The Effects of Business Planning, Financial Management and Performance Monitoring Essay Example for Free

The Effects of Business Planning, Financial Management and Performance Monitoring Essay Heraclitus (535bc-475bc) was a philosopher who believed in the power of change, claiming that everything would find repose by changing (Harris, 1994). This may not be true to the average sense of the concept of housing as a basic need to mankind. Housing has and will always be a constant, essential need and a basic right for every human being (United Nations Universal Declaration of Human Rights Article 25, www. un. org). However, this paper may agree with him on the existence of uncertain changes in the political, social and economic states of countries at various times and how these changes affect housing policies. This essay shall examine the impact of these changes on housing businesses with the social housing sector as the area of interest. It will identify these uncertain changes as risks to the business of social housing and ultimately discover if business planning, financial management and performance monitoring are important to the productivity of the social housing sector. (Balchin and Rhoden, 1998) claim that housing is most times the largest and most expensive acquirable item. Next to agriculture, it usually requires the most use of land space. The only need that precedes housing in mankind’s scale of necessities is food. Otherwise, housing needs consume the most land space, thus making this need an expensive and enterprising one with governments and private individuals investing heavily in businesses related to supplying such needs to people. (Ogu and Ogbuozobe, 2001), classified this supply process in their theory that two paradigms are present in social housing provision in Nigeria. They referred to them as the â€Å"provider† and the â€Å"enabling† (supporter) paradigms. But claim also, that most governments in developing countries lack the financial strength to run the â€Å"provider† paradigm scheme. Hence they adopt the â€Å"enabler† strategy which was encouraged by the City Summit (Habitat II) held in 1996. (Reeves, 2005) elaborates these theories as he defines social housing bodies in the United Kingdom as primarily local authorities and housing associations which provide and manage houses even after tenant occupation, regardless of ownership. He states that they could be direct providers (e. g. housing association develops and manages a property), or enablers (e. g. a local authority, indirectly houses tenants by funding another body like a housing association by grants to build houses). This explanation is similar to Ogu and Ogbuozobe’s paradigms mentioned above. He concludes however, that the largest enabler in any country is the government (e. g. housing corporations and local authorities). (Lansley, 1979) had also stated years ago that housing corporations support social housing authorities with exchequer grants as they are primarily non-profit making organisations. This characteristic differentiates them from the primarily profit oriented nature of private enterprises. According to (Nyssens, 2006), Social Enterprises started in the late 1970s as an approach to tackle social needs collectively without the desire for individual profit. It is an alternative to conventional co-operative societies which functions in a manner that it assists low income earners tackle social exclusion (in this case, through provision of affordable housing). Because they are indigenously organised by a group of citizens, participatory and non profit oriented in nature allowing equality in decision making (not based on capital ownership), they have been proactively accepted by the local tenants and the government as housing service providers. (Paton, 2003) agrees that Social Enterprises have had positive impact on the social housing sector, but he also shows that they may be problematic as they consist of numerous stakeholders. He claims that contrary to its equality based nature, there is always a dominant stakeholder with the most influence. He also adds that the problem it faces is performance. But as social enterprises in the housing sector are also regulated by government policies, this paper would disagree with him as performance can be enhanced by methods which shall be analysed in this essay. This essay would refer to Social Enterprises, Housing Associations and local authorities as Social Landlords. According to (Ogu and Ogbuozobe, 2001), the economic recession of the 1980s negatively affected the housing sector as structural adjustment policies created by the International Monetary Fund to tackle economic problems were implemented without consideration of their effect on housing businesses and its stakeholders. This shows how international organisations make policies which affect social landlords in several countries as well. It also points out the possibility of economic uncertainties affecting the housing sector. Reeves, 2005) furthermore, illustrates how differences in economic performance in different regions of a country affects demand and supply of housing. He compares London and the South-East to the Midlands and the North-East, stating that the economic growth in London and the South-East (coupled with sustained shortages in skilled labour) created a rise in average wage levels and a consequent rise in house prices as demand for private ownership of houses rose beyond s upply. And that fluctuating growth levels negatively affected lower income earners making them unable to meet the prevailing housing cost. He blames this outcome on the inability of developers and social landlords to provide adequate housing as they strive keep prices at a level where they can maximize profit. This is another example of how inefficient preparedness against socio-economic issues affects social landlords’ decisions and ultimately, tenants. (Housing Corporation Centre for Research and Market Intelligence, 2008) also funded a research showing how the credit crunch of 2007-2009 had adverse effects on social landlords as the pace of building new houses slowed down with developers waiting for a change in the market condition. Unlike the case described by (Reeves, 2005), housing demand was poor as there was lack of access to mortgages for buyers leading to numerous unsold houses being carried over to the following financial year. The research ultimately showed that social landlords had to employ several financial and risk management procedures to stay in business. Some strategies initiated by the government to tackle social housing problems were analysed by (Garnett and