,
adding "We do not believe the BBC should expand its services."
3. What specific research has been conducted on public
demand for more vs fewer BBC services?
BBC management response:
As part of the BBC Trust's work on setting the BBC's purpose
remits (as laid down in the Charter and Agreement), the Trust
carried out a substantial programme of audience research in order
to understand better audience attitudes towards the BBC and their
expectations. 4,500 UK adults were interviewed, with further interviews
within Scotland, Wales and Northern Ireland and amongst non-white
respondents to allow detailed analysis within these audience groups.
In many cases, this research showed that the BBC's existing
performance is meeting public expectations and the action required
is to maintain standards. However, there are others where the
public expects the BBC to improve its performance in meeting the
Purposes and this research has played a key role in setting the
BBC's current six-year strategy. These "purpose gaps"
include:
— There are significant differences in the way that
audiences in the various parts of the UK feel that the BBC represents
their nations, regions and communities and makes provision for
them. Among other initiatives, the BBC Executive's plans for BBC
Local are designed to help address this gap.
— The BBC needs to do more to ensure that we serve
all our audiences with News and Current Affairs programming, by
reaching out to new audiences without jeopardising the support
of existing and loyal audiences.
— Education and Learning are seen as core to the
BBC's remit—particularly by those with children—and
audiences want us to do more in this area.
The Trust's research has therefore established that there
is a performance gap in some areas. The Executive's response is
to propose the enhancement of existing services to address these
gaps, subject to the approval of the Trust where required.
ADDITIONAL BBC TRUST
RESPONSE
In addition to the Trust's work on purpose remits which we
used to challenge the BBC Executive (as noted above) the Trust
has undertaken its own research on new services such as iPlayer
or the HD channel and found high levels of public support. The
Trust knows from its wider work with audiences that most licence
fee payers particularly value some services rather than all of
them, but they obviously differ in taste. The role of the Trust
is to ensure that the BBC provides high quality output and good
value for all UK citizens.
4. Do the proposals for new local video services not represent
"more" or an expansion of BBC services?
BBC management response:
BBC Management has put to the BBC Trust a proposal to enhance
its local provision, primarily through enhancing its offer of
news in video on the existing BBC local websites (it is not proposing
a new network of local sites).
In meeting the public purpose in the BBC's Royal Charter
of "representing the UK, its nations, regions and communities",
the BBC already provides local websites alongside its Nations/regional
television services and Nations/local radio stations. These BBC
Local websites (formerly known as Where I Live) typically
cover an area with a population of around 1 million. Within the
terms of the Service Licence the BBC Trust has issued for bbc.co.uk,
these sites provide a range of local content including audio and
text news, video stories from regional television bulletins where
relevant, travel and weather.
In oral evidence (Q12), the Chairman said audiences wanted
the BBC to offer better local services. BBC Trust research has
shown a gap between what audiences expect from the BBC in terms
of its local community role and what we currently provide. BBC
Management has proposed to meet this gap by investing in new teams
of video journalists to cover local stories in each of sixty areas
across the UK. In particular, BBC Management believes the proposal
will better serve audiences younger than those currently served
by the BBC's local television and radio output.
The new video content would focus particularly on local news;
at least 20% would be coverage of local politics and public policy
issues. The predominant mode of distributing this content will
be via bbc.co.uk. As part of a package of partnership proposals,
it is also proposed that BBC local video is made available to
other online providers of local news to supplement their own coverage.
The BBC Trust is currently subjecting the proposal to a Public
Value Test (PVT). PVTs can be applied to both new services, requiring
a new Service Licence, and significant changes to existing services.
KANGAROO
In reply to Q108, Sir Michael Lyons stated that:
"Kangaroo is another illustration where the Trust has
not finished, or even started, its appraisal of the Kangaroo proposition.
How could we because in fact the proposition itself is still taking
shape? What we have done is say that, for what we can see of this
proposition, we have authorised the Executive to talk to other
players in the industry, to talk to those who have already been
identified as co-operators. In no way does that constrain the
Trust when the day comes that it has a detailed proposition in
front of it."
5. Is it appropriate that the Competition Commission should
be undertaking a detailed and costly inquiry into Kangaroo, if
the BBC Trust has not finished, or even started, its appraisal
of the proposition, and only authorised the Executive to talk
to other players in the industry?
BBC Trust response:
Obviously it is solely a matter for the Competition Commission
as to whether it holds an enquiry or not.
