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Define the cost objective and relevant range for the goods and services that public organizations deliver. Contrast fixed costs with variable costs. Contrast direct costs with indirect costs. Allocate costs across departments, organizations, and jurisdictions.
Jun 13, 2024 · Each year, GAO reports on federal programs with fragmented, overlapping, or duplicative goals or actions and we've proposed hundreds of ways to address those problems, reduce costs, or boost revenue.
- Foreword - Cat Little, Second Permanent Secretary of HM Treasury
- Using this guide - Tom Wipperman, Strategic Finance Director in the Ministry of Defence
- 1. Driving efficiency in government
- 2. Defining efficiency
- 3. Tracking efficiency
- 4 Data and reporting
- 5. Benefits realisation, risk, and governance
- 6. Insight
- 7. Annex
Driving efficiency is a mindset. In making sure we are maximising output for the minimum input, and in spending money on the things that most effectively achieve our intended outcomes, we make the most of taxpayers’ money. Delivering our public services efficiently is a core leadership responsibility for everyone.
This guidance is to support departments in delivering efficiencies – it is for every public servant involved in delivering our public services. It establishes a framework for how we should categorise and track the efficiencies we are delivering; in standardising our reporting, we create more consistency in our approach across UK public services. In doing so, we foster trust through greater transparency.
We should deliver efficiently, and embed productivity into everything we do, but we shouldn’t lose sight of outcomes and what we are trying to achieve for the public good. This guidance establishes that when we think about delivering efficiency in government, we are thinking about whole-system impacts and using high quality data. As public servants, we need to make sure that decisions are considered properly, that we assess and quantify benefits realisation in all that we do.
I hope you find this guidance useful. We should strive to continuously improve how we deliver benefits in government spending. It is a fundamental part of our role as public servants in the stewardship of public funds.
Every day we make decisions on how to improve delivery of public services and drive more efficiency. The effectiveness of our decision making and quality of our outcomes is driven by the quality of our data. When we do this well, we are enabling public servants – from teams delivering on projects or providing services, to senior leaders and ministers making decisions – to administer public funds with the best possible information to best possible effect.
How we report and track efficiency savings is a key component of delivering value for taxpayers’ money: to support departments and other public sector bodies with this, we have produced the Government Efficiency Framework. It sets out what efficiency is, how we should categorise it, and best practice in gathering high quality information to best inform our decision making.
Departments are trying to deliver different kinds of efficiency savings. This guidance therefore takes a principles-based approach to the drivers of efficiency savings. There is a reporting framework and suggestions for best practice in gathering high quality data, reporting, capturing benefits realisation, and assurance. You will find examples, suggestions, and templates to help.
This is for everyone involved in the identification, monitoring, and tracking of efficiencies. It should equip you with an underpinning understanding of why, as well as provide clear information on how you can do this effectively and consistently.
The government is committed to continue identifying ways to work more efficiently, and so reduce the running costs of government and our public services. Day to day, departments are making decisions to live within their departmental expenditure limits (DEL) totals – and should seek to drive continuous improvement and improve the productivity with which government services are delivered, while maximising opportunities to drive efficiency.
This document sets out a standard approach and framework for the tracking, monitoring, and oversight of efficiency savings. It provides the definitions and reporting standards for efficiency savings, best practice guidance for reporting processes, and guidance on how department should be reporting efficiency savings to HM Treasury. Effective, standardised reporting ensures that we understand what is being done well and where improvements can be made.
In simple terms, efficiency means being able to spend less to achieve the same or greater outputs, or to achieve higher outputs, while spending the same amount. Efficiency does not include decisions to reduce costs with the intention to achieve less.
There are two different categories of efficiency – these are set out below.
3.1 Categories
If efficiency opportunities are monetisable, realised efficiency gains can be categorised as either as cash releasing or non-cash releasing. Cash releasing means it could lead to a direct reduction of departmental spending on an activity, project, programme, or policy; non-cash releasing means there is a benefit (which could be either monetisable or non-monetisable saving) but it does not lead to a direct reduction in spending.
Cash releasing
i. Cash releasing savings
Non-cash releasing
ii. Monetisable non-cash releasing savings iii. Quantifiable but non monetisable benefits iv. Qualitative unquantifiable benefits
This section sets out the effective use of data to monitor efficiencies, and the appropriate tools to maximise monitoring effectiveness. It explains the minimum expectations, best practice, and steps to make sure better data standards are embedded across organisations.
Departments will need to, at minimum, have central data monitoring processes in place to oversee the delivery and realisation of cash releasing efficiency savings as agreed with HM Treasury; this will simplify reporting processes so that departments are reporting once, in a systematic, regular way.