Perry, 2005), who blame the late twentieth century’s decline in the demand for council housing on reduction n investment that led to inefficient building maintenance with most council houses occupied by low income earners. They state that the Chattered Institute of Housing (CIH) made a report which resulted in the Governments reaction of setting up a ten year programme for housing standards. They also highlighted the targets of this programme in the April 2000 housing green paper as; increasing investments in existing council housing stock, government demand for business plans from councils, demand for detailed council funding options (e. g. ublic or private financing), creation of the Decent Homes Standard with 2010 as its target year for all homes to meet its requirements and finally, directives to carry out monitoring and appraisal to evaluate progress. From this review it is clear that the government is the major policy maker in the United Kingdom as the (Department for Communities and Local Government, 2006-www. communities. gov. uk) explains to citizens that the â€Å"Decent Homes Standard† was formulated to regulate developers as well as landlords on the building and maintenance of houses to a set standard and the (Office of the Deputy Prime Minister- www. pdm. org, 2004) claims that it will ensure that all houses attain the laid down standards of decency by 2010. This is one of the latest in a series of policies that have evolved over time of which social landlords are mandated to effectively implement in their business planning schemes. Because as (Garnett and Perry, 2005) illustrated, the government has requested for business plans from housing authorities possessing housing stocks and a Housing Revenue Account-HRA. They explain that this plan must be taken after consultation with tenants and other stakeholders and must show detailed financial managerial strategies, stock condition management, demand and availability of resources, financial forecasts, priorities and a detailed, updated record of progress. Although this requirement might offer social landlords a basis to organise, strategise and enhance their businesses, (Garnett and Perry, 2005) also show evidence of feasibility problems as they reported that this business plan requirement was not achieved in Scotland and Wales whose authorities were required to deliver similar plans by April 2005. This probably questions the possibility of meeting the Decent Homes Standard policy by 2010. (Harrison and Lock, 2004) state that a project cannot be managed without risk consideration. From the illustration of (Garnett and Perry, 2005), the achievement of these requirements is a ten year project which the government has given to social landlords. And from the enabler theory explanation of (Reeves, 2005), these social landlords are sometimes given grants to facilitate these projects. Harrison and Lock, 2004) show the importance of identifying risks early in any project. They show how project success can be achieved by early identification, assessment and classification of risks and their mitigation methods. The required business plans are expected to include such risk management processes as stated by (Garnett and Perry, 2005) who also explained that the production of a detailed business plan involves financial planning and management with a view to not just cutting cost, but making the best use of resources. They add that financial management is the responsibility of not just the finance department of the organisation but every section as it generally involves value management. In conclusion, they state that financial management is important to housing organisations because it analyses long term and current outcomes of investing in a stock or service. Another approach was introduced by the (Improvement and Development Agency- IDEA, 2008) (which is one of four partner organisations with the Local Government Association). They call it â€Å"Place Shaping†, a concept developed by Sir Michael Lyons who describes it as creatively using authority to facilitate the overall wellbeing of a community and its citizens. It aims to provide strong governance through local strategic partnership, create a common vision within the local sustainable community strategy and promote local tenant involvement. In summary, they state that after a detailed research on the drivers that influence and affect local neighbourhoods (e. g. opulation growth, jobs, good schooling, antisocial behaviour and crime, and the quality and range of housing on offer), they would address these problems and supply affordable housing for all sections of the community with low income earners in mind and generally encourage the development of sustainable communities. This approach is a summary of the risk management strategies of (Harrison and Lock, 2005), where data is collected, brainstorming sessions are done, risks are identified, asse ssed, classified and their mitigation measures are implemented. Performance monitoring ensures accountability to all stakeholders as it is an open and interactive process involving the monitoring body, the social landlords and the tenants. This was clarified by the set of questions inspectors will use to appraise social landlords. These questions are known by the Audit Commission as Key Lines of Enquiry (KLOE). (Audit Commission, 2010-www. audit-commission. gov. uk), state that they were developed to provide inspectors, social landlords, tenants and other stakeholders with a framework through which to review and assess service planning and delivery. It also recognises the relevance of political leadership, collaboration and spatial planning in creating effective methods, and demands that the housing long term plans must involve plans to develop sustainable communities. It however states the need for flexibility among councils as they are all not expected to use the same exact approach. Tools like the Balanced Scorecard may be used for such appraisal schemes. In another report (Audit Commission, 2010-www. audit-commission. gov. k) reveals that the new methods adopted by the government have received immense support and inspectorates have succeeded in concentrating on outcomes and local priorities. It also claims that monitoring and appraisal have also resulted in more efficient functioning of some local public services. As for the achievement of the Decent Homes Standard, the Head of the National Audit Office (Morse, 2010) claims that progress has been made. But he admits that there are risks facing the programmes completion. Addi ng that weakness in information is an undermining factor to the department’s efforts.