Cabinet Office & Treasury Score Own Goal with “Catch 22”: More Myths, Realities & Escalating Risks?

English: Francis Maude MP, Minister for the Ca...

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English: George Osborne MP, pictured speaking ...
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Regular readers of this blog will know that I have repeatedly highlighted the increasing likelihood of failure from Local Authorities relying on Shared Services programmes to achieve draconian cuts in budgets (mandated by the Coalition Government). Last week, I  cautioned against spending another £5 Billion on capital investment, citing the Government’s capacity to avoid the next omnishambles. Most of this year, I have also been leading a campaign to get the Cabinet Office to reverse its Catch 22 policy  which, in my view and that of many colleagues, is not in the national best interest. The Rt. Hon. Francis Maude MP, Minister for the Cabinet Office and Paymaster General has claimed that the Government’s Catch 22 controls over independent executives, consultants and contractors has saved circa £1 billion. Unfortunately, the reality, highlighted this week, is that the Catch 22 policy is a fatal own goal, with circa £3 billion plus of cost savings at increasing risk of delay, overspend and failing to meeting their policy objectives. The Government’s flagship welfare reform programme is just the latest casualty. Before examining welfare reform, let me highlight the likely consequences of Catch 22:

  1. Cost reduction targets by the Public Sector for innovation and processes improvement are likely to be missed, so that the swathing budget cuts will increasingly fall on front line services
  2. Opportunities to cut waste in benefits and other public services will be missed or delayed years, putting more pressure on tax payers
  3. Public Sector workers are increasingly likely to take industrial action, with its associated impact on service and quality
  4. The UK’s once proud and World beating independent executive and contingency labour sector is likely to be permanently weakened, with many top quality independent executives exiting the industry, retiring or going overseas. The same entrepreneurial independent executives could have helped the Government achieve both Public Sector Cost Reduction and Private Sector growth but sadly the opportunity is likely to be permanently lost. 

Now let’s take a closer look at this week’s news about the Government flag-ship welfare reform programme:

If the Department of Works & Pensions (“DwP”) (which represents twenty-three percent of total public spending) is seriously at risk of not achieving targeted cost reductions what chance is there for the rest of the Public Sector? DwP is often heralded as one of the best-managed departments. Unfortunately, this time DwP is also critically dependent upon HMRC to deliver a new real-time system to an extremely tight time schedule. Why didn’t implementing an enormous, cross-departmental IT programme, at the same time as savage head-count reductions, plus Catch 22 sound alarm bells? Also why were simplistic assumptions about the number of claimants with access to the internet not independently validated?

At the moment, Chancellor Osborne’s A Plan is looking increasingly at risk. It seems that the Government’s reform agenda was never properly challenged by top class professionals, like independent executives. Without independent validation of bottom-up costings and risk assessment, such an ambitious reform agenda is like a run-away train – a crash waiting to happen. Of course, the Government still has many consultants in play (despite Catch 22) but their independence, objectivity and track record gives some room for concern. Let’s take a helicopter view of the emerging scenario:

  1. Public Sector cost reduction is increasingly likely to give way to cuts in front-line services, as reality replaces myths and risks crystalize
  2. Government policies to stimulate private sector growth have been far too weak and ineffectual. The Government has consistently failed to stimulate short-term demand, especially investment, as increasingly strongly advocated by the IMF and OECD.
  3. Increasing downside risk on global growth and from the Euro crisis has meant that Plan A’s assumptions are now increasingly buried in sand.

What will Chancellor George Osborne do next? Because of his relative inexperience prior to becoming Chancellor is he perhaps unduly sensitive to changing direction?

I suppose what worries me most is the absence of joined up thinking and holistic planning across the Coalition Government – surely this is both dysfunctional and wasteful (see the Cabinet Office’s update of pan-government plans)? For clarity, let me quickly recap on what I regard as the Public Sector reform life cycle (this is quite different to Best Practice in the Private Sector, as I have previously described):

  • Outline reform agenda (manifesto, Coalition agreement)
  • Outline policies (Green & White Papers)
  • Define policies and provide way forward (Bills and Acts of Parliament)
  • Define strategy
  • Delivery
  • Post implementation review

I struggle to understand the Government’s detailed strategy, especially on introducing innovation in the Public Sector. One of the Government’s senior strategy consultants is McKinsey. By chance I noticed that McKinsey were citing Kenya and Georgia as Best Practice exemplars for innovation in government, arguing that a willingness to take bold risks can make government services better and cheaper.

