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Cost Recovery Strategies in the "New Normal"


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Budget cuts are the "new normal" for the foreseeable future, as agencies consider multi-year cost reduction strategies. To continue serving constituents and agency missions despite reduced funding and growing uncertainty over the coming fiscal years—how prepared is your organization to make sustainable cuts?

Audio file:

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Guests:

  • Janet Hale, Director, Deloitte Consulting LLP and the former Undersecretary of Management at the Department of Homeland Security.
  • Joann Boutelle, Lead Client Service Partner for the Department of Defense, Deloitte & Touche LLP and the former Deputy Chief Financial Officer at the Department of Defense

Show Highlights:

  • Impact of cost reduction on federal agencies in the coming years
  • Practical steps agencies are taking to cut costs that do not compromise essential service levels
  • Sustained cost reduction
  • Lessons learned from the private sector— re-emerging from an economic downturn

Transcript

The following is a full transcript of an interview with Janet Hale, Director, Deloitte Consulting LLP and Joann Boutelle, Partner, Deloitte & Touche LLP, conducted by Jane Norris, on June 1, 2011. To hear full interview, go to http://www.deloitte.com/us/fedcentral.

Jane Norris
Hello and welcome to FedCentral on Federal News Radio 1500 AM brought to you by Deloitte; a program where executives and federal government leaders talk about the issues and initiatives that are making a real impact on the business of government today, to help government help America.

Today, we're going to talk about something that really all of America's talking about, and that's the budget and new budget realities and cost recovery strategies that the federal government will need to employ in order to meet their new mandates. Joining us today we welcome Janet Hale. She's a director with Deloitte Consulting and a former undersecretary of management with the Department of Homeland Security. Also here, is Joann Boutelle. She's a partner with Deloitte's DoD practice and former deputy chief financial officer at the Department of Defense. Ladies, thank so much for being here.

Janet Hale
Thanks, nice to be here.

Joann Boutelle
Thanks, Jane.

Jane Norris
Great to have both of you. So, you’re both former senior- level managers within the federal government, and of course, you're senior-level managers at Deloitte, as well. So here's the new reality. The government landscape, just like, I think, everything that we're going through today, everything the country is going through today, is looking at cost reductions, ways to maximize what they do for the American people but to really measure the kind of investments that they make and go through some cost reductions and changes in the way that they handle their mission. So tell me how the government you know, based on your years of experience — how does the federal government accomplish this? Joann?

Joann Boutelle
Well — well, Jane, it's not one of those easy answers or they would've already done it, right? So this is very difficult. I think that first of all, we have to understand it's the — the new norm doing — there — there's just not enough money to — to continue to pay for everything that — in Department of Defense's case, which is where I had my experience — that — that they've been doing. So they have to start making some bold cuts. You know, President Obama's looking to cut the budget at DoD what — I think the latest number was somewhere around $400 billion over the next several years. What — that's — that's a lot of money, and so there's going to take some bold changes to make that happen, and — and that's going to require top leadership involvement and top leadership making some tough decisions. This isn't something that can be done through a budget drill. In the past you know, you get a cut in your budget of 5-10%. The components look for where to take that cut, and they don’t always make the cuts based on strong business cases. They make them on where it is the easiest place to cut and keep moving. That's not going to be the case going forward. That — those are short term risk and long-term risk that — that are going to be factored into these decisions on which weapons systems that they're — they're not going to continue to procure, what business processes that they're going to have to change, what systems they're going to implement. Are they going to consolidate organizations or not?

So I guess kind of the bottom line is that this you know, has Secretary Gates focus on it, and he's been driving it since last year. You know, it's going to need to continue with that level of involvement for this to be successful is — is my view.

Jane Norris
Senior-level leadership.

Joann Boutelle
Absolutely, it's critical.

Jane Norris
So, in civilian agencies, Janet, similar?

