This section explores the importance of ensuring social value is placed at the centre of decision making when considering new delivery models or commercial activity. This ensures all opportunities (financial and non-financial) can be identified, actively monitored and delivered.
Councils up and down the country face the same challenge daily – how to allocate scarce resources in ways that meet society’s needs and deliver better outcomes for people and communities. Delivering efficiencies, helping communities to become more independent, managing demand and changing ways of working are fundamental to address this challenge.
Using scarce resources to deliver social value for our communities is at the heart of good decision-making.
Having a clear idea of the desired social outcomes required from decisions, together with a judgement about whether those outcomes are the right ones or worth the investment needed to make them happen, ensures that they are more likely to be delivered.
This is particularly the case with commercial activity. Exercising structured approaches to decision making, based on sound evidence and robust due diligence, ensures opportunities and risks can be proactively managed. Exploring and agreeing the purpose, and social value intended, beyond the immediate financial return, ensures the commercial activity will be consistent and aligned with an organisation’s overarching aspirations and priority outcomes. It also ensures that the social value elements can be built into the council’s processes, plans and reporting to ensure it is proactively delivered and reported on.
It is important to be clear about what these outcomes are in the short, medium, and long term, and be clear on the value these outcomes will add, and how commercial activity will help achieve this.
Framework for decision making
Quantification of social value and the relative importance of the material changes in people’s lives caused by the actions, including the commercial actions of an organisation, is central to effective decision making.
Collating evidence and asking the right questions will provide assurance that the decision to operate in a more commercial manner is the correct one for your local context. It also means that all opportunities to leverage social value will have been reviewed.
Councils should consider how their commercial activity will bring social value to the following:
- those directly in receipt of services
- wider residents, communities and taxpayers
- the local economy and business
- the environment.
There are numerous different approaches available for managing social value, for example Social Return on Investment (SROI) and Social Cost Benefit Analysis (SCBA). More information on Social Return on Investment and Cost Benefit Analysis can be found through resources published by Social Value UK.
Social Return on Investment is an evaluation technique that is designed to capture social, economic and economic value. It has some roots with cost-benefit analysis, but it has a stronger emphasis on social impacts and the contributory factors to achieving outcomes. This means it can focus on what matters to people that use services and measure change in a way that can inform decision making at an organisational level.
Cost Benefit Analysis is a well utilised evaluation technique in the public sector by systematically evaluate the value against the cost of a decision. Social Cost Benefit Analysis introduces the concepts of social value and environmental sustainability into the balance sheets of cost-benefit evaluation models. This is useful for projects, programmes or policies that have both socio-economic and environmental components.
Each approach can help with the following questions for council decision-makers to consider.
What outcomes are you trying to achieve?
The first thing to be clear about is what you’re trying to achieve. What problem are you trying to solve? Through your priority setting, needs analysis, commissioning process or policy decisions in relation to planning or working in partnership, having a clear understanding of the outcomes you are seeking is paramount. Many councils articulate this through an outcomes framework.
Your commercial activity should be fully aligned to this. If you don’t spend time thinking about how your commercial activity aligns to the social outcomes at the start of the process, then opportunities can be missed, or you can create a negative value through your commercial activity. For example, your activities could take resources that could have been used elsewhere or distract people from their focus.
A common mistake is to discuss what an existing service could look like if they acted more commercially, rather than starting with a discussion on the outcomes desired. Starting with outcomes ensures a golden thread is maintained between the desired goals and the commercial approach which is being considered. It can also unlock more creative solutions.
An outcomes-based approach ensures commercial activity aligns to the core purpose and ambition of the council whilst delivering the practical benefit that it can be incorporated into evaluation models.
How will our commercial activity achieve social value?
Whatever outcomes you are trying to achieve, the next step is to understand how your commercial activity will help you achieve it. This could be contracting services to meet specific strategic needs and including social value as part of the award criteria (see the procurement chapter), establishing trading companies with social purposes (eg community interest companies) or taking policy decisions to reinvest income for specific social benefit. It is always possible to measure and reference social value in some way. The critical question is whether the commercial activity being considered creates as much social value as possible given constraints and the resources available.
