What can you do with $40 Billion dollars? Don’t ask Uncle Sam

In a June 12, 2013 article, I read from the Project Management Institute (PMI), it says that in a recent study the government risks $148 million for every $1 billion dollars spent.  This is $13 million more than the private sector.  Mark Langley, PMI President and CEO says there are findings where the government is doing very positive things, but he also goes on saying that just 46% of government organizations understand the value of program management.  He also says that program success rates are declining with just under two-thirds of programs meeting their original goals or intent.

He talks about how both the government and the private sector have work to do in effectively aligning program management with organizational strategy and mission.  He says that more than half of the government respondents acknowledged that they frequently focus on specific departmental objects as opposed to the strategic goals of the organization.  Only 11% of the government organizations have a senior-level program management related role, compared to 22% in the global average.  Only 37% of respondents reported there is a formal process for developing program management competency and only 25% reported having a defined career path for those engaged in program management.  This is 17% lower than the global average.

These are staggering numbers when I read them.  I decided to see what this meant to the taxpayer.  I went to the Federal Reserve Bank of St. Louis to plot what the government has spent over the last few years.

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With the exception of the last 2 years, the government has averaged a 7% increase in spending year over year since 2000 and we spent $3.7 trillion in 2012.  If we just looked at the $13 million more in risk that the government takes over the private sector it adds up to almost $50 billion per year as you can see on the chart below.

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With all the focus on project management and business efficiency, I’m frustrated that the US can’t move forward with this and pave the way for a better run Government.  As the PMI published chart shows below, there are great rewards for a mature project management organization.

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Two things stood out to me in this article.  First, I find it extremely disappointing that project / program management doesn’t align with the overall strategy and that departments are working in silos.  I know this isn’t unique to Government.  Unfortunately, I’ve also experienced this at a few different places and struggle with it today.  Secondly, I don’t know how the government does their budget, but we consider risk when putting our budget together based upon probability and impact.  This means there is less money to use for other projects and programs people want.  I struggle with this topic because we want to ensure we capture all risks of a project, however, it ties up a lot of money from being put into other uses.

How have you or your organization ensured that the projects/programs align with the corporation’s overall strategy?  How have you been able to keep everyone working toward the common goal and not focus on his or her own segment?

How do you plan your budget?  Do you consider risk?  How do you balance appropriate risk with risks that tie up your funds for other projects?

 

5 thoughts on “What can you do with $40 Billion dollars? Don’t ask Uncle Sam

  1. I think this was a fantastic blog, and I agree with most all of your arguments. It is disgusting how much waste there is in government spending, especially when the people are struggling so much. If politicians had to run an actual business, they would fail… ok enough with my rant. 🙂

    I want to play devil’s advocate for a second. You say that government risks 148 million for every billion dollars spent. That is a 14.8% risk on their investment. Do companies usually risk 15% of their money on the notion that it will equate a higher return on capital? While I do think that the number sounds high, it is definitely reasonable. The problem the government has is that they play with different zero’s than most companies or people. There are extra commas on their budgets so the numbers sound ridiculous. As we know, investors are rewarded for how much risk they are able to take on, and the government seems to take on around 15%.

    I tend to be more conservative on the fiscal side, so when I plan my division’s budget, I usually play it close to the vest. I don’t necessarily have the stomach to lay it all on the line. I do have that internal debate regarding my risk versus reward. Since the government is spending my money, I wish they had the same feelings.

  2. Like you said, this is not an uncommon problem. Everyone tends to have their own agenda and be incentivized by different things. I think one thing that helps is to break the project down into smaller groups and then hold those individuals accountable for the budget (time and expenses), deadlines, deliverables, etc. And then the groups all have to report up to a higher level of management that is responsible for the “big picture”. Sounds simple, right?!

  3. Extremely interesting read! One thing that comes to mind here is the difference between a publicly traded company and the government. The government may appear to take on more risk because in some way, they’re not worried about a balance sheet or looking a specific way to “the street.” On the other hand, many companies need to look good to investors and creditors and so may not take on as much risk, or possibly a different type of risk. Do you think this has any affect on how the money is spent in both cases?

  4. Tim, you pretty much read my mind. I’m not surprised that the government “risks” more because to the government, losing money on a project doesn’t mean the same as it does to a business losing money on a project. The government has a guaranteed stream of funds in the form of taxes, whereas a business needs to make money on its investments in order to survive. Additionally, the government may take on projects or support programs that are pretty much guaranteed to lose money because the government has a responsibility to do certain things that a business does not – for example, with defense, healthcare, and welfare.

    These differences between government and a business definitely influences how money is spent and how risks are taken.

  5. What I find interesting about this (and not to get too political), is that I think the Obama administration has at least talked, and in some areas tried, to fix this. It makes sense to run the government like a business in the age of “big data” – this is a conversation that I have with my legal department clients all of the time. No one is exempt anymore from being efficient and effective with their investments. I think the fundamental issue is incentives. If a CEO loses his job when they miss the numbers, they then incentivize those below them to meet the goals that will keep the company efficient/effective, and so on. By incentivize, I mean tie their pay and performance to the behaviors that drive the more effective use of funds/cash. If a member of Congress goes over budget, nothing happens. Their salary is guaranteed, and except in extreme circumstances, can’t lose their job until the next election … and any other comments will get me in trouble politically on that front. 🙂

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