Finance directors delivering public services are taught that they have two basic options when it comes to budgets, according to Emma Snow, CEO of thinktank the Five Giants Foundation, and an ICAEW Chartered Accountant.

Option one is to spend more money on a service enabling it to help more people. For example, if £250k pa is spent on two hospital beds, and they are occupied by 250 people each year, this costs £1k per person. To serve double the number of people, the budget needs to increase to £500k pa to achieve the same health outcomes for each person.

Option two is to spend less money on a service and look after fewer people. For example, if the hospital bed budget is cut to £125k pa, then the hospital will only be able to afford one bed. It will only be able to serve half the number of people while achieving the same health outcomes.

Yet there are some areas which buck the trend and can deliver both improved outcomes while also saving money. How can this be possible?

The answer, says Snow, is to look at the ‘five giants’ and systems thinking.

The five giants and systems thinking

The five giants are the key factors that improve health outcomes and reduce long-term spending. Originating from the Beveridge Report in 1942, they are:

• housing, sanitation and the environment;
• unemployment;
• poverty;
• health and social care services; and
• education.

The five giants model is good to use for better, joined-up thinking, also known as ‘systems thinking’. Systems thinking is a way of making sense of complex systems by examining the relationships and interactions between their components.

Systems thinking has tools that can be used to work out how best to fight the five giants. According to Snow, the most useful to start with is a causal flow loop diagram, showing feedback loops in the system.

“The diagram is similar to process mapping, with arrows showing direction, but instead of a linear process from the start to the end, systems thinking is usually about circular processes,” she says.

Here’s an example looking at health and social care in the UK.

Example 1: Vicious circle - A&E

“Starting at the top of the diagram, the current issue is that prevention, self-management and home care are underfunded,” explains Snow.

Following the arrows round the diagram, this means more people need other NHS professional services, as they are not getting their needs met by the basic and cheaper services.

In turn, this means GP and hospital outpatient appointments become full, so people have to go to A&E, and A&E becomes overcrowded. This means that decision makers come under pressure to increase A&E funding.

“The bit of the cycle that we often don’t see, but that this diagram reveals, is the last arrow which creates the circle,” says Snow. “As funding comes out of a fixed pot, to fund A&E more, budget is reduced for other areas. This results in even greater underfunding of prevention, self-management and home care.”

Furthermore, as A&E costs more per person than any other service, fewer people can be treated, worsening outcomes for patients.

In systems thinking, this is called a vicious circle, as the cycle keeps on going and gets progressively worse. Systems thinking shows that by using points of leverage, the cycle can be changed and a virtuous circle created. Points of leverage are where the application of a relatively small amount of resource saves a lot more resource further down the line. 

Example 2: Points of leverage to create a virtuous circle

In the diagram above, the three key points of leverage are shown by the arrows. They are:

1. prioritising funding for prevention, self-management and home care - the key factor that stops the vicious circle by reducing the need for appointments;
2. adding more staff to GP and hospital outpatient teams; and
3. using digital electronic patient records (EPR) and symptom questionnaires to decrease appointment times.

Showing the value of prevention

“We all know that prevention is cheaper than cure in our own lives,” she says. “As good accountants, most of us would rather spend a little money to maintain our home’s roof, instead of leaving it leaking and letting it go rotten. This is because we know a new roof is much more expensive.”

Yet, in public services, this kind of preventative approach is more difficult to justify. Snow explains that there is a preference for funding the most expensive services, such as hospitals and A&E, at the expense of cheaper services, such as affordable warm homes which keep people healthy.

As cause and effect are further apart for preventative services, it is harder to see they are related, especially where the decision makers are not directly affected. Snow says: “If our home was poorly insulated, making it expensive to heat and mouldy, and our child had to go to A&E with asthma due to black mould, missing school, failing their GCSEs, and therefore failing to get a good job and a good home themselves, we would soon realise the issues.”

Systems thinking groups can help with this. These are groups of eight to 10 people who look at an issue together. It can involve patients, carers, people from frontline services and senior managers.

“Ideally, the group should be led by patients,” explains Snow. “They can see what is going on and are most likely to ask the right questions to frame the issue.”

Standard patient focus group questions like “How was your treatment at the hospital?” tend to lead to answers about the doctor being a nice person. “Instead, they need to ask questions like ‘What would have prevented you needing this treatment?’,” says Snow.

Bigger picture view in public spending

Coupled with systems thinking, the five giants need to be considered in business cases across all public-sector-funded organisations, according to Snow. “If one department gets some of the benefit of another department’s business case, then Treasury should balance budgets so it shares savings to pay for the preventative activity,” she says.

There also needs to be a focus on a multi-year Treasury budget, says Snow, rather than trying to balance the budget in Year 1, as most preventative savings take a bit longer.

“If we prioritise prevention across the board, there are many activities that will offer savings quickly,” she says. One example is getting unemployed people with disabilities into work, as they would come off benefits and pay more tax. Such activities can be used to support the cashflow of longer-term prevention activities.

Snow argues that addressing the ‘low-hanging fruit’ is often cheaper for public finances.

For example, you can keep people out of hospital due to malnutrition or dehydration by providing a low level of support at home through free meals on wheels.

“For our cashflow to work, we need to reinstate these lower-level services which were cut during austerity, as they have a better return on investment,” she says. “The savings then fund the higher-level services.”

The Five Giants Foundation wants to see the five giants model and systems thinking used more widely in the public sector and is working to raise awareness of these principles.

Snow concludes: “Prevention is cheaper than cure and it can create better outcomes for society, but only where organisations are encouraged to prioritise preventative activities and government policy shifts away from funding the most expensive services at the expense of services at the lower level.”