Delivering on lower-cost, higher-value government

Governments are moving beyond tweaking their budgets to transforming the economics of mission delivery, driving efficiencies and enhanced value

William D. Eggers

United States

Ian Washington

United Kingdom

Christina Dorfhuber

United States

William Miracky

United States

Budget pressures for government are on the rise around the world, due to factors including slowing tax revenues, rising health care and entitlement costs, and interest payments on government debt. Many governments find themselves on an unsustainable fiscal path1 (see “Governments in financial distress: A driving force for change”).

Recognizing this, governments are moving beyond tweaking their budgets to transforming the economics of delivering on their missions. This trend covers a host of approaches that are creating significant and lasting cost reductions.

Faced with budget shortfalls, governments often adopt short-term measures that temporarily reduce outflows without changing their underlying cost structures. Short-term “fixes” such as hiring freezes, business travel restrictions, and delaying expenditures in areas such as training, maintenance, and IT modernization can make organizations less efficient in the long run because they leave the underlying economics of the organization largely unchanged.2

There is growing public concern across the globe about how taxpayer dollars are used.3 Myriad strategies exist that can enable governments to bend the cost curve down on a more permanent basis, while still meeting citizens’ service expectations.

This trend highlights the tools and key strategies governments are employing to deliver on lasting cost reduction. These cost management approaches, unlike traditional cost-cutting measures, take a broader, more integrated view of the organization and its mission. As shown in figure 1, these approaches fall into three main categories:

Operational efficiency: Rethinking the “How”

This includes introducing new technologies, including AI and gen AI, that can fundamentally alter the cost structure of service delivery. Enhancing efficiency also includes reengineering processes to streamline workflows and internal systems, and taking steps to reduce waste, fraud, and abuse.

Structural transformation: Rethinking the “Who”

These approaches include substantive structural and operational changes that involve new ways that public sector institutions deliver on their mission. Such strategies may include mergers, reorganizations, shared services models, and various forms of public-private approaches and privatization to address public challenges.

Demand management: Rethinking the “What” and “For Whom”

These strategies reduce the demand or need for certain programs while still delivering essential services to those in need. Demand management is often most effective in the areas of health care and social welfare spending, which have been a growing portion of government costs.

Governments in financial distress: A driving force for change

In the last quarter of 2024, global government debt reached an unprecedented US$95.3 trillion, while the projected global GDP for the year stood at US$109.5 trillion.4 The International Monetary Fund projects that if the current trajectory continues, global public debt will surpass US$100 trillion by the end of 2024, with the global debt-to-GDP ratio approaching 100% by the end of the decade.5

 

France’s debt has surged from 98% of GDP in 2019 to 112% in 2024, driven by efforts to mitigate economic disruptions due to COVID-19 and the Russia-Ukraine war.6 This has resulted in higher borrowing costs and reduced investor confidence. The United Kingdom faces a similar predicament, with borrowing reaching £131.1 billion in the financial year ending March 2024 and debt hitting 100% of GDP.7

 

In the United States, government debt held by the public is nearing US$27.5 trillion,8 or 100% of GDP.9 In 2024, for the first time in modern history, interest payments on the national debt exceeded spending on national defense—and interest costs are projected to increase.10 The US Government Accountability Office (GAO) noted that long-term fiscal projections show that “the current federal fiscal path is unsustainable.”11

 

State, local, and regional governments globally are also grappling with significant budget deficits. In Canada, the combined provincial deficit surged from CA$10.6 billion in 2023 to CA$27.9 billion in 2024. Additionally, the total provincial debt is expected to increase by more than CA$65 billion in 2025 marking the largest annual increase on record.12 In the United States, some states are experiencing budget shortfalls.13

Show more

Key challenges: What makes controlling costs such a challenge?

Agency leaders face stubborn obstacles to controlling costs—some long-established challenges, others more recent arrivals, and some on track to only grow in the years to come.

  • Aging populations are driving up benefits spending around the world, with Organisation for Economic Co-operation and Development (OECD) nations devoting an average of 21% of GDP to social programs in 2022.14 These programs offer broad-based benefits and are often politically popular, leaving less money for programs that are more discretionary.15
  • Demand is rising for many government services even as costs continue to climb for providing services such as health care and education.
  • Up-front investments for long-term solutions can be hard to come by. Public budgets are often constrained in providing the funding needed to make big improvements, especially when the benefits of the spending may not occur within the term of the current administration.
  • Government leaders can be risk-averse when it comes to fundamentally transforming operations or taking drastic measures like closing facilities. This stems from the fear of potential backlash or negative public perception if things don’t go as planned. Consequently, they often revert to familiar and tried-and-tested short-term fixes to cut costs.
  • Technical debt entails the high cost of maintaining legacy technology, which makes it even more difficult to invest in modernization.16 Moreover, this outdated tech infrastructure makes it harder to utilize cutting-edge technologies to streamline tasks.17
  • Procurement processes in government can be inefficient and may waste up to a quarter of the US$13 trillion that global governments spend annually on goods, services, and public works.18
  • Siloed structures within government, with overlapping services and different planning and accountability methods, make it hard to make decisions efficiently and save costs.
  • Cost information gaps can mean that leaders don’t have the data to accurately determine the true costs of government operations. This gap hinders their ability to make informed strategic decisions.