Janet Hale
Absolutely, and I think they face the pressures over the years, but I think this one is so much more intense as the budget deficits have gotten — just spiraled. So, it's both senior leadership. It's a dedication of a group of people. It can't just be a human capital or a CFO, as Joann said. It's really got to be let's make the right business decisions, and then let's make sure we've got processes, governance processes in place to be able to execute, not just from the plan but all the way through. It is hard to do this. It is pretty easy to get the business case done but much harder to what's the details behind it. How many different factors in the departments or in the agencies and how do we be sure we do that without harming the — the services to the, as you referenced, the American citizens that are — are expecting this program, so — these services. It's really a lot about a team of people driving the change with the leadership Joann talked about but with the execution strategy around it, and then how do you capture it.

Jane Norris
All right, so let's talk about some of the change that has to happen. There are changes that are occurring, I think, a lot of them around new technology just because technology allows more functionality. So how does that impact? I mean, there are costs associated with that, but there are obvious savings that come at the end of those kinds of transitions. So how does that impact agencies?

Joann Boutelle
Well, up to this point, DoD is very — has a lot of processes that are very what we would say transactional level. So a lot of paper that still moves, a lot of people involved in processing those transactions, so whether it's the order to pay process or the hire to retire process, a lot of people involved. So to eliminate the people, which is where the biggest cost usually is in the non-weapons system areas requires them putting some technology in place. So better systems, more integrated processes in those systems to where — and when I say that, I mean you know, today they have systems, but many times, they are stovepipe systems and they interface as opposed to — to actually being an integrated system with the right controls in place that will eliminate the — the people having to do so much of the checking. So I think technology enhancements are going to be really important going forward to gain some efficiencies. I think one of the things DoD's looking at that I think is absolutely the right thing to do is the data center consolidations There's — that's the perfect example of redundancy that — that is happening across the department. So huge savings there I would imagine. The cloud — you know, we — we hear about the cloud a lot, but in DoD, that's another opportunity for the components to take advantage of services as opposed to everybody buying their own. So I think the toe technology area, there’s many, many opportunities there.

Having said that, there's also some fundamental things that they need to put in place for that to happen. So they need to have a better standard architecture, and I know, you know, the business enterprise architecture — they been working on that for years and that's been moved up now with the deputy chief management officer, which I think is a — a great place for that to be. She'll make sure that across the department that there's some discipline put in place, but that's going to be a critical piece of driving these systems that are going to be needed to — to give the business intelligence that's going to — to be needed for better decision-makings going forward. So technology I think you'll see a lot of positive moves in.

Janet Hale
Absolutely agree, and I think one of the big changes is not necessarily just the big bang. Have I got a grand, new, big system for you. So you talked about the enterprise architecture. I think you have to be sure you have real requirements that are clearly defined and then usable segments. So sort of saying it's a 20-year modernization effort or a 10-year modernization. We've watched too many of those systems fail. So getting to be more agile, more flexible, and understand technology is changing so fast that a 10-year — excuse me — 10-year technology program might need to be done and what can I get done, what brings bang right now, and how can I be sure I'm not 10 years from now working on the same system? So it's both the enterprise architecture, it's the requirements, and it's usable segments I would say.

Joann Boutelle
You know, Janet, I think you're absolutely right. I think we've — we've — we've learned enough over the years to know that these big system efforts usually fail or produce minimal benefits compared to what the business case would've started out with, and I think whether you're talking to technology or you're talking some of the other process changes that they're going to need to put in place, doing it in incremental approach gives them an opportunity to get some quick wins, as well as making sure they're on the right course. They just need to define the bigger plan, and then implement it in incremental pieces.

Jane Norris
You're listening to FedCentral, sponsored by Deloitte. So there have to be more things that the government is looking at beyond technology improvements, which is a major factor, but you mentioned before human capital and real estates, some of the other issues that — that might come up and might be a factor in giving them more cost efficiency. So — so give us kind of an order, if you would, Janet. Give us an order of importance, if there is such a thing.

