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CAHPTER NINE Funding and Cost analysis

9.1 This chapter sets out the funding arrangements for ISMS and details how the LAs spent the funding made available to them.

9.2 It also details the estimated cost of the ISMS programme in each of the areas, making some broad comparisons where appropriate.

Funding and expenditure

9.3 Table 9.1 outlines the funding that each of the phase 1 LAs were provided with to deliver ISMS.

Table 9.1. Funding data 2005-06*

Source: Local Authorities

* Funding was received from October 2004, so some of these funds were made available in 2004-05, particularly around start-up costs. However, 2005-06 was the first full year of the operation of ISMS and the programmes did not officially start until then.

** It appears that this figure is for costs incurred in the start-up year, and it may therefore include running costs.

*** Full breakdown not available.

2005-06 figures

9.4 We can compare this funding data with what the LAs actually spent in 2005-06 (Table 9.2), i.e. comparing estimated expenditure in Table 9.1 to actual expenditure in Table 9.2. The actual expenditure information is broken down into different elements compared with the funding data as we have to use information and classification from the Scottish Executive's monitoring return, but some broad comparisons can be made.

9.5 Four LAs, Dundee, East Dunbartonshire, Glasgow and Moray, went over budget in the 2005-06 financial year. Moray had anticipated doing this from the outset, accepting that it would have to use some of its other resources to fund ISMS. East Dunbartonshire has also had to use some of its own resources to deliver the programme. Dundee was having initial difficulties recruiting staff and had a projected underspend, but this became an overspend when it got permission from the Scottish Executive to use ISMS funding for a staffed daycare centre for ISMS and other cases. The Glasgow position is more complicated as running costs may be included in start-up costs, therefore the overspend shown may not be this high.

9.6 The spending patterns are all very different. This is not surprising as each LA was delivering its own model and had different requirements for providing ISMS from the start because of different existing provision and resources. What is probably most notable is the high level of underspend in West Dunbartonshire. This is partly down to the time it took this LA to get the necessary infrastructure in place to deliver ISMS. West Dunbartonshire would seem to have under-budgeted for its start-up costs, but over-budgeted significantly for its delivery costs. West Dunbartonshire had a low level of throughput at the end of this financial year, which may account for the underspend. As detailed in Chapter 3, there were significant problems in Edinburgh in getting the programme underway, but their budget was largely spent.

Table 9.2. Expenditure data 2005-06

Source: Scottish Executive monitoring returns

* Expenditure 2005-06 minus running costs for the year based on funding (see Table 9.1)

** £270,000 of this expenditure refers to "additional use of other council services"

*** LA staff time committed to the programme is not claimed for.

2006-07 figures

9.7 Scottish Executive funding for 2006-07 was maintained at approximately the same levels as in 2005-06 (minus the start-up costs).

9.8 Table 9.3 presents expenditure data for 2006-07. The changes in specific expenditure items year-on-year in the areas is to be expected for a new programme, as the nature of the programme changes and as the needs of the areas change, e.g. they may need to employ more staff due to programme expansion or they may need additional equipment.

9.9 In 2006-07, five of the LAs reported an overspend. Dundee's overspend is, however, much reduced as its premises and head office costs were not re-incurred. East Dunbartonshire is running at roughly the same level of overspend due to higher than anticipated staffing and services costs. Glasgow had higher costs this year, but, proportionally, given the size of the budget, this is not exceptional. In terms of overspend compared to budget, it is at a similar level to West Dunbartonshire and well below that of East Dunbartonshire. West Dunbartonshire now has a fully functioning programme and has moved from underpend to overspend. Edinburgh, again, spent its budget.

9.10 Moray and Highland reported underspends. This may be due to lack of ISMS cases in both areas. In Moray, it may also be because it is currently in rent free accommodation, but the LA does not believe that this will be sustainable in future years.

Table 9.3. Expenditure data 2006-07

Source: Scottish Executive monitoring returns.

* LA staff time committed to the programme is not claimed for.

Cost estimates

9.11 Cost information has been collected from all of the LAs following discussion and agreement with Scottish Executive economists as to which data should be obtained.