Trend in action

Operational efficiency

Goal: Improve employee and process efficiency/productivity often via technology investment, while simultaneously improving the customer experience

Next-gen digital approaches offer the opportunity to alter the economics of public sector operations. AI and other digital technologies can help create tremendous public value, just as companies have used them to generate enormous market value.

Implementing these approaches well is complex. It may require technology investments, or changes in legislation, or significant changes to organizational culture. These technologies, however, can ultimately repay the investment many times over.

AI, productivity, and operational improvements

Productivity is about achieving more with the same inputs. As technology continues to boost productivity in the private sector, public expectations for government to realize similar gains also increases.

A new era of technology tools, in particular AI, gen AI and agentic AI, are ushering in a new generation of cost management in government as well as the private sector. A Microsoft study found that 70% of employees across industries report an increase in productivity from AI and a 29% faster completion rate in tasks such as researching, summarizing information, and enhancing content.19 The cost of automating tasks is falling rapidly: Early AI adoption often required high investment charges, and the skills needed were scarce. Today, introducing new AI platforms typically demands far less investment of resources. Newly developed digital tools can change the fundamentals of mission economics and work, enabling government agencies to do more with less.

Leaders can use these flexible tools to both enhance existing operations and enable entirely new approaches. Digital twins can help find optimum workflows and aid in policy scenario planning. AI-enabled process and service redesign can help leaders understand the art of the possible around how organizations can be more optimally organized.

Agencies have processes and systems that can be made more efficient with the application of technology. The challenge for leaders is to identify and implement the optimal technology solutions, transform business processes to be more cost-effective, and update talent policies to fully realize employees’ potential in a manner that is outcome-oriented.

AI and beyond

  • In the United Kingdom, Swindon Borough Council developed a gen AI application that translates complex government documents into easy-to-read formats, making them easier for individuals with learning disabilities to understand. The tool can effectively translate documents into 75 different languages, reducing translation costs from £120 per page to less than 10 pence.20
  • Over a six-month period, the Digital Transformation Agency of Australia made Microsoft 365 Copilot available to more than 7,600 employees across more than 60 government agencies to assess gen AI’s impact on employee productivity. The tool saved each employee an average of one hour a day on administrative tasks.21
  • In 2023, Brazil’s National Treasury introduced PagTesouro-GRU, a digital tool for automating tax payments for entities without their own systems. Handling 27,000 requests daily, the platform has reduced government fee processing time significantly.22
  • With a large chunk of government spending in most countries going to health care, many leaders are looking to new technologies to boost the productivity—and lower the costs—of health services. International Data Corporation estimates that gen AI will free up 10% of clinicians’ time, leading to nearly US$100 billion in annual health care savings in the Asia Pacific region, excluding Japan.23

Automation

  • In 2015, health care provider North Tees and Hartlepool NHS Foundation Trust launched a transformation aimed at digitizing paper-based systems, giving clinicians an enhanced decision-support tool, and revolutionizing emergency and inpatient wards by creating an electronic prescribing and medications administration module. With the system finally fully operational, administrators have reported dramatic reductions in medication errors and, equally important, freeing nursing staff by nearly 20,000 hours annually to spend time on direct patient care instead.24
  • The state of Ohio implemented a suite of bots to streamline administrative tasks for case workers handling Medicaid, SNAP, and TANF services. The Department of Rehabilitation and Correction bot saves case workers hundreds of hours monthly by directly incorporating new incarceration data into the Ohio benefit system, automatically updating case information, redetermining eligibility, and sending reports to county workers for cases that need follow-up. Each month, the bot reviews 4,000 new incarceration alerts, processing 60% of them within 24 hours. Alerts that require additional context are automatically passed to human caseworkers—ensuring a critical human‑in‑the‑loop safeguard in place for complex eligibility decisions.25

Technology infrastructure

  • With redundancy a persistent hurdle to controlling costs, many government leaders see real opportunity in transforming agencies’ technology infrastructure. Indonesia is in the middle of an effort to consolidate some 27,000 government applications into a single “super app” that citizens can use as a portal to access administrative agencies and government services, as well as for civil servants to access employment-related functions.26
  • Single-use, custom-built applications often add to inefficiencies, increasing operational and maintenance costs, especially as redundancies accumulate. The US Navy is consolidating some 200 HR applications in an initiative called MyNavy HR, expected to save countless hours and dollars.27
  • A solid data and technology infrastructure can streamline processes and reduce operational costs. In 2010, the Indian government launched India Stack, a cross-agency suite of digital financial frameworks and products, to boost financial inclusion and make it easier for citizens to secure bank accounts. This initiative, lowering banks’ cost of onboarding new customers from US$23 to only 10 cents, has led to more than 500 million Indians opening new accounts.28

Reducing fraud, waste, and abuse

Any successful attempt to eliminate waste, fraud, and abuse is the equivalent of found money—money that can be saved or used to deliver real value. Consistent with traditional cost management tools such as quality management and reengineering, this means taking a more holistic approach. It also requires leaders to recognize, as cost-of-quality studies have shown, that an ounce of prevention can be worth many pounds of cure.29

The GAO estimates annual losses to the US federal government from fraud between 2018 and 2022 to have been between US$233 billion and US$521 billion.30 In the United Kingdom, officials estimate that fraud costs 0.5% to 5% of all government spending.31 Armed with new tools, agencies are tackling this venerable problem by employing a variety of strategies.

