To Make Government Cheaper You Need To Understand Its Main Cost Drivers

This part four of a four post series regarding Ken Miller’s great book Extreme Government Makeover. In Part 1 we learned that government is like a house in that most of the important work goes on in pipes hidden from public view behind walls. The problem with improving the performance of government does not lie with employees. Improving government performance requires us to focus on changing the systems (policies and procedures), that employees must work with. Governments system of pipes are broken, rusted and twisted, which limits their capacity to serve the public.

In Part 2 we learned five strategies to make government work faster. In part 3 Miller addressed the concern of whether making government work faster will affect the quality of government services. As Miller explained serving customers faster can actually improve the quality of services.

In this final post we discuss whether making government faster, and better can also make it cheaper? As Miller explains to make government cheaper you need to understand its main cost drivers.

The Five Main Cost Drivers In Government

#1: Time – Serve the Customer as Fast as Possible.

The old adage that time is money couldn’t be more accurate for government. The longer something takes, the more it costs. When something flows through our system quickly, there is little need to track it, batch it, inspect the handoffs, expedite the bottleneck, and so forth. The longer something stays in our pipes, the more we have to manage it. All that management translates to more costs.

Nearly every phone call we get in the public sector is a defect; that is, it shouldn’t have happened. Don’t believe me? Go spend an afternoon in your agency’s phone center. The vast majority of the calls are either “Where is my stuff?” or “I don’t understand.” They’re defects. Rather than spending more money to log, track, and quality-control these phone calls, we should instead spend more time eliminating the source of these calls. Great customer service means never having to call.

Cost Driver #2: Transactions – Serve the Customer In As Few Visits As Possible.

In many government offices up to half of the customers should not be there. Many of them are there for the second or third time to get something done. Each visit costs a government office time and money.

“I didn’t get it” and “I don’t get it” are two of the biggest cost-drivers in government. Make things easier to understand for your customers, and you reduce the number of transactions — along with costs.

Cost Driver #3: Mistakes – Do It Right The First Time.

Part of the cost of mistakes is obvious: You have to do the work again. But the true cost goes beyond that. The real cost of mistakes is the CYA they leave in their wake. Someone messes up; they’re told to never do it again; so they build in safeguards. But more CYA measures mean less capacity to do the work itself, which leads to more pressure, more rushing, more mistakes.

Instead of inspecting, we need to be preventing.

Cost Driver #4: Specialization – Have As Few Hands Touch It As Possible.

A Plan Review Specialist III costs more than a Plan Review Specialist II, who costs more than a Plan Reviewer. Higher specialization leads to higher wages and higher costs. Beyond the obvious, though, are the real cost drivers: Specialization creates CYA. Every time we specialize, we create a handoff. You do this, she does that. At every handoff, we eventually have to log work that comes in, assign it, track it, expedite it, log it out, and transport it. None of that stuff adds value. It just adds cost.

Cost Driver #5: Management – Leave People Alone and Let Them Do Their Work

Perhaps nothing drives up cost as much as the good intentions of management. Take a look at your day. What are you doing today? How much of it is mission work? How much of it moves the water through the pipes? If you’re like my workshop participants, you are spending less than 50 percent of your day making the widgets. Where does the other half go? Management. Staff meetings, budget exercises, team-building, accountability sessions, performance reviews, and on an on.

When we talk about “Better Faster Cheaper,” it’s not a best-two out-of-three situation. You’ve got to have all three. And you can. But you have to know where to start. If you start with “cheaper” — that is, with a focus on cutting costs within the systems you already have — you will likely become slower and make more mistakes. Most cost-cutting initiatives — consolidation, furloughs, layoffs, reduced equipment — rob us of capacity. Their effects are compounded when they impact our bottlenecks. Lost capacity slows us down. When things are moving slowly, corners get cut and people rush in order to expedite. These activities drive up mistakes.

If you start with “better” — focusing on quality and on not making mistakes — you will likely become slower and more expensive. When the goal is simply to eradicate mistakes, we often add layers of CYA and additional inspectors. These drive up cost and slow things down. But if you start with “faster,” you’ll actually get the other two. If we speed up the system and unkink the pipes, we can get more done with limited resources. When we go faster, we eliminate the biggest cost-drivers. By going faster, we also increase quality. You can’t be fast and make mistakes — you’ll get bogged down in rework. To be fast, we must eliminate handoffs and CYA and all the things in the system that cause mistakes. By making the system faster, you increase the capacity of the staff, which allows them to spend more time doing quality work.

Better, faster, cheaper. Start with faster and you get all three.

Do you agree that to make government better, faster and cheaper, the place to start is by focusing on doing things faster? Do you agree with the main cost drivers Miller has identified?

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Steve Cottle

I think #3 is a really interesting and important way to consider the costs of mistakes. CYA measures can definitely add a huge cost, if they impact processes from that point forward, yet I haven’t often heard it factored into the potential cost of making a mistake.

David Dejewski

Nice post, Paul. Speed is a challenge in our bureaucracy. I’m cautious, however, about putting it up front as the main focus for cutting cost in government. I’ve simply seen too many decisions rushed for the sake of speed – often before due diligence could be complete. Cleanup after poor decisions is very expensive. The formula for efficiency includes speed where it makes sense, but to say that starting with “faster” necessarily results in better or cheaper feels like an unbalanced approach.

John Biechman

I agree with most of what Mr. Miller has to say and in cost driver # 5 faster may be the answer but the process must be assured that better and cheaper are addressed – otherwise results could be the same as Lucy on the chocolate candy line.

David Dejewski

Interoperability has gotten a lot of attention these last few years. I have found that this is not fully explored or mitigated when investment decisions are made. Not addressing this is very costly to the government today. It is one of the things often not addressed for the sake of speed.

I posted a similar discussion (in discussion format) on the 20th. You can check it out and participate here.

Julie Chase

#4 is my favorite! To buy one little widget for my organization, I must deal with all the “hands” that have to stamp, sign, initial, approve, forward, process, wait for approval from ABC organization, wait for Final Approval from DEF organization, email 20 people, they email 20 people and they’ll get back with me to see I can purchase my widget for my organizations mission.

The bright side is, if it gets disapproved, I know why. “Security” , it’s all about security. <sigh>

David Dejewski

Alex – what do you mean by “specialization” in this context?
The cost of micromanagement is real. It affects speed and often the quality of output.

Jaime Gracia

The triple constraint ultimately drives any initiatve: cost, schedule, and performance. However, this is also in the context of what I often tell my federal clients when they do not take this into consideration. Mainly, the triple constraint turns into speed, low-cost, or quality.

“Do you want it done cheaply, correctly, or quickly. Pick two, as three is not possible.”

Eric Schmidt

Miller states, “By going faster, we also increase quality. You can’t be fast and make mistakes – You’ll get bogged down in re-work.” This premise rests on the laughable assumption that employees somehow objectivly know what is accurate vs. inaccurate, high quality vs. low quality with regard to the work they do, and they for some reason, make a choice to submit low quality work or high quality work. I’d like to think that an employee in every instance attempts to do the best job they can, but it doesnt take a performance management expert to realize that if you are emphasizing speed, an employee’s ability to focus on quality and accuracy is hindered.

Try it for yourself.

Create 10 different math problems on 2 seperate sheets of paper. Try to answer all the problems correctly, but in one trial, focus on getting them all right, and in the next trial, focus on going as fast as you can. Repeat this every day for a month and then calculate mean scores for time and accuracy for both trials. Is there a significant difference? Then ask yourself – In this task was it more important to finish with accurate results or quickly?