Housing sector must change to make sustainable cost reduction work

We know clearly that the Government does not think that registered providers (RPs) are doing enough to reduce their costs and the rent reduction reflected this.

Some providers agree, some don’t. Regardless of which camp you are in – things are going to change.

Our latest research highlighted that many providers need to shave at least £5m per year off their operating costs.

The only good news I can see (if you can call it good news?) is that many Finance Directors have found creative ways to achieve this in Year 1 through the usual financial methods that we Finance Directors are good at.

Now comes the bad news, Year 2 is rapidly approaching.

These private sector statistics demonstrate the issues finance directors face:

  • On average private companies are only achieving 59% of expected savings and just 8% reach or exceed their targets (Source KPMG)
  • 40% of respondents with cost reduction targets of at least 10% have not achieved their stated goals
    (Bain Survey)

If the private sector is struggling to achieve their goals, what hope is there for the Housing Sector I hear you say!

So can sustainable cost reduction programmes work in this sector?

YES is the answer, but only if the sector is brave enough to recognise it needs to change and change dramatically.

It could do no worse than to listen and observe Einstein’s well used but still relevant quote “Insanity: doing the same things over and over again and expecting different results”.

Where do you start then?

I strongly believe that Finance Directors and heads of finance across the sector have a key role to play in making sure cost reduction programmes have teeth, are achievable and are bought into by their colleagues.

Here are some of the key areas that Finance needs to drive and support the business in:

  • Helping operational service areas to understand their costs and their cost drivers;
  • Throwing away many of the traditional KPIs and making sure the ones that are used have clear quantifiable linkages to the financial business plans and cost budgets;
  • Getting rid of the spend to budget culture and getting accountability in the right place;
  • Changing the way both financial and operational targets are set;
  • Bringing in a new performance management framework with real business critical KPIs that drives sustainable cost reduction rather than being underpinned by compliance metrics.

And, finally, demonstrating to one and all that Finance has a real value added role to play in achieving cost reductions beyond its mere regulatory and accounting role.

My next blog will examine some of these areas in more detail.

Blog posted by Tony Bryan