Funded by the: JISC Flexible Service Delivery programme.

Lead Institution: North Hertfordshire College.

Partner Organisations: City College Norwich, The College of West Anglia and SHM.

Key Words: Shared Services.

 

Background

 

Aims and Objectives

 

North Hertfordshire College (NHC) achieved a 30% reduction in the operating costs of its Finance processes in only six months by reviewing and re-engineering the processes. The College was motivated by this success to think of itself as a retailer and restructure as a sales focused organisation leading to overall cost savings of £1.2 million per annum. The relevance of NHC’s experience has been validated by peer review from two partner colleges.

 

Context

 

North Hertfordshire College is a medium sized general further education college enrolling around 15,000 learners a year. The college is based across five main centres in Stevenage and Hitchin, with a purpose-built centre, the Goldsmith Centre for Business, in Letchworth Garden City.  The college vision is to ‘Be the best we can possibly be in everything we do’ and its Missions is ‘We aim to be recognised for outstanding teaching and exceptional customer service.’

 

The College of West Anglia is one of the largest education and training providers in the eastern region and is in the top 10% of colleges in the country. It has four campuses and local learning centres and offers a wide choice of learning opportunities with a commitment to providing the best learning experience possible.

 

City College Norwich enrolls around 10,000 learners per year on a wide range of FE and HE level programmes. The college has undergone substantial change in the last five years, responding to both national policy developments and to local needs. It has established itself as a progressive college with high aspirations. The college is determined, over the course of the next five years, to become a college in the top ten nationally and it has stated that this goal requires the college to think and act differently.

 

Whilst Duke & Jordan concluded in April 2008 that there was ‘little appetite for shared services across both HE and FE sectors’, the market and the funding structure for FE has since been transformed as a result of the macro economic downturn and the challenge created by the collapse of the government funded capital build programme. The partner colleges were therefore very keen to form a consortium to undertake an exploration of shared services as an option for the colleges. More specifically, there was a desire to understand the practicalities of a Further Education College operating certain functions and activities through a shared service solution, and to bridge the theoretical work undertaken by JISC with a demonstration pilot in a real FE college setting.

 

Prior to this project, governors and auditors were entirely satisfied with the finance function at NHC and there was no reason to suppose that it was anything other than highly effective.

 

The three colleges all used different systems for their financial administration:

 

• North Herts College: Aggresso QLx & Ultimus 
• College West Anglia: FMS SunSystems Version 4
• City College Norwich: Symmetry

 

Replacement of the technology was not part of the scope of the project although the process review provides the basis for defining requirements of any future system.

 

The business case

 

The project was of an exploratory nature so there was not a single business case as such. The preferred outcome was to be a proposal for a pilot of a shared service solution for NHC and other colleges (or similar institutions). However, it was noted that a possible outcome may be a recommendation that shared services should not be pursued in the foreseeable future (and a detailed rationale for this decision).

 

In order to be judged a success the project had to deliver a clear understanding of the benefits of and desire for a shared service solution for the provision of a range of finance activities at NHC and neighbouring colleges. The project would thus demonstrate the benefits (or clearly indicate that there was no benefit) in progressing to a live operational pilot. The project would provide detailed data to form the basis of defining such a pilot and act as the foundation for a potential procurement document for a shared service vendor.

 

In practice the project identified the potential for considerable process improvement and it was evident that such improvement was a pre-requisite for any successful Shared Service implementation. The focus of the project changed to become a proof of concept in relation to process improvement at NHC with peer review by the other colleges providing validation of the wider applicability of the outcomes.

 

Key drivers

 

This project was concerned with overall business processes rather than the IT systems which support those processes. It was however the case that none of the three colleges involved were entirely happy with their current finance system and two were actively considering replacement of the systems. Process review is an important pre-requisite for defining requirements of a new system and alignment of processes across the colleges would be important if they were to consider a Shared Service solution.

 

Designing the project approach

 

The outline of the main project activities was as follows:

 

1. Desk research review of finance/Shared Service practices within the public and private sectors
2. Interviews with senior staff at all three colleges to test the appetite for Shared Service provision
3. Process mapping of the NHC finance function and interviews with staff to assess work volumes and allocate costs
4. Workshop with key individuals to test initial analysis, categorise and evaluate processes
5. Initial process re-engineering undertaken to identify and evaluate efficiencies
6. Review of processes with Head of Finance, NHC
7. Evaluation of processes to assess fit with City College Norwich and College of West Anglia

 

A key feature of the project approach was that change was implemented very quickly. Staff can often become very cynical about process review activities if they are not seen to be achieving clear results. Whilst there are inevitable sensitivities around change that results in a reduction in headcount, the project was seen to be delivering benefits that are entirely appropriate in the current climate.

