Better, Faster, Cheaper: A Framework for Operational Efficiency

Mayor Stephen GoldsmithDaniel Paul Professor of GovernmentDirector, Innovations in American Governmentstephen_goldsmith@harvard.edu

National Association of State Auditors, Controllers and Treasurers (NASACT).

The Challenge: To Create Public Value With Declining Resources

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Demand for public services already exceeds capacity

Incremental improvements will be insufficient to meet the public’s needs

The baseline is a transformation of government operations—need to create an expectation of innovative results.

Increased complexity forces government to act horizontally when it is set up vertically

Issue One: Role of Government:Focus Less on Programs and More on Public

Value

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Before:DC General Hospital

After:DC Health Care Networks, From One

to Many

Step 1: Clarify What Public Value is Being Created?

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Articulate the goal of government activities in terms of the value being created for citizens. For example:

Improved public health, not better Medicaid

Education for children, not just better public schools

Mobility, not highway or transit lanes

Homelessness shelter or prevention

Step 2: Ten “BFC” Techniques

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1. Use Budget and Accounting as Structural Tools to Drive Change: Reward Results Not Effort

2. Enhance Program Management Through Dynamic, Transparent Dashboards

3. Understand True Costs as Gateway to Competition/Outsourcing/P3s

4. Change Incentives for Consumers: Drive Efficient Behaviors

5. Measure and Reward: Use Stat Programs That Include Costs

6. Leverage Technology and Digital Solutions

7. Use Data Analytics and Big Data to Unlock Value

8. Apply New Rules for the Labor-Management Game

9. Structure Shared Services Correctly

10. Governing by Network: (leverage private sector, philanthropy, non-profits, citizen volunteers)

BFC Requires Leadership to Mitigate Challenges

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Disruptive:

Hard to alter the status quo

Risky:

Interests of those affected always more intense than those benefiting

Top down and bottom up:

Leveraged Innovation Units

D (demand) x V (vision) x K (knowledge of next steps) x B (belief) > R (resistance)

Leadership: Facilitating Innovation

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Reward Performance with Flexibility

Charter Agencies

Balance Accountability with Discretion

Redirect Inspector Generals to Prioritize Performance

The case of the high performing agency with the undocumented dollar against the highly documented incompetent agency (The paper curse)

1. Use Budget and Accounting as Structural Tools to Drive Change: Reward Results

Not Effort

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The Big Four Strategic Tools —human resources, legal, finance and purchasing• Activity based costing—What

does it cost to fill a pothole?

• Performance Pay and Budgeting with upsides and downsides

• Budget processes that drive efficiency—Revolving Funds; Capital Budgets: Why do we need 88,000 pounds of chalk?

• Effective measurement

7. Using Data AnalyticsAlignment of Organizational Goals

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1. Reward Results Not Effort: City of San Diego Budget Development

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The City of San Diego Development Services

1. Reward Results Not Effort: City of Boston About Results (BAR)

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2. Enhance Program Management Through Dynamic, Transparent Dashboards

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3. Understand True Costs as Gateway to Competition/Outsourcing/P3s

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Lessons from Indianapolis/Indiana

Over 80 competitions

Average savings 25% no matter who won

Quality always up

Employee Satisfaction Increased

Stay current with marketplace

Find the best provider

Lessons From NYC

Used as tool for lack of data; can jump start measurement

RFP with phase one benchmark--Water

3. For Consideration -- Mitigation Strategies to being a Barrier to Competition

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Meter reading and managementUtility billing and collections Solid waste collections Abandoned vehicle operationsTowing operations (street towing,

accident tows, other)Parking enforcementEnergy auditsTelecommunications audits (including

MPLS transitions) Pension auditsPension administrationTax collectionsProfessional and occupational

certification Real property management and

disposalCapital asset disposition and

managementRisk management administrationRisk management claims processingAccounts payable and accounts

receivable management Travel management servicesWorkers compensation administrationWorkers compensation claims

processingInternal auditsExternal audits (general)Law enforcement photo shop

• Hazardous waste clean-up services• Revenue processing• Environmental inspections • Road, street, guard rail, and bridge

maintenance• Mowing (parks, right-of-ways, other)• Road striping• Weed spraying• Road construction• Information systems management• Data center management• Software development• Website development and hosting• Information technology help desk• Fleet maintenance• Fuel facility maintenance and

operations • Facility management• Grounds maintenance• Warehouse operations/supply

management• HVAC maintenance• Security services• Food service• Housekeeping/janitorial services• Jail management (overall, medical,

pharmacy, laundry, food service, concession)

