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Published: June 26, 2007

 
 

How the U.S. Government Can Cut Overhead

First, the size of the cost savings opportunity available to the U.S. government is orders of magnitude larger than that available to even the largest corporation, even if head-count reductions are less palatable and therefore more controlled. The U.S. government’s IT outsourcing spend is closing in on $50 billion, and the potential market for federal administrative services is estimated to be at least that large. Projected cost savings from ongoing financial management and HR system consolidation alone is estimated at $5 billion over the next 10 years.

A second material difference is the nature of the constituencies served by the public and the private sector. Both sectors are called on to maximize value while minimizing costs, but for commercial enterprises, the path to that destination is more straightforward and less consumed with consensus building. Government initiatives are subject to the vagaries of election cycles and shifting political agendas, and government officials are obliged to appease many masters — legislators, regulators, industry, and the electorate — all of whom have some control over the purse strings and many of whom advance contradictory agendas. Decision making involves more input from more parties and is necessarily slower and more heavily documented.

Finally, the parameters imposed on sourcing decisions and reward sharing are far stricter in the public sector than in the commercial sector. Offshoring, for example, is simply not an option for the U.S. government. In the private sector, there are incentives for hitting targets and fulfilling the terms of the service-level agreement, but considerably less latitude is available in designing such incentive schemes in the public sector, although some models are emerging. A more realistic approach is to modify the annual personnel evaluation process to explicitly include certain competencies that align with the objectives of the shared-services initiative.

There is no doubt that the U.S. government starts down the road to administrative services optimization from a difficult position. Federal agencies are rife with non-standardized and manually intensive processes supported by a patchwork of legacy IT applications performed in multiple geographies and remote locations. Many agencies are necessarily decentralized and, as a result, bureaus and offices operate as separate businesses with their own budgets.

However, there is also no doubt that an immense prize awaits the U.S. government — and, by extension, its tax-paying constituents — as it moves along the overhead cost optimization continuum.

Author Profiles:


Kristine Rohls (rohls_kristine@bah.com) is a senior associate in Booz Allen’s McLean, Va., office. She currently leads the firm’s public-sector work in shared services, where she has managed large-scale restructurings of administrative and IT functions to optimize operations, minimize costs, and maximize efficiency within the civil and intelligence communities of the federal government.

Dave Mader (mader_dave@bah.com) is a principal in Booz Allen’s McLean, Va., office. He currently focuses on large-scale agency transformations and overhead function optimization. Prior to joining Booz Allen, he was the assistant deputy commissioner of the Internal Revenue Service, where he helped lead the major transformation of the agency in the late 1990s.
 

 
 
 
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Resources

  1. Vinay Couto, Frank Galioto, Dave Mader, and Jens Schädler, eds., Optimizing Overhead: From Cost Center to Competitive Advantage (s+b Books, 2007): The book from which this article is excerpted. Click here.
  2. National Partnership for Reinventing America Web site: Provides extensive details, reports, and conclusions from Vice President Al Gore’s program to “create a government that works better, costs less, and gets results Americans care about.” Click here.
  3. Results.gov Web site: Covers all of the initiatives of President George Bush’s effort to improve the efficiency of government, a more private sector–oriented approach than under the Clinton administration. Click here.