Excessive Overhead and Waste An Example by Blaine napp, !BA, "!" !any have heard anecdotal r#mors abo#t $overnment %aste and ine&ciency' (ere is a concrete example, based on the a#thor)s personal experience' *o protect the $#ilty and avoid other distractions, the speci+c or$ani,ations involved are not named, and data has been chan$ed' *he a#thor cond#cted a -val#e analysis. o/ several trans/er payment pro$rams in one branch o/ abo#t 000 employees and a b#d$et o/ 100 million o/ a lar$e /ederal department in "anada' *his val#e analysis %as an attempt to 2#anti/y /rom the recipient)s vie%point the net val#e o/ pro$rams in comparison to the department)s internal overhead in mana$in$ those pro$rams' (ere are some hi$hli$hts o/ that analysis3 *he analysis examined nine di4erent $rants and contrib#tions pro$rams, %ith payments totallin$ 122'5 million in a recent year' *here %ere 670 $rants or contrib#tions avera$in$ 100,000 split into, on avera$e, 2'2 separate che2#es' *he recipients %ere mainly non8pro+t or$ani,ations and some m#nicipal corporations, and many received rec#rrin$ ann#al /#ndin$' *he amo#nts are small in comparison to other pro$rams that pay o#t millions' Also, recipients and their pro9ects are lo% ris: in the sense that time/rames are reasonable, activities are strai$ht/or%ard, and little can $o %ron$' *here is an opport#nity to red#ce the n#mber o/ che2#es, savin$ some administrative %or: by recipients and %ithin the department' *he 670 recipients incl#ded at most 600 #ni2#e or$ani,ations the di4erence represents recipients o/ t%o or more di4erent $rants or contrib#tions' ;ather than separate /#ndin$ a$reements, there is an opport#nity to #se a sin$le /#ndin$ a$reement %ith each #ni2#e or$ani,ation' *his %o#ld potentially red#ce the n#mber o/ a$reements by more than 10<, a$ain savin$ %or: by recipients and the department, b#t this opport#nity has not been p#rs#ed' ;ead on there are other areas %here potential savin$s are m#ch bi$$er' =ta4 o/ each o/ the nine pro$rams actively enco#ra$ed applications each year, despite :no%in$ that increased /#ndin$ %as not available' >n /act, each pro$ram recently received #p%ards o/ 1,000 applications ann#ally, so abo#t ?5< o/ applications %ere re/#sed each year@ *his represents tremendo#s %asted e4orts and b#rden, both on the #ns#ccess/#l applicants and on departmental sta4 %ho had to assess and compare all applications to 9#sti/y /air and e2#itable re/#sals' =o %hat is the val#e o/ these pro$ramsA *he #s#al approach is to meas#re the price that c#stomers %ill pay, b#t %ho is $oin$ to pay, and ho% m#ch, /or the $oods or services provided by recipients o/ these $rants and contrib#tionsA *his is di&c#lt i/ not impossible to meas#re' =o the #s#al approach is to #se a proxy o/ the $ross val#e as the amo#nt paid to recipients, in this case, 122'5 million' Bn/ort#nately this is not their net val#e %e m#st ded#ct the costs inc#rred by recipients to obtain the $rants and contrib#tions, and the costs o/ providin$ reports and other red tape re2#ired by the pro$rams' *he analysis /o#nd that the net amo#nt to recipients %as abo#t 120 million, a/ter ded#ctin$ their application and mana$ement costs' (o%ever, this is still not the real net val#e' We m#st ded#ct the costs inc#rred by all those #ns#ccess/#l applicants' Ass#min$ conservatively that it costs 1500 to prepare each #ns#ccess/#l application, the costs inc#rred by the 0,000 #ns#ccess/#l applicants %o#ld total at least 16 million, red#cin$ the net val#e to at most 117 million' >n comparison, branch administration o/ those $rants and contrib#tions pro$rams cost more than 10'5 million ann#ally 9#st /or direct sta4 salaries and bene+ts o/ 120 employees' >n other %ords, it cost more than 12? million C22'5 pl#s 0'5D to deliver #nder 117 million in val#e' *his does not incl#de other departmental overhead costs /or +nancial mana$ement, in/ormation systems, le$al services, accommodation and other administration, say at least another 12 million' *h#s it cost taxpayers more than 161 million to obtain 117 million in val#e, %hich is an e&ciency o/ abo#t 55<' >t sho#ld be noted that charitable or$ani,ations are $enerally expected to operate %ith less than 10< overhead ?0< e&ciency' *his partic#lar department has a lon$ %ay to $o to meet that standard@ *he analysis concl#ded that the nine di4erent $rants and contrib#tions pro$rams, $iven their similar p#rposes and types o/ recipients, co#ld be combined, and