Janet Hale
Interesting question. I am not convinced that there is. Every agency, at least in the civilian side, has a  different set of challenges. So I think looking at all the suite of what are the back office costs that are driving the front office mission support. So, improper payments have to be the number one thing. We should not be spending money that is not according to the law of the regs and sort of you can look at program after program that continues to face those challenges. So I'd say cleaning up improper payments. People expect that, and I know agencies are working on. It's been a big push from the Obama Administration.

But I think there's some, as you referenced, some other costs that people need to start looking at. In an era of a new agency's program review, do they still need their real estate in all those locations? Tele work is occurring; is any of that applicable? How do you sort of look at this sort of the 21st century and what might work for both our real estate costs? If leases were negotiated ten years ago, what's the market like today after the last two years of economic meltdown in some of our locations across the country. So you could look at real estate. 

I think one of the things, as I talked to federal agencies that people haven't spent as much time on is looking at some of those other cost drivers. Is the federal government paying taxes that they’re not supposed to on fuel taxes, on telecommunications? We see the private sector getting significant savings in some of these other costs areas, so I would say it's not one. It's a series of looking, by agency, what have they done, how can they sort of accelerate it and capture some of those savings.

Jane Norris
True for DoD as well, Joann?

Joann Boutelle
Oh, absolutely, and — and you know, you talk about the taxes. The one that always interested me was around the hotel tax when — when folks would travel, right? So many time they would be charged a tax and that amounted to millions of dollars but very difficult to get back because of the way that the structure was set up to represent the individual traveler, so a huge opportunity there to recover some money. I think — now, I'm — I'm in agreement with what Janet said, absolutely.

Jane Norris
And real estate for DoD?

Joann Boutelle
Well, you know, I think that we need to re-look at where we have our bases and — and do we still need them there? I mean, we got some great, beachfront property that — that maybe needs to be looked at that you know, they could — could get going dollar value for that. They might cover some of these deficits or maybe sell the Washington Monument or lease it out.

Janet Hale
I tried that before, Joann. It did not work.

Joann Boutelle
Just a thought.

Jane Norris
A favorite cause of my former colleague, Mike Causeo. He would always talk about the Washington Monument.

We'll be back in just a moment. We're going to have more on budget reductions in the federal government and how they are realized. You're listening to FedCentral on Federal News Radio 1500 AM. I'm Jane Norris. We'll be right back.

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Jane Norris
Welcome back. This is FedCentral brought to you by Deloitte, and we're talking today about cost recovery strategies in the new normal. Federal government like probably the rest of America, maybe even the rest of the world is going through a new budget reality and so how do agencies accomplish their mission and still achieve cost efficiencies? Talking today to Janet Hale. She's a director with Deloitte Consulting and former undersecretary of management with Department of Homeland Security, and also here, Joann Boutelle. She's a partner with Deloitte's DoD practice and former deputy chief financial officer at the Department of Defense.

So in the last segment, we talked a lot about the things that could be accomplished and some of the ways that cost efficiencies could be realized, but how do agencies make the determination about which of these — which of these you know, methodologies they can use to get where they need to be? How do they make that determination?

Janet Hale
So at least on the civilian side, and I would bet it's the same on the defense side — part of it is you have to look at your programs and how you're — how you’re delivering them, and I come out of the Department of Homeland Security, and we've talked a lot over the last eight years about risk-based programs. So are there new programs, new ways to deliver, whether it's TSA services and screening? What's the — what's the risk-based approach that might be able to change some of those fundamental programs? How much risk is a federal agency and a front-line federal employee willing to take? Getting those kinds of risk-based program reviews, I think, is incredibly important, and then do the same thing on some of the other programs. If you've had a housing program for the last 50 years, are there new programs that you can deliver the services to the front line recipients but are there more efficient, more effective ways? How can you take costs? 

So I'd say the two are taking a fresh look at the programs that you're delivering to be sure we've actually looked at those from the front end to the back end and absolutely in this world of terrorism and the front line challenges that our men and women face every single day. What can we do that still protects the American people that has a risk- based approach to it?