9.12 There are several key differences between the cost figures and the expenditure figures, which were analysed above.

• Employee costs. We only accepted the expenditure figures if all staff were additional, i.e. have been employed specifically to work on ISMS, e.g. New recruits. If staff included are simply displaced from elsewhere within their LA, their costs are separated out from the expenditure figures.
• Capital expenditure items (such as in premises and head office costs and equipment costs). We asked the LAs for an estimate of the lifetime of any new capital expenditure, e.g. cost of a new building. This was to provide an annual cost for this type of expenditure rather than treating it as an upfront cost when it may have a lifespan of 25 years or so. We also asked for an estimate of avoided cost in this type of expenditure, e.g. was this new building needed in any case and ISMS funding was used as a suitable source of expenditure? If so, the cost would be removed from the expenditure figures.

9.13 Tables 9.4 and 9.5 provide details of our analysis of these cost figures. Explanation of how the figures deviate from expenditure figures for each of the areas in each of the years is provided below.

• Dundee - confirmed that all staff were additional. The 2005-06 Premises and Head Office figure included a sum of £138,000 as capital value. This was used to fund an ISMS resource centre, with Scottish Executive approval. This has proven to be a very useful resource, but the ISMS Team believes that the programme could have been run without it. For this reason, it is excluded from the cost analysis.
• East Dunbartonshire - confirmed that all staff were additional. No significant capital costs (rented premises), but there were a number of non-recurring costs covering items such as classroom set-up, educational system set-up, office equipment and repairs and maintenance (£69,766 in 2005-06 and £9,981 in 2006-07, a total of £79,747). We assumed a five-year lifespan for these items and added an annualised cost allowance to other costs included in the 'other category', adapting the expenditure figures accordingly.
• Edinburgh - confirmed that all staff were additional. Premises are rented. Equipment costs of £19,261 over the two-year period. We have assumed a lifespan of five years for these items, therefore have amended the expenditure figures to show an annualised cost of £3,852.
• Glasgow - confirmed that all staff were additional. Premises are rented. There are equipment costs with a capital value of £58,398 over the two-year period. We have assumed a lifespan of five years for these items, therefore have amended the expenditure figures to show an annualised cost of £11,680 (to be added to other equipment costs). There are also non-recurring costs of £108,921 in the 2006-07 return to cover property repairs. Again, we assume a five-year lifespan for these repairs and produced an annualised cost that we added to the other costs in the 'other costs' category - net effect is to reduce these 'other costs' to £88,111 for 2006-07.
• Highland - confirmed that all staff were additional. Premises are rented. There are equipment costs with a capital value of £13,169 over a two-year period. We have assumed a lifespan of five years for these items, therefore have amended the expenditure figures to show an annualised cost of £2,634. There are additional local authority management and administrative costs (not claimed for) at approximately £10,000 per annum. There is also the additional cost of out-of-hours management cover for the emergency respite unit and support service for young people on ISMS. LA first line managers cover 80% of this service, costing £9,500 per annum. Total additional LA staff costs are therefore estimated at £19,500 per annum. This is added to expenditure figures in the cost analysis.
• Moray - confirmed that all staff were additional. Equipment costs of £10,000 in 2005-06, assuming a five-year lifespan, annualises these costs to £2,000. Premises are currently provided rent free, but the LA believes that it now requires to purchase a building to run the programme for the future, at a cost of £150,000-200,000, also requiring two additional night staff costing £20,000-£30,000 per annum. As these costs are needed to run the programme in Moray now, we have added them to the expenditure figures. We have taken the mid-point of the premises cost (i.e. £175,000) and assumed a 25-year lifespan, i.e. an annual cost of £7,000 for 2006-07. We also have taken the mid-point for the additional staff costs required (£25,000) and added this to employee expenditure for 2006-07.
• West Dunbartonshire - confirmed all staff were additional. Premises are rented. There were minor capital costs on equipment and transport over the two years, for which we assume a five-year lifespan and provide an annualised cost.

Table 9.4. Cost data 2005-06

Source: DTZ analysis of Scottish Executive monitoring returns and discussions with LAs

Table 9.5. Cost data 2006-07

Source: DTZ analysis of Scottish Executive monitoring returns and discussions with LAs

Expected and actual costs

9.14 Table 9.6 produces figures on the expected and actual costs for the programme in each LA. It also provides actual average costs per ISMS case by LA based on returns over the two-year period of the evaluation. This can be compared with the expected average costs from the LAs' initial proposals. The expected costs are simply the expected running costs plus an annualised figure for the set-up costs. The actual costs are as detailed above.

