Strategic commercial interventions: monitoring framework

3. Monitoring Interventions – Best Practice

To ensure strong governance is achieved, it is important to monitor the commercial assets from the following perspectives:

1. Management Delivery – monitoring to ensure that agreed asset management activities and outputs are being delivered, for example as agreed in the company’s business plan;

2. Asset Performance – monitoring to track asset performance using wider financial and market data to ensure original objectives are being progressed, and;

3. Assurance – A sense check to ensure best practice is maintained across the asset by advising on strategic elements from an independent perspective including SMART objectives, business case, exit strategy etc.

3.1 . Key aspects of monitoring

This section sets out the key components and considerations in relation to monitoring an asset. The framework will be comprised of all components.

• Strategy
  • A plan or set of actions designed to achieve the desired financial and operational outcomes for a company’s stakeholders, including investors, management and employees.
  • With clear strategic direction and leadership embedded within the governance system, organisations have an overarching objective within which business decisions are made.
  • Once a strategy has been identified and agreed, it is important to find consensus on how the business will be able to enact this strategy on a day-to-day basis. The lack of a strategic business plan ultimately impacts the direction of the business and the long-term perception of progress against any objectives or goals that were set.
  • Whilst the development of strategy by asset management is important, if the strategy is developed solely from either the board/executive team or the sponsor team alone, there is the potential for a risk of divergence of views between the various stakeholders with regards to the long-term rationale for the government intervention. Therefore, both parties should be aligned on the overarching strategy and direction of travel.
• Objectives
  • Projects often fall short of meeting their goals due to a lack of consensus on the definition of success. SMART goals use a specific set of criteria to help ensure that objectives are clearly defined and attainable within a certain timeframe. (Please see guidance on creating SMART Objectives for more information).
  • In general, for each intervention we would expect to see:
    • Clearly articulated objectives setting out the outcomes SG want to achieve for the strategic commercial asset, in the short and long term.
    • Alignment with other objectives across Scottish Government.
    • Clear review points in the process for re-assessing the validity of objectives to ensure continued relevance.
• Logic Model
  • A strong monitoring framework should be underpinned by a clear Theory of Change or logic model and the overarching policy objective is paramount to this. If the original policy objective changes, then this potentially changes the management strategies and activities, and therefore perhaps elements of the monitoring framework.
  • A logic model describes the relationship between activities and outcomes and will help map out the inputs-activities-outputs that contribute to the change in short-term (intermediate), long-term (ultimate) outcomes, and to realising the benefits.
  • A logic model should be developed for each commercial asset (ideally before SG intervention) with guidance and input from OCEA and PMO colleagues. This helps establish a tailored monitoring framework based on the specific circumstances of the intervention, setting out key metrics to monitor (KPIs) that contribute to delivery of the overall objective.
• Business Plan
  • An essential tool outlining the company’s goals, strategic objectives and tactics for achieving such goals for a set period usually, but not always, three or five years.
  • This document will outline how the company is expected to grow or operate and will help inform the reporting process – where the board/executive team need to provide information and updates to the sponsor team.
  • It should be reviewed and updated to ensure it remains deliverable within the strategy considering the company’s current financial and operational capability and purpose as well as aligned with the shareholder’s strategic plan.
  • The sponsor team and the board/executive team should agree timeframes, which are appropriate for the nature of the business and industry and routinely produce a business plan which should be scrutinised by the sponsor team.
  • This is important because if there is a mutual understanding between SG and asset board/management with both parties being clear on the strategy and corporate goals, there will be a shared understanding of key metrics and KPIs which will ensure a streamlined reporting process.
• Annual Budget
  • A financial plan outlining a company’s expected financial performance for a fiscal year. It serves as a tool to allow management to benchmark performance as time passes which ultimately assists in decision-making for management or investors. It can incorporate non-financial elements too.
  • Traditionally updated annually (albeit some organisations now adopt a rolling budget) with sign off by the Board (and stakeholder if applicable). Reflects changes to the market conditions business circumstances and operational effectiveness of a company.
• Business Case
  • it is important to ensure that the business case remains relevant and up to date, as is highlighted within the BIF.
  • The sponsor team should ensure:
    • A Business Case exists for the initial intervention.
    • It remains up to date.
    • Measures are taken to update the Business Case as required.
  • Updating the business case allows officials to monitor the progress of the intervention and to identify any changes from the expected benefits, risks and costs initially outlined. It will also assist in highlighting any changes in any internal or external factors that may affect the intervention and duly update the business case to reflect any potential changes.
• Exit Strategy
  • An exit strategy, with a benefits realisation plan should be periodically considered and reviewed as part of any monitoring framework with control points set regularly to consider divestment of the asset. (A separate guidance note sets out guidance on Exit Strategy)
  • A review should be undertaken to assess whether an exit strategy exists, whether the exit strategy remains relevant and consider any factors that could affect divestment including:
    • Financial performance – underperforming assets that drain resources at a cost to the taxpayer. Or conversely, assets that have seen improved financial performance.
    • Strategic alignment – assets that potentially no longer align with long term government priorities (e.g. just transition & Net Zero).
    • Policy Objectives - political agendas or a shift in public sentiment could potentially lead to changes in the exit strategy.
• Key Performance Indicators (KPIs)
  • Key Performance Indicators (KPIs) should be developed in collaboration with OCEA and PMO colleagues.
  • These will be bespoke to the commercial asset helping to track performance and detail progress towards the agreed objectives and the overall strategic goal for SG.
  • Developed KPIs should allow management to understand key areas of the business which will allow for timeous intervention in operations. It also allows for information to be shared with other key stakeholders which rely on the performance of the company.