The Trust has a general duty to have regard to the competitive
impact of all BBC activities on the wider market. Where, as in
the case of the proposed Kangaroo joint venture, the BBC requires
Trust approval, the Trust needs to be satisfied that the criteria,
set out in the Agreement, for commercial services have been met.
It can only reach such a view when a fully developed proposal
is submitted for assessment and the joint venture partners are
not yet in a position to do this.
One of the criteria against which the Trust would assess
the proposal is that the BBC's commercial services must avoid
distorting the market. Once the Trust had authorised the BBC to
develop the proposal, the joint venture partners rightly notified
the OFT, which referred the matter to the Competition Commission.
Since the Commission's view on compliance with competition law
is clearly relevant to the Trust's consideration of the final
proposal, the Trust takes the view that it should await the outcome
of the Commission's work before reaching its own decision.
Recognising that there are two bodies with regulatory powers
involved here, the Trust established contact with the Commission
as soon as it began its review in July to ensure that there is
clarity over the respective roles of the Trust and the Commission
and to offer any assistance that it can to the Commission in the
conduct of its inquiry.
INCREASING PERCEIVED
VALUE AMONG
"LOW APPROVERS"
The Trust has set the BBC a high-level objective to "increase
perceived value among middle and low approvers, noting that there
is "clear evidence... that significant parts of the audience
feel the BBC is not serving them as well as it should" (page
17 of Part One).
6. How do you plan to increase the value of the BBC to
those people that currently give it low approval?
BBC management response:
Perceptions of value and of approval are influenced by a
number of factors including socio-economic group, location and
consumption. We are therefore developing sophisticated audience
insight tools, including a new value-based methodology, to allow
us to understand the issues in more detail. Its early results
are already providing management with useful indicators for programmes
and services.
Our current six-year strategy contains proposals which are
designed to deliver greater value to middle and lower approvers.
BBC One is the most important service for delivering to a broad
range of audiences and investment in the channel is expected to
provide value for all. We will be creating new high-quality dramas,
comedies and other broad-based programming, while at the same
time seeking to maintain a low level of repeats. This will increase
value for audiences with lower approval ratings while continuing
to deliver value to those who already value the BBC highly. Doctor
Who is a great example of this kind of content—the final
episode of the recent series had an audience of over 10 million
drawn from all parts of the UK population.
Older and C2DE audiences also value the BBC's local and regional
content; the proposals for closing the BBC's purpose gap in localness
will have an impact here. The internet universe—while currently
dominated by ABC1s—is itself changing over time: while ABC1
reach increased 22% over the last year, C2DE reach was up 39%.
As this continues to change, the BBC's internet-delivered services
will increasingly deliver value to all audiences.
7. How will you ensure that the BBC will "[not] spin"
the value of its services in order to increase positive perceptions?
BBC Trust response:
The Trust's annual report set out a set of objectives it
has established for BBC management. Measurement of management's
performance against the objectives relating to approval will be
based on a robust tracking study which the BBC has been running
for many years. The Trust's own research specialists and analysts,
operating independently from management, have taken the lead in
determining the measures to be used in tracking progress so the
Trust can be fully confident that performance is measured and
reported objectively.
BBC PAYMENTS TO
OFCOM
8. The Trust's figures for what it pays Ofcom, given in
the table on page 38, don't add up. The individual figures given
for Ofcom regulatory and market impact assessment fees adds up
to £3.7 million but the total listed is over £4.2 million.
Why is that?
BBC Trust response:
The individual figures are correct and the total Ofcom fees
are £3.7 million. Unfortunately, despite proof reading by
ourselves and the external auditors this printing error was not
spotted until after the report had been distributed.
TRUST STAFF
AND OTHER
OPERATING COSTS
9. How does the Trust justify £64,000 per annum as
an average cost for each of its staff members, around one third
of whom are based outside London?
BBC Trust response:
The £64,000 average cost per staff member includes the
Trust's contributions towards pension and national insurance.
In response to the Trust's responsibilities and duties, the Trust
Unit includes a significant number of professional staff with
expertise across a range of disciplines who advise Trustees on
the conduct of their duties and support their work in key areas.
There is little routine processing work. By comparison, the figures
in Ofcom's 2007-08 report suggest that Ofcom's average cost per
staff member is over £68,000.
10. The Trust spent more than £6.7 million on research,
legal advice and other specialist advisory services last year.