• Juvenile justice education and treatment services

• Child welfare case management services

• Foster and group care• Job training services• Golf courses• Parks management• Swimming pool operations • Conference centers• Resorts/hotels management• Food and beverage concessions• Marina management• Tree nursery management • Hospital management• Mental health/counseling services• Substance abuse centers• Health education services• Payroll processing• Print/copy services• Graphics services• Mail services• Courier services • Invoice processing• Legal services• Banking services• Section 8 Public Housing

management• Land records and government

records management• Claims processing, including

payments, violations, and others

3. The “Privatization” or “Outsourcing” Debate Reflects a False Choice.

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The Left The Right

Government employees should perform all public services

Private contractors are often corrupt

Citizens should receive similar services configured by government, not by choice

Public sector always inefficient

Privatize everything

Private sector always better than public

Privatizing makes government smaller

4. Change Incentives for Consumers: Drive Efficient Behaviors

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Drive consumers to low-cost transactions—even if the services all remain free

Indiana Motor Vehicles

MA Unemployment Insurance dramatically improved customer service

Introduced a Spanish telephone based claim process, and then drove customers to use the paperless certifications.

Result: Costly paper-based mail notifications dropped from 25% to 4% in 18 months

4. Change Incentives for Consumers, cont’d

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Health Care:

• Make users bear some cost for choosing higher-cost delivery methods (such as emergency room visits for chronic problems, etc.) Cost transparency and pricing matter!

Road Congestion:

• London’s Congestion Charging plan charges drivers to use downtown streets during rush hour, changing behaviors to public transit, off-peak travel, bikes, etc.

GOAL: Drive efficient usage behaviors

5. Measure and Reward: Stat Programs Work That Include Costs

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1. Series of regular, periodic meetings

2. Not budget driven: not driven by the annual budget process but by an independent analytic staff focused on improving performance.

3. Not purely evaluative: seeks to help the agencies improve performance.

4. Not fleeting: not a temporary fad but an enduring strategy

5. Not randomly episodic: regular routine and rhythm of city’s leaders and their management

6. Not uni-directional: mutual responsibility, with the manager responsible to the Cabinet Secretary or Governor and the Cabinet Secretary or Governor responsible to the manager for ensuring that the agency has the resources and flexibility

6. Leverage Technology and Digital Solutions

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Move from “In Line” to “On Line”—efficiently producing obsolete solutions

Red Tape to No Tape—Important First step, but often looked on as not budget critical

From Rule Bound to Discretion Enhanced Decision Support Systems

Targeted Responses

Contract Monitoring/Program Management NYC CityTime

Indianapolis towing

7. Use Data Analytics and Big Data to Unlock Value

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Goal:

Produce a transformative platform for local government to more effectively solve problems and improve the quality of life and act as a catalyst for replication of the model.

Factors Powering this Change:

Digital systems replacing paper based ones

Breakthroughs in data analytics allow the examination of data in disparate systems

Handheld devices allow field workers to solve problems and exercise discretion and be held accountable

Social networking allows citizens to participate in solving problems in new and dramatic ways

7. Using Data Analytics

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• Predictive Analyses

By highlighting common issues before they occur.

Question: What factors make a building most at risk for fires?

• Root Cause Analyses

By providing insights that explain common incidents.

Question: Why are there frequent accidents at certain intersections? Which individuals best benefit from job training?

• Increased Accountability

By monitoring areas for improvement.

Question: Which City inspectors are behind schedule?

• Improved Operational Management

By providing data-driven solutions to promote more effective business processes.

Question: What are the best routes for City vehicles to take?

