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Cutting Public Sector Fat

Cutting Public Sector Fat

In this time of tight budgets across the public sector CIOs are being urged to find ways to pay for their IT investments by cutting waste, driving out excessive costs and creating new value.

Deloitte Research recently released a study focussing on ways IT can be used to help public sector agencies with an agenda common to policymakers worldwide — cutting costs and enhancing revenue in the face of large and persistent government budget deficits.

Entitled Cutting Fat, Adding Muscle, the report suggests a three-pronged approach:

— IT rightsizing: optimise through consolidation, outsourcing, and application sharing

— Reduce costs through the strategic application of IT

— Revenue optimisation: reengineer business process, revenue discovery and tax revenue maximisation

The authors say there is no silver bullet for tackling public sector budget challenges, so public sector agencies should keep everything from entitlement reforms to wholesale changes in revenue structures on the table.

But they says IT remains a powerful weapon in the arsenal, with strategic use of IT capable of reducing the administrative expenses associated with internal functions like HR, finance, and training and program costs in areas such as welfare, health, and human services.

Sadly the survey finds while more than 90 per cent of public CIOs recognised technology as an important tool for addressing budget crises, they are being hamstrung by lean budgets that ensure few funds are available to invest in cost-cutting and revenue-producing IT projects.

“IT budgets shouldn’t be exempted from budget cuts, but there’s a right way and a wrong way to cut IT,” the report says. “The wrong way — but also the most popular way — is across-the-board cuts. As with a starvation diet, such slash-and-burn cutbacks are usually undone as soon as tax revenues begin flowing back into government coffers. Instead, governments should take a more tactical approach, driving out excess costs and creating additional value by transforming their IT cost base, structure, priorities, and infrastructure, an approach we term ‘Rightsizing IT’,” the report says.

The authors say a well-designed IT rightsizing approach relying on consolidation of technology, outsourcing and sharing between agencies can produce significant savings, all or part of which should be invested in productivity-enhancing technology initiatives that can help drive out costs.

It also identifies a range of opportunities for using technology to cut operating costs, including: — Lower processing costs — Reduced customer service costs through self-service transactions — Better prices on goods and services — Improved supply chain management — Reduced travel and training expenses — Less fraud and abuse

“By combining IT productivity improvement projects with an enterprise-wide transformation initiative of program restructuring, business process redesign, and rigorous performance management, governments can realize large cost reductions,” the report says.

Finally IT can help optimise existing revenue sources through the deployment of advanced software technologies such as “Tax Discovery,” which uses technologies to identify tax avoiders and evaders; and “Revenue Maximization,” which uses technology and process changes to maximise reimbursements from central government funding sources. More than 80 per cent of CIOs believe that these are somewhat or very valuable tools for maximising revenues.

“In the face of very difficult fiscal environments, cost reduction has become an imperative for governments across the globe. With more tough spending cuts undoubtedly on the horizon, policymakers must choose how they will achieve the necessary reductions: 1) They can employ accounting gimmicks, slash-and-burn cuts and other short-term strategies that do little to fix long-term structural imbalances; or 2) They can maximise revenues and achieve ongoing cost reductions by using information technology to fundamentally reengineer and restructure government. Those who choose the latter option will be best positioned to serve their citizens when the downturn ends,” the report says.

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