What systems and processes are used to procure these services,
and how does the Trust ensure that it is obtaining value for money?
BBC Trust response:
The Trust follows standard BBC procurement processes when
acquiring these services. (BBC Procurement was recently subject
to a NAO study at the request of the Trust which concluded that
"in recent years the BBC has adopted good procurement practices
to significantly improve the way it buys goods and services to
deliver better value for money from procurement".)
This means that for any contract with a potential value of
over £50,000 the Trust will conduct a formal tender. For
lower value contracts, in the range £10,000-£50,000,
the Trust will obtain quotes from a number of suppliers before
selecting one. Where the Trust engages a supplier which is already
on the BBC's preferred supplier list the Trust ensures that the
fee rates are in line with the existing framework agreement between
the BBC and that supplier.
In line with BBC procurement practice the Trust has a series
of financial approval limits such that higher value contracts
require the approval of more senior members of the Trust Unit
and Trust. The Trust's workplan is approved by the Trust as a
whole and the major research and advisory services procured are
done so in support of this. Where major new work is proposed by
the Trust Unit that is not within the Trust's workplan this will
be subject to Trust approval.
For any research or advisory services it is standard practice
to structure the contract such that final payment is only made
once the required piece of work has been delivered to an acceptable
standard.
The Trust's finance and strategy committee reviews the Trust's
budget in detail before approving it and requires regular updates
on financial performance against budget. As part of this monitoring
process the committee examines spend on the major research and
advisory work.
11. Ofcom has been able to reduce its budget in real terms
year by year. Will the Trust be able to do the same, rather than
simply commit to keep its costs at or below a percentage of the
BBC's public service expenditure?
BBC Trust response:
Ofcom is a relatively mature organisation, having been formed
from the merger of five existing bodies.
In contrast the Trust is a new organisation. It was designed
from the outset with value for money in mind. Nevertheless, the
Trust will look closely at its costs year on year, mindful of
the need to ensure work is undertaken efficiently and represents
good value. However as a new body it is still early days in the
Trust's history with only one full year of operations behind it.
As the Committee has noted, the Trust is committed to keeping
its expenditure at or below 0.35% of the BBC's public service
expenditure over the next five years.
BBC TRUST: PRE-APPOINTMENT
HEARINGS
12. Do you accept that there is a role for this Committee
in conducting pre-appointment hearings with future Government
nominees for the post of Chair of the BBC Trust?
BBC Trust response:
This is a matter for DCMS to determine. The BBC Chairman
appointment process is managed by DCMS and is subject to regulation
by the Office of the Commissioner for Public Appointments, including
the involvement of an OCPA trained assessor throughout.
DETERMINING WHO
SPEAKS FOR
THE BBC ON
POLICY ISSUES
13. What is the Trust's policy on lobbying of Parliamentarians
and other opinion formers by the BBC Executive? When MPs are presented
with policy positions and requests for support on specific policies
should they assume these have been sanctioned by the Trust?
BBC Trust response:
The Charter and Agreement provide for the BBC to express
opinions on matters of public policy affecting broadcasting and
online services. The BBC's strategy and position on such matters
are subject to Trust approval. During the development of policy,
it is appropriate for BBC Executive members to consult Parliamentarians
to inform policy proposals which might be submitted to the Trust
for approval, but in doing so, it is the responsibility of the
BBC Executive to make clear to anyone with whom they are liaising
and especially legislators, that the policy is not settled and
requires Trust approval and could therefore change. During the
process of applications to the Trust for new service approvals
which require a public value test, it is appropriate for the BBC
Executive to explain their applications to Parliamentarians and
to encourage participation in the Trust's formal consultation
processes.
BBC.CO.UK
14. What progress has the BBC Executive made in improving
its systems and processes surrounding cost allocation, data collection
and reporting for bbc.co.uk?
BBC management response:
The BBC Executive have put in place a strengthened strategic,
editorial, and financial controls process around the bbc.co.uk
service. A dedicated Board has been established to set the three
year strategy and one year plan for the service. The Board is
chaired by the Group Controller, a new senior post within the
Future Media and Technology Group, with overall responsibility
for the service licence and its reporting obligations.
The Group Controller and the Business and Finance Director
for bbc.co.uk will report quarterly to the Executive Board and
the Trust on financial and editorial performance, highlighting
any concerns on a timely basis so that remedial action can be
taken where needed.
