Tuesday, January 17, 2012

IT can drive big productivity gains in government

With the rise in the efficiency dividend and increasingly tight budgets across government, I keep wondering whether there are places where government can make real savings and raise productivity other than simply by cutting costs.

The crunch is often that one must invest money to save money - a position common in business but often a struggle in government, where the focus is so often on grants and programs.

However, having spoken to a fair few frustrated people lately from a range of agencies, there appears to be a significant source of productivity gains - and thereby cost savings - right under the noses of many departments. Their IT systems.

Over the last year more and more of my friends and peers changing departments have cited IT as one of their reasons for wanting to make a move. They all want to be productive, however grappling with slow and aging computers and software or restrictive internet access policies appears to be rising as a concern and even becoming a question to agencies in interviews.

This doesn't surprise me - in fact I noticed when I originally joined the public service that, through no fault of departments, the IT equipment and software wasn't up to the same standard as I'd experienced in the private sector. Over time people adapt and learn to work within the constraints of the system, however what productivity could be unlocked if these constraints were relaxed?

Today I'm aware of agencies where reportedly close to 50% of staff have their own computing devices at their desks. Personal ultra-light laptops, tablets and smartphones have become one route to employee productivity, overcoming desktop IT restrictions.

However since a friend of mine left an agency late last year frustrated that they lost over an hour a day of productive time in struggling with their desktop computer and that they couldn't access the forums and blogs written and frequented by their stakeholders due to access limits, I thought it was worth doing a calculation of the productivity losses that could be attributed to IT constraints.

Let's say that an agency's low bandwidth or older desktop PCs and software cost 2 hours of productive time per employee each week. This may sound like a lot, but if a PC takes 10 minutes to start up each morning you're halfway there already.

For a moderate sized agency of 4,000 staff the lost productive time would be 8,000 hours per week - the equivalent of employing another 200 staff.

At an average wage, including onboarding costs, of $70,000 per year (about $35 per hour), this lost time equates to $280,000. Each week.

Per year the cost of the IT productivity loss would be $14,560,000. Every year. Or, if you prefer, a productivity loss of $3,640 per person per year. Every year.

For an agency experiencing this type of productivity loss there's a few ways to offset it:

1) Reduce wages across the board by $3,640. This would be deeply unpopular.
2) Find efficiencies in other areas (reducing expenses) equivalent to the lost productivity. This may be difficult to do every year.
3) Reduce expenditure on programs and activities affecting citizens. This is politically dangerous.
4) Invest in IT improvements.

So how much would agencies have to invest to reclaim that 2 hours per worker per week? It would vary quite widely as it depends on what is causing the IT productivity drain.

However it is possible to model how much an agency should be willing to invest into improving their IT. This, of course, assumes that agencies can convince their Minister, the Department of Finance and Treasury that they should invest in IT systems - not an easy sell.

Assuming that an IT cycle is around five years (from a top-end PC becoming a low-end PC and corresponding software and network impacts), an agency should spend less than the cumulative five years of productivity loss in order to emerge ahead.

On that basis, a Department should spend less than $18,200 per staff member (the $3,640 productivity loss multipled by five years). Given wage rises, let's round this up to a maximum of $20,000 per staff member.

Therefore a Department with 4,000 staff should spend at most $80 million to rejuvenate its IT and remove the productivity shrinkage. If it spends less than this it is realising a productivity increase.

That's a fair chunk of cash - and far more than most agencies of that size would ever need to spend on IT equipment and software.

In fact, if you bought every staff member a $3,000 PC plus the same amount for support, equipped each staff member with $2,000 of software and $2,000 worth of broadband (coming to $10,000 per staff member), you'd only have spent $40 million for a 4,000 person agency.

Of course with bulk purchases agencies can get much better prices than these. Also I didn't include staff, training and overheads. Hopefully it would balance out.

If it did, that would leave you with $40 million dollars in productivity savings - $8 million per year.

Of course all these figures are 'finger in the air' rough and some of the productivity benefits can be realised quickly and cheaply by simply adjusting internet policies and filters or giving staff who need the best equipment the equipment they need.

However the basic premise holds, that IT isn't just a cost for agencies, it is a valid and important source of productivity gain for agencies. If an agency can equip their staff with the right tools and connectivity for their jobs they will be able to be more productive.

And if an agency can do so at less than the cost of their staff not having the right IT tools then the agency, the government, and Australia, are all ahead.

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