Feature / Time for turning

Croydon PCT has put financial turnaround techniques to a new use – enhancing an already sound performance. Finance director Stephen O’Brien explains

In recent years there has been widespread use of commercial turnaround practices among NHS organisations in deficit. The rigorous approach to financial recovery, which was often externally imposed, has played a key part in many health economies’ return to financial good health. But turnaround is not just about crisis management, leaving a legacy of improved project management and better savings realisation.

It was this understanding that led Croydon Primary Care Trust voluntarily to adopt turnaround principles in its own organisation, despite several years of achieving financial balance.

Croydon PCT is in South London, coterminous with the London Borough of Croydon. It has a population of 337,000, including 37% black and minority ethnic groups, and a recurrent allocation of £459m. It has a strong commissioning background, which in 2007/08 led to the PCT receiving four Health Service Journal awards and The Guardian Public Service of the Year award for its virtual wards development.

By most measures, the PCT is also a cost-effective commissioning organisation. For instance, it has one of the lowest prescribing costs per head of weighted population in the country and was rated as ‘good’ in the auditors’ local evaluation for 2005/06 and 2006/07.

Since 2002, the PCT had always achieved financial balance, But with a £12.4m top-slice in 2006/07, and a further £10.6m top-slice in 2007/08, the PCT was having to find demand management savings where there was little national evidence that such schemes could deliver significant net financial savings. In 2006/07, as a result of shortfalls in demand management savings, the PCT resorted to traditional means of managing at year-end, such as freezing recruitment, capping hospital activity at contracted levels and delaying new developments.

In 2007/08, the PCT needed to find £5.7m of demand management savings to achieve its plan. Based on the previous year’s experience, the board was concerned whether or not these levels of savings were realistic and wanted a viable strategy to cope with the expected reduced growth in future years.

A board assurance project coordinated by the director of finance and information management and technology (IM&T) was established. Its task was to avoid having to take traditional year-end management action in 2007/08 and to give the PCT board in-year assurance that demand management schemes were more effectively managed.

The PCT was surrounded by organisations in turnaround or just coming out of turnaround, including PCTs and trusts. It was apparent that those organisations coming out of turnaround appeared to be much better and stronger in terms of management of projects and delivery of savings. This was very different from PCT officers’ experience of previous financial recovery.

The difference was that the delivery of change was more effectively planned, managed and monitored, with potentially wider implications than simply making financial savings. The PCT was also struck by how effective turnaround was at Wandsworth PCT and St George’s Hospital. The latter was the PCT’s local teaching hospital. St George’s finance, activity and contracting position had improved to such an extent that it had become one of the more effective providers in contract negotiations. The PCT concluded that it needed to raise its game – and turnaround disciplines in successful turned-around organisations seemed to be the best way forward.

Croydon reviewed the turnaround process in a number of the organisations. It concluded that it lacked the capability to implement a similar process without external support, and therefore went to tender. A review of other PCT and trust turnaround plans, plus recommendations from NHS London, helped it to identify suitable suppliers of these services. The proposal, which was tendered in May 2007, sought:

• an assessment of the 2007/08 operating plan and financial numbers, including identifying areas not addressed by the plan
• a review of the PCT’s savings plans and identification of
• further areas of saving for 2007/08 and future years.

The result of the tendering exercise was the appointment of PriceWaterhouseCoopers (PWC) to undertake the project. Having worked with many trusts, PWC had a track record in this area and its team included relevant clinical input to support the project with PCT clinicians and independent contractors. A clinician-to-clinician dialogue on some of the demand management projects was seen as critical to the selection of a contractor.

During the tender interviews the PCT made it clear that although it was not in turnaround, it wanted to be challenged as if it was. The PCT also made it clear that it wanted its managers to acquire new skills and knowledge such that the PCT could take over and manage the project. Sustainability was vital.

The project launch event was well received by the PCT’s managers, with the main selling point being that improving PCT delivery of demand management savings would release more money into service developments.

The end of this stage was a report (in August) that concluded:

• forecast outturn range was confirmed at £0.5m to £6.4m surplus
• current demand management schemes were unlikely to achieve their full financial savings  and this had been factored into the above forecast outturn
• there were opportunities for financial savings in demand management that had been identified in other areas that Croydon PCT could look to implement locally, either in-year or over the next few years
• the PCT should establish a programme management office (PMO) similar to those set up by organisations in turnaround to enhance the capability of PCT to achieve target savings
• the PCT would benefit from a dedicated programme director at executive level (or at least board backed), either internally or externally sourced.