In addition the BBC Executive has initiated a comprehensive
review of the allocation of costs between content, development,
distribution and infrastructure spend being used across the BBC
for bbc.co.uk to ensure they are appropriate, consistent, and
being rigorously applied.
15. What is the current timetable for these improved systems
to be reviewed by the BBC's auditors, and have they reported any
findings?
BBC management response:
KPMG is currently conducting its review of the new control
elements already in place, and is also reviewing the implementation
timetable for further controls still being developed. KPMG is
working with all divisions to review their cost protocols and
highlight areas where improvements are needed. KPMG's report is
expected at the end of September.
Additional BBC Trust response:
As a result of its review into the bbc.co.uk service the
Trust required management to take action to improve its systems
and processes. The Trust has stated it will not consider any application
from the BBC Executive for further increase in investment in bbc.co.uk
until it is satisfied that improved controls are in place. The
Trust will consider KPMG's report and review the progress that
has been made in October 2008.
16. If the Trust has concluded that financial management
at bbc.co.uk was weak during 2007-08, why has it used the outturn
for 2007-08 as a baseline for 2008-09? Surely, with improvements
in financial management, bbc.co.uk could keep to a more challenging
budget?
BBC Trust response:
The baseline for 2008-09 was set taking account of the strategic
plan the Trust approved for the BBC in October 2007. Additionally
the setting of the baseline took account of the outturn for 2007-08
adjusted for both inflation and also for efficiency targets. So
the new baseline does require strong financial management to deliver
these efficiencies. Much of the issues identified in the review
of bbc.co.uk spend showed that the original baseline had not taken
account of the relevant overheads to be apportioned to the service.
The new baseline for 2008-09 was adjusted for this.
The Trust's review states that any system for holding BBC's
online activities to account "will only work if it has a
clear structure of responsibility within management, and places
an explicit duty on management to refer issues of significance
to the Trust".
17. The Trust seems to believe it should take a passive
role in overseeing BBC's online activities, relying on management
to escalate issues. Shouldn't the Trust be putting its own monitoring
controls in place as well?
BBC Trust response:
The Trust actively monitors the performance of all BBC services
each year, using a set of metrics which are set out in each service
licence. It will continue to monitor the performance of bbc.co.uk
via this annual process which involves discussions throughout
the year where necessary. Alongside this, the Trust receives regular
financial reports from BBC management on a regular basis. So the
Trust will be proactively monitoring the BBC's online activities
in a range of ways on a regular basis. However, it remains the
duty of BBC management, rather than the Trust, as set out in the
Charter, to operate the services on a day to day basis in line
with any requirements set out by the Trust.
Any significant proposal to extend the online services beyond
the current service licence remit requires the Trust to consider
whether a public value test is required. The approval process
for the iPlayer service, which included a public value test, illustrated
this process.
Part of the 48% overspend in 2007-08 related to overhead
costs that were not being fully absorbed into the costs of BBC
services. This reallocation of overheads affected the budgets
for all BBC services, not just bbc.co.uk, and has been reflected
in the new baseline budgets published by the Trust in April 2008.
On page 29 of its Annual Report, the Trust states 11 services
exceeded their budget limits in 2007-08.
18. To what extent did other BBC services overspend in
2007-08 as a result of the failure to absorb overhead costs? Were
there any additional reasons, other than this confusion relating
to overheads, for 11 services breaching their budget limits?
BBC management response:
In 2007-08, part-way through the first year of operation
of the new service licence regime, the BBC undertook a review
of its processes for allocating indirect production costs to service
licences. As a result of this review the BBC identified a total
of £83 million of legitimate indirect production costs, which
were within agreed overhead budgets, but which had been excluded
in error from service licence budget baselines. When these costs
were correctly allocated to service licence budgets it had the
effect of causing eight service licences to breach their 10% tolerance
limit above/below which BBC Executive is required to report the
breach to the BBC Trust.
Two other service licences breached their 10% tolerance limits
for other reasons:
— HDTV—due to significant savings achieved
in contractual negotiations; and
— Radio 5 Live—due to significant savings
from refining the allocation of newsgathering costs and the relatively
low level of significant sporting events in the year.
Additional BBC Trust response:
The Trust considered the reasons behind the over and underspends
on the various services at a meeting of its Finance and Strategy
Committee and subsequently by the whole Trust in June 2008. At
that time 11 services were identified as breaching their budget
limits. A very late audit adjustment to the numbers brought one
service just within its budget limit after this discussion had
taken place.
