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Operating costs – the big challenge

By Anna O’Halloran,  Consultancy Managing Director

How can the sector be better at what it does if it can’t spend more money?

That seems to be the greatest challenge at the moment. And it’s not just about the rent cuts forcing reduction in services, it’s also about the cost of Universal Credit – the cost of collecting all that rent currently paid direct, as well as the cost of collecting all those rent arrears that will build up.

We know that 90 per cent of tenants who receive Universal Credit are in rent arrears (source: NFA / ARCH Welfare Reform Survey 2015), we know that many of those tenants were already in arrears. And we also know that very many tenants in arrears don’t engage with their landlord. Just think of the resources needed to tackle all of this, just when resources are being cut and at a time when the regulator is raising its game and really starting to talk true value for money by examining operating costs. Where will the money come from?

So far, the big gap in budgets following the rent reduction seems to be coming from cutting other services. There’s talk of reductions in planned and cyclical repairs, and many redundancies have already taken place. ‘Good to have’ (although we’d say essential) services like resident engagement and community development are always vulnerable when someone’s neck is on the line.

What we haven’t seen a great deal of is organisations simply understanding the cost and impact of activity, and then if the cost is too high or the impact too little CHANGING SOMETHING! What happens is that we get trapped in to simply trying to do the wrong things ‘righter’ – we follow the rent arrears procedure even more vigorously, we bash the contractor for not meeting timescales, we performance manage our staff for not working hard enough or getting the right results. Or, we throw more money at it – we employ more financial advisors, we buy new IT systems, we out-source or we in-source and we spend more and more in trying to be better.  Of course, many of these things we spend money on are great and some are even useful!  But we just haven’t got that money now.

Working for various organisations over the last thirty years I think gives me a good understanding of how things are done, working in inspection and as a consultant for the last decade and a half gives me an even better understanding. But it’s the work I’ve been doing in the last couple of years that has really changed what I think about cost and value. Maybe I’ve been a bit slow and behind the pace of change, but I don’t think so. Of course there are some great organisations out there that DO understand cost and value, but in the last year I’ve worked very closely with a number of organisations who hand on heart couldn’t tell me the operating costs of their rent arrears escalation process. So, how could they know the value of what they were dong? How could they know the impact of each part of the process? What does arrears letter 1 cost and what difference does it make?

Unless we know the cost and value of what we do, how on earth can we justify our operating costs to the regulator (or more importantly to the person paying the rent)? And how do we get better by stopping doing the wrong things and starting to do the right things. And more about doing the right things later…….

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