One effective approach has been fast and agile collaborations that involve sharing data and intelligence to keep pace with evolving criminal strategies. Members of the Joint Chiefs of Global Tax Enforcement, a transnational joint operational group formed in 2018, develop strategies for gathering information and intelligence, communicate regularly, and conduct joint investigations.32

Advanced analytics and AI offer the ability to work with large sets of transactions to more effectively identify complex fraud patterns, limit false positives, increase operational efficiency, and avoid fraudulent losses. The UK Public Sector Fraud Authority, created in 2022, saved £311 million in fraudulent activity in its first year using this approach, collaborating with more than 1,000 public bodies to compare records and identify discrepancies, using advanced tools to identify potentially fraudulent activity.33 Similarly, the US Department of the Treasury successfully prevented and recovered more than US$4 billion in fraud and improper payments in fiscal year 2024, a significant increase over previous years, by leveraging data-driven strategies. AI-based applications flagged high-risk transactions; machine learning helped to detect Treasury check fraud.34

Strengthening fraud monitoring for grant programs can also significantly reduce costs to programs. By combining technology, collaboration, and comprehensive oversight, organizations can significantly reduce fraud risks and associated costs, ensuring that grant funds achieve their intended purposes.

A strong digital public infrastructure (DPI) can help prevent leakages in government service delivery. India’s DPI program is a suite of standards and platforms—such as digital identity, digital payments, and data exchange systems—that helps agencies deliver essential services to citizens at scale. DPI has enabled Indian agencies to remove duplicate beneficiaries and properly direct aid to farmers as well as elderly, underprivileged, and other citizens. The country’s journey to develop DPI began with the digital Aadhaar identity system, with the government linking Aadhaar to beneficiaries’ bank accounts for direct deposits. As of July 2024, DPI has saved the government more than US$41 billion by preventing leakages in benefits transfers.35

Tools for operational efficiency

AI, cloud, and Internet of Things: Invest in next-generation approaches to foundationally alter the economics of public sector operations. These technologies have the potential to enhance almost everything government does, from education and health care to policing and transportation.

 

Behavioral economics and nudge thinking: Design environments that help humans make better decisions, leading them to beneficial outcomes and improving compliance of government policies.

 

Data integration and analytics: Make sense of operational data and turn it into usable insights to improve resource allocation of people, physical assets, and money.

 

Digital public infrastructure: DPI is composed of open, interoperable digital tools that serve as the foundation for higher-level services. Governments must build a road map to pick the right mix of tools and technologies based on their unique circumstances (see “The building blocks of monumental government service delivery”).

 

Business model transformation: Align business model with mission requirements by creating distinct value propositions and forming long-term approaches and partnerships.

 

Portfolio optimization: Assess functions to determine if portfolio changes better drive mission outcomes delivery of services to citizens.

 

Process optimization/business process redesign: Simplify, standardize, reengineer, and automate end-to-end processes across the organization (for example, task automation). This also applies to reducing friction and “sludge” as well as reducing red tape.

 

Organization design: Align the organizational structure, including reporting relationships, sizing, and shape, to operating and mission requirements (for example, workforce planning and analysis).

 

Service delivery model: Optimize “what work is performed, where” across departments and agencies, including shared services, outsourced partners, and operating companies.

 

Improved asset efficiency: Optimize operations and reduce redundancy within major processes.

Show more

Structural transformation

Goal: Pursue substantive structural and operational changes that reduce government’s cost base

Consolidation

For obvious reasons, government agencies are far less likely to engage in mergers and acquisitions than for-profit entities. But consolidations or restructurings of public sector institutions do occur, and leaders are increasingly considering such moves. The underlying drivers may vary, but the goal is to cut costs and enhance effectiveness by streamlining and integrating services.

Consolidation of academic institutions. In recent years, declining enrollments and financial pressures have forced many small colleges to close or merge. Since 2016, nearly 60 public educational institutions in the US have either initiated consolidation efforts or announced their intentions to do so.36

For instance, in 2020, with the COVID-19 pandemic exacerbating existing problems, the state of Vermont began the process of closing three of the four Vermont State College campuses—part of a system facing a US$25 million combined structural deficit—and reopening them as Vermont State University. Through this consolidation effort, aided by federal funds, leaders cut 150 redundant academic programs, ramped up hybrid learning, reorganized infrastructure, and shrank the overall campus footprint.37 By the second year of consolidated operation in fall 2024, year-over-year enrollment had grown 14%.38

In 2023, Connecticut merged its dozen separate community colleges into the Connecticut State Community College, becoming the state’s largest institution of higher education, spread across multiple campuses. Through administrative restructuring and other cost reductions, leaders aim to save more than US$40 million annually.39