 

Process mapping was carried out in-house by NHC staff. Others wishing to conduct a similar exercise are recommended to use the free tools and guidance provided in the JISC infoNet Process Review infoKit. Training can also be provided by the JISC infoNet service at low cost or free of charge to groups of institutions.

 

Establishing and maintaining senior management buy-in

 

This project had strong senior management support from the start. The Principals of the three colleges involved jointly filled the role of Project Sponsor.

 

Outcomes

 

Achievements

 

Interviews with the Principals and Finance Directors of all three colleges painted a somewhat different picture of the appetite for Shared Services to that identified in a 2008 study on Shared Services for JISC. All of the individuals were extremely open to the idea provided the benefits were clear. The main potential benefits were identified as cost, quality and resilience. The cost issue is perhaps the main driver but it must be stressed that this is complicated by the potential of such services to attract VAT. Where a third party supplying services is obliged to charge VAT then savings will need to be in excess of 20% in order for the solution to be viable in purely financial terms. There are a range of potential consortium/membership models that may prove effective in terms of avoiding VAT liability and anyone considering such an arrangement will require detailed legal advice.

 

All of the colleges had already adopted outsourced solutions for catering and cleaning and were prepared to go much further in terms of third party partnerships. Information Advice and Guidance (IAG) and Information Resource centres were cited as possible areas where outsourcing or Shared Services could provide effective, high quality solutions. The colleges were also open to the possibility of themselves providing services to other organisation and City College Norwich already provides some services to a local academy school.

 

Outcomes with regard to financial processes

 

The review of the administrative activities undertaken by the NHC finance function was intended to:

 

• Understand what activities the unit undertook
• Establish any anomalies unique to the sector
• Better understand the costs associated with the activities

 

The financial process undertaken by NHC were found to be consistent with those in the partner colleges and indeed across all other sectors. The function essentially performs four financial tasks:

 

• Record to report
• Order to cash
• Purchase to pay
• Payroll

 

The project identified nothing that appeared to be unique to this type of organisation/sector. A total of 91 separate sub-processes were identified and 88 of them fell into one of the above four categories (see graph in the Appendix).

 

Each process was then reviewed to determine whether it was a high or low skill activity and whether it had to be undertaken in a specific location. Typically, it is reasonable to assume that activities that are high skill and location-specific are out of scope for prospective outsourcing.  Low skill and location-neutral however would often be considered in scope for delivery via a third party. The analysis revealed that no activities were high skill and location-specific.  The majority of sub-processes (56) were deemed low skill and location-neutral. There were therefore no processes that were considered out-of-scope for potential outsourcing or Shared Service delivery due to their complexity or location requirements.

 

The next step was to evaluate the costs associated with the existing service delivery using a model that attributed costs for labour, databases and overheads (including management costs).  In the interests of simplicity the model did not include costs for archiving, the details of which were not readily available and could not be allocated at a departmental level. Costs were built up by understanding work volumes, estimated time taken and costs associated with the process owner (e.g. salary, pension, NI).

 

Analysis of the administrative processes resulted in the following conclusions:

 

• The structure of the function was very hierarchical with up to 4 staff layers evident within the team
• There were no unusual processes
• There were a large number of sub-processes some of which were not formally documented as processes and/or subject to regular review by management
• Processes were complex with multiple stages
• There was heavy reliance on paper systems for completion of the function’s activities
• Some finance activities were being completed outside the team causing duplication and complexity
• The use of cash necessitated lengthy and time consuming (expensive) processes
• Management costs were relatively high for the function

 

In order to deliver process efficiencies it was therefore deemed necessary to re-engineer processes to eliminate or reduce:

 

• Complexity
• Duplication
• Paper
• Cash
• Errors

 

Using these principles the college re-engineered two of the processes that were the most costly in terms of time and resources:

 

• Daily cash banking with related processes (cash till readings and creation of sundry banking journals) cost an estimated £7,000 per month
• Processing purchase orders with related processes (processing invoices) cost an estimated £3,300 per month.  The cost in reality was however felt to be substantially higher as some related or duplicate activities took place within the schools and there was an associated archive cost.

 

Following an analysis of the benefits derived from this re-engineering the college then went on to identify other processes that could be substantially re-engineered or eliminated and carried out a review of its management structure resulting in a reduced hierarchy and headcount (details below). 

