Broken Government: A Case Study in Penny Wise but Pound Foolish Management

Often I write about the opportunities of government 2.0, but it is important for readers to be reminded of just how challenging the world of government 1.0 can be, and how far away any uplifting future can feel.

I’ve stumbled upon a horrifically wonderful example of how tax payers are about to spend an absolutely ridiculous amount of money so that a ton of paper can be pushed around Ottawa to little or no effect. Ironically, it will all in the name of savings and efficiency.

And, while you’ll never see this reported in a newspaper it’s a perfect case study of the type of small decision that renders (in this case the Canadian) government both less effective and more inefficient. Governments: take note.

First, the context. Treasury Board (the entity that oversees how money is spent across the Canadian government) recently put out a simple directive. It stipulates all travel costs exceeding $25,000 must get Ministerial approval and costs from $5000-$25,000 must get Deputy Head approval.

Here are the relevant bits of texts since no sane human should read the entire memo (infer what you wish about me from that):

2.5.1 Ministerial approval is required when total departmental costs associated with the event exceed $25,000.

and

2.5.5 Deputy head approval of an event is required when the event has the following characteristics:

Total departmental costs associated with the event exceed $5,000 but are less than $25,000; or

Total hospitality costs associated with the event exceed $1,500 but are less than $5,000; and

None of the elements listed in 2.5.2 a. to g. are present for which delegated authority has not been provided.

This sounds all very prudent-like. Cut down on expenses! Make everyone justify travel! Right? Except the memo suggests (and, I’m told is being interpreted) as meaning that it should be applied to any event – including an external conference, but even internal planning meetings.

To put this in further context for those who work in the private sector: if you worked for a large publicly traded company – say one with over 5,000, 10,000 or even more employees – the Minister is basically the equivalent of the Chairman of the Board. And the Deputy head? They are like the CEO.

Imagine creating a rule at such a company like Ford, that required an imaginary “safety engineering team” to get the chairman of the company to sign off on their travel expenses – months in advance – if, say, 10 of them needed to collectively spend $25,000 to meet in person or attend an important safety conference. It gets worse. If the team were smaller, say 3-5 people and they could keep the cost to $5000 they would still need approval from the CEO. In such a world it would be hard to imagine new products being created, new creative cost saving ideas getting hammered out. In fact, it would be hard for almost any distributed team to meet without creating a ton of paperwork. Over time, customers would begin to notice as work slowly ground to a halt.

This is why this isn’t making government more efficient. It is going to make it crazier.

It’s also going to make it much, much, more ineffective and inefficient.

For example, this new policy may cause a large number of employees to determine that getting approval for travel is too difficult and they’ll simply give up. Mission accomplished! Money saved! And yes, some of this travel was probably not essential. But much, and likely a significant amount was. Are we better governed? Are we safer? Is our government smarter, in a country where say inspectors, auditors, policy experts and other important decision makers (especially those in the regions) are no longer learning at conferences, participating in key processes or attending meetings about important projects because the travel was too difficult to get approval for? Likely not.

But there is a darker conclusion to draw as well.  There is probably a significant amount of travel that remains absolutely critical. So now we are going to have public servants writing thousands of briefing notes every year seeking to get approval by directors, and then revising them again for approval by director generals (DGs), and again for the Assistant Deputy Ministers (ADMs), and again for the Deputy Minister (DMs) and again, possibly, for Ministerial approval.

That is a truly fantastic waste of the precious time of a lot of very, very senior people. To say nothing of the public servants writing, passing around, revising and generally pushing all these memos.

I’ll go further. I have every confidence that for every one dollar in travel this policy managed to deter from being requested, $500 dollars in the time of Directors, DGs, ADMs, DMs and other senior staff will have been wasted.  Given Canada is a place where the population – and thus a number of public servants – are thinly spread across an over 4000 kilometer wide stretch I suspect there is a fair bit of travel that needs to take place. Using Access to Information Requests you might even be able to ball park how much time was wasted on these requests/memos.

Worse, I’m not even counting the opportunity cost. Rather than tackling the critical problems facing our country, the senior people will be swatting away TPS reports travel budget requests. The only companies I know that run themselves this way are those that have filed for bankruptcy and essentially are not spending any money as they wait to be restructured or sold. They aren’t companies that are trying to solve any new problems, and are certainly not those trying to find creative or effective ways to save money.

