Can a strategic partnership reduce the cost of policing?

Back in November I gave a presentation to a conference of police authority treasurers and police force finance directors about strategic partnerships in policing and I posted my slides here. In that presentation I tried hard to make sure that my comments were balanced, giving both the positive messages that advocates of private sector involvement would make and the counter-arguments. As a result of having some time on my hands I've boiled down my presentation into a one pag document which you are welcome to download. Can a SP save money


Benchmarking: an incentive to improve, a distraction or a red herring?


In the question and answer session of the presentation I gave a couple of weeks ago I was asked how I thought a process of benchmarking should fit into the annual budgeting process. I gave an answer at the time but I don't think I expressed my view as well as I could have so I thought I would have a go in writing.

The question was posed to me in terms of unit costs: if we are preparing our budget for a service how should we take into account the fact that our neighbours or peers deliver the service for a lower (or higher) unit cost? On the face of it this seems like a good idea and I'm sure there must be some sound theories to support it. My answer to the group, though, was sceptical, borne from experience rather than theory.

I think that the "information" a public sector organisation gets from such benchmarking is unhelpful. I think carrying out a benchmarking exercise is "busy work"; it feels like you're doing something positive but in practice you're using up a lot of resources and getting very little in return. They say you don't fatten a pig by measuring it. Well, benchmarking is the equivalent of trying to fatten your pig by measuring someone else's.

I've been involved in numerous benchmarking activities over the years (it was a key feature of the Audit Commission's work in the 90s and 00s) and the first problem is agreeing common definitions so that the information is at all comparable. The development of accounting standards and financial reporting standards has no doubt improved the consistency of treatment by public bodies, but that does nothing for the second, and bigger, problem: that public managers will cling to favourable comparisons and find reasons to criticise unfavourable ones. (I once has a manager who was very quick to claim successes were the result of his management but failures were the result of external factors beyond his control. Sound familiar?) If you want an academic reference for this, Demeere et al (2009), writing about the use of activity-based costing in healthcare, said:

"... healthcare managers might argue about the accuracy of the models estimated costs and pro"tability rather than address how to improve the inef"cient processes, unpro"table products, and considerable excess capacity that the model has revealed."

Demeere et al actually touch on the potential negative consequence of benchmarking: complacency. If a public manager's unit costs (or whatever) are good they do not need to try harder; if they are poor, they might try hard to make a defence but they can avoid the need to improve their service.

Many aspects of public management these days are informed by or developed from private sector practice. Do private sector organisations benchmark with each other? Perhaps, but it seems unlikely that an organisation could benchmark with competitors directly so they are more likely to use competitors' prices as the benchmark. They may ask themselves, Can we sell our product for the same price as the competition and still make an adequate return? If the answer is no then they either have to find a way to make their product more cheaply, charge a higher price and compete on the basis of quality/design or cease to produce the product. If the answer is yes then that's great, but it would not stop them from seeking efficiency improvements in order to improve their gross profit margin.

How does that compare with a public service? Well, there are some services where charges are made but generally there is not a market because public bodies usually have a monopoly on the service in some geographic area. But there are some areas where there are comparable private sector providers whose prices could be used as a signal. Except, how many local authorities would compare the unit costs of their schools with fee-paying private schools, or compare their access-for-all leisure centres with members-only private gyms? "They're not offering the same things as us," would be the cry so of course our unit costs are different from theirs.

So, based on my experience, what would I recommend? In my view the answer is much easier to find than carrying out benchmarking exercises because the organisation already has it. The answer is to compare our own unit costs over time. This avoids all the problems of alternative accounting treatments, geogrpahical differences in prices, etc. and it builds on the idea that however good a service is the managers should strive to improve it. I'm sure that if all the time and energy spent carrying out benchmarking work and then defending or criticising the results was spent on improving services the benefit for the public would be significantly improved.



