The public expenditure committee, comprising five senior cabinet ministers chaired by the chancellor, has embarked on a major prioritisation of the UK's most important capital investment programmes.
It is the most significant state-level restructuring exercise of its kind since the second world war. The decisions that will be made over the coming months will be critical to the determination of the UK's return to economic prosperity, as well as to the level of public asset and service we can expect for our taxes in years to come.
There are numerous traps ahead on the path to success, and the chancellor and his team would do well to bear in mind the following key principles of portfolio management as they embark on their journey:
- Beware the psychological traps and games
There are many psychological traps inherent in prioritisation processes that they need to be aware of. To name but a few, there is the "sunk cost trap" – where historical spend is used to justify forward continuation of a poor investment, the "confirming evidence trap" – which has decision makers ignoring all contrary evidence, and the "status-quo trap" – in which leaders make decisions that perpetuate the natural order of things. One of the most interesting of these traps is referred to by academics as strategic misrepresentation.
Simply put, when you set up any system to apply for scarce resource (in this instance cash) at a state, organisation or department level, all players seek to "game the competition" in pursuit of the prize of programme continuation. They will, therefore, overestimate the benefits the programme will bring, and underestimate the costs.
To counter, the public expenditure committee (PEX) will need to ruthlessly interrogate the data they receive in every business case, and validate information against "reference class" comparisons of typical, actual delivery results.
- Challenge and support – the great balancing act
The PEX needs to be able to trust the data it receives, and the only way the information can be truly validated is with independent scrutiny – by qualified parties that are genuinely neutral regarding the outcome. A "challenge group of experts" from inside and outside government has already been set up, and there are two key areas that will determine its success. Firstly, data challenge requires time to counter the 'garbage in, poor decision out' scenario; this team does not, however, have the luxury of ample time.
In my experience it is far better, therefore, to achieve 80% certainty, and make some sound decisions with tempo, than procrastinate in the pursuit of excellence. Secondly, while the need to interrogate such business cases is accepted, senior ministers will want to avoid eroding trust between central government and the departments in doing so.
To mitigate, the PEX will need to deal consistently and transparently with all, with a demeanor that is challenging and supportive in equal measure.
- Ask the right questions of the right people
This exercise faces the enormous challenge of cross, multiple issue comparison. How many units of value does an aircraft carrier represent relative to a cluster of new schools or a more secure border system? Clearly in current times there should be a focus on what brings the biggest cashable bang for the buck, but that shouldn't be at the absence of assessing strategic alignment (how does the programme support the UK's long term objectives?), important societal benefits that might be difficult to monetise, and finally, an appreciation of the risks involved when it comes to stopping, or starting, large scale programme activity.
This exercise will ultimately come down to human judgment and it is imperative that the PEX recognise the need for a rounded set of appraisal skills and experiences to make those decisions. Finance experts, those with the relevant technical background, plus a set of battle hardened programme vets should all be considered essential for their inner circle.
Dom Moorhouse is the managing director of programme delivery specialist Moorhouse
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