 

Benefits

 

Tangible

 

The project has delivered significant cost savings in the finance function. The institution as a whole benefits from this reduced administrative cost base allowing it to concentrate increasingly scarce resources on the more value-added elements of its Mission. The following lists serves to highlight a few of the headline benefits:

 

• A 30% reduction in the cost base of the finance function resulting in savings of £120 per annum as a direct result of this 6 month project.
• The project paved the way for wider process change in the college resulting in savings of £1.2 million per annum.
• Streamlined business processes e.g. the daily cash banking process was reduced from being a 15 step process to a 4 step process.  This realised a 26% time saving and a 67% cost saving.
• Use of technology to automate processes e.g. purchase order processing was re-engineered to remove some duplication and invoices are now scanned and sent electronically. This has realised a 26% time saving and 30% cost saving. It is however recognised that further investment in a smart purchasing system could deliver savings of 71% on time and 74% on costs.
• Elimination of redundant processes: 26 of the 91 finance sub-processes were identified as being substantially redundant and, hence, could be totally eliminated.
• Fewer errors due to staff training e.g. staff were trained to use the tills more accurately.
• Reduced headcount: NHC has reduced the headcount associated with financial administration by approximately 3.5 FTE with the potential for removal of further duplication in schools.
• Simplified management structure: NHC now has a less hierarchical structure. The functions of the previous Finance Director are now carried out at different levels resulting in a saving of £60k per annum on management costs.

 

Intangible

 

The following benefits are less immediately tangible but no less valuable:

 

• NHC now has staff in its finance function who have acquired process analysis skills and the college is willing to engage in providing peer support to other colleges wishing to try a similar approach.
• The project realised significant benefits in only six months demonstrating to all stakeholders that the college can act decisively and effectively.
• The project has provided essential background information to enable the implementation of new and improved technologies to facilitate more efficient administration.
• The project has provided a sound footing for further consideration of Shared Services in the FE finance function.

 

Drawbacks

 

Any project that reduces headcount is likely to disadvantage some stakeholders. In this case the headcount reduction was managed through natural wastage and not filling vacancies. 

 

Key Lessons

 

Possibly the key lesson from this project is the extent to which an administrative function that appeared to be high-performing and exemplary could be subject to considerable improvement. It is also notable that, whilst application of technology may now improve things still further, it was possible to make significant changes without the need for significant capital investment.

 

On a related note another main lesson is the need to get business processes in order before looking at solutions such as new technologies, outsourcing or Shared Services. Had NHC not made these process improvements it would be quite possible for third party providers to appear seductively cost effective. By reducing its existing cost base it has raised the bar for any other service provider.

 

Another key lesson is that college staff were able to identify and make the improvements with a limited amount of consultancy support from SHM. There is often fear within the sector that process improvement requires a skill set that is not readily available in-house (or perhaps reluctance on the part of senior managers to place faith in the ability of their own staff to effect change). This project shows that the sector has the ability to find its own solutions and, in this context, the willingness of NHC to provide peer support for others is extremely welcome. 

 

Looking Ahead

 

JISC is currently exploring with NHC how the college may support others undertaking a similar process on a ‘Train the Trainer’ type basis.

 

Sustainability

 

This project has changed thinking and practice within NHC considerably. It led to the college taking an entirely different view of itself as being a ‘retailer’ of education resulting in a wide-ranging (dare we say wholesale?) review of business processes. 

 

Appendix

 

Spread of NHC financial admin processes (based 91 sub-processes)

Sub-Processes to eliminate

 

1. Purchase Ledger statement reconciliations (#28)
2. Raising cheques (#10)
3. Card receipts (#40)
4. Creation of sundry banking hournals (#60)
5. Daily cash banking (#62)
6. Processing invoices (#29)
7. Processing purchase orders (#30)
8. Petty cash summary report (#56)
9. Travel claims (#57)
10. Invoice filing (#61)
11. Updating payroll for staff: New starters (#71)
12. Updating payroll for staff: Leavers (#72)
13. Updating payroll for staff: Variations (#73)
14. Processing payroll expenses (#74)
15. Processing First Aider payments on payroll (#75)
16. Transmission & checking of payroll (#76)
17. Processing overtime payments on payroll (#79)
18. Processing payroll payments to consultants/casual payments (#82)
19. Setting up consultants on payroll (#83)
20. Processing sickness leave on payroll (#84)
21. Processing maternity & adoption leave on payroll (#85)
22. Processing paternity leave on payroll (#86)
23. Updating personal details on payroll records (#87)
24. Preparation of payroll journal (#89)
25. Opt in/Opt out pension adjustments (#90)
26. Pension reconciliation (#91)