Spend To Save – But Make Sure You Save

Many projects are predicated on spending money now in order to save more money in the future. Combining functions and incurring the “one-off” costs of outsourcing particular non-core aspects of a business are typical examples. This is common in private and public sectors alike but a report by the UK’s National Audit Office (NAO) that looked at the effectiveness of such cost-saving projects across government departments since from 2004 to 2011 makes for some scary reading.

Of the five projects that the report looked at there was a cost over-run of some £500m taking the total to £1.4b. Such large numbers may be acceptable providing the savings made are sufficiently large and, just as importantly, the impacts of implementing them are small (so that they don’t detract from the day-to-day business of government).

On the first point of savings made the report is pretty clear. Of the five projects there had been a saving of just £159m overall. This is hardly a Return On Investment (ROI) to write home about and some projects were costing more than they were saving. The five projects concerned were not being managed as a whole (programme or portfolio even).

On the second point of not unduly impacting day-to-day government business the report is less clear. It does, however, describe how the shared-services that were brought in to reduce costs for government departments (we’ve all heard the phrase “back-office functions”) were not made compulsory and were overly tailored to meet individual departmental needs. One can only imaging the time taken up in meetings and briefings by senior managers and their staff in agreeing such tailoring and arguing why what they did required specific changes to be incorporated into the final solution. The opportunity cost in time taken away from the real business of government must have been considerable.

The NAO report itself is well worth reading (it can be downloaded from the NAO website here). It covers a lot of detail and each of us will take something from it based on our own background and experience. There are a few points that I think need to be brought out more strongly when looking to implement a change project that has as it’s raison d’etre the need to reduce costs.

  1. Understand the cost base from which you are starting and set a percentage return that has to be achieved.
  2. Include the cost of under-taking the project in all estimates and continually monitor.
  3. Know what you need to achieve in order to declare the project a success – in other words, benefits management.
  4. If it is decided that a common approach can bring savings then make it compulsory for all with no tailoring allowed at all. Intelligent people can always put a case forward to justify tailoring but these need to be stamped on from the start.
  5. Above all, extremely strong management of the project as a project that will reduce costs by changing the status quo and overt sponsorship from the top of the organization.

No-one has ever said that introducing changes into an organization, whether private or public, is easy but one that is meant to reduce costs must do so and not unduly impact on the ability of the organization to carry out its core business. Unfortunately, this fundamental seems to have been lost on some people based on the NAO’s report.

Picture courtesy of www.pictfigo.com



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