The cost of poor decision-making in the UK

Through the natural course of our work in Catalyze we see the benefits of good decision-making, and conversely we get a very good idea of the costs and other impacts of poor decision-making (or lack of decision-making, which is more common). Most of our experience is at the level of individual businesses, or divisions within businesses, but we also work with government departments. All of this leads us to think about the potential impact at the level of a whole country such as the UK. Our instinct and experience, along with evidence such as reports by the National Audit Office and various Parliamentary Committees, suggests that there is significant scope for improvement if more decision-makers were aware of and applying appropriate methods.

So what is the scale of the challenge or opportunity in the context of the UK, considering the potential for both cost savings and increased benefits or value? This isn’t easy to estimate, but that doesn’t mean it isn’t worth trying. UK public spending in 2015 is around £730 billion. Are we getting the best possible benefit from that? And if not, how far short are we? 1%? 10%? And could we achieve the same level of benefits at a lower cost?

But perhaps the £730bn is the wrong place to look. Big infrastructure decisions involve long-term capital and PFI-style arrangements, but either way they make commitments on spending over many years to come. HS2 at £50bn is an obvious high-profile example, as will be the decision on airport capacity in the South-East of England. The UK’s Major Projects Authority (MPA) has oversight of 199 projects with a whole life cost of £488bn, and a 2013-14 budget of £19bn. Every project in that portfolio has a business case, and the Treasury business case process mandates that options are evaluated prior to the best one being selected. How much scope for improvement is there across that whole portfolio, not just for cost reduction, but for improved value, with more delivered benefits?

I know there are more questions than answers here. However, as a benchmark, when we start a new portfolio optimisation project we often find that the difference between the current position and the best translates to potential additional value or cost savings of 20-30%. (What would you do with £200 billion?)