The harsh secret why cost improvement programmes don't work
You can’t cut costs without spending money.
Counter intuitive? Maybe. But unless you have a clear, costed, thought through plan and agreed process to cut waste, review spending and reduce outgoings, you will fail.
Harsh? Well, I read recently about the efforts of the New Zealand health ministry to cut the amount they were spending. The Health Minister set up an initiative to save $750m over 6 years by, for example, sharing back office functions, streamlining procurement, etc. This is the kind of thing many of you will have been involved in.
But a report on the scheme showed that rather than save $750m, it had realised just 10% of that, $71m. And then spent $79m on consultants and others to help deliver the scheme. So a net loss of $8m.
Why? The independent report on the initiative, which has now been closed by a new health minister, said that “the programme was ambitious and complex, with many risks”. And also that there had been “no programme management office or similar function that was responsible for maintaining project management discipline”.
The report also emphasised that there was no Project Manager keeping an eye on costs; no control of expenses; no consultation with health boards and no buy in to the aims from clinicians.
I know that Project Management: (Gantt charts, gateways, terms of reference, project boards etc) sounds dull. It is not the kind of thing that readily inspires people to change behaviour or embrace innovation. But without it all the other worthy tasks will fail! Any organisation wanting to bring about the kind of change the NZ government were after needs to take a serious look and what they are doing, why, and how they will move it forward.
You need some basic stuff:
A review, assessing what your current situation is and where the gaps and potential gains are;
A plan to get the right people in the right place with the right skills doing the right things; project management specialist, not people who just have the time;
An effective governance structure that enables decisions to be made quickly, accountably and at the right level.
Without these, you will simply fail. If the NZ government had spent their $79m wisely at the beginning of the project, perhaps they would have had the structure, skills and systems ready to be able to plan, consult and implement effectively.
Spend to save. We hear the phrase a lot, but now need to put it into practice.