Jane Norris
So how do agencies like the Department of Defense go through that kind of analysis? I mean, do they do it on a regular basis or is this something new?

Joann Boutelle
No, it — I mean, it's not new. I mean, they — Department of Defense goes through and looks at their mission. Remember you know, so they're in the defense business, right? So — so what Janet talked about talking about the— the different threats. They evaluate the current threats and perhaps new threats that they have intel about and they factor those in and what do we need to do as the Department of Defense to protect our country and our people and our way of life, and then they lay that out and then they figure out what they're going to need to support that; weapons systems and other infrastructure and so forth. So I think Janet's right in that you — you've got to look at it from a risk point of view and what other resources are available so you know, some of the partner nations. You know, what can — can they bring in to this discussion, and then what does Department of Defense have to contribute.

Now, you know, I think it's pretty obvious that we can't continue to — and Secretary Gates has said this. We can't continue to buy all weapons systems that we would like to buy and have to make some tough decisions.

You know, the Department goes through a process when — when they're making these kinds of decisions, looking at not only the risk but you know, where to best use the money. What they're not good at is — is developing a really strong business cases, and that's where they have to look at where's the money that they’re spending today? What are the requirements for — the current requirements in going forward, and then you start making some tradeoffs. You — you can't do everything and that — those tradeoffs have to be well-informed and they have to be done with some business case information and data behind them, and so that's going to be critical. These are not small changes that are going to be needed. These are huge, bold changes that are going to be needed.

Janet Hale
And — and I would add to what Joann's just said. If you're making a risk-based approach, whether it's about technology or systems, those have implications for the type of people you need, the type of skill sets you'll need, the number of people. So it's an integrated look, as Joann's talked about the business case. It's about what's the program mission, what's the technology requirement, what's the impact on people, how’s the changing workforce? What do we need to do to be sure that we've— you know, if we need to sort of change the workforce, what are those implications? All of those have huge cost implications, so it's looking at that whole compendium of front line mission and then those support services that go to support that.

Joann Boutelle
You know, this isn't a — based on what Janet was just saying there, just thought I'd add in. This isn't different from what large companies do. You know, they have different drivers, right? So, they have bottom line drivers where you know, profit kind of drives the day. So they often look at acquiring a new business or divesting of a product line or a piece of their business to improve how they go to market and they go at this in a very deliberate process of again, looking at the levers and what will make the biggest impact on their bottom line. That's kind of what we're saying that DoD needs to do. They need to use similar approaches, methodologies, to determining what they should be changing and how they want to look in the future so that they — whether it's reorganizing, whether it's divesting of pieces of the organization but that they're making those decisions based on a proven type of methodology that works very well in the private sector.

Jane Norris
I think the Obama Administration really does what to learn from the private sector, learn what has worked well in the private sector and see if it's applicable to the federal government and to government agency operations. Is that — is that your feeling, Janet?

Janet Hale
Absolutely, and I think there are lots of great examples. If you look at the banking sector, one of our critical infrastructures in the United States, and you can look at how much money have they been able to take out of their technology, for example. Large global banks have been able to do that, but still putting security apparatus in place to be sure that they're not hacked. There's a big business risk for having cybersecurity or cyberthreat come in and hack a — an international banking center. So I think there are tremendous examples about how the private sector, whether it's from their IT, from their real estate — how have they attracted and addressed the sort of threats of cybersecurity. Those are great examples about sort of
being brought into the federal marketplace and to the federal agencies, and I have never had an agency person say to me, “I don't really care about the private sector. I have much more on the other side. Tell me how I can do it more efficiently. Tell me what the private sector — what are those leading-edge sort of opportunities that I can bring into the federal agencies.”