In the end, this tells us a lot of about the limits of hierarchical systems. Edicts are a blunt tool – they seldom (if ever) solve the root of a problem and more often simply cause new, bigger problems since the underlying issues remain unresolved. There are also some wonderful analogies to wikileaks and denial of service attacks that I’ll save that for tomorrow.

 

 

12 thoughts on “Broken Government: A Case Study in Penny Wise but Pound Foolish Management

  1. deadsquid

    It’s just a PR move to show them they’re “doing something” to prevent Bev Oda-like embarrassments. The really sad (as in pathetic) part is that the overwhelming majority of the rank and file treat what they spend as their own. It’s the executive who constantly end up in the news for their largesse, and the people actually trying to get work done have to deal with this BS. Broad, sweeping policies like this are ridiculous. There are fantastic data-mining tools that are available to identify outliers with questionable spending habits very early on, and could be applied by treasury (or any department’s finance group) to react and correct abuses quickly, rather than throwing roadblocks up to everyone in an attempt to prevent what’s going to happen up top anyways.

    Reply
  2. Interested Reader

    I agree with your larger point, David, but comparisons between public and private organizations don’t really work.  They are different types of organizations, with different purposes and different accountabilities.  Governments aren’t, and shouldn’t be, run like businesses.  So, comparing costs of doing business is problematic.

    Still, that doesn’t prevent us from asking what the principles of efficient or effective government mean when applied to the new Directive, to see if they meet some generally accepted level for governments.

    Reply
  3. Interested Reader

    I agree with your larger point, David, but comparisons between public and private organizations don’t really work.  They are different types of organizations, with different purposes and different accountabilities.  Governments aren’t, and shouldn’t be, run like businesses.  So, comparing costs of doing business is problematic.

    Still, that doesn’t prevent us from asking what the principles of efficient or effective government mean when applied to the new Directive, to see if they meet some generally accepted level for governments.

    Reply
  4. Chris Adams

    This is more “large organization” than government – I’ve seen similar policies in higher education and very large businesses, although government obviously has more pressure to demonstrate cost-control.

    The underlying mistake – ignoring opportunity costs, relying on preapproval rather than auditing – show up in many other areas, as anyone who’s burned $1,000 staff time getting approval for a $40 license can attest. It also provides an interesting pathology where people spend more both because the cost to them is the same and there’s no incentive for them to be creative in saving money and common options (e.g. splitting rooms at a conference) are much harder within the constraints of the approval process.

    I wish more jobs commonly had a modest pre-allocated yearly training budget with a simple managerial sign off on appropriateness. In addition to reducing overhead, it’d give everyone an incentive to trim their expenses since that’d mean they could fit in an extra trip or two.
    (indexing per employee rather than setting fixed caps would move it out of the amusingly short-sighted level of policy as well)

    Reply
  5. Tim Goos

    Wait … re-read it.  Section 2.5 is all part of Part 2 — Specific Requrements for Hospitality.  Part 1 is the Travel section and I don’t see this requirement there.

    Reply
      1. Tim Goos

        Really.

        Turns out, I need to take my own advice …..  It isn’t the section 2.5 that you quoted but rather a new Section 6.5 in the main body of the directive where it says: 

        “6.5 Ensuring that approval is received from the appropriate minister in cases where the total departmental cost for a single event exceeds $25,000, or any other element listed in section 2.5.2, Part 2, Appendix A are present; where the situation is the former confirming that the event provides a) value for money and b) the use of the most economical option to minimize or reduce costs, and where the situation is the latter, that total event costs are disclosed to the minister, for information.”

        This would appear to effectively extend it to all events.

        Reply
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  8. James McKinney

    From what I understand, directives typically refer to a minister or other senior official, *because those are the only posts that exist according to legislation.* Ministers can structure their ministries however they want and delegate responsibilities. You wouldn’t want to have to rewrite legislation or directives just because the minister did a little internal reorganization. I’d be surprised if the ministers themselves directly approved any of these costs.

    Reply
    1. David Eaves

      James – this is not what I’m hearing from sources across government. Indeed, to get approval for something now takes months since you must write up the case for the Minister/DM to approve, something that takes a huge amount of time and energy. Indeed, I’ve even heard of events, internal planning meetings, etc… being cancelled (and deposits being lost) because the timelines for approval are so slow.
      Maybe the system will adapt, but if it does, it will just mean a whole new bureaucracy (and expense) has been created.

      Reply
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