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Outsourcing - an answer to the squeeze on budgets?
6 October 2009
Now that all political parties appear to be in agreement that cuts
in public sector spending are necessary and fire and rescue
authorities are uncertain about future funding, all eyes are upon
how the same results can be delivered on a lower budget.
Outsourcing has been seen as a way to deliver cuts in budgets,
gain efficiencies in the service and get best use of resources with
minimum impact upon public safety. But what makes a successful
outsourcing and why do some projects work and others do not?
Outsourcing is something that is unlikely to be new to most fire
and rescue authorities. A number have looked at outsourcing IT and
communications to private sector providers, as well as training,
payroll and many other similar “back office” functions.
More recently other services which go deeper into the heart of
the service have been outsourced. These include maintenance,
storage, and safety checks upon vehicles and equipment.
Making it work
An unsuccessful outsourcing is easy to spot – essential services
not being met, cost overruns, significant numbers of changes to the
agreement within the first few months, or perceptions of unfairness
leading to lower morale, decreased service coverage, strike action
or even safety lapses.
By contrast a “successful” outsourcing may be more difficult to
define and largely depends on the priorities identified by the
authority at the start of the process. These may be linked to
availability and business continuity measures (for example where
ICT systems are outsourced), more efficient use of resources, or
purely to transparency of cost and cost savings. As with so much in
long term deals, you get what you measure, so setting objectives at
the outset is key.
Pros and cons
An outsourced service provision may have a number of advantages
beyond the potential for cost reduction. Outsourcing can ensure a
flexible service that evolves to meet challenges and manage change,
by for example upgrading a fleet or increasing capacity or an IT
network. A third party provider may also be able to benefit from
advantages of scale or (for instance in relation to IT services)
compatibility with other emergency services, making communication
easier in the event of a major incident.
There are however significant disadvantages to an outsourced
provision, not least the potential loss of skilled expertise when
staff are transferred out under the TUPE Regulations. The loss of
expertise to a third party provider may result in a dependence on
that provider for skills that are not easy to replace.
Making the difference
Experience suggests that the following steps lead to a more
successful, mutually beneficial outsourcing:
· Define the purpose and scope of outsourcing
Cost reduction is rarely the exclusive reason for outsourcing,
but working out in advance what parts of a given service are key
makes a real difference to the way that services are delivered.
· Select a provider you can work with
For commodity purchases such as software, payroll and other back
office functions this may seem less of an issue, but the service
provider is likely to become an integral part of the service.
Choose a partner you can work with who understands the challenges
facing the authority.
· Manage the contract
A mistake I have seen in practice is for an authority, having
selected a provider, to lose its in-house capability entirely. This
meant that no one was qualified or experienced enough to manage the
contractor.
Regular updates and reports are essential if long term projects
such as renewal of fleet or interoperability of systems are likely
to be reached.
· Monitor Key Performance Indicators (KPI)
In addition to checking whether the KPIs are being reached, it
is important to review regularly whether the right KPIs are being
measured. Network availability and backup is of little benefit on
its own if the systems are not being used properly, calls are not
routed properly or information is inaccurate or misleading.
· Have a quick dispute regime
In the context of an outsourcing, a good contract should not sit
in a drawer never to be looked at until things go wrong. For
ongoing services it is essential that disputes are resolved quickly
so a mechanism allowing parties to escalate problems to the
relevant officer is key to ensuring that problems do not become
critical.
If these steps are followed, experience has shown that
outsourcing can lead to a transformational change at reduced cost,
and can be a relatively “quick win” when budget cuts are starting
to become a distraction from service provision.
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