Government has a mandate to continually and effectively provide and improve programs and services to and for citizens, as well as a responsibility to steer the economy towards growth. The execution of these activities is supported by the government’s ability to raise taxes and accumulate debt, resulting in a safety net that is unavailable to private sector organizations. Over time, the availability of this safety net has shaped a public sector culture that often focuses on providing services to citizens at almost any cost. As a result, there is a need to engrain a cost-conscious culture in government, and finance professionals are well positioned to be the catalysts for this change.
All levels of government are facing increased pressure to attract and retain new investment and strengthen the economy while meeting citizens’ rising expectations for improved service delivery. To meet these needs, governments are being challenged to find a more sustainable method to fund social programming in today’s fiscally constrained environment. They have had to examine and conduct disruptive cost-reduction exercises to aid in reducing and stabilizing budgets. These factors, along with the recent cost-reduction upheaval in governments globally, have created an opportunity to transition to new and sustainable cost-management practices in the public sector.
To capitalize on this opportunity, key operational and structural issues that reinforce inefficient behaviours and the current budget-growth-oriented culture must be addressed first. Next, significant change management driven by a unified leadership team across both program areas and internal services is required. Finance professionals must play a critical role in leading by example and by demonstrating an overall commitment to this cultural shift.
What’s the role of finance?
Finance professionals in the public sector can play a major role in helping to create cost-conscious environments within organizations, particularly through their in-depth understanding of cost structures and their demonstrated leadership capabilities. By developing cost-management capabilities and supporting managers who are operating their business units with a cost-conscious mindset, finance professionals have the opportunity to become “change champions” within their organizations.
To ensure that cost-conscious behaviour becomes an underlying objective within an organization, finance professionals must become experts on the related cost-management capabilities and initiatives. Acting as credible experts for the organization also requires a deep understanding of the broader business strategy and operational realities. This understanding and expertise will, once developed, position finance as a centre of cost-management excellence. By implementing a cost-conscious culture, finance professionals can support better decision-making, enable strategic initiatives, and improve performance within an organization.
To successfully promote this kind of thinking, finance professionals in the public sector should specifically focus on implementing “lean” cost-management approaches, enabled by data analytics. It should be noted that the objective is not to replace the focus on outcomes for citizens—that is still critical; rather, the objective is to achieve an equilibrium that balances the value-for-money equation.
Embed “lean” cost-management capabilities
In the last decade, lean cost-management approaches have been favoured by both public and private sector organizations. The goal of “lean” is to enhance value by using fewer resources. Lean programs uncover methods to help reduce cost through the elimination of waste and the reduction of end-to-end processing time. For financial professionals, this means managing acceptable financial and operational risk by examining and then simplifying current processes. Finance can play two key roles in embedding lean cost management in an organization. First, a finance professional can develop their own skills in lean cost management and act as a business partner and adviser to the organization. Second, they can help develop lean capabilities across the organization by training others on lean approaches and techniques.
To develop lean capabilities, finance leaders must discover new ways of working to drive cost efficiencies; this means embracing a cost-conscious mentality and focusing on continuous improvement and sustainable efficiencies. Finance professionals need to act as business partners, offering advice and information on key operational and strategic decisions, using a lean lens. Finance managers and staff should spend more time on strategic tasks that help achieve cost-related business priorities, while also recognizing tactical opportunities for improvement; these opportunities include identifying ways to reduce, automate, or eliminate manual, non-value-added activities.
Taking the concept a step further, finance professionals should lead organizations in embedding the desired behaviours of a cost-conscious culture. By sharing lean best practices with the rest of the organization, a finance team can lead the way in shifting both employee and leader behaviours to fit within a cost-conscious culture. This would include conducting training sessions, providing lean tools and techniques, and identifying opportunities for improvement. The knowledge and skills required to conduct such reviews should be integrated into an organization’s competency framework to ensure that employees have the appropriate background required, and progress should be tracked through regular performance management activities.
Discover the power of data analytics
In the current context of budget cuts and fiscal constraints, leaders must find new and innovative ways to obtain value through existing resources. One specific technique is to take advantage of existing data and harness the power of analytics. Data analytics can help governments leverage existing information assets to make better decisions, and can facilitate the synthesis and analysis of large amounts of data through improved compliance and transparency, thereby positioning governments to identify opportunities for improvement. Identifying these opportunities can bring about the elusive “Aha!’ moment for leaders, wherein they can start to see the potential for major transformational change through cost-management initiatives. These initiatives may result in improved service levels, programs that are better aligned with the needs of stakeholders, and, in the case of lean programs, ways to realize sustainable cost savings.
Finance professionals play a key role in ensuring that data is understood, made accessible, normalized, and shared properly. To help an organization create valuable cost-management initiatives, finance leaders must be able to provide insight on how and where to drive efficiency. To provide this insight, they should first focus on developing and reinforcing the specific skills and expertise required for data analytics. Finance leaders also have a role to play in enabling the rest of the organization to understand how analytics work, and how they can take advantage of the data and insights available. This includes demonstrating how a business unit can leverage data to identify low-performing areas that require intervention, as well as areas that need to be targeted for cost-management improvement activities. Managers across the organization need to be enabled to use analytics through knowledge and training sessions, as well as through “quick wins” that can demonstrate the capabilities and value of analytics to drive strategic thinking. Once the value of analytics has been demonstrated, people across the organization will be able to begin to use existing data to gain insight and provide foresight on future business decisions.
A call to action
As governments change, so must the approach to cost-management. Finance professionals can play a key role in implementing and sustaining a cost-conscious culture by extending their reach from that of the traditional steward and operator to that of a strategist and a catalyst for change. To set the tone for change, finance leaders must lead by example. Lean cost-management approaches, informed by the use of data analytics, are valuable ways to implement a shift towards a cost-conscious culture. In turn, this cultural shift will enable governments to reinvest cost savings into programs that deliver greater value to citizens.
About data analytics
“Data analytics is the science of examining raw data with the purpose of drawing conclusions about that information. Data analytics is used in many industries to allow companies and organization to make better business decisions and in the sciences to verify or disprove existing models or theories. Data analytics is distinguished from data mining by the scope, purpose, and focus of the analysis. Data miners sort through huge data sets using sophisticated software to identify undiscovered patterns and establish hidden relationships. Data analytics focuses on inference, the process of deriving a conclusion based solely on what is already known by the researcher.”—Margaret Rouse, SearchDataManagement.com, January 10, 2008.
This article has been adapted from Deloitte’s whitepaper, The path to sustainability: Creating a cost-conscious government culture, which can be downloaded at www2.deloitte.com/content/dam/Deloitte/ca/Documents/insights-and-issues/ca-en-insights-issues-the-path-to-sustainability.pdf.
Shirley Wolff leads Deloitte’s public sector assurance and advisory practice across British Columbia, and is a member of the ICABC’s Government Organizations Accounting and Auditing Forum.
Grant Abrams is a senior manager with Deloitte’s public sector finance and performance management practice in Ottawa.
Jonathan Watson is a senior manager with Deloitte’s public sector finance and performance management practice in Ottawa.