A key focus should be how stakeholders who may be affected or benefit from commercial activity have been involved in developing the options which are being considered. This is sometimes referred to as co-production. Collaboratively developing options with stakeholders enables their voices to shape proposals, leading to better outcomes.
Who experiences changes in their lives resulting from commercial activity?
Commercial activity may result in a range of outcomes for different stakeholders – some positive, others could be negative. It is important to identify stakeholders early in the process and consider the consequences of commercial activities across each stakeholder group. The following questions can help develop your understanding of stakeholders:
- Who do you expect will be affected by your commercial activity? These are your intended beneficiaries.
- Who else might be indirectly affected by your commercial activity? Can you think of any other people who may be affected by what you do?
- Who might experience a negative outcome as a result of your commercial activity? Will commercial activity have any unintended consequences?
A common mistake occurs when stakeholders who may be negatively impacted have not been considered or where stakeholder analysis does not happen on an ongoing basis. Decision-makers should seek assurance that all those affected are identified and that any social value gained through commercial activity is captured and any being lost is not ignored.
How will you ensure delivery of the social outcomes?
The decision-making process should take account of how the council will ensure social value will be delivered on an ongoing basis once the decision to embark on commercial activity is made. It is important to ensure the mechanisms are understood to ensure the delivery of the agreed social value. This may require the allocation of council side resources, which should be incorporated into the business case so they can be costed and budgeted for.
Any social values which were included in the business case for commercial activity should be translated into practical steps to ensure delivery.
If a procurement is involved, then the social value from the business case should inform the bid evaluation model, financial envelope, commercial model and contract and performance management framework. If the commercial activity involves internal services, then due consideration should be given to the social value elements in the service’s performance management framework. Likewise, if it’s a joint venture or council owned company, consideration should be given to how the council as shareholder (signing off the annual business plan) or commissioner (through the contract price, contract mechanism and performance management framework) can ensure the delivery of the social value sought.
Resources should be allocated to ensure ongoing monitoring and to encourage a culture which sets the tone that social value is important on an ongoing basis.
How will you measure what matters?
Some outcomes could last for a person’s lifetime, others may only last a short time. Short-term outcomes may still be important if, for example, they are valued by stakeholders. Therefore, you need to decide how long to collect data for. For example, if a social value of establishing a Local Authority Trading Company (LATCO) is increased employment of local people or paying the living wage – what constitutes a local person or a living wage? How long does the employment need to last? There is a risk that if people lose their jobs shortly after employment, or decisions are taken to make employment unviable (eg paying too little), no social value is being created, and in fact, could be reduced.
When taking decisions you should be confident that ongoing monitoring and reporting of social value is planned and executed. Commissioners will need to be able to check that reported social value is an improvement over a baseline position, provides additionality on an ongoing basis, and have considered implications if performance is not agreed.
How will you achieve the balance between social return, a sustainable model and commercial return?
Decision makers need to be clear about the purpose of commercial and profit-making activity – and ultimately where any profit or return from commercial activity (ie trading companies) will be directed. Council’s need to be clear and up-front about the ‘money flows’ from commercial activity. For example, profit generated through a LATCO may be reinvested back into social value related to the cohort the company serves, alternatively it may be about supporting the wider council agenda and may in fact be directed towards other broader council priorities.
Being clear from the onset how any surpluses will be utilised ensures there is acceptance amongst stakeholders.
Key questions/ considerations:
- Are you clear on what outcomes you are trying to achieve for your residents?
- Are your enterprising activities aligned to your outcomes?
- Are you clear on how your enterprising activity achieves social value?
- Are you clear who will reap social value from your enterprising activity?
- Are you confident you can deliver social value through enterprising activity?
- Are measures in place to ensure you deliver social value?
- Are you clear on how commercial return will support social value?