The Trust requested that the external auditors give assurance
on the final allocation of overheads to the different services.
The Trust requested additional work on cost methodology and better
guidance on cost allocation, involving the external auditors,
so that such issues did not recur in the future. The Trust also
refused to approve any further increase in new spend on bbc.co.uk
until these improved procedures were in place.
19. How do you determine which overhead costs should be
absorbed into costs of BBC services?
BBC management response:
The policy for absorbing overheads, as agreed with the Trust,
is that service licence budgets should include all direct programme
costs and other programme related expenditure. This includes some
costs which are managed centrally (especially property costs),
but which can be specifically linked to the production of channel
content.
However, the BBC does not include distribution and infrastructure
and other overhead costs. For example, although the occupancy
cost of TV or radio studios is included in the service licences,
the cost of its support functions such as Finance or HR and the
space they occupy is not included.
Additional BBC Trust response:
The Trust's review of bbc.co.uk showed that there was a need
for clearer guidance on which costs are included within service
spend and which within central overheads to ensure consistency
across the BBC. The Trust will be reviewing management's progress
in developing appropriate definitions and guidance, including
KPMG's views on this, during October 2008.
20. Why hadn't the problem with absorbing overhead costs
been identified previously, as it appears to cut across all of
your services?
BBC management response:
2007-08 was the first year of operation of the new service
licence regime, and the costing for the original service licences
was based on the previous costing regime. The need to refine our
costing allocation processes and ensure full absorption of overhead
costs within service licence budgets was identified by the BBC
Executive and discussed with the BBC Trust during the year.
At the year end KPMG, the BBC's auditors, signed off the
2007-08 financial statements without the need for a prior year
adjustment, thus confirming that this refinement represented an
enhancement of an existing process rather than an accounting error.
The 48% overspend detailed in the Trust's service review
of bbc.co.uk relate to content spend. Spending on items such as
central infrastructure and support, and development activities
are not included in content spend and fall outside the service
licence budgetary regime. Pages 141-142 of the BBC Annual Report
show the following costs:
COST OF
BBC.CO.UK
| £ million | 2006-07
| 2007-08 | % Change
|
| Content | 83.2 |
113.9 | 37% |
| Distribution | 8.8 | 15.4
| 75% |
| Infrastructure/support | 24.0
| 52.7 | 120% |
21. Have these significant year-on-year increases, in
all three categories of expenditure, been investigated by both
the Executive and the Trust? What is the reason behind them?
BBC management response:
The year-on-year increases have been thoroughly investigated
by the Executive and the Trust as part of the bbc.co.uk service
licence review. The increase in the content spend is largely due
to a change in the definition of costs that should be allocated
to bbc.co.uk. When the service licence regime was established
the bulk of the content on bbc.co.uk was text and pictures with
very little audio or video streams. The incremental cost of the
small amount of video then on the site was small and therefore
the costs were not allocated to bbc.co.uk. However over the last
18 months all web sites have seen a dramatic rise in the availability
of rich media. It has now become appropriate therefore to allocate
a share of the cost of those audio-visual streams more clearly
to bbc.co.uk.
As content costs have risen, this has meant a linked increase
in those related costs which are not specifically regulated by
service licence. Distribution costs have risen as, in the new
media space distribution is a variable cost—the more content
consumed by audiences (or the more that content is rich media),
the larger the distribution pipe needed and the higher the cost.
The BBC continues to pursue technical solutions to reduce the
unit cost of the distribution of its content.
As well as reflecting the underlying growth in the service,
the increases in distribution and in infrastructure and support
costs is driven partly by an increase in general overhead costs.
For example, the specific marketing costs to support i-player
have risen year-on-year. The BBC has also implemented specific
refinements to the bases for apportioning distribution costs and
archiving costs which have resulted in bbc.co.uk absorbing a greater
proportion of these costs.
Additional BBC Trust response:
The BBC management response above explains the main reasons
for the year on year increases. As noted, the Trust investigated
these during its review of bbc.co.uk.
22. How does the Trust maintain oversight of distribution
and infrastructure costs, if these fall outside of the service
licence budgetary regime?
BBC Trust response:
The Trust uses a variety of means by which to exercise its
financial stewardship duties. Monitoring spend through the service
licence regime is just one aspect of this.
