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August 17, 2010

How Governments Can Cut Costs: Gartner

Governments the world over seem to be running out of options to fix the global economy. The traditional solutions: standard cost-cutting, economic stimuli, even wars are not turning over the engines of recovery.

Gartner (News - Alert) thinks that governments need to, “take radical steps to make further cost savings amid ongoing uncertain economic conditions” as, “the traditional means to reduce costs that have already been applied may not be enough to produce the sustainable savings that are required.” 


Gartner has compiled a list of options for government organizations to save money, both in IT and through joint business and IT initiatives. While this prescription is not exhaustive, it reflects the firm’s discussions with clients during the past several months.

The full details are contained in the report, “From Modernization to Survival: Radical Cost Reduction in Government” is available on Gartner’s website.

Here are the key ways that Gartner says governments can radically cut costs:

*Use public cloud services. Government organizations that are challenged by major budget cuts should pilot public cloud services where they are demonstrably significantly less expensive, accepting a level of risk that will most likely decrease in the future. This should start with non-mission-critical applications and move to mission-critical ones

*Use community source and the cloud as alternatives to incumbent vendors. Open source has certainly gained its place in the portfolio of solutions that most government agencies utilize.

“While some might think that the role of open source as an alternative to commercial vendors is no longer an issue, it can still be useful in negotiating with vendors at the higher levels of the stack,” says Andrea Di Maio, vice president and distinguished analyst at Gartner. “We recommend that government CIOs consider program areas where joint development with peer agencies would be possible to facilitate service-level and price negotiation.”

*Pursue crowdsourcing. Budget constraints often lead to reducing the use of external consultants, which leaves agencies with significant coverage holes and unable to proceed on certain projects. Crowdsourcing is a way to expose a problem to a wide community; CIOs need to encourage government agency executives to identify problems that cannot be addressed through traditional contractual means due to budget constraints, and select some for crowdsourcing

“Overall, a number of signals indicate that the financial climate is forcing the U.K. and European governments in general to follow in the footsteps of commercial organizations,” says Claudio Da Rold, vice president and distinguished analyst at Gartner. “We expect that governments in Europe are likely to follow the U.K.’s spending cuts and gradually move toward increasingly considering consolidation, outsourcing, global delivery models and industrialized services as potentially viable options to reduce spending.”

*Cancel high-risk, high-profile programs. Government CIOs and other executives should assess the public value, alongside the risk and residual cost, of large programs, regardless of how much money has been invested. For citizen-facing programs, a fact-based estimation of the likely uptake is essential. For infrastructure programs, alternative scenarios should be developed to assess the public value in each scenario and determine the case for continuing the investment

*Enforce rigorous yet lightweight portfolio management. Organizations need to adapt or establish portfolio management processes that are agile enough to be applied to both capital spending and operational spending, and to investments or expenditures of different amounts

*Link interoperability frameworks to immediate benefits. Joined-up government projects that have a clear value and risk being delayed or made more expensive by rigorous compliance with a whole-of-government interoperability framework should be reassessed, in order to identify whether lower-cost and lower-risk integration approaches can be pursued

*Shut down channels (including e-channels). Whereas governments have already consolidated and reduced channels for government-to-business services, the same has not happened for citizen-facing services. Government CIOs and business executives need to reassess the effectiveness of service and information channels, and those that are less cost-effective need to plan for shutdown by moving constituents to other channels

*Open government: do not engage unless it’s for a reason. Executives responsible for open government policies and plans should set deadlines for open government initiatives to demonstrate potential for value and, in particular, contribution to operational efficiency 

*Aggressively implement government telework programs. If furloughs, salary freezes or other cost-reduction measures that impact employee compensation are necessary, telework may work as an incentive to compensate the lower salary. Gartner advises government CIOs and other business executives to implement telework wherever possible

*Task and reward employees for cost-saving innovation. Governments should seek innovative ways to tap into the knowledge of their employees to solve problems, especially in the area of efficiency gains. A recent example of this is the Spending Challenge started by the U.K. Treasury, where government employees are encouraged to submit ideas for the Spending Review before opening this process to a wider public

Gartner analysts will further discuss how to optimize sourcing and industrialize services in different economic cycles. The Gartner Outsourcing & IT Services Summit 2010 will be held on September 20-21, in London, U.K. For more information about the Summit please visit www.europe.gartner.com/outsourcing.

“Government organizations in most of the Western world have already gone through one or two cost-cutting cycles during the past few years,” says Di Maio. “However, the aftermath of the most recent global financial crisis, the sluggish recovery in some countries and the significant level of debt require continued and increasing cost-containment discipline and are forcing government organizations to explore new avenues of cost reduction.”

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