A standard approach for public bodies
Since October 2010, government departments and local authorities have already begun the process of stopping discretionary spending, postponing or cancelling projects that are not core. In response to a central mandation, most public bodies have stopped recruitment, frozen budgets and reconfigured capital budgets to focus on the essentials.
Public bodies have also worked to make tactical process improvements such as improved sourcing and renegotiating with their suppliers. The most forward-thinking have also considered how to reengineer core business processes to take cost out, either through wider use of contracting or by pooling some key functions with other agencies.
A proactive approach
The central lesson from Deloitte’s work with public bodies is that managers need to support necessary tactical and reactive work they are taking forward with more fundamental, proactive change. Public bodies need to consider how they can:
- Change the core operating model – Deliver services in a different and more cost effective way.
- Transform their business by building a cost-conscious culture
- Change services, including by reviewing their portfolio of commitments and challenging first-principles assumptions on what the organisation actually does.
A single version of the truth
Opacity of data is a common weakness in public sector cost improvement programmes. Mangers like to use numbers and statistics as the basis of arguments. The principle is sound: the numbers don’t lie. However, once cost reduction hits the transformation phase, the number of stakeholders who may take the agenda in different directions increases exponentially. Everybody wants numbers to speak to their cause.
To succeed, there must be a trustworthy, widely accepted set of numbers that measure the baseline, targets, and actual benefits. Without these, there will be confusion and obfuscation as different stakeholders use different metrics and different data sources. Political and public service leaders must be able to prove that they are making tangible in roads into each organisation’s cost base.
Often, cost reduction work may span across government. These might include reviews of efficiency, assets, benefits, entitlements, and organisational structure. Each of these needs financial rigour and clarity on three factors:
- The financial baseline, against which savings will be measured.
- The target — How much does cost need to be reduced for the work to be considered a success?
- The addressable cost base — How big is the cost base the programme is trying to tackle? If there are untouchable areas of spend, these need to be identified quickly and set aside.