Over the past 18 months, NAFP has looked in detail at the way a small number of local authorities cost their own 'in-house' fostering services. It is important to understand this methodology because local authorities need to be sure that they are spending their money wisely to best meet children's needs. But it's also important because there is a widely-held belief amongst local authorities than in-house placement are 'cheaper' than external placements. That assumption alone seemingly makes it acceptable to almost always look to place a child 'in-house first' before moving on to consider options for an external placement.

We found that the methodology used to calculate and compare internal costs with external costs understates back office and support costs, and these are often attributed based on seemingly arbitrary assumptions. Little account is taken of differing needs of children when calculating cost comparisons. We know that, by and large, because of the widely used 'in-house first' placement culture, children placed with foster carers from independent and voluntary sector fostering providers (IFPs) tend to have greater needs. We might expect it to cost more to care for those children. However, the very rough in-house/external comparison homogenises children and assumes they are all more or less the same. When we drilled down and looked at the costs for certain cohorts of children, we found the in-house costs to be very similar to those of IFPs.

Add to this the huge health warning coming from the National Audit Office about local authorities understanding of their costs and it's not just NAFP saying this (and we will be accused of having a vested interest here, of course). The NAO also said that the huge range of in-house costs quoted by local authorities means they can't all be right.

My argument is that local authorities can't be sure of their own costs so how can they use this as the key reason for placing in a child in one placement rather than another? I wrote a blog recently called 'How much cheaper is enough?'. In that I also make the case that how much cheaper would one placement have to be than another to make it the 'right' one for a child? £10/week cheaper? £100/week cheaper? £500/week cheaper?

What we don't have a firm grip on, in my view, is the the significance of a 'unit cost'. For instance, if one agency pay their foster carers less, and so are 'cheaper', is that good thing or a bad thing? Foster carers, like social workers, undertake their role for largely altruistic reasons. But, like the rest of us, they also need to pay their bills and feel valued. Paying them more may not make them better, but paying them less could undervalue them and risk losing them.

And what of quality? What of outcomes? We live a world of hugely bureaucratic commissioning and procurement (only for external services; in-house services are the automatic 'preferred provider' without any procurement) that sees its role as getting unit cost down and prioritising those placements that have the cheapest weekly unit cost.

In my view, we serve children best by finding the right and best placement for them. And, in the long run, that is how we provide best value for the public purse. So, yes, in this time of swingeing cuts to local authority budgets, let's understand costs, but it's only relevant when we understand how spending that money benefits an individual child. In my opinion, the kind of rough cost estimate that we use now is not about meeting children's needs or finding the best value. In my view, it's probably about an adult pre-conceived loyalty to a particular form of service delivery. And I understand that. But my pitch is that we start to make placement decisions that prioritise children's needs, based on much better data and information. I'm up for being a part of that movement.