Data center consolidation. Government leaders elsewhere are looking to improve efficiency by consolidating data centers and other IT infrastructure across agencies. As part of the US Office of Management and Budget’s (OMB) ongoing Data Center Optimization Initiative, the Department of Defense shut down 46 data centers while identifying additional cost savings of US$178.5 million in 2020 alone.40 The US Department of Health and Human Services also saved costs through data center closures—49 of them between 2016 and 2022—outsourcing and migrating to cloud. Since 2016, the department calculates at least US$340 million saved through cost savings and avoidance.41 All in all, the OMB initiative helped federal agencies save a total of US$5.7 billion between fiscal years 2011 and 2021.42

Shared services

Shared services occurs when agencies source their mission support needs from a handful of other government agencies approved as service providers in particular areas, such as financial management, human capital, and acquisition. The goal is not simply to migrate services to a single large government provider; it is to find the best option for each service, wherever that option resides. In 2024, the United Kingdom launched an initiative under which three major UK government departments—HM Revenue and Customs, the Department for Transport, and the Ministry for Housing, Communities and Local Government—will create a shared digital platform for HR, finance, and procurement services. This shift is expected to lower costs and offer more streamlined services.43

Privatization and public-private partnerships

Privatization can help governments turn dormant physical capital into financial capital—and benefit governments financially by putting the assets on the tax rolls. Governments with underperforming assets such as parking lots, water facilities, and golf courses can use those assets to raise revenue through privatization.

In 2022, India privatized its state-run airline, selling Air India—which cost the government US$2.4 million a day to operate—to the Tata Group for US$2.3 billion.44 Since privatization, Tata has focused on restructuring, upgrading IT infrastructure, and releasing digital apps; the privatized airline has placed the largest aircraft order in Indian history,45 and in November 2024, Tata completed a merger of Air India with Vistara, bringing Singapore Airlines into a consolidated partnership.46

Government agencies can also consider forming alliances and strategic partnerships with private sector entities to enhance service delivery and capture value as part of the overall mission. Such alliances can attract new investments and introduce innovative private sector practices. These alternative delivery models offer significant opportunities for cost savings.47

Real estate portfolio rationalization

Today, government organizations are taking a hard look at the assets that make up their current footprints. Both direct facilities costs and associated costs, such as local management, represent significant expenditures.

Current physical configurations reflect past decisions, demographics, and needs. More importantly, they reflect historical trade-offs among service delivery, costs, and physical proximity. For many agencies, technology has fundamentally changed these trade-offs. Leaders may find significant savings through a process that begins by asking, What work should be done and where? What infrastructure is needed to get that work done? and Do we need all these facilities? Technologies, real estate markets, labor pools, and costs may have changed enough to make it worth reevaluating the current configuration.

In Ottawa, the federal public works department, Public Services and Procurement Canada, holds the second-largest portion of government floor space after the Department of National Defense,48 with 6.2 million square meters of office space.49 With hybrid work increasingly prevalent, the department is looking to halve its real estate footprint, generating income from sales and savings on rent and maintenance.50

In the United States, the General Services Administration (GSA) sees a similar opportunity to reduce the federal government real estate portfolio by 30%, saving up to US$60 billion over a decade. This effort is in addition to the GSA’s ongoing initiatives since 2013, which have already reduced federally owned office space by 12 million square feet and leased space by 18 million square feet.51 Additionally, the Department of Defense has saved US$12 billion annually from five previous rounds of base closures and consolidation through the Base Realignment and Closure (BRAC) process.52

Tools for structural transformation

Operating model redesign: A redesign of an agency’s operating model or structure in whole or part. Examples include reevaluating the role of agency headquarters versus program areas, consolidating functions or program areas, and moving to a fee-funded or cost recovery service model.

 

Organizational structure optimization: Reviewing the organizational structures can lead to cost reduction and improved decision-making efficiency by streamlining and consolidating operations, reducing management layers, eliminating duplicate functions, and optimizing spans of control.

 

Carve-outs and spin-offs: Involve separating a portion of significant processes/activities to create a new entity. In a carve-out, the entity is stood up entirely separately, while in a spin-off the government retains control of the new entity.

 

Portfolio optimization: Assess functions to determine if portfolio changes better drive mission outcomes delivery of services to citizens.

 

Service delivery model: Optimize “what work is performed, where” across departments and agencies, including shared services, outsourced partners, and operating companies.

 

Alternative service delivery: Where workforce analysis identifies non-core/strategic capabilities or specialized skill gaps, and the business’s workforce plans identify that “borrowing” the skill is the best way to acquire it, agencies may wish to strategically find alternative service delivery options such as managed services for certain functions or services. Through alternative service delivery options, government can potentially benefit from cost savings, increased flexibility, and access to specialized skills without the need for maintaining a large permanent workforce.

 

Commercialization: Upon commercialization, most agencies operate as revenue-dependent organizations, applying commercial best practices. A primary benefit of commercializing a government entity has been increased management latitude to more effectively pursue reductions in operating costs in a commercial operating model.

 

Public-private partnerships (PPPs): Governments can enter into partnerships with private entities to manage and maintain their physical assets. This allows governments to transfer some of the operational and financial risks to private partners while still retaining ownership. PPPs can bring expertise, innovation, and efficiencies that can lead to cost savings in asset management.

 

Real estate portfolio rationalization: Consolidate, redesign, and reduce underlying real estate and optimize the delivery of real estate–related services.

