Alternative Service Delivery

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Alternative Service Delivery

• A Risky Business?

Presented to GFOAT Spring Institute 2008 April
14, 2008 David W. EisenlohrManaging Partner
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Discussion Agenda

• Definitions
• Why ASD?
• GFOA Guidance
• An ASD decision model
• Risk considerations
• Question Answer

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Alternative Service DeliveryA Working Definition

• ASD entails the pursuit of new and appropriate
  organizational forms and arrangements, including
  partnerships with other levels of government and
  nongovernmental sectors, in order to improve the
  delivery of programs and services.

SOURCE Alternative Service Delivery, David A.
Good and Barry Carin, Association of
Universities and Colleges of Canada, August 2003
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ASD can take multiple forms

• Process reengineering
• Cooperation / collaboration
• Interlocal agreements
• Privatization
• Cosourcing / Shared Services
• Outsourcing / Managed Competition

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• Given this definition, who here DOES NOT have
  alternative service delivery models in place?

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Why contemplate ASD?

• Need to focus on core business activities
• Requirement to control costs
• Desire to improve service levels
• Ability to minimize capital outlays
• Opportunities to leverage new technologies

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ASD Applicable GFOA Recommended Practices
ASD
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Recommended PracticeMeasuring the Cost of
Government Service

• The Government Finance Officers Association
  (GFOA) recommends that governments calculate the
  full cost of the different services they
  provide.
• Cost data can be extremely useful in identifying
  situations where a government should explore
  alternative service delivery options.
• For example, in considering privatization or
  other forms of external competition, a
  jurisdiction should distinguish avoidable costs
  from unavoidable costs, because only the former
  are relevant to a privatization decision
  Furthermore, decisions involving privatization
  or other forms of external competition should
  take into account the cost of transition, as well
  as any monitoring or oversight costs that are
  expected to result from a change in service
  provider

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Recommended PracticeManaged Competition as a
Service Delivery Option

• The Government Finance Officers Association
  (GFOA) recommends that governments systematically
  identify and evaluate the major factors in
  considering a managed competition option. Service
  level, cost, efficiency, effectiveness, quality,
  customer service, and the ability to monitor the
  service providers work should be essential
  components of any managed competition decision
• Governments are continually tasked with
  providing high quality services within the
  constraints of limited financial resources. In
  order to meet this challenge, many governments
  have turned to the private sector or other
  governments as an alternative to in-house service
  delivery as potential ways to save money or
  improve services. One choice within potential
  service delivery options is managed competition,
  in which governments require in-house service
  units to compete with external providers.

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Recommended PracticeUsing Performance
Measurement for Decision Making

• The Government Finance Officers Association
  (GFOA) recommends that program and service
  performance measures be developed and used as an
  important component of long term strategic
  planning and decision making which should be
  linked to governmental budgeting.
• When used in the long-term planning and goal
  setting process and linked to the entity's
  mission, goals, and objectives, meaningful
  performance measurements can assist government
  officials and citizens in identifying financial
  and program results, evaluating past resource
  decisions, and facilitating qualitative
  improvements in future decisions regarding
  resource allocation and service delivery..

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Recommended PracticeBudgeting for Results and
Outcomes

• The Government Finance Officers Association
  (GFOA) recommends that governments consider
  budgeting for results and outcomes
• Budgeting for results and outcomes links
  strategic planning, long-range financial
  planning, performance measures, budgeting, and
  evaluation. It also links resources to objectives
  at the beginning of the budgetary process, so
  that the primary focus is on outcomes rather than
  organizational structure.

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Recommended PracticeAlternative Service
Delivery Shared Services

• The Government Finance Officers Association
  (GFOA) recommends that governments examine the
  benefits of alternative service delivery that
  involves shared service efforts.
• Governments continue to address funding issues
  related to their budgets often resulting in the
  reduction of programs and services. In addition,
  governments often face an increase in service
  responsibilities. At the same time, residents are
  demanding that governments demonstrate improved
  efficiencies and even offer new or improved
  services without new taxes
• In all cases, alternative service delivery that
  involves shared services requires governments
  working together to achieve shared policy
  objectives. Governments are encouraged to
  cooperate to provide their residents services
  they could not provide on their own or to provide
  their residents lower cost and/or higher quality
  services.