The Coalition Government are, of course, taking enormous risks but I am concerned with the effectiveness or robustness of risk mitigation – this is different to the pan-government risk register sponsored by the Cabinet Office and the Treasury.

My advise to the Government is simple. For cost-effective risk mitigation on Public Sector transformation programs, deploy independent executives client-side on both strategy formulation and delivery phases.

£5 Billion UK Capital Investment: Avoiding the Next Omnishambles?

Project Management main phases

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A. INTRODUCTION – IN THE NEWS THIS WEEK

According to the BBC this week, UK Ministers are considering a £5 billion capital expenditure boost to the UK economy. Meanwhile, the week has highlighted examples of very poor value for money from Public Sector capital expenditure programmes. The Public Accounts Committee (“PAC”) published its report into the FiReControl project in which £500 million was squandered. Also the Daily Telegraph has highlighted that patient care at sixty NHS hospitals is on the “brink of financial collapse” as a result of the PFI fiasco. The Private Finance Initiative – a kind of sale & lease back of capital expenditure introduced by former Chancellor George Brown on the advice of consultants. PFI provides poor value-for-money for taxpayers but is good for PFI investors, investment bankers and consulting advisors.

This week the IMF has more forcefully recommended that the UK Government should switch to short-term fiscal stimulation, citing lower financial costs and the deteriorating global outlook. Since the Summer, I have seen more and more focus on increased capital expenditure as an important lever to increase demand (including the IMF and OECD). Capital expenditure has an important multiplier effect of more than three times, so it is potentially three times more effective than simple consumer demand stimulation. Since the beginning of the financial crisis, it is capital expenditure that has collapsed more than any other component of GDP, in both housing and non-housing housing. It would make better sense to stimulate more capital expenditure at say the expense of further Public Sector contraction.

Let’s take a look at some old horse-chestnuts highlighted by the PAC report on the FiReControl project. These included:

  1. Project rushed
  2. Poor cost & risk control
  3. Weak project management
  4. Ineffective leadership
  5. Massive over dependency on consultants
  6. Very weak contract management
  7. Limited accountability
  8. Inadequate power base to drive transition
  9. Weak stakeholder management
  10. Turn over of senior staff

B. THE CONTEXT

Individuals and small business capital expenditure has been blocked by the shortage  of finance from banks. Meanwhile, large corporates are sitting on mountains of cash and are preferring the safe option of returning cash to shareholders or reducing debt, rather than investing in capital expenditure. The Public Sector has been focused on cutting costs, and Cabinet Office centralization of decision-making has made capital expenditure more difficult. It seems that the Government now recognise that Public Sector capital expenditure is a powerful tool for kick-starting growth in demand (this view has been expressed strongly by Liberal Ministers this week at their national conference). 

Under the previous Labour Government, the Office of Government Commerce (OGC which has now been subsumed into the Cabinet Office) invested very heavily in Best Practice for Projects, Procurement, Change Management etc. Consultants were engaged to draft policies and procedures for the OGC, and different consultants were engaged to monitor progress at Gateway meetings. Frequently, programme sponsors engaged consultants to help them get through the Gateway process.  It is not clear whether the Cabinet Office is still promoting former OGC Best Practice as a large part of the documentation is up for policy review.
 
In a nutshell, in my view, OGC/Cabinet Office prescriptive Best Practices, often supported by armies of consultants and contractors, are probably one of the two reasons for the failure of Public Sector capital expenditure projects to deliver effective tax-payer value-for-money. The second reason is the skill-set and professional background of Public Sector executives (programme sponsors) and the many professionals deployed on projects and programmes.
 
