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Let’s put that savings number in perspective. The Federal Government spends about $4 trillion every year. To save $1 trillion over ten years, the Federal government needs to reduce its spending by $100 billion each year, which is 2.5 percent percent of its total spending. That does not strike us a particularly high hurdle to jump.
Most of the $4 trillion that the Federal government spends is in the form or transfer payments (collecting money from one party and giving it to another). About $550 billion is spent on buying “stuff”. The rest - less than $1 trillion - is actually spent on delivering services. So to find $100 billion in annual savings, the key is to see what kinds of commercial best practices might apply to these unique areas of spending.
For example, the biggest driver of spending on transfer payments (Social Security, Medicare, agricultural subsidies, etc) is the policy choices that our representatives in Washington DC make. I think we all understand that the country needs to make a different set of policy choices in the future if we are to put the nation on a path to fiscal sustainability. In the meantime, OMB estimates that the Federal Government makes $100 billion in improper payments within these programs each year. We estimate that the $10 billion in savings could be generated each year by applying advanced analytical tools specifically designed to identify improper payments.
As a big company that buys billions of dollars worth of goods and services each year, we know how important it is to have procurement processes that are streamlined and focused on getting good value. During the past 20 years, most large companies have re-invented their procurement operations by adopting a set of practices that we call “Streamlining Supply Chains”. If the Federal government applied those same lessons, we estimate that $50 billion could be saved each year.
Our remaining five strategies focus on operational improvements of the type that most company managers would readily recognize. Consolidate field operations and IT services, cut energy expenses, streamline back office operations, and make businesses that should pay for themselves actually pay for themselves. Collectively, these initiatives should (conservatively) save another $40 billion each year for the Federal government.
There you have it: $100 billion in annual savings just by being a bit “smarter” in how the government operates. These initiatives won’t solve the budget problems alone, but they sure make a dent. Be sure to read our blog entries to follow, where we will explore these opportunities for savings in greater depth.
** This article was written by Debra Cammer Hines **
