How Much for that Service in the Window, Mister?
If we don’t know how much it costs to provide a public service,
how can we know if it’s being provided efficiently?
by Mary Mckay

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Proper Costing and Program Review
NOVA SCOTIA, IN THE throes of yet another program review, again raises the prospects of many layoffs and program cuts. The Government of Nova Scotia can certainly move in this direction, as other provinces have done. However, it is also time for Nova Scotia to use this “crisis” as a means of positioning itself strategically to do better with less, to ensure the ongoing delivery of quality and economically sound services.

Nova Scotia is primed for the introduction of cost comparison service delivery. Adopting public-private cost comparison would make Nova Scotia a leader among provinces and ensure high quality and economical delivery of services to the public.

A wide variety of other governments have adopted similar costing mechanisms and have generated incredible savings while providing competitively priced services. Practitioners of this method include Australia, South Africa, the Department of National Defence/Canadian Forces, Ontario, the cities of Winnipeg and Ottawa, Indianapolis Indiana and Charlotte, North Carolina.

Comparing like with like
WHAT IS COST COMPARISON, and how is it used in government? Cost comparison methods may vary between jurisdictions, but essentially provide similar results. The activity involves taking the costs the public sector incurs when providing a service and comparing that with the same kinds of cost incurred by the private sector. The aim behind this method is assessing the extent to which government departments are meeting the costing standards of the private sector.

Using comparison costing has proven by the Organization for Economic Cooperation and Development to provide savings of at least 20% in the delivery of programs. It hardly needs to be said that 20% savings in service delivery could do wonders for Nova Scotia’s current budget woes.

Why should governments adopt business standards? From a merely economical standpoint it makes sense for governments to act as businesses do because it means linking the benefits of service delivery to the costs of service delivery. If the cost of the delivery in the public sector exceeds that of the private sector, then government can do more to make services more cost effective.

Here’s how it works
Indianapolis, Indiana

COST COMPARISON DOES not have to be rocket science. In the United States, the so-called “Yellow Pages” test for cost comparison has become popular, particularly in the city of Indianapolis. Here, Council members use program review to obtain lists of all government activities, along with their associated costs. The Council then cross checks the directory to compare similar costs of private sector delivery in similar service areas.

If the cost of providing the government services is significantly higher than that of the private organization, the council will give the administering department the opportunity to reduce the cost of producing the service. Failing that result, the service is contracted out to the private sector. This cost comparison process allows the organization to actively cost and compare all government services that could be provided by the private sector. It also gives in-house staff the opportunity to display their business strategies by reducing expenses or contracting out the activity.

Charlotte, North Carolina

COST COMPARISON PROVIDES benefits to the organization by making service delivery more competitive and by training staff and management in strategy and business planning. Charlotte, North Carolina, has been particularly successful in creating a managed competition program and has obtained savings of up to $9 million annually without reducing staff or significantly reducing services.

The methods used were not unlike those used in the Yellow Pages strategy. Charlotte recognized that it knew little about the costs of providing services to the public. In an effort to answer the growing anxiety surrounding the cost of city services, Council began a program of contracting out, using business practices adopted from the private sector. If the public sector team compiled of city workers out bids the private sector company it is awarded the contract. What is more, if the city team comes under budget by a certain percentage its members get a share of the profits in a gainsharing program.

If the city loses the bid it is responsible for monitoring and regulating the private sector provider, essentially maintaining government involvement and ensuring quality service delivery. Thus, quality does not suffer either way. The use of the cost comparison methods allows for transparency in costing and still maintains effective and efficient service delivery despite a potential change in providers.

Department of National Defence, Ottawa

THE DEPARTMENT OF National Defence/Canadian Forces has adopted similar practices as a part of its Alternative Service Delivery program. DND/CF now uses a MEO, or Most Efficient Organization strategy, where DND/CF staff are asked to find alternative methods to service delivery without competing jobs out to the private sector. This program has been tested at Canadian Forces Base Goose Bay and is considered by DND/CF to be a raving success. The biggest achievement behind the project is that staff use cost comparison methods to find ulterior routes of service delivery with costs no greater than those found in the private sector.

Focus on service quality and customer satisfaction
WHAT PUBLIC-PRIVATE COST comparison teaches us is that successful and quality service delivery has little to do with who is providing the service, and everything to do with the most effective and economical way of meeting citizen needs. Cost comparison should be seen as a fundamental step in program review because it goes further than simply asking what services governments should be providing. It raises issues of accountability in the provision of government service. It would let the public know that the Government of Nova Scotia is determined to be competitive with he private sector in terms of costs. It acknowledges that Nova Scotia government employees can be competitive with no loss in quality of service delivery.

However, if the government cannot meet private sector costs with no loss in quality, then the obligation to release service delivery to someone who can reduce the cost to taxpayers is evident. Agencies and organizations have been reluctant to divulge such power to the private sector for several reasons, including losing power over what are considered to be inherently governmental services. Behind this fear is the continued legal and social obligation the public sector has to ensure proper policy and regulation within private sector service provision. There is no inherent reason why contracted service delivery under the conditions outlined here would entail any loss of governmental control in terms of either policy or regulation.

The road ahead
GIVEN NOVA SCOTIA’S current fiscal conundrum the program review task force cannot afford to ignore a process that can ensure quality and cost effective service delivery to the citizens of Nova Scotia. Going beyond merely adopting the cost comparison modes, the government may wish to follow through with program review and adopt Alternative Service Delivery and Activity Based Costing as a further means to increase savings. Through properly costing service and finding options for those that may find a better home in the private sector, the Government of Nova Scotia can create a strong vision of how it would like to provide services and govern.

Mary Mckay is an MPA student in the School of Public Administration at Dalhousie University, where she works with Prof. Paul Brown, an authority on Alternative Service Delivery models. She can be reached at: Mimckay@is2.dal.ca