Show more

Demand management

Goal: Reduce the demand for certain programs

Government spending on social welfare globally has risen over the last century, with wealthier countries now allocating between 15% to 30% of GDP to retirement benefits, health care, education, housing, and other basic services (figure 2). The spending numbers rarely fall. Over time, the expectation of these benefits makes it challenging for lawmakers to reduce costs in this area. 

Some governments are looking to better manage public demand for this suite of health and social services, in particular through policies that promote employment and reduce demand for health-related services through whole health, preventive health care, and early intervention.

Promoting employment

For working-age constituents, some government agencies are rethinking social welfare, shifting programs from merely delivering financial assistance to also promoting employment, with the receipt of benefits being contingent on individuals seeking work and developing their skills.

Active labor market programs—which help individuals find work, improve their skills, and succeed in jobs—can help reduce the demand on social welfare programs.

Ontario’s poverty reduction strategy aims to help transition individuals from social assistance to employment through a comprehensive suite of supports. The province offers job placement assistance, skill training programs, and additional supports such as housing stability, crucial for enabling individuals to secure and maintain employment. In 2023 alone, more than 28,000 Ontario households successfully transitioned from social assistance to employment.53

Similarly, the UK government designed its all-in-one Universal Credit program to facilitate employment by gradually reducing benefits as income increases rather than abruptly withdrawing support. This approach has proved particularly beneficial for lower-income individuals, encouraging them to take on jobs or work more hours without the fear of losing all their benefits at once. Participants are required to regularly meet with a work coach and take proactive steps to boost earnings.54

Denmark’s labor policies combine labor market flexibility with active assistance for individuals. In its “flexicurity” model, the government assumes responsibility for retraining and reintegrating laid-off workers into the workforce as quickly as possible. In exchange for benefits, unemployed individuals are required to participate in active labor market programs. These programs cost approximately 2% of GDP per year, making Denmark the OECD country that invests the most in active labor market policies, by a wide margin.55 Since 2014, the number of social benefit recipients has decreased as more Danes have moved into employment.56

Reducing costs by improving health outcomes

Struggling with rising health care costs, governments are increasingly adopting a whole-health approach that emphasizes wellness rather than just treating illness.57 Programs typically include preventive and early care services such as cancer screenings and pregnancy care along with wellness promotion activities such as anti-smoking campaigns.

To improve populations’ living conditions and invest in lifelong health development, health care organizations and government agencies are increasingly addressing the drivers of health and factors such as lifestyle, nutrition, socioeconomic status, education, and environmental conditions that disproportionately affect health outcomes.58 These measures aim to improve overall health and reduce emergency room visits, ultimately lowering government spending.59

The state of North Carolina has adopted a payment model rewarding providers that improve population health outcomes at a lower cost of care. Incentivizing stronger patient primary care helped improve management of chronic conditions and reduce the number of hospitalizations and emergency room visits. In its first three years, the program saved the state more than US$155 million and generated more than US$75 million in revenue for participating in health care practices through shared savings allocations and quality bonuses. The public-private partnership operates in more than 540 sites; about 85% of those sites are focused on federally designated primary health care provider shortage areas.60

The state of Maryland, following the lead of Germany and several other countries,61 has tried a different approach by transitioning to an all-payer hospital global budget that allocates a fixed annual payment to each hospital, unlinked to the volume of services delivered. This paradigm shift has incentivized hospitals to actively work to reduce preventable hospital usage, and indeed, Maryland reduced hospital admissions by 16.2% and has narrowed disparities in several quality measures. Over its first three years, the model reduced the state’s Medicare spending by US$689 million.62

The Nurse-Family Partnership is a community health program that helps specialized nurses connect with first-time mothers very early in their pregnancy, maintaining a partnership until the child’s second birthday. During the early months of a child’s life, support can reduce emergency room visits for accidents, food poisoning, and incidences of child abuse and neglect.63

Public health campaigns are another way to improve health outcomes while reducing long-term costs. In its first three years, the US Food & Drug Administration’s tobacco prevention campaign “The Real Cost” dissuaded an estimated 587,000 youth ages 11 to 19 from starting to smoke. Through a paid-media strategy and targeted messaging, the campaign effectively altered teenagers’ perceptions of tobacco use, leading to a 30% reduction in smoking initiation among youths between 2014 and 2016. The campaign achieved significant projected cost savings from reduction in future disability, medical care, lost wages, and lower productivity: fully US$53 billion, more than US$180,000 for each of the youths who would likely have become a smoker.64

Tools for demand management

Active labor market programs: Incorporate work requirements (which make the receipt of benefits contingent on working or preparing to work) and work supports (which make working more feasible and profitable for participants).

 

All-payer hospital global budgets: An innovative model that allocates a fixed annual payment to hospitals, untied to the volume of its services to actively work toward reducing preventable hospital usage.

 

Value-based care: Health care providers are paid to manage total cost of care versus the volume of services provided.

 

Behavioral economics and nudge thinking: Design environments that help humans make better decisions, leading to behavioral changes that can potentially reduce demand for services.

Show more

Tools and strategies for delivering on lower-cost, higher-value government

There is tremendous pressure today to increase efficiency and transform the cost structure of government. Doing so requires a thoughtful, integrated approach combining traditional cost management tools (mergers, fraud, and waste reduction) with new age solutions like digital and AI that can enable deep and enduring operational efficiencies (figure 3).

