Dubious economics

Tweet 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.