Consulting firm says agencies are missing out on major savings opportunities

The federal government could achieve substantial savings by undertaking operational reforms to boost productivity and increase efficiency, according to a new report from a management consulting firm.

Operational improvements have the potential to save between $45 billion and $134 billion annually -- or 5 percent to 15 percent of federal discretionary spending, the report by McKinsey & Co. found.

"We think this is the right time for the government to step up its game given the increased … pressure on government to do more," said Nancy Killefer, who runs McKinsey's global public sector practice and was President Obama's top management nominee until she withdrew for tax reasons. "At the same time the fiscal crisis has created a deficit story that is going to drive the need for greater efficiencies."

Recent government efficiency initiatives -- such as the Bush administration's competitive sourcing efforts and Obama's subsequent insourcing push -- have focused on system-level changes that can have an immediate short-term impact but lack the potential for continued savings, the report said.

To sustain long-term productivity improvements, the administration should set a clear mandate for operational change, establish well-defined performance and transparency targets, and build up the skills and capabilities of the federal workforce, the report recommended.

"We have seen incontrovertible evidence that dramatic improvements in performance and productivity can come about when governments make thoughtful, disciplined operational changes," the report stated. "Simply doing the same tasks in new ways, as it turns out, can be extremely powerful."

The government has experienced a number of recent efficiency successes that it can build on, said Thomas Dohrmann, a partner at McKinsey and one of the authors of the report.

For example, two years ago the State Department revamped its Foreign Service application process. Previously, testing for the program was conducted once a year. After the test, it would take several more months to process the results and begin interviewing applicants. Now, the program is conducted on a continuous cycle, Dohrmann said, reducing the application process from as long as 18 months to a maximum of four months.

"This allows them to be more efficient," he said. "And, this type of approach can be duplicated across every agency."

There are plenty of additional opportunities for reform, Dohrmann said. One relatively easy reform that has yet to be implemented, he noted, is to automate, through the use of bar codes, the government's citizenship application process. Now applicants must fill out a form online, print it and mail it back to U.S. Citizenship and Immigration Services.

While Dohrmann and Killefer are calling for systematic and strategic overhauls of government processes, the administration has been thinking somewhat smaller.

In April, Obama challenged his Cabinet to indentify a combined $100 million in savings. Among the proposed changes was the Veterans Affairs Department canceling a number of out-of-state conferences and the Homeland Security Department consolidating its office supply purchases.

Republicans and government watchdogs mocked the efforts as too modest, but Killefer said long-term strategic change is on the administration's radar. "That was an opening salvo, but it's not the whole story," she said. "There is a lot more that can be done."

Last month, Office of Management and Budget Director Peter R. Orszag raised the ante somewhat, asking agency leaders to come up with plans for cutting fiscal 2011 spending by 5 percent over amounts predicted in the fiscal 2010 budget, and freezing spending at fiscal 2010 levels.

But, an across-the-board cut could be inappropriate, Killefer said, because some agencies are less productive due to of a lack of resources, while others might have greater opportunities for savings.

"If you cut 5 percent across the board you actually risk diminishing services and not having a set of savings that will stick because you haven't really changed anything," Killefer said. "You've Band-Aided your way [to savings]."

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