HM Treasury uses this information to understand the overall efficiencies being delivered across government and so inform longer term planning. The data should therefore be accurate and timely to ensure that decisions are made with accurate information.
Data is an asset. In this context, it enables effective decision making, to ensure that senior leaders and ministers understand the impacts and delivery of efficiency initiatives. This ultimately leads to improved service quality, greater efficiency, reduced costs of public services, and an improved ability to measure the impacts of policies and programmes.
5.1 Benefits realisation
Benefits realisation planning and monitoring ensures that intended outcomes are achieved[footnote 3]. Green Book business case guidance sets out expectations for a benefits realisation strategy, framework, and outline. The Infrastructure & Projects Authority (IPA) provides users with case studies, tools and guides on how to meet those expectations. The below assumes that teams have considered this, and so focuses specifically on the realisation of efficiency savings (as benefits), ensuring governance arrangements are in place to support accurate and timely reporting and to identify risks to delivery. Efficiency savings, when considered as a benefit, would typically be mapped through the wider benefits management of a programme or portfolio and be integrated into wider project management activities. Benefits management should also be built into, and follow, the full extent life cycle of the delivery of a change that will unlock an efficiency saving – before, during, and after. It is especially important to make sure there are plans in place to transition any benefits management work into ‘business as usual’, as most often efficiencies are realised after a project or programme has been delivered. For an example of best practice benefits realisation reporting please see Annex A.
5.2 Methodology
A benefits management methodology outlines how the efficiency savings/benefits will be calculated and validated – it should be produced as early as possible. If an efficiency saving is identified within a business case, it would in accordance with Green Book guidance be initially considered at the Outline Business Case stage (where benefits identified will need to be valued), with a plan to realise the benefit at the Full Business Case stage. The methodology is a core aspect of this. The IPA’s benefits guidance (see footnote) provides further guidance and tools to consider before, during, and after the programme or project’s delivery. Methodologies should be produced for each identified efficiency. Budget holders/SROs should work closely with finance teams, analysts and economists to develop these. Every benefits realisation methodology should: Be supported by evidence and reasonable assumptions – this should include information on the baseline cost, clear calculations given against the baseline, and documented supporting evidence should be available Ensure all figures are accurately claimed, with evidence Ensure reporting is aligned with the right period Have sufficient review, verification, and governance arrangements in place The IPA has also produced Cost Estimating Guidance which sets out best practice approach to the development of cost estimates for projects and programmes; the principles may also apply to the projection of an efficiency saving.
5.3 Governance and oversight
Appropriate governance arrangements should be in place to ensure that efficiency data and reporting is regularly reviewed and assured, and so accountable and responsible seniors are sighted and ultimately approve efficiencies reported by the organisation. This in turn ensures that both the programme team and department can use high quality data to inform decision making, such as making interventions to enable or progress the efficiency measure.
This section sets out what data should be provided at the departmental level.
It is important that decision-makers undertake their duties in an informed way. To support finance leaders to do this in a board reporting context, the Government Finance Function has developed standards to guide the content that department teams produce for senior boards. The below is an addition to this, and forms part of the Board Pack Reporting Minimum Standards: Key & Subsidiary Metrics[footnote 7].
7.1. Annex A: Benefits best practice reporting to a departmental board
An example dashboard would include: 3-5 key messages A programme benefits realisation progress chart, featuring separate lines for actual vs. planned forecast A benefits delivery confidence overview, with coloured shading to indicate whether each benefit is a major or minor contributor A top cross-programme level risks to benefits chart
7.2. Annex B: Central dashboard for a department board
An example dashboard would include: A key narrative, including headlines as well as risks and opportunities A section showing in year efficiency A section showing efficiency in relation to SR Where appropriate, departments may want to include reporting on AME efficiencies at board level.
Cost-efficiency looks at the input prices in respect to the purchase options at the market, e.g. there is cost-inefficiency of one purchase inputs at higher than market prices, whereas allocative inefficiency points to an inefficient mix of inputs.
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Efficiency is generally measured as the price of producing a unit of output, and is generally expressed as a ratio of inputs to outputs. A process is efficient where the production cost is minimised for a certain quality of output, or outputs are maximised for a given volume of input.
central government, fiscal relations across levels of government must be such as to ensure that sub-national governments have the right incentives to deliver cost-effective public services.
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Shared Services help in the consolidation of common corporate administrative systems and functions among departments and agencies. This in turn helps in improving efficiency, effectiveness and lowering costs of service delivery.
