Thursday, 13 May 2010

Dubious economics

I think that it was probably during the Thatcher years that the idea of preparing a 'business case' for anything and everything first came into vogue in the public sector. It was imported, of course, from the private sector which had been using the idea for a long time.

The principle is extremely sensible; before taking a decision to spend money, one should seek to identify all the costs and all the benefits, and ensure that the decision taken is a sensible one in financial terms. And over the years, I've written more than a few such documents myself (mostly in the private sector, as it happens).

In practice, most business cases are not written on a blank sheet of paper as part of an attempt to establish what the right approach is, but are drawn up after the real decision has been taken, as a basis for justifying that decision to those people who control the funding. The important decision is not the one taken on the basis of the presented business case, but the decision as to which business case to write.

One of the hardest things to do is to ensure that the suggested savings are genuine and honest. From my own experience, I know that there's an element of 'creative writing' in a lot of business case documents, particularly when everyone knows that the proposal is a good one, but some of the benefits are intangible. But it can also work the other way – figures can be chosen and presented selectively to get to the 'right' answer.

One figure that I've heard bandied about a lot recently (as part of schools reorganisation proposals) is the 'cost of empty school places'. The figure varies from county to county, as does the number of surplus places. Superficially, it's obvious that there is a cost to surplus places; but that which is superficially obvious isn't always necessarily convertible into a realisable cost saving. It was no surprise to see today that a campaign group has challenged the basis on which such business cases are put together.

I have long suspected that the 'cost of an empty place' is based on a pretty crude approach of dividing the costs of running a school by the number of places, and apportioning the costs then between 'used' places and 'surplus' places. The result looks good in a business case, but that is not, as Hyb have correctly identified, the same thing as identifying achievable cost savings.

Public authorities have come to depend on the 'business case' as their excuse for taking unpopular decisions, conveniently overlooking the fact that most business cases have actually been written in a way which suits the decision they wanted to take anyway. It's good to see that approach being challenged.

6 comments:

Valleys Mam said...

Yes poor old business case does get bandied about
Of course there are other elements than financial to a business case.
Social costs are needed to be factord in in various scenarios
Plus of course the wider macro factors and political climate - hence SWOT and PEST
Academic research wouldnt I guess have looked wider

Anonymous said...

Hi John - Reading in the Western Mail today -

http://www.walesonline.co.uk/news/wales-news/2010/05/13/deadline-nears-so-where-are-the-contenders-for-plaid-s-top-two-jobs-91466-26435640/

I find out that there's an internal Plaid Election for Leader/President - which very few in the Party seems to know about and myself and others as Members and grassroots of the Party have not been emailed about and no mention at all on the Plaid website.

I know the Party needs time to get back to normality from the Election, but this does not reflect well.

John Dixon said...

Anon,

It was clearly a slow news day at the Western Mail; what a complete non-story.

The normal means of notifying members of which posts are to be elected is through the Gweithlen that goes to all branches - and that was done in this case earlier this year, in accordance with normal procedures.

Spirit of BME said...

Business case - Ah I have done a few and agree with your last sentence that most of the time the authors are going about saying " I have the answer ,what is the question?"
On the point that Anonymus raised , your comments are correct but I trust that our elected ones will abide by a Conference Motion that advised all those elected, that their first duty on time was to their constituency and should in no cases seek a second job.
A non elected President is vital for the Party`s health.

John Dixon said...

Spirit,

Trust that you mean a president who is not an elected member rather than a president who is not elected...

Spirit of BME said...

Mr Dixon,
Correct