Joann Boutelle
Yeah, and I feel compelled to bring up the challenge the Department's going through at getting their financial records in order and getting ready for an audit. I think they're projected out that they believe they'll be ready in 2017. Again, on the commercial side, it is expected you know, that a — these large corporations will have unqualified audit opinions, and part of that is to make sure that they're financial data is fairly presented on the financial statements and reliable. So within DoD, you know, one of the things that we've seen is they are working very, very hard towards their 2017 date is that they have — they have achieved some significant savings in some of the organizations from having done some financial remediation. I mean, there's one that's — that identified close to $400 million and there's been others that have in the millions of dollars that they've identified that becomes funds that are able to be reused that might have been canceled or at least gone undetected had they not gone through this very, very important drill of getting their financial house in order.

Jane Norris
To that extent, I think it's important to do that before the money goes out the door because once it goes out the door, I'm sure it's harder to chase. You were talking about you know, getting money back from — from hotels for — for taxes paid, so I mean that's — that's a more difficult stretch, so you've got to do some sort of analysis up front in order to determine whether there are payments that are— that shouldn’t go out the door.

Janet Hale
Absolutely, there are — there are methodologies that agencies and processes agencies can put in place to be at the front end before you write that check to the recipient, and I think sort of doing very significant sort of — doesn't slow down the payment to a disaster victim as we've — as we've watched across the country, but being sure they're putting the analytics in place, the rules, understanding what are the payment rules and there are numerous techniques that the private sector has used, and I think many in the federal sector are now learning. How can I be sure that I'm not making those large improper payments? The first part is, understanding what the rules are. You can use technology to be able to detect that this one looks strange. Let's just put it in a queue that means the check doesn't go out today. It may go out 12 hours later 'cause I've needed to do a more thorough review of what — is that an appropriate person? Is it an appropriate company? So stopping those improper payments are incredibly valuable as a way to sort of stop the sort of hemorrhaging in the federal government.

Jane Norris
So that's a data analytics model, more or less, that — that they're actually going through and analyzing. I'm seeing — I'm seeing no, that's not what that is.

Janet Hale
Well, it is, but I think it is — it is also let's be sure we have the processes in place that sort of say, here are the rules. So it's a rules-based sort of process. It sort of says, don't cut that check. I — I use the term, and probably Joann, we all use data analytics in a slightly different way. I like to be sure that I have the data in front of me to make those right businesses, and sometimes you have to go down into the bowels of the building to understand what the data really means, are you using the same processes and the same words. So I think there is — data analytics is certainly a part of it, but it's also being sure that you've got processes in place that do not allow the check to be written until.

Joann Boutelle
Yeah, I would add to — to what Janet's saying is controls. Controls, controls, controls. Very important in these processes. Technology can certainly help because if you take the human element out of it and — and you — you have a — a system that will — that will do a repetitive process with the right controls, then the reliability will go up, but there are other controls that can be put in place. So very important to have the controls in place in these business processes, and then to have documentation and other things to support it.

But I guess what I'd like, you know, everybody to really be thinking about is getting more top-level management involvement. It takes driving these bold changes from the top down and staying on top. So you can come up with great ideas. You can put plans together, but to implement them and make sure that the results are what you wanted, you've got to have the senior level people involved in tracking this and folks reporting to them, or it won't get done.

Janet Hale
And I would add to what Joann said. I can't agree with it more. There are only so many hours in a day and being sure that they have people that are dedicated to his with sort of their support because if you're trying to do your day job and answer to the congressional — the hill or to the press or to the citizens that demand the services, I think we need to be sure that we've got management support throughout the process.

Jane Norris
Well, I think it's been very enlightening, and I'm sure this is a topic we'll be talking about a lot more, but thank you very much for joining us today. Janet Hale, director with Deloitte Consulting, former undersecretary of management with the Department of Homeland Security and Joann Boutelle, partner with Deloitte's DoD practice, former deputy chief financial officer at the Department of Defense, and thank you all for listening. You have been listening to FedCentral on Federal News Radio 1500 AM.
I'm Jane Norris. Join us again.

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