Demeere, N., Stouthuysen, K., & Roodhooft, F. (2009). Time-driven activity-based costing in an outpatient clinic environment: Development, relevance and managerial impact. Health Policy, 92(2-3), 296–304. doi:10.1016/j.healthpol.2009.05.003

Will a strategic partnership save money for a police force

Last week I gave a short presentation to the joing national conference of the Police Authority Treasurers Society and the Directors of Finance of police forces. I have helped the police in Lincolnshire and West Midlands with the procurement of strategic partnerships but this talk was not about those projects. Instead I was commissioned to talk about the pros and cons of having a strategic partnership. I hope I achieved that. One treasurer said to me afterwards that is was "as balanced an exposition of the issues of outsourcing" as he'd heard. I guess that means I did what was asked of me.

I've posted the slide presentation on and they are embedded below. They give a flavour of what I spoke about but I like to think that you get more from a presentation when I'm presenting it than from looking at the slides in isolation. So if you want to know more about this subject please feel free to get in touch with me.



A practitioner's experience Watch on Posterous

It's been ages since I last wrote a post for this blog. The last one I write mentioned I would talking at a couple of events organised by CIPFA.  I was asked to talk about my experience of making budget savings and that meant I spent much of my time pointing out what doesn't work. That said, I think the sessions went well. I certainly received nice feedback.

I've made a small QuickTime movie of the slides I used for those sessions in case anyone wants to see them or even download them.

I will try to get back into the swing of writing on this blog more often since there is plenty happening in terms of public sector finance as organisations face up to reducing their budgets for 2012/13. Perhaps I'll write about that next.


Can local government save 20% on what it buys?

There has been a lot written over the years about public sector procurement, especially about the view that public bodies could get better deals than they currently have. As someone who has worked in public roles I know that the bodies seek the best value for money they can find, as far as the constraints on them will allow.

The fact that public money is involved means high standards of probity are expected. And for all but the smallest contracts (and anything involving national security) the EU’s procurement regime requires that the opportunity to bid for the contract is offered to any interested firm or person in the 25 member states. A public manager receiving tenders for some goods or service might feel that they could have negotiated a better deal but they would be reluctant to use negotiation for fear of being suspected of bribery or corruption. It’s rather like the adage that no-one got fired for buying IBM. In the public sector no-one gets fired for going out to tender and accepting the lowest bid.

The report referred to in this article by Ben Goldacre does not, in my opinion, help the situation. Making a sweeping generalisation from a small sample of data (if there is any data at all) is methodologically flawed. Perhaps the consultants have more data than they put in their summary report and it is not their fault that DCLG have broadcast in the way they have but the way to identify potential savings requires a detailed review of an organisation’s pattern of spending.

Experienced, knowledgeable procurement managers can analyse which products and services are being acquired, what the current terms of the contracts are and compare them with benchmarks. They might well identify some areas where the organisation could save 20% of its spending but I would be surprised if any organisation’s contracts were universally expensive. It is more likely that an organisation will have a poor deal on products A, B and C but have really good deals on D, E and F. This is because the price that the organisation gets depends on how the deal was procured, the timing, the extent of competition, the appetite of bidders to offer discounts, etc. What this means is that the potential for making savings through procurement is unique for each organisation.

This is also why moving to consolidated contracts might not save as much as predicted (by Sir Philip Green, for example). If a group of organisations form a consortium to procure something there is a chance that some of the organisations could have got a better deal for themselves than the consortium achieved. This used to be the case with schools when I worked in local government I presume it still is the case. A large secondary school might get a great deal on photocopiers. The smaller primary schools would like to get such a deal so they all club together with the secondary school. The consolidated contract prices might result in a lower average cost for the whole consortium but the cost to the secondary school goes up to “subsidise” the primary schools. If you were the headteacher of the secondary school and were under pressure to keep your spending down would you voluntarily offer to pay more for a service in order that your counterparts in primary schools benefit?

When local authorities controlled all their schools they could enforce this sort of deal (and adjust individual school budgets accordingly) because the authority benefited from the lower average cost. But now it is every school for itself—and every hospital, police station, fire station, library, etc—we are inevitably going to get some sub-optimal deals. Nevertheless, public managers should continue to get the best value for money deals that they can.