The report included a list of potential projects over and above those already identified by the PCT that could generate further demand management savings. The PCT board accepted the recommendations and, as part of the second stage of the project, established a PMO, run by PWC with an external programme director from the PWC turnaround panel. Within two months, this was being run by the PCT with the same external programme director reporting to the finance director, but with direct access to the chief executive.

The PMO consists of the director, a programme manager (seconded from the PCT’s commissioning directorate), a part-time assistant director of finance and a part-time information analyst (seconded from finance and IM&T  directorate). The last two lead on finance and activity for service level agreements (SLAs) and ensure that financial and activity reporting from the PMO is consistent with that from elsewhere in the PCT.

In terms of programme management, responsibility for individual projects lies with directors who use project managers for the planning, managing and controlling of individual projects. It was very important that there was no transfer of responsibility for delivery from existing directors and project managers. Project managers have three tools: MS Project, a PWC-provided risk register and a financial phasing report also developed by PWC.

The PMO meets regularly until a viable plan for a project is agreed. It tracks milestones, performance indicators and project exceptions and agrees revised risk assessment and any correcting plans. A weekly dashboard indicates progress against projects and current risk assessment. Every two weeks a programme management board meets to discuss progress and agree any action. Every month the board receives the latest weekly dashboard and its implications are incorporated into the monthly finance report to the PCT board, reconciled to SLAs and the main finance reporting.

During the project, PWC modified its approach to dealing with an organisation not in turnaround. Managers were impressed by the process adopted towards challenging projects and the real-time training on programme and project management using real live PCT projects. This transferred new skills to the PCT that would leave a lasting impression rather than having to keep calling consultants back. The benefit to managers was that their projects were more realistic and were more likely to deliver.

As a result, the PCT has changed its forecast outturn to a surplus of between £2.8m and £6m, with a £4m surplus being the most likely outcome.

Demand management schemes are delivering 75% of this year’s savings, with the issue of delay in implementation probably being the biggest reason for this, and full-year effects will probably exceed the original planned targets. As a result, the PCT’s contingency of £3m in 2007/08, mostly relating to demand management risks, will realise about £1.3m of non-recurrent savings for reinvestment in 2008/09 and, subject to full-year effects, recurrent savings of £3m for reinvestment in 2008/09.

The PMO has moved into other areas where programme and project management disciplines will be of benefit. It is also fully involved in the 2008/09 to 2010/2011 operating plan in approving project initiation documents for all schemes – not just those relating to demand management. The quality of most of these plans has improved since the project started, and the PCT estimates that it is three months ahead of where it was this time last year and now has a higher forecast surplus for 2008/09. And the first non-financial project, smoking cessation, is now under the PMO. The cost in 2007/08 for the board assurance project was within budget and comparable to organisations in turnaround, but costs in 2008/09 will be far less.

We have learnt a number of lessons. The clear finding is that you can transfer turnaround disciplines on to organisations not in turnaround, and this can generate a higher level of savings. The word ‘turnaround’, however, is highly emotional and such projects need to be sold on the positive issues of releasing resources to improve services using much better focused programme and project management. The motivation must be about delivering projects to a higher level than has been delivered before. The potential for improvement will vary from one PCT to another. Some may have little to gain from this approach but many will.

The use of external support will vary according to individual PCTs’ capacity and capability, but there are now external organisations that are experienced in programme management and have experience of the NHS. Ownership of projects must lie with directors and managers beyond the PMO, supported by the PMO. The approach to programme management is more intensive than many directors and project managers will have experienced and, outside the environment of imposed turnaround, motivation is more complex and requires handling strategies.

While embedding this different culture into the organisation is tough, Croydon has shown that the rewards are worth it. I have seen a much more rigorous process than I have ever experienced. The external support has helped educate, develop and move the organisation on to a more sustainable discipline for programme and project management and it felt more like a partnership. It does feel as though the PCT’s culture has moved on as reliance on external support has been reduced. The PCT is now better able to face lower levels of growth and operate successfully within the performance management regime of the NHS.

Stephen O’Brien is director of finance and IM&T at Croydon Primary Care Trust