SUSTAINABILITY & IMPROVEMENT (THE RESOURCING STRATEGY)

In our view, the traditional diagram for Integrated Planning and Reporting (IP&R) is unhelpful in several respects: not least, it suggests community engagement only informs the Community Strategic Plan... but it also positions the Resourcing Strategy out to the side like we're not sure what to do with it! 

 

In our concept diagram for IP&R, we emphasise that the Delivery Program and Resourcing Strategy go hand in hand: the RS supports the DP, providing assurance that council has the resources it needs to carry out its functions and - perhaps more so - that council's spending and infrastructure investment is 'responsible and sustainable' (NSW LG Act, s.8B).  But arguably just as important as confirming resources are available, the RS should provide assurance that council is 'delivering the best possible value for residents and ratepayers' (NSW LG Act, s.8A).  

SUSTAINABILITY in NSW local government is generally understood with reference to the Fit for the Future program benchmarks. 

 

In our view, financial sustainability boils down to the Operating Performance Ratio.  So long as a council has a reasonable handle on its depreciation expenses and is forecasting modest ongoing operating surpluses it should be able to continue to deliver its services (including infrastructure) into the future, regardless of any 'hole' it may need to dig itself out of. 

 

But what about the asset-related sustainability benchmarks?  It's coming up to 15 years since Percy Allen proclaimed an 'infrastructure crisis' in his Independent Inquiry into the Financial Sustainability of NSW Local Government and, incredibly, councils are still quoting his figures!  The NSW local government backlog fell 47% in response to Fit for the Future... but we don't see any light on the horizon as far as achieving a consistent and credible figure.  In our view:

  • backlog should be limited to high-risk issues that should have been addressed already (everything else is a question of service levels, which comes back to council resource allocation decisions and, potentially, its financial sustainability) 

  • the renewal ratio is meaningless when calculated across the entire asset portfolio (depreciation represents the renewal need over the asset lifecycle, but actual renewal needs vary considerably with asset condition... any evaluations of the sufficiency of investment in renewals should be at asset category level, starting with sealed road surfacing!) 

  • estimates of the 'required' funding for asset maintenance are generally meaningless, too: calculations should reference a maintenance management system for identifying, prioritising and responding to defects (needs vary from year to year, e.g. there's more potholes and mowing in wet years) - as with backlog, shortfalls are generally council decisions about resource allocation, not sustainability issues, unless risk is distinguished from service levels (e.g. preventative maintenance on a major sewage pumping station is 'required', but more frequent cleaning of public toilets may not be).

There have been calls - from Percy Allen onwards - for auditing of local government asset management.  Generally, people want assurance of the accuracy of reporting against the asset-related sustainability benchmarks above... but until inconsistencies between councils are addressed, any comparisons and/or benchmarking of councils will be questionable. 
 

Where we do see a real opportunity, though, is implementing a management systems approach to asset management and IP&R in general.  This will not only facilitate auditing of asset management, it will also help drive performance IMPROVEMENT and support Audit, Risk and Improvement Committees to meaningfully perform their role.  

Councils were required to develop Improvement Plans as part of the Fit for the Future program and to maintain them thereafter (refer OLG Circular 16-49), but in our experience these have often fallen by the wayside.  In our work with a number of councils, we have encouraged them to specifically include an updated Improvement Plan in the Resourcing Strategy.  This is a good fit as Improvement Plans inevitably draw on actions in the LTFP, SAMP and WMP.  But when the view is broadened out to consider council's organisation as a whole - as is facilitated by a management systems framework - the resulting Improvement Plan is far more meaningful and likely to be effective.

A MANAGEMENT SYSTEMS APPROACH TO IP&R

Local government organisations are complex.  Systems thinking helps overcome the tendency to focus on isolated elements, not the big picture, and to see how these elements interact internally and externally.  A management system standard helps people understand a system by defining it within a clear framework.  

Common Thread Consulting has pioneered the application of ISO 55000 (management system standard for asset management) in local government for many years.  Unlike alternatives (e.g. the Business Excellence Framework), ISO isn't something extra overlaid on top of the IP&R framework... ISO and IP&R align perfectly, ISO 55000 is a management system framework for IP&R!  ISO defines assets as 'anything of value' (not just infrastructure) and asset management as 'coordinated activity to realise value from assets' (i.e. the focus of the Delivery Program). 

Given that local government is such an asset intensive industry, we think it is critical to avoid the tendency to treat infrastructure asset management activities as 'special' and so somehow exempt from broader organisational initiatives.  Conversely, we recognise it's important to avoid confusion at the prospect of applying an 'asset management system' to all council's operations, so we talk about 'functional areas' not assets.  It is worth noting ISO's 'asset management fundamentals' - value, leadership, alignment and assurance - are applicable to everything council does... and without a trace of an infrastructure-asset centric view of the world!  

A management systems approach doesn't need to result in lots of extra documentation or seeking accreditation.  The primary aim is to provide assurance.  Incorporating an Improvement Plan informed by a management systems approach in the Resourcing Strategy helps council to demonstrate it is effectively managing its organisation... its finances, assets and workforce are important, but they're part of a bigger picture.