Administrative Data - the Statistical Potential

Alan Cave Business Director, Capita

Price and Risk

• A successful contract is based on a price that accurately reflects both parties risk judgements and appetites.

• The key dimensions of risk are:– Delivery– Cost– Legal– Reputational

How does a bidder reach a price?

1. Understand the “As-Is”: operating model, liabilities, cost allocation.

2. Understand customer requirements and the changes/novelty involved.

3. Build a Solution, a Target Operating Model and a financial model.

4. Price the solution:– Within the customer’s cost envelope– With an acceptable return– Building in contingency for risk

Issues in assessing and managing risk

Scenario 1: Outsourcing a well-established service (3G)

• Example: Local Authority services• Base line and improvement possibilities are clear and well-

known• Benchmark data widely available• Data is trusted

Issues in assessing and managing risk

Scenario 2: Innovating in an already outsourced service (2G)

• Example: DWP Work Programme• Base line partially clear• Commercial model contains element of hypothesis/pilot• Benchmark data not widely available• Data is largely trusted (but typically separate sets of Admin

data)

Issues in assessing and managing risk

Scenario 3: Initial outsourcing of a service (1G)

• Example: MoJ Transforming Rehabilitation programme• Base line clear• Commercial model rests on predictions based on modelling

the customer’s Admin data• Bidders required to make assumptions/take data on trust

Administrative data in a commercial context

Clear strengths:• Reflects “operational reality”• Frequency and regularity• Subject to quality controls/audit

Drawbacks:• One-sided• Worries about quality• Defensiveness

How to handle trust and uncertainty issues?

1. Price it in2. Ignore it3. Adjust over time: “True Up”

Above all: a more mature approach