recipients co#ld be /#nded on a m#lti8year basis, s#bstantially red#cin$ tho#sands o/ applications ann#ally and potentially red#cin$ pro$ram sta4 to one8third the c#rrent complement, and still provide the same /#ndin$ to all c#rrent recipients Cin other %ords, %itho#t c#ttin$ any -res#lts /or "anadians.D' *he E0 or so s#rpl#s employees co#ld be deployed to other branches or departments that have been hit %ith attrition' "ombinin$ pro$rams and c#ttin$ sta4 red#ces taxpayer costs to 125 million and increases val#e to 120 million or E0< e&ciency, %hich is m#ch better than the c#rrent abysmal rate o/ 55<' =o, %hat has happenedA *he a#thor is not a%are o/ the o#tcome o/ this analysis, b#t s#spects that it has $one no%here, and that nothin$ has been done to simpli/y and streamline these pro$rams' WhyA *he a#thor believes that the ans%er involves perverse incentives %ithin the b#rea#cracy' "ompensation o/ b#rea#crats is based on increasin$ or$ani,ation si,e, complexity and costs, rather than e&ciently prod#cin$ res#lts /or "anadians' Fo insider complains beca#se the prevailin$ or$ani,ation c#lt#re is to avoid #psettin$ the established hierarchy' G#rther analysis o/ other $rants and contrib#tions pro$rams co#ld reveal a lot more d#plication and overlap amon$ other branches o/ the above department, as %ell as bet%een and amon$ other departments' >n other %ords, there is h#$e potential /or combinin$ pro$rams, red#cin$ recipient b#rden and departmental overhead, and streamlinin$ internal operations, all %itho#t c#ttin$ pro$rams or red#cin$ amo#nts paid to recipients' *here are a co#ple central a$encies that co#ld help address this challen$e3 the *reas#ry Board o/ "anada =ecretariat and the Privy "o#ncil O&ce' *he *reas#ry Board, as the $overnment mana$ement board, co#ld establish, monitor and en/orce speci+c standards /or streamlinin$ pro$rams and red#cin$ overhead' *he *reas#ry Board is #nderta:in$ strate$ic spendin$ revie%s %ith the aim o/ c#ttin$ 17 billion' *hey are relyin$ on a lar$e acco#ntin$ H cons#ltin$ +rm to develop a /rame%or: /or assessin$ ideas p#t /or%ard /rom %ithin the b#rea#cracy' Bn/ort#nately, lar$e cons#ltin$ +rms are themselves b#rea#cracies, o/ten %ith #nscr#p#lo#s sel/8interests, as Ie%is Pina#lt ar$#ed in his 2000 best seller, -"ons#ltin$ Jemons'. Also, acco#ntants #s#ally /oc#s on c#ttin$ costs by cancellin$ pro$rams, sellin$ assets and other easy actions to $et lo%8han$in$ /r#it' *hey $enerally have no experience o/ act#ally r#nnin$ b#sinesses, %hich /oc#s on creatin$ val#e' B#rea#crats are #nli:ely to p#t /or%ard s#$$estions that co#ld 9eopardi,e their o%n or$ani,ations, stat#s or careers' As:in$ them to improve the e4ectiveness o/ their b#rea#cracy is a:in to as:in$ mice to b#ild a better mo#setrap@ *he Privy "o#ncil O&ce has responsibility /or recommendin$ priorities and ob9ectives, %hich become :ey commitments o/ senior departmental exec#tives, %hich are incl#ded in their per/ormance a$reements' Achievin$ these commitments is s#pposed to be the basis /or bon#ses and per/ormance pay' (o%ever, commitments are n#mero#s and o/ten conKictin$, so almost everyone $ets a bon#s' G#t#re per/ormance a$reements sho#ld be limited to one or t%o meas#reable commitments to maintain or enhance services to "anadians and red#ce costs to taxpayers' All other 9ob re2#irements, s#ch as demonstratin$ val#es and ethics, sho#ld be treated simply as conditions /or employment' *he bi$ 2#estion is %hether the b#rea#cracy is really $oin$ to help, or merely o4er lip service' (irin$ a lar$e acco#ntin$ H cons#ltin$ +rm allo%s the b#rea#cracy to pretend to do somethin$, %hile stallin$ /or time' =#ch delayin$ tactics enhances the appearance o/ the di&c#lty o/ the tas:, increases the li:elihood that priorities and the environment %ill chan$e, and delays achievin$ meanin$/#l res#lts' *he *reas#ry Board =ecretariat and Privy "o#ncil O&ce have real roles to play in creatin$ the environment /or s#bstantive improvement, /or monitorin$ pro$ress, and /or en/orcin$ acco#ntability' Iet)s hope they sei,e this opport#nity@ LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL "ontrib#tor3 "hristopher =t#dholme Jisclaimer3 *his article represents the vie%s o/ the a#thor and not necessarily those o/ the "enter /or B#siness Practice >mprovement' Or$ani,ations choosin$ to /ollo% any approaches described in this article do so at their o%n ris:' *he a#thor and the "enter disclaim all liability' M Blaine napp, 2011