9.15 It is interesting to see that, despite the very different proposed models for delivery, different infrastructure requirements, etc., the expected average costs per ISMS case was broadly similar in most of the areas. It was within a range of £49,000 and £63,000 in four of the areas, slightly more expensive than this in Edinburgh and Highland and noticeably less expensive in Moray (where the programme was being run in-house). The average expected cost per case was £60,000.

9.16 Total expected costs were also very similar to total actual costs in each area, but, due to the much lower than anticipated use of ISMS, actual average costs are considerably higher than expected average costs for all areas, although the difference is noticeably smaller for West Dunbartonshire. On average, ISMS cost nearly three times as much to deliver per case as had been initially thought, with an average cost figure of just under £174,000.

9.17 We extended this analysis to consider the average weekly cost of those on ISMS (from assessment to the end of the post- MRC phase) by dividing the average cost by the average length of time that a young person spent on the programme in each of the areas. Table 9.6 shows some variation, with the average weekly cost of the programme the lowest in West Dunbartonshire (at a little over £2,500) and highest in Edinburgh (at over £67,000). The low number of actual ISMS cases in Edinburgh is the main reason for this figure.

9.18 ISMS has cost £10,944,404 to roll-out in the seven phase 1 LAs over a two-year period. This equates to around £5.5 million per year. To provide a proxy of how many of the likely ISMS cases that these areas account for, we used children referred on offence grounds as persistent young offenders for 2005-06 (from the SCRA Annual Report 2005-06). Not all persistent offenders will meet section 70(10) conditions and not all ISMS cases will be offenders, but there is evidence that ISMS is targeted at this type of young person and therefore represents a very useful proxy. These seven areas make-up 39% of persistent young offender cases. Based on this, we would estimate the cost of national roll-out of the ISMS programme to be around £14 million per year ⁵⁴.

9.19 Although local authorities have used the funding well, they have not always used it for the purpose for which it was originally intended. Since a proportion of the money allocated was subsequently spent on general capacity building, or providing intensive supervision to a wider group of young people, this reflects the higher than anticipated average cost.

9.20 On both outcomes and cost data, for most of the local authorities, we found that the information available did not provide sufficiently robust data for evaluation purposes. This is demonstrated by the lack of budget allocated to monitoring and evaluation activity in several of the local authorities' funding proposals (see Table 9.1). Local authorities need more stringent performance measurement arrangements to be in place to allow future evaluation activity to assess the value for money of these programmes.

9.21 We attempted to measure actual and expected levels of unit cost of the ISMS programme as well, i.e. by separating out the costs incurred purely for ISMS cases. It was not possible to provide accurate estimates of unit ISMS costs for two main reasons.

1. It is difficult to separate ISMS expenditure from intensive support service expenditure. Both programmes are not mutually exclusive and are being run from the same funding stream, but our evaluation focused only on ISMS and did not collect the required data on intensive support service.
2. ISMS funding was made available to provide resources that the LAs needed to run the programme in their respective areas. Each of the areas had different needs and requirements, therefore a fair unit cost comparison is very difficult.

9.22 Given this, we believe that the measuring of the unit cost of the ISMS and intensive support service programmes should be the subject of further research, which attempts to separate out data and costing on intensive support services and ISMS as discrete exercises.

Table 9.6. Expected and actual costs (for the two-year period)

Source: DTZ analysis of Scottish Executive monitoring returns and discussions with LAs

Summary of findings from the funding and cost analysis

• Funding and spending patterns are very different across the LAs. This is because they were delivering their own models of service and had different requirements in terms of provisions and resources.
• Total expected costs were very similar to total actual costs in all of the LAs, but, given the much lower number of cases than initially anticipated, actual average costs per case were more than double the expected average costs nationally.
• Rolling-out ISMS nationally is estimated to cost about £14 million, based on the proportion of children referred on offence grounds as persistent young offenders for 2005-06 in the phase 1 local authorities compared to Scotland as a whole.

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