Saturday, 14 March 2009

How to waste a small fortune

I'm going to link up two articles here, one of which gets it right, and one which gets it very badly wrong.

First, we have Penny wise, pound foolish - which is bang on the money.

....the problems of trying to make small budget changes in order to finesse a revenue contraction--the famed "wasteful spending" that politicians and CEOs are always promising to cut. These small changes are, in some ways, harder to implement than simply slashing a few big line items.

If you cut a department, it's easy to monitor--you no longer have that department. But if everyone's supposed to spend 1% less on everything, it requires a phenomenal amount of administrative overhead to design those changes, and then keep track of them.
Do read the whole thing. I've been through that at least once a year.

Fairfax then gives us this - for a change, I am quotng from the Stock Journal Farm online instead of the SMH, but the exact same article appears in both:

Principals to lose control over school purse strings

PRINCIPALS will no longer have direct access to their school's bank account from next year when the NSW education bureaucracy starts paying bills on their behalf in a bid to save $120 million over five years.

The Department of Education has confirmed it is tightening control over school finances which it believes some schools have frittered away.

From next year, principals will need to invoice all school purchases through the department. Some principals say they fear the new system, which requires principals to order equipment or repairs online, will lead to lengthy delays in obtaining goods and additional costs.

There is no way in hell this will save $120 million over 5 years. None.

And you know what? No one will ever run an audit in say 3 years time to check whether any savings have been made.

It doesn't tell us how much it cost to do this either.

It will probably end up costing more to switch to a centralised system than they will ever save.

Here is my advice - when a department says they will save $120 million over 5 years, you call in the Director General and the Chief Financial Officer and give them this directive:

  1. Your budget will now be cut by $120 million over the next 5 years - I'm starting by taking $24 million off this year's budget
  2. If you fail to make $24 million in cost savings in purchasing by the end of this budget year, you are fired. Both of you.
Thankyou, and goodnight.

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