The BBC’s approach to managing the cost of its support functions
10 May 2012
Full report: The BBC’s approach to managing the cost of its support functions
The BBC has reduced the costs of most of its support functions over the last five years and plans to make further savings, according to an independent report by the National Audit Office for the BBC Trust.
According to today’s report, the BBC’s current approach to challenging the cost of support functions is broadly effective in improving value for money but it is focused on achieving specified levels of savings, rather than based on an analysis of what activities should cost.
The NAO’s findings included the following:
- Over the five financial years 2006-07 to 2010-11, the BBC has reduced or held static the cost of all but one of the eight functions examined by the NAO, after allowing for inflation. Inconsistency in how the BBC monitors its support functions, however, means that it cannot show that the performance of these functions has been unaffected.
- Although the BBC has reduced the cost of the majority of its support functions, there are areas where it could strengthen its approach to challenging costs. Comparing the costs of the BBC’s support functions with those of the wider public sector gives a mixed picture and suggests that there is scope for savings. The BBC does not have a coordinated and consistent approach to challenging the cost of its support functions, meaning that there is scope to better capture best practice across the organisation.
- The BBC plans to find savings of 25 per cent from it support services by 2016-17 to help deliver the overall savings required by the licence fee settlement. All the support functions examined by the NAO have challenged their costs by assessing the impact of cuts necessary to live within the cost constraints arising from the freeze in the level of the licence fee. By setting cost reduction targets in this way, rather than trying to establish what it should cost to deliver the level of service required, the BBC cannot be confident that its targets are pitched at the right level.
- The BBC has a target to reduce its overhead costs to less than 10 per cent of the licence fee, by 2013-14. While this target shows a clear commitment to licence fee payers, the way the BBC measures and reports overheads is not aligned with how it manages the costs of its support functions and the target is not supported by a clear rationale. The target is therefore of limited practical use to the BBC in managing its costs because it does not know whether 10 per cent is the right level.
The BBC Trust has welcomed the NAO’s report and responded to the key findings as follows:
- The Trust has agreed that the BBC Executive will develop the BBC’s existing range of performance indicators for support functions and integrate these with existing cost reporting as appropriate.
- To help share best practice across the organisation the Trust has agreed that the Executive will ensure there is a consistent approach to challenging costs with the right balance between central coordination and flexibility for local initiatives.
- The Trust agrees that the BBC, in common with many public sector organisations, has tended historically to use top-down limits on its budgets as a starting point for delivering cost savings. This top-down approach has undoubtedly proved to be an effective way to reduce costs in the past. However, in planning to respond to the NAO’s recommendations, the BBC has positioned itself in terms of its financial management to develop a more sophisticated approach to managing its support function costs based on a more detailed understanding of what each of its activities should cost to deliver.
- The Trust sees a value in the BBC having a clear, simple commitment to licence fee payers about the proportion of licence fee income that is spent on content and distribution, as opposed to pure administrative and overhead costs. However, the Trust will explore with the Executive whether it is possible to tie the measuring and reporting of overhead costs to the management of those costs in a more meaningful way. The Executive will also provide a clearer analysis of overheads in the BBC Annual Report and Accounts.