pig money bank wearing belt

savingmoneyI have written a great deal over the last four years on our various blogs around the importance of commercial acumen particularly for government organisations.  I see this as a critical skill for government organisations to develop in all leaders at all levels.  This is particularly important given how much government organisations interact and work with the private sector in looking to achieve outstanding outcomes for the community and their stakeholders.  The challenge has always been government and government leaders understanding the business models and commercial practices of the private sector.  They are not well understood nor are they taught to government leaders which is disappointing given the role the private sector is to successfully delivering outcomes.  In addition to this, the private sector do not always understand government budget and business planning practices which makes it challenging for both parties to align on win/win outcomes.

One of the key interfaces that determines which service providers will be working with government is the tender evaluation teams and procurement processes.  Too often when sitting on panels or in discussions with clients when they are seeking service providers at the early stage of infrastructure or operating projects, they are driven heavily by cost.  That is, what will drive the immediate lowest price from their service providers.  This for me is the wrong approach particularly when you are seeking value for money outcomes over the whole life of the asset.  A better approach which I will detail below is to understand the relationship between cost, time and quality as these are three of the more important drivers behind successful delivery of outcomes and whether or not government agencies drive value for money outcomes for their stakeholders.

If a government agency is focussed on an aggressive programme or timeframes, project and overall costs tend to increase to take in to account this acceleration.  Further, quality may also be compromised in this scenario as the acceleration can often mean we do not do the small things well in the haste of time leading to potential challenges in operating the asset or maintaining the infrastructure.

If the government agency is focussed on the lowest possible price from the service provider, this often means the service provider has bid it low because they know the government organisation evaluates in this manner.  This means that limited resources may be provided to deliver the project because the margins are lean and there are other more profitable opportunities and projects to utilise their people and resources.  This will then affect long term quality as well as the ability to maintain the infrastructure or project which impacts on whole of life costs.

If the focus is on quality from the government agency at the start of the evaluation, you will tend to pay a premium for this up front as part of the build or development of the project.  Time will normally also increase due to wanting to get it right and ensure the quality and functionality is high.  You may pay a little more up front but long term you benefit financially as there is a reduction in long term operation and maintenance costs because the asset has been built to last.  This holistic approach is one that delivers better outcomes long term for everyone involved and takes a long term approach to decision making, evaluation of tenders and how you manage and nurture the supply chain in driving the right behaviours with them around quality and functionality.

Whatever your definition of value for money, different clients will have different drivers depending on where they are at with their strategy and condition of their assets and infrastructure.  The key is to balance the different elements to cover cost, time, quality, operations and maintenance along with stakeholders and the community.  The focus on cost in evaluation is a race to the bottom.  The challenge lies in taking the long term view and ensuring we are not taking short term cost gains to the detriment of value for money outcomes long term.