Monday, 27 April 2009

Operational in-Efficiency Report

Snuck out on the morning of last Wednesday’s budget statement was the 92-page final report on the Treasury’s Operational Efficiency Programme. In theory the 20-odd pages on Back Office Operations and IT should have made for interesting reading as it seemingly identified some £7.2b of savings.

However, those readers that take the time to view the document soon realise that the document merely supports the setting of targets for saving of some £4b on back office operations and £3.2b on IT, with no detail or outline plans for how those savings will be made.

Even worse, the paper identifies that Central Government doesn’t know how much it spends on back office operations and IT, let alone how such expenditure compares with the private sector. Indeed, the findings summary states that “examination of back office operations and IT has focused on the need to improve the collection and integration of management information into departmental processes, and to introduce benchmarking and performance reviews. [The] work on IT has aimed particularly at better governance of IT-enabled projects, and greater standardisation and simplification of IT across the public sector.”

Estimates of expenditure on IT across the wider public sector vary from £12.5b to £18.5b – let’s say it’s £16b – against which we must be able to make some savings – let’s say 25% - giving savings of £3.2b – that’s sounds OK - let’s go with that. (I believe that the authors could have been far more scientific, but in practice they must have been stymied by the lack of any meaningful financial information on the real costs being incurred).

The report hints at the types of savings that can be made by the use of shared services and outsourcing, but makes no commitments to the introduction in any named areas. As ever, decision seem likely to be left with the departments and organisations themselves, with no clear plans other than to start measuring how much it really costs now.....

Although the OEP report indicated that it had found it difficult to get information on costs within Local Government (“it is hard to conduct a detailed analysis of this expenditure as it lies in a very devolved landscape”), I believe that local authorities have a much better handle on their costs that central government bodies. Last Thursday at Socitm09, Tony Travers suggested that the OEP report effectively increases the 3% Gershon target for savings to 4% for Local Government. Hardly challenging in the current environment, and I would not be surprised to see this raised further by a new government.

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