Agencies Must Understand True Costs to Save Long-Term

The good news? Coming up with reliable cost estimates isn’t as complicated as you think.

To cut costs, agencies first need to know what their costs are -- what’s driving costs and, more importantly, what’s needlessly driving costs higher than necessary. But in this area, we’re often flying blind. Some agencies and programs can’t tell you with any reliability what their activities cost. The good news is coming up with reliable estimates of what things cost isn’t complicated. But it’s an important first step in finding ways to cut budgets responsibly in a time of unprecedented budget uncertainty.

Do you know what’s driving the costs of your programs? Is there a cheaper way to get the job done? Could you recover some of your costs through reimbursement or some other means? Too often, the answer is: we don’t know. And GAO’s reporting on this particular issue bears this out. As they write in their audit of the government’s financial statements, “Unreliable cost information affects the federal government’s ability to control and reduce costs, assess performance, evaluate programs, and set fees to recover costs where required or authorized.”

At Grant Thornton, we survey chief management officers throughout government to document and analyze their major challenges. In virtually every case, CXOs tell us management challenge number one is the budget -- making do with less. Whether under a continuing resolution, post sequestration, or even if sequestration is avoided, cuts are coming. Before picking up the budget axe, agencies need to take a hard look at what’s driving their costs and where cutting will do the least damage.

Whether you’re a department or agency, a major program, or a small office, a few simple steps can help you measure your costs and find ways to cut or recover them with the least amount of pain. Analyzing the relationship between an agency’s mission, its goals, objectives, and work activities gives leaders and managers the insights they need to surgically weed out ineffective, duplicate or unnecessary functions from their organizations. And if you are not taking the time to make careful cost cutting choices based on reliable data, you’re performing surgery with a blindfold on. For more information visit grantthornton.com/publicsector.

We would like to know – do you agree that the budget is the greatest challenge facing government? What have you implemented that has been successful?