Operational efficiency: The proven tools of business process redesign take on new life when combined with AI tools and robust digital platforms. This is especially true in government where so much activity is centered on benefits processing, providing information, and financial transactions.

Structural transformation: Governments have a bevy of structural approaches they can use to reduce costs without negatively affecting services, ranging from consolidation to IT rationalization to different models of public-private partnerships.

Demand management: Significant savings are possible by using demand management tools to shift demand to lower-cost channels of access (digital rather than an in-person visit, for example) or by encouraging or by reducing the demand for some benefits by increasing labor force participation or improving health outcomes. 

My take

How Ireland’s health system is doing more with less

Robert Watt, secretary general, Department of Health, Ireland65

 

Following the 2008 financial crash, Ireland needed continuing financial assistance from the European Union, the European Central Bank, and the International Monetary Fund, contingent on the government dramatically lowering the fiscal deficit. It was a classic burning platform: We needed to reduce the deficit without further harming the economy or weakening our social safety nets.

 

As the Department of Public Expenditure and Reform’s first secretary general, I led a cost reduction initiative, implementing measures across all government sectors. We reduced employment numbers and pay rates, cut back on spending programs, and streamlined procurement processes. And we broadened the effort by not redlining specific spending areas, since protecting some sectors from cost-cutting consideration would have further pressured all the other areas.

 

Our focus was on lowering the cost of providing services, an effort involving a tough control framework and many hard choices. With union cooperation, we introduced operational efficiencies that allowed us to meet service demands with fewer staff. We instituted an industrial relations framework that was more cooperative than confrontational.

 

While these measures were difficult for all of society, and particularly challenging for some, the strategy succeeded: We regained our economic sovereignty when Ireland became the first Eurozone country to exit the aid program in 2013, moving on to achieve full employment, grow the economy, and deliver budget surpluses. 

 

Overseeing health care in my current role, cost management and improving productivity remain top priorities. In the face of ever-increasing demand, we must be more productive and efficient, drive down patient costs, and stay within our budget allocation. For instance, with one-sixth of the health care budget allocated to medications, we are encouraging the use of lower-cost drugs; in 2024, we saved over €30 million in medicine costs.

 

Our Sláintecare program emphasizes prevention over treatment, shifting care from hospitals to community settings and freeing hospital beds for the seriously ill. Our chronic disease management program, for example, actively supports patients with conditions such as diabetes through regular care from general practitioners and nurse practitioners, supplemented by specialist input from hospitals. These initiatives require upfront investments but reduce long-term costs, and our evaluations suggest that patients experience fewer hospitalizations and shorter hospital stays. 

 

Scaling approaches focused on prevention and wellness requires leadership from a dedicated community of caregivers as well as an integrated approach across the continuum of care, with a single budget holder overseeing both hospital and community services. Embracing technology is also critical: Video consultations with doctors eliminates the need for many hospital visits, and AI has revolutionized diagnostic screening, enhancing accuracy and efficiency and freeing staff for higher-value work. We’re optimistic about technologies, scaled across the system, will enable us to meet growing demand—within our allocated budgets. 

Show more

by

William D. Eggers

United States

Ian Washington

United Kingdom

Christina Dorfhuber

United States

William Miracky

United States

Endnotes

  1. US Government Accountability Office (GAO), “The nation’s fiscal health: Road map needed to address projected unsustainable debt levels,” Feb. 15, 2024; Courtenay Brown, “U.K. plots own DOGE amid huge global shifts,” Axios, March 26, 2025. 

    View in Article
  2. Bruce Chew and William D. Eggers, “What will be your agency’s Act Two on budget reductions?,” Deloitte Insights, Aug. 16, 2018.

    View in Article
  3. Organisation for Economic Co-operation and Development (OECD), “Almost half of taxpayers don’t see their taxes being spent for the public good,” Dec. 12, 2024; Cameron Huddleston, “Survey: Only 18% of Americans believe their tax dollars are being spent the right way,” GOBankingRates, July 1, 2024. 

    View in Article
  4. Emre Tiftik, Khadija Mahmood, and Raymond Aycock, “Navigating the new normal,” IIF Global Debt Monitor, May 7, 2024; Emre Tiftik, Khadija Mahmood, Raymond Aycock, “Return of the bond vigilantes – Dangerous dynamics in debt markets,” IIF Global Debt Monitor, Feb. 25, 2025; Nessa Anwar, “How the world got into $315 trillion of debt,” CNBC, May 27, 2024.

    View in Article
  5. International Monetary Fund (IMF), “Putting a lid on public debt,” Fiscal Monitor, October 2024.

    View in Article
  6. Courtenay Brown, “Why France’s fiscal freakout matters to the world,” Axios, Oct. 24, 2024.

    View in Article
  7. Kevin Klowden, “Op-ed: The UK’s budget problems date back to the 2008 financial crisis,” CNBC, Sept. 24, 2024; UK Office for National Statistics (ONS), “Public sector finances, UK: August 2024,” press release, Sept. 20, 2024; ONS, “Public sector finances, UK: December 2024,” press release, Jan. 22, 2025. 