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Conceptual decision model
Critical Function
LowPerformance
HighPerformance
Ancillary Function
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Example ASD candidates
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Policy considerations for ASD initiatives

• Political - Does the current political
  environment allow for legitimate consideration of
  alternative delivery models? Are there political
  or legal reasons why the city cannot engage in
  this process?
• Commercial Is there a significant private
  sector market willing to bid for city services?
• Social - Is the city currently successful at
  providing citywide services? What will happen to
  displaced workers?
• Economic - What economic factors exist that may
  either foster or hinder an ASD program in the
  city? What is the trade off between cost savings
  and service improvement?
• Organizational Is the organization receptive to
  progressive change? What is the citys track
  record of success in major change initiatives?
• Leadership Is the organizations leadership
  at both the policy and administrative levels -
  prepared to stay the course?
• Resources Will the organization and its
  governing body commit resources (budget and
  staff) to secure the long-term success of the
  initiative?

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The risk management imperative

• Project planning and management risks
• Provider selection risks
• Contracting and negotiation risks
• Transition and startup risks
• Provider performance risks

SOURCE Outsourcing-A Risk Management
Perspective, Nicholas A. Benvenuto and David
Brand, Information System Control Journal, Volume
5, 2005
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Project planning and management risks

• Develop a comprehensive project plan
• Directly involve subject matter experts and
  process owners
• Explicitly identify and plan for risk
  contingencies upfront
• Provide experienced personnel and adequate
  resources to manage the ASD project

SOURCE Outsourcing-A Risk Management
Perspective, Nicholas A. Benvenuto and David
Brand, Information System Control Journal, Volume
5, 2005
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Provider selection risks

• Conduct thorough market research to identify
  qualified providers
• Engage the provider community in requirements
  definition
• Develop a precise and comprehensive RFP
• Carefully assess provider viability
• Complete a rigorous technical evaluation
• Understand and assess third party risks
  (outsourcing by the outsourcer)

SOURCE Outsourcing-A Risk Management
Perspective, Nicholas A. Benvenuto and David
Brand, Information System Control Journal, Volume
5, 2005
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Contracting and negotiation risks

• Create a negotiation plan in advance
• Develop a precise model Service Level Agreement
  (SLA)
• Provide the expected contract and SLA in the
  solicitation documents
• Require detailed exceptions and alternatives
• Evaluate more than price alone

SOURCE Outsourcing-A Risk Management
Perspective, Nicholas A. Benvenuto and David
Brand, Information System Control Journal, Volume
5, 2005
20
Transition and startup risks

• Understand your organizations change readiness /
  change history
• Budget for the costs of transition
• Plan for the handling of any displaced employees
• Develop a change management and communication
  plan
• Develop a problem escalation procedure

SOURCE Outsourcing-A Risk Management
Perspective, Nicholas A. Benvenuto and David
Brand, Information System Control Journal, Volume
5, 2005
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Provider performance risks

• Establish a rigorous program of provider
  performance measurement and monitoring
• Establish and maintain regular, formal
  communication with service provider
• Implement a quality assurance function (consider
  a third party)
• Have a formalized change control process

SOURCE Outsourcing-A Risk Management
Perspective, Nicholas A. Benvenuto and David
Brand, Information System Control Journal, Volume
5, 2005
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Potential points of ASD failure

• Outsourcing a truly strategic function
• Failure to fully understand costs
• Inadequately defined service level understandings
• Lack of measurement and monitoring
• Ineffective sourcing process
• Poor contract management discipline
• Inadequate attention to initial risk assessment
  and mitigation planning

SOURCE Outsourcing-A Risk Management
Perspective, Nicholas A. Benvenuto and David
Brand, Information System Control Journal, Volume
5, 2005
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Remember

• You cant outsource your responsibilities
• You cant outsource your controls
• You cant outsource your risk
• You cant outsource your brain
• Source Calvin Webb, Webb Watch Corporation

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Thank you!

• Questions?
• Comments?
• Gripes or Complaints?

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• David W. Eisenlohr
• Managing Partner
• The Azimuth Group, Inc.
• 214.987.3423
• deisenlohr_at_azimuthgrp.com
• www.azimuthgrp.com