5th November 2019
Insights from delivering Financial Foresight
At the Solace Summit in Birmingham last month we discussed our learning from working with councils deploying our Financial Foresight approach. This blog summarises the key points of the discussion.
What is Financial Foresight?
Building on Grant Thornton and CIPFA’s successful partnership on the CFO Insights platform, now licensed to over 100 councils, Financial Foresight provides councils with a multifaceted model that can project costs and income forward to develop a robust medium and longer-term baseline financial forecast for every council in England. In addition to demand, income, expenditure, reserve and borrowing level projections, Financial Foresight can benchmark spend between authorities, and apply socio-economic and service outcomes to understand the nature and effectiveness of spend.
Critically, Financial Foresight provides the functionality to test and appraise a range of financial strategies and scenarios, to support in multi-service strategy development. The model is supported by a Financial Strategy Accelerator workshop, led by Grant Thornton’s local government specialists and data modeling teams, that can be used to independently facilitate a transparent discussion with a council’s senior leadership team on longer-term financial planning.
Deploying Financial Foresight
We are working with an increasing number of councils deploying our Financial Foresight approach. The approach has proved suitable for varying local contexts, from councils with pronounced and immediate financial challenges, through to those whose medium-term financial sustainability is more assured. Often, we have found local contexts to be a combination of unsustainable cost pressures in specific service areas – often those which are demand-led – with some headroom in other areas that can provide an opportunity for strategic investments and planned transformation. And for all councils we have worked with, whatever the current financial strategies in place, our work with them has identified new or amended strategies to improve their financial resilience.
The remedies deployed have included:
- Building a financial improvement programme management office
- Undertaking budget challenge sessions with service departments
- Improving financial literacy across the senior leadership team
- Rapid intervention in high-cost areas to increase financial control whilst also identifying invest to save opportunities
- Working with cross-service teams to identify creative options for redistributing resources to agreed priority outcomes, alongside decisions on areas for reduced or disinvestment
- Using the Financial Foresight model to support the visualization of the medium-term financial plan and associated scenarios, to help communicate the council’s financial trajectory to elected members and wider officer teams
Some of the key themes we have identified during our work with Financial Foresight so far are:
- The criticality of accurate forecasting of high-risk cohorts in demand-led services.
- There is often a need to reshape the existing transformation programme so that this activity is focused in the right areas to ensure financial sustainability.
- Where councils have a reasonable medium-term financial position, there are options for strategic investments available to drive economic growth.
- Management teams often have less financial literacy than desirable, in particular from a corporate not just service perspective.
- Where councils are facing extreme financial challenges, it is important for the leadership to not shy away from undertaking rapid financial improvement activity.
Our latest financial forecast for English local government indicates that 42% of councils are at risk over the next five years, with at-risk being where reserves fall below 5% of net revenue expenditure. This reduced to 38% when reflecting the impact on 1920/21 of the Government’s September Spending Round, and further reduces to 20% if we assume the additional funding announced in the Spending Round is recurring beyond 2020/21.
These forecasts exclude the impacts of a no deal Brexit, and in strategic financial planning terms, given the significant level of uncertainty facing local government, it is more critical than ever to consider the different scenarios and interdependencies that may impact a council, its communities and local businesses.
Councils, facing unprecedented resource constraints, and having been hollowed out by approaching ten years of austerity, need to make this a priority for their financial planning, and risk and opportunity management. Having long term financial forecasts, underpinned by various scenarios and sensitivity analysis based on continued horizon scanning, is now more important than ever.
Grant Thornton UK LLP