More widely the Trust oversees the strategic direction of
the BBC and is responsible for approving the BBC budget. Each
year it reviews the draft budget in detail first at a subcommittee
of the Trust and then by the Trust as a whole before approving
this. As part of this the overall level of spend proposed on distribution
activities and on the various infrastructure costs are discussed.
Significant variations on the approved budget, or major new spend,
may be referred to the Trust for approval during the year in accordance
with the published financial protocols.
During each year the Trust reviews financial performance
on a quarterly basis. It reviews and discusses the quarterly performance
report with the BBC's Finance Director, seeking further explanations
as appropriate in any areas of concern. The Trust Unit's own professional
accounting and auditing staff receive and review on behalf of
the Trust the BBC's monthly accounts.
EFFICIENCY
23. How has the Trust held the Executive to account for
its failure to meet its efficiency savings target of £355
million for 2007-08?
BBC Trust response:
As noted in the Trust's part of the annual report, the BBC
failed to achieve this target by £8 million. Although the
target was not achieved in full the Trust noted that the £347
million of savings made were still a significant achievement.
The Trust discussed the reasons for the shortfall with the BBC
Executive and was satisfied that these savings were still likely
to be delivered from actions already underway but which had not
come to fruition by March 2008.
Going forward the Trust has approved a new strategic plan
for the BBC which includes new financial targets. The old efficiency
programme has therefore now been superseded by the new 3% annual
efficiency target over the next five years.
24. How did the Trust determine the new 3% year-on-year
efficiency target, and assure itself that the target is both realistic
and challenging?
BBC Trust response:
In setting the new efficiency target the Trust considered
the challenges facing the BBC both internally and in the wider
economic climate. It also took account of the efficiency targets
being set by other bodies within the wider public sector.
The Trust has also imposed a tighter definition of what counts
as an efficiency saving, and in particular explicitly linked the
efficiency savings target to the need to maintain service performance.
In doing so the Trust drew on guidance available from the wider
public sector and on advice from the National Audit Office. This
means that efficiencies declared against this target will reflect
real efficiencies as opposed to cuts in activity.
REDUNDANCIES
25. How has staff morale and productivity at UK Public
Service Broadcasting been affected by two significant redundancy
programmes so close together?
BBC management response:
The BBC's efficiency programme has delivered a reduction
in our cost base of around 10% over the last few years and has
delivered annual recurring savings totalling £347 million.
Last year's reprioritisation programme has led to a further 2,000
job closures and redundancies being planned between now and 2010
on top of previous reductions.
This presents a challenging environment for staff morale
but more than two thirds of the questions in the BBC's most recent
Staff Survey received a positive response from the majority of
respondents with 86% saying that they are proud to work at the
BBC, and 5% more people gave the maximum score for this question
than in the previous survey. There was also a significant rise
(from 51% to 67%) in the number of people who would speak highly
of the BBC as an employer. According to Ipsos MORI, who conducted
the Survey, these are very positive scores and put the BBC ahead
of most other high performing organisations who use Ipsos MORI.
More than 70% that creative ideas and new thinking are welcomed.
75% say they understand how their work fits into the overall aims
of the BBC and 73% know how their role contributes to meeting
audiences' needs.
But we are not complacent: the Survey also showed that staff
want more regular feedback about their performance, more opportunities
for training and career development and better communication about
the reasons behind management changes. We are therefore seeking
to address these concerns.
Staff productivity is more difficult to measure objectively
in a not-for-profit organisation such as the BBC. However, the
evidence of the staff survey results does indicate that staff
remain highly motivated and are therefore likely to remain productive.
As a creative organisation with a highly skilled and educated
workforce, the degree to which our staff are engaged is an effective
proxy measure of productivity. Many organisations with a highly
skilled workforce measure engagement for precisely this reason.
Overall, the survey results demonstrate that we have an engaged
and committed workforce and moreover, our output performance measures
do not suggest any related deterioration in the quality of output
attributable to the impact of the redundancy programmes, and audience
approval ratings in particular remain high.
26. How do the goals of the Continuous Improvement programme
differ from those of the Value for Money programme? How is management
assuring itself that the cuts are being made in the right areas
of the business?
BBC management response:
The main difference between the two programmes concerns the
nature of the efficiencies target. For the Value for Money programme
(2005-08) (VFM) the BBC had monetary targets for the level of
savings, and for the one-off implementation costs, and a headcount
reduction target. For the Continuous Improvement programme (CIP)
(2008-12) the BBC has been set a target of 3% cash-releasing efficiencies
year-on-year after taking account of superinflation.
