How to Conduct a Results Driven Government Efficiency Program

1. How to Conduct a Results DrivenGovernment Efficiency Program

2. Topics for Today’s Discussion • Introductions • Context Setting • Formulating Your Efficiency Program Approach • Lessons Learned/Critical Success Factors • Getting Started

3. Introductions • Bill Eggers • Global Director, Deloitte Research – Public Sector • Author of two upcoming books: Governing by Network: The New Shape of Government (Brookings, 2004) and Government 2.0: Using Technology to Improve Education, Cut Red Tape, Reduce Gridlock, and Enhance Democracy (Rowman and Littlefield, 2005). • Managed performance reviews for the State of Texas and city of Los Angeles and advised several others. Numerous leadership positions related to government reform and performance • Christina Dorfhuber • Principal in Deloitte’s Public Sector Practice • National Leader Public Sector Strategy and Operations Practice • Lead Principal on several State efficiency and transformation efforts

4. A Little Bit of Context….

5. In this environment, permanent cost reduction in the machinery of government is necessary … Pension Crisis Exploding Medicaid Costs State Government Finances Aging population Opposition to higher taxes Declining federal Dollars, increased federal mandates Increased spending demands

6. Efficiency Programs can provide a mechanism for identifying permanent cost reduction • Over the past five years at least 20 states have initiated some form of enterprise level efficiency effort recognizing that longer term solutions are required for sustainable control over budgets while maintaining constituent service levels and addressing other pressures. • A well structured cost reduction program produces Value to Constituents • Taxpayers see effort being made to reduce the cost of government while maintaining or improving service levels. • Efficiency programs can improve service delivery by streamlining activities and reducing steps

7. But not all Efficiency Programs are created equal and not all produce the projected or desired results

8. Selected State Performance Initiatives (cont)

9. Formulating Your Efficiency Program Approach

10. There are several models that States have adopted to run their efficiency programs • There are various models and combinations of models being used by states • Public/private commission • Internal efficiency review • Efficiency review with external assistance • Each model has its own set of strengths and weaknesses • The structure these states have adopted is the result of specific choices… • Who is on the team? • What factors are influencing the Review?

11. States First Identify Who to Have As Part of the Efficiency Team Employee Role? Executive Sponsor? Private Involvement? Public Involvement? + + + • Dedicated Unit • Loaned Employees • One time • Revolving • Legislative • Governor • Budget Office • Independent Party • Paid Consultants • Volunteers • Loaned Executives • Commission • Hearings • Web Site • Surveys • Focus Groups = Efficiency Program Team • Blue Ribbon Commission • Internal Review • Consultant • Review • Hybrid

12. While Ideally Considering the Following Factors…. Low High Time Available Low High Willingness for Public Scrutiny Outside Inside Review Involvement Low High Political Alignment Low High Internal Capabilities

13. It is not only who does the work, and what influences the work, but how it is done. • There are many methods used in identifying cost savings, cost avoidance and revenue maximization opportunities • Business Process Reengineering • Desk Audits • Activity Based Costing • Budget analysis • Management by Objective • Performance Reviews • Balanced Scorecards • Benchmarking and Functional Area Diagnostics And focusing on the multiple outputs that can result….

14. Review Approaches • Functional Education, health and human services, public safety, transportation, employee benefits, strategic sourcing • Organizational Review by individual departments • Program Focuses on specific programs within the organization, often those with large client populations that may cut across agencies • Business process Look at entire enterprise from a business process perspective; review processes such as HR, licensing etc.

15. A Diagnostic To Understand Where to Focus

16. Budget/cost driver analysis

17. Commodity spend from an enterprise level Facilities$14 2% Food Supplies $55 8% $ millions $3,201+ Travel$70 11% $445 est. Telecom$52 8% IT $192 30% $850 est. In Current Opportunity Scope (Engineering Services $638/75% ProfessionalServices$118 18% $212/25% Office Equip $45 7% $554 est. Medical$44 7% Print$23 3% >7 major categories of spend Out of CurrentOpportunity Scope $687/51% 11 major categories of spend In Current Opportunity Scope $665/49% HighwayConstruction2 UnclassifiedSpend(Potentially Sourceable) RemainingSourceableExpense Base FacilitiesConstruction2 Total ExternalSpend Baseline1 • Key Points • Out of total estimated sourceable spend baseline of $3.2 billion, we targeted $877 million to focus our assessment • This represents 12 major categories of spend • The baseline estimates above do not include “Grant” exempted spending and interagency transfers

18. Detailed Benchmarking • Benchmark PC: • Pentium 4 • 2.4 ghz • 40 x CD ROM • 40 gb Hard Drive • 512 mb SDRAM • 15 inch Flat Panel Monitor Price $1,390 1,400 $1,143 1,200 $954 1,000 $968 $928 $868 $853 $827 $800 800 600 400 200 0 Average Potential Savings per Unit = $200.00 Total Potential Biennial Savings = $800,000

19. Procurement Strategic Sourcing Procurement Reform Real Estate Facilities consolidation Sell and Lease Back Warehouse Optimization Legal Services Technology IT Server Consolidation IT Outsourcing Human Resources Outsourcing Employee Self Service Budget and Finance Fleet Management Revenue Data warehousing Statewide Collections Limited Liability Corporation Taxes Human Services Integrated Human Services Social Security Food Stamps Error Reduction Medicaid Reform Cost Reduction Revenue Maximization Integrated Licensing Integrated Justice Current State efficiency reviews are identifying cost savings and efficiencies in the following areas: Administrative/Back Office Client Facing/Programmatic

20. Lessons Learned and Critical Success Factors

21. Critical Success Factors Before you Begin: • Choose a model understanding its strengths and weaknesses • Engage the best and brightest people from state government – make the investment early on • Obtain strong legislative support • Plan the Review and initial success to occur quickly and accurately • Understand your available resource pool both financial and human • Determine if your state is willing to spend money to save money Getting Started: • Establish baselines and targets so that you can celebrate progress and manage contractors • Conduct a quick diagnostic to assess where the highest value can be obtained from the review and implementation • Be willing to measure and communicate progress—this means investing in a process and “system” for data collection and reporting. • Launch a parallel “quick wins” process • Establish “Common Ground” or shared expectations with stakeholders

22. Critical Success Factors (Cont.) Reporting the Results: • Courage (i.e., don’t overly censure what you propose beforehand because you’re too caught up in the politics) • Phase the review and implementation: focus on the low impact/high recurring returns first and then move to higher impact efforts • Have better numbers than your opponents • Challenge your data quality, don’t immediately trust the numbers • Assign accountability and follow through – the Governor/Executive Sponsor must be an active participant in the process Achieving the Results: • Centralize management and performance measurement of the efficiency program within the State • Develop a sophisticated legislative strategy • Keep staff engaged and fresh • Engage in creative procurement that makes vendors accountable and willing to share risk • Think through the post-report implementation early

23. “People are very open minded about new things.As long as they are exactly like the old ones.” Charles Kettering

24. For Further Information… Bill Eggers Global DirectorDeloitte Research-Public Sector Deloitte (202) 378-5292 weggers@deloitte.com Christina Dorfhuber Principal Public Sector Strategy and Operations Deloitte (717) 503-0819 cdorfhuber@deloitte.com