C. THE CASE OF PROJECT & PROGRAMME MANAGEMENT METHODOLOGIES
 
There seems to be blind dependence on OGC/Cabinet Office prescribed standards for project and programme management. I shall focus on projects and programmes but procurement and contract management probably warrant equal focus. It is important to stress that many of the bureaucratic inefficiencies emanate from the European Union legislation and it is probably timely to consider them as part of a wider UK reflection of the costs and benefits of membership of the EU.  I fear that most of the former OGC Best Practice guidelines should probably be scrapped as they have probably been ineffective.
 
Traditional Project Management (TPM) is the collection of hard and soft methods captured in Prince2/PMBOK etc. According to advanced research in Munich, TPM is based mainly on mechanical, mono-causal, non-dynamic, linear structure and a discrete view of human nature and societies and their perceptions, knowledge and actions. It works on the basis of reductionist thinking and on the Cartesian/Newtonian concept of causality (mechanistic science). It is argued that TPM cannot solve widespread and profound modern challenges which are not predictable in a continuous, stable linear sense. Pioneering research argues that project management needs to address new challenging processes, based on complexity of technology, innovation and human behaviour.
 
Public Sector executives and project/programme related professionals often do not have the wider skills & competencies to deliver large capital programmes (without excessive dependence on consultants). Obviously, the situation has become much more acute with Public Sector aggressive down-sizing and simplistic  one-size fits all thinking (currently emanating from the Cabinet Office and Treasury). 
 
D. SOLUTIONS
 

1. Reduced Cabinet Office Bureaucracy and Reduced Central Control

Unless the Cabinet Office becomes less prescriptive, it is likely that good money will continue to follow bad in trying to deliver large capital programmes in the Public Sector. The Cabinet Office needs to champion less bureaucracy, reduced central control and adopting genuine “lean” approaches to the Public Sector. This should include recommending to the Government the most cumbersome and bureaucratic EU legislation for renegotiation/reform but also address openly the enormous cost and inefficiency of the whole Eurocracy. Also, the next round of the Open Public Services White Paper probably needs to be much more radical.

2. Outsourcing

If the Cabinet Office cannot reform Public Sector practice to achieve  the top quartile performance consistently scored by other countries, using innovation and performance improvement, then widespread outsourcing is probably the solution. Rather than achieve the next omnishambles with a large capital programme, enduring years of pain from PFIs, it is perhaps more expedient to outsource services to the Private Sector. This is radical but relatively straight-forward. It recognises that market forces and globalization will provide the most cost-effective services and be more market-oriented, responding to customer needs. Obviously there are huge political, commercial, transformational and transitional challenges. So instead of worrying about delivery of capital expenditure and getting trapped in PFI type deals, the solution would be to outsource the whole of the service delivery.
 
3. Deploy Independent Executives Client-Side
 
The first two solutions, namely reforming the Cabinet Office and outsourcing are hard to achieve really quickly and could take several years to show results. Also the Coalition Government seems to have lost its reforming zeal and appears to be backing away from confrontation with the unions.
 
Based upon my many years experience of both leading and advising on large capital programmes in both the Private & Public sectors, there is a third solution, namely to deploy independent executives, operating client-side. Independent executives have many attractive advantages over consultants. Top-tier, independent executives bring an enormous breadth of experience and capability from multiple industry sectors. They are uniquely able to deliver leadership and new challenging processes, responding pragmatically to the realities of complexity of technology, innovation and human behaviour. Independent executives are non-political, non-threatening and are able to act as natural mentors and process consultants for Public Sector employees to fast-track learning on the job.
 
Unfortunately, the Coalition Government via the Cabinet Office has made deployment of independent executives in the Public Sector more difficult with Catch 22 practices.
 
For clarity, let’s quickly recap on the Public Sector reform life cycle:
 
  1. Outline reform agenda (manifesto, Coalition agreement)
  2. Outline policies (Green & White Papers)
  3. Define policies and provide way forward (Bills and Acts of Parliament)
  4. Define strategy
  5. Delivery
  6. Post implementation review

For cost effective risk mitigation on Public Sector capital programs, deploy independent executives client-side on both strategy formulation and delivery phases.

E. NEXT STEPS

The above views are very much my own personal opinions, based upon reflecting on this week’s news, plus my own knowledge, practical experience and insights on the subject.

I respect that others may have very different opinions.

Whether you agree or disagree with me, why don’t you append your views below?