7. Using Data AnalyticsSpend Management / Do Not Pay

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7. Using Data AnalyticsRevenue Discovery

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7. Using Data AnalyticsFraud Waste and Abuse

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8. Apply New Rules for the Labor-Management Game

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Goal: Focus on units of output over unit of costs—increasing productivity

not just reducing expenses. Labor & management goals can and should generally be the same Labor & management can find win-win situations in almost all cases Increased worker productivity can be fully consistent with worker

safety and job satisfaction

Indianapolis: Pride No union employee laid off 90% reduction in labor grievances 80% reduction in accident rates and lost days from injuries in areas

of competition Pay and benefits increased in every case Customer satisfaction increased Unions won two thirds of the work they chose to bid on

9. Structure Shared Services Correctly

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Other Agencies Must be Customers, Not Prisoners

SLAs Matter

Real Cost Accounting and Pricing Matters

Savings Should Be Shared to Incent Good Behavior

Organize Around Centers of Excellence not Organizational Names

10. Governing by Network: Leverage private sector, philanthropic, non-profit, citizen volunteers

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1 Government can’t solve complex horizontal problems with vertical solutions, nor by simply accomplishing bureaucratic activities better.

2 The role of government is being transformed from direct service provider to generator of public value.

3 We won’t get the results taxpayers deserve nor citizens require until we figure out how to better manage a government that does less itself and more through third parties.

10. Problems are No Longer Vertical

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10. Governing by Network: Ignite citizens to engage through volunteerism and social

entrepreneurship

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Make the State a platform where the role is to convert its information assets and authorities - and those of its partners in Fed/county/local/NGO and private roles - to much higher value/use, fostering citizen involvement.

Transparency Open data sets

Citizen Input Capture ideas and evaluations with social networking tools. Call Centers – Using input from citizens to better understand

what’s happening in the city.

Community Driven Change Leverage local groups and technologies

The Indiana Experience

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State government will become a performance-based organization

Committed to and managing for results

Focused on continuous improvement in service and cost reduction

Empower individual performance

Accountable through measurement

Acts as one, not separate entities

The Indiana Experience

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Executive Order 05-02 created the Indiana Office of Management and Budget

Created within OMB the Government Efficiency Division

Develop performance measurement system

Identify and coordinate performance improvement and efficiency opportunities

Managing for Results

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Is the service/product needed?

Find the best provider

Government/Program realignment

Not for Profit

Private sector

Volunteers

Shared services

Unlocking value/expertise

Managing for Results – Key Elements

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Set the bar high

Progress starts with data

Align incentives

Move fast

Managing for Results – Strategies and Ideas to Consider

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Procurement Strategies Move to electronic (e.g., web-based)

procurement

Move to electronic-based procurement cards to monitor more effectively the goods purchased

Craft contract vehicles that facilitate ongoing cost reductions by providers to create win-win situations (shared savings vehicles)

Analyze contract terms and conditions – the term of contract, bid and bond requirements, and payment terms impact cost – be sure the contract terms are worth what they cost

Buy outcomes, not inputs – pay for success, not for effort

Asset Management

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Vehicles

Identified and sold over 2,000 unneeded cars & trucks

Aircraft

Reduced the state’s under-utilized aircraft fleet from 20 to 12

Leases for State Offices

Saving 20% on new leases compared to previous rates

Surplus Real Estate

Sales to date: 33 properties, $6 million

Program Performance Evaluation

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P.R.O.B.E. process – Program Results: Outcome-Based Evaluation

OMB evaluated 420 government programs

Made more than 200 recommendations on how government could improve performance

Pay for Performance

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10%

4%

0%0% 0%

2% 2% 2%

4.2%

0%

2%

4%

6%

8%

10%

12%

2002 2003 2004 2005 2006 2007

Exceeds Expectations

Meets Expectations

Does Not Meet Expectations

Average

Annual Salary Adjustments

Implications for Managerial Orientation and Skills

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Trusty Bureaucrats?

Or

Imaginative Leaders?

Issue: Preserving Democratic Accountability During Transformation

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Rule Enforcement Value Referee

Questions: Better, Faster, Cheaper—Smart Ideas for Government (www.betterfastergovernment.com)

Mayor Stephen GoldsmithDaniel Paul Professor of GovernmentDirector, Innovations in American Governmentstephen_goldsmith@harvard.edu

National Association of State Auditors, Controllers and Treasurers (NASACT).