Image via Wikipedia
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:
- Project rushed
- Poor cost & risk control
- Weak project management
- Ineffective leadership
- Massive over dependency on consultants
- Very weak contract management
- Limited accountability
- Inadequate power base to drive transition
- Weak stakeholder management
- 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.
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).
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.
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:
- Outline reform agenda (manifesto, Coalition agreement)
- Outline policies (Green & White Papers)
- Define policies and provide way forward (Bills and Acts of Parliament)
- Define strategy
- 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?