    View in Article
  8. Federal Reserve Bank of St. Louis (FRED), “Federal debt held by the public,” last updated March 4, 2025.

    View in Article
  9. FRED, “Federal debt held by the public as a percent of gross domestic product,” last updated March 27, 2025.

    View in Article
  10. Ben Steil and Elisabeth Harding, “For the first time, the U.S. is spending more on debt interest than defense,” Council on Foreign Relations, May 23, 2024.

    View in Article
  11. GAO, “America’s fiscal future – Fiscal outlook,” accessed May 2025.

    View in Article
  12. Kyle Bakx, “Provincial governments facing higher debts and more financial pressure,” CBC News, May 5, 2024.

    View in Article
  13. National Association of State Budget Officers (NASBO),  “Fiscal survey of states,” Fall 2024; Liz Farmer, “State budgets are downsizing,” The Pew Charitable Trusts, July 15, 2024. 

    View in Article
  14. Willem Adema, Pauline Fron, and Maxime Ladaique, “Sizing up welfare states: How do OECD countries compare?” OECD Statistics, Feb. 2, 2023. 

    View in Article
  15. For instance, see Tami Luhby, “Trump has promised to protect Social Security. His proposals could lead to benefit cuts in 6 years,” CNN, Oct. 21, 2024.

    View in Article
  16. GAO, “Information technology: Agencies need to continue addressing critical legacy systems,” May 10, 2023.

    View in Article
  17. Mauricio Garcia, Annie Adams, and Austin Buit, “2024 MarginPLUS study: Refocusing amidst uncertainty,” Deloitte, March 2024.

    View in Article
  18. Indermit Gill, “The hidden $1 trillion: Halting waste in public procurement,” World Bank Voices Blog, Jan. 19, 2022. 

    View in Article
  19. Microsoft, “Transforming government efficiency and mission delivery,” Jan. 30, 2025. 

    View in Article
  20. Mark Say, “Swindon develops GenAI for Easy Read documents,” UK Authority, Dec. 1, 2023.

    View in Article
  21. GovTech Review, “DTA releases report into whole-of-government trial of GenAI,” Oct. 28, 2025.

    View in Article
  22. Brazil National Treasury, “National Treasury launches PagTesouro portal – GRU,” Nov. 22, 2023.

    View in Article
  23. IDC Corporate (IDC), “IDC forecasts $100 billion healthcare savings in Asia/Pacific with GenAI by 2025,” press release, Jan. 23, 2024.

    View in Article
  24. InterSystems, “A case study on North Tees and Hartlepool NHS Foundation Trust with InterSystems TrakCare,” PULSE Blog, June 14, 2023.

    View in Article
  25. National Association of State Chief Information Officers (NASCIO), “The Ohio Benefits Program is ‘BOT’ in,” August 2022.

    View in Article
  26. Mochamad Azhar, “President Jokowi launches GovTech Indonesia, INA Digital, to transform Indonesia public services,” GovInsider, May 29, 2024; Mochamad Azhar, “Indonesia plans limited release of INA Digital Services,” GovInsider, Sept. 4, 2024.

    View in Article
  27. Nick Wakeman, “IBM prevails in fight for $100M Navy HR contract,” Washington Technology, April 2, 2024. Also see Robert N. Charette, “Inside the hidden world of legacy IT systems,” IEEE Spectrum, Aug. 28, 2020.

    View in Article
  28. Vikas Kumar, “‘47 years target met in 6 years’: World Bank praises India’s digital public infrastructure,” The Economic Times, Sept. 8, 2023.

    View in Article
  29. Dan Lips, "Preventing fraud and spending in government programs: An Interview with the Program Integrity Alliance’s Linda Miller," Foundation for American Innovation, Jan. 6, 2025.

    View in Article
  30. GAO, “Fraud risk management: 2018–2022 data show federal government loses an estimated $233 billion to $521 billion annually to fraud, based on various risk environments,” April 2024.

    View in Article
  31. Independent Commission for Aid Impact (ICAI), “Rapid review: Tackling fraud in UK aid: Country case studies,” March 26, 2024.

    View in Article
  32. US Internal Revenue Service (IRS), “Joint Chiefs of Global Tax Enforcement: About us,” last updated March 6, 2025.

    View in Article
  33. Cabinet Office and Baroness Neville-Rolfe, “New counter fraud team saves taxpayers £311 million in first twelve months, beating target by more than £100 million,” press release, GOV. UK, Nov. 13, 2023.

    View in Article
  34. US Department of the Treasury (Treasury), “Treasury announces enhanced fraud detection processes, including machine learning AI, prevented and recovered over $4 billion in fiscal year 2024,” press release, Oct. 17, 2024.

    View in Article
  35. Ayang Macdonald, “India G20 Task Force report defines course of global DPI development,” BiometricUpdate.com, July 16, 2024.

    View in Article
  36. Higher Ed Dive, “A look at trends in college consolidation since 2016,” updated April 22, 2025. 

    View in Article
  37. Doug Lederman, “From 3 struggling public colleges, a new university emerges,” Inside Higher Ed, Aug. 23, 2022. 

