“Plucking the goose”
The 17th century politician Jean-Baptiste Colbert described the art of taxation of …
“consisting in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”.
In this scenario contractors are potentially the “geese”.
Alliance and partnership arrangements offer greater transparency of costs and supporting data and, in theory, provide greater opportunities for improving productivity and efficiency. Forensic cost verification in particular can create a very detailed understanding of data. Most organisations do not however fully exploit these opportunities.
So what can be done?
Driving efficiencies and cost savings through cost analysis
1. A proper understanding of detailed defined costs allows for sensitivity analysis. Sensitivity analysis enables continuous improvement and cost reduction efforts to be targeted at those areas where they will have most effect.
2. Where target cost arrangements exist, analysing and understanding the reasons for gain or pain at final account can provide useful learning to avoid problems and to recognise and carry forward efficient working practices. It can also highlight problems in target setting.
3. Benchmarking across projects and contractors by using detailed transactional cost data can identify opportunities for improved efficiencies and cost savings.
4. Often clients do not have visibility of contractors’ supply chains. They do not always know how much is being spent with subcontractors to deliver their business plans. By analysing costs and understanding how much is being spent with individual sub-contractors across all projects and contractors, clients can fully exploit economies of scale.
5. Looking at data on its own is only a partial solution. Understanding end to end processes and relating activities to costs can identify those activities which are reducing productivity and increasing cost.
A risky alternative
The alternative approach is to attempt to drive efficiencies a proper understanding of costs. The risk in this approach is that the contractors will “hiss” as contracts become unsustainable.
If that happens everyone’s goose will be cooked.