A further difference is that unlike the VFM programme, the
CIP plans have been set much more on a bottom-up basis, with the
divisions identifying the efficiency initiatives that will enable
them to deliver their targeted savings. Under CIP there is no
central change management team; instead the emphasis is on the
divisions to put in place their own project management offices
and delivery teams. Specialist efficiency expertise has been employed
to deliver a consistent framework for definitions, measurement,
and to ensure that the reporting of CIP savings is in line with
central government practice.
A further enhancement from the VFM programme is that the
BBC will be monitoring and reporting quarterly on the impact of
efficiency savings on audience metrics, to ensure that performance
is being maintained.
The BBC has converted its 3% CIP target in to differential
targets for its content and support services. These differential
targets take in to account the savings already delivered under
the VFM programme. For example, the support services delivered
the highest percentage savings under VFM (Finance 45%, BBC People
25%, Marketing Communications and Audiences 20%) and delivered
transformational changes to their operating models. They have
therefore been set relatively low targets this time, with content
divisions now delivering the majority of the savings.
The project management offices within each division will
continually monitor the impact of the efficiency initiatives in
order that any adverse impact on output would be identified, and
plans adjusted accordingly.
Additional BBC Trust response:
The response above from BBC management describes the operational
changes. Additional to that it is worth adding that the Trust
set the BBC's new efficiency targets taking account of lessons
learnt from the past VFM programme and from current practice elsewhere
in the public sector. In particular the Trust has put a strong
emphasis on clear definitions and an appropriate measurement system
that takes account of the effect on the efficiency programme on
the performance of the BBC services rather than simply measuring
savings per se. This is to ensure that efficiencies are
not made at the expense of service quality.
27. The Continuous Improvement programme is expected to
take place over five years. Does the Executive anticipate further
redundancy costs in addition to the £99.7 million provided
for in 2007-08?
BBC management response:
The £99.7 million charge in the 2007-08 financial statements
is the discounted present value of the estimated CIP redundancy
and restructuring costs. The figure includes the cost of actual
redundancies in the year, plus a provision to take account of
the costs of future redundancies over the five years of the CIP.
In accordance with accounting standards the figure represents
the Executive's best estimate of the total redundancy costs arising
from the CIP, and has been reviewed and approved as part of KPMG's
year-end audit process.
Over a programme lasting five years, however, the possibility
that additional redundancy costs will emerge, which are not currently
foreseen, cannot be ruled out.
28. Is the Value for Money programme now complete, and
if so, has there been an assessment of its successes and failures,
which could be fed through into the Continuous Improvement programme?
BBC management response:
The VFM programme is now complete, and a number of lessons
learned from the first two years of that programme were reflected
in the planning for the CIP methodology. For example, the CIP
has a much tighter definition of efficiencies than the BBC's VFM
programme and the Gershon programme, and focuses solely on sustainable
cash-releasing savings.
Under CIP the BBC has put in place a more effective process
for tracking efficiencies in accounting records, and both the
BBC and KPMG have learned lessons from VFM about the proving of,
and accounting for, efficiencies.
The BBC has provided greater clarity and transparency of
the baseline from which savings will be measured.
Two senior efficiency specialists have been hired to support
the setting up of an appropriate framework for the CIP in line
with central government efficiency programmes. A Continuous Improvement
website has been set up on the intranet, providing clear guidance
on definitions and measurement of CI savings. There is also greater
divisional governance and ownership of the programme.
The CIP also places less focus on headcount reductions, since
during the VFM programme it was found that the headcount target
incentivised job losses regardless of employees' seniority and
capability. Therefore, whilst under CIP there is an estimate of
the number of job losses and redeployments, the CIP focuses instead
on delivering sustainable cash-releasing efficiency savings at
an agreed one-off implementation cost.
Additional BBC Trust response:
As noted in the Trust's comments on question 26 above, the
Trust set its new efficiency targets taking account of lessons
learn from the past VFM programme to ensure that efficiencies
are clearly defined, measurable and are not made at the expense
of service quality.
The Trust will be monitoring progress against the target
on a regular basis and will also be inviting the NAO to review
progress against the target at the midpoint in the five-year period
on 2010-11.
September 2008
| 