    View in Article
  38. Vermont State University, “Vermont State University sees enrollment boost as it starts its second year, welcoming nearly 1,700 students in the class of 2028,” press release, Sept. 5, 2024.

    View in Article
  39. Jessika Harkay, “CT community colleges will merge into single institution on July 1,” CT Mirror, June 23, 2023; Crystal Elescano and Richard Chumney, “CT State Community College had over 32,000 in its first year, here’s where most students are from,” CT Insider, Sept. 9, 2024. 

    View in Article
  40. Government Accountability Office, “2023 Annual Report: Additional opportunities to reduce fragmentation, overlap, and duplication and achieve billions of dollars in financial benefits,” June 14, 2023.

    View in Article
  41. US Department of Health and Human Services (HHS), “HHS data center optimization multi-year plan 2023–2026,” Nov. 16, 2023. 

    View in Article
  42. GAO, “2022 annual report: Additional opportunities to reduce fragmentation, overlap, and duplication and achieve billions of dollars in financial benefits,” May 11, 2022.

    View in Article
  43. SAP News, “UK government’s Unity Cluster selects RISE with SAP for ERP cloud transformation,” press release, Nov. 15, 2024.

    View in Article
  44. Lionel Lim, “The CEO of the just-privatized Air India describes how tough it was to turn around a 91-year-old airline: ‘The first 6 months was really triage’,” Fortune, Feb. 28, 2024.

    View in Article
  45. Anil Agarwal, “Privatized Air India’s takeoff can lead other PSUs to thrive as well,” Mint, March 22, 2023.

    View in Article
  46. Sukalp Sharma, “Air India, Singapore Airlines announce successful completion of Air India-Vistara merger,” The Indian Express, Nov. 13, 2024.

    View in Article
  47. Alliance for Value-Based Patient Care (AVBPC), “Value-based care transforms health,” September 2023.

    View in Article
  48. Government of Canada, “Overview of real property holdings in federal operations,” April 9, 2025.

    View in Article
  49. Canada Mortgage and Housing Corporation, “Canada to convert a federal building into affordable homes in Belleville,” Feb. 15, 2024.

    View in Article
  50. Government of Canada, “Reducing office portfolio over the next 10 years,” March 21, 2025.

    View in Article
  51. Jory Heckman, “GSA sees ‘huge opportunity’ to cut federal office space by up to 30%,” Federal News Network, Nov. 14, 2023.

    View in Article
  52. Christopher T. Mann, “Base Closure and Realignment (BRAC): Background and issues for Congress,” Library of Congress, April 25, 2019.

    View in Article
  53. Government of Ontario, “Poverty reduction strategy (2023 annual report),” April 9, 2024.

    View in Article
  54. GOV.UK, “Universal Credit,” accessed Nov. 15, 2024.

    View in Article
  55. Claus Thustrup Kreiner and Michael Svarer, “Danish flexicurity: Rights and duties,” The Journal of Economic Perspectives 36, no. 4 (Fall 2022): pp. 81–102. 

    View in Article
  56. Einar H. Dyvik, “Number of social benefits recipients in Denmark 2012–2022, by national origin,” Statista, Aug. 23, 2024.

    View in Article
  57. David Betts, Julia Elligers, and Alison Muckle Egizi, “Teaming up to deliver whole health,” Deloitte Insights, March 23, 2023. 

    View in Article
  58. Kulleni Gebreyes et al., “Addressing the drivers of health,” Deloitte Insights, Nov. 5, 2021.

    View in Article
  59. Kimberly Amadeo, “How preventive care lowers health care costs,” The Balance, Oct. 28, 2022. 

    View in Article
  60. C. Annette DuBard and Alex Mullineaux, “An update on the financial impact of value-based care innovations in North Carolina,” North Carolina Medical Journal 84, no. 1 (Jan. 10, 2023).

    View in Article
  61. Tsung-Mei Cheng, “Bending the cost growth curve and expanding coverage: Lessons from Germany’s all-payer system,” Milbank Quarterly 98, no. 2 (Feb. 28, 2020): pp. 279–96.

    View in Article
  62. Centers for Medicare & Medicaid Services (CMS), “Maryland Total Cost of Care Model: Evaluation of the first four years (2019–2022),” 2024; also see Greg Peterson et al., “Evaluation of the Maryland Total Cost of Care Model: Progress report,” Mathematica, April 8, 2024.

    View in Article
  63. Child First, “Nurse-Family Partnership overview,” October 2022. 

    View in Article
  64. US Food & Drug Administration (FDA), “The real cost: A cost-effective approach,” Aug. 20, 2019. 

    View in Article
  65. The executive’s participation in this article is solely for educational purposes based on their knowledge of the subject and the views expressed by them are solely their own. This article should not be deemed or construed to be for the purpose of soliciting business for any of the companies mentioned, nor does Deloitte advocate or endorse the services or products provided by these companies.

    View in Article

Acknowledgments

The authors would like to thank Sara Siegel, Alex Claybrook, Angela Choi, John Byrne-Nash, Gustav Jeppesen, and Walter Porter for providing feedback and suggestions at critical junctures, as well as Nicole Savia Luis for research support. In addition, the authors would like to thank Robert Watt for his valuable input in the “My take” section.

Cover image by: Sofia Sergi; Getty Images; Adobe Stock