Management thinker and ResPublica Fellow John Seddon raises alarm over 'unit cost' proposals
to compare public services by unit cost is a dangerous idea. It reflects the Treasury's obsession with costs; the people there need to understand how managing costs creates costs. We should worry that the thinking in Whitehall has not changed. As is happening with the guidance on publishing expenditure, the Whitehall specifiers will create manuals on how to measure unit costs. The bureaucratic costs of compliance will be overshadowed by the costs of conformance.
The true costs of service are in flow, the total cost of the end-to-end service delivered to customers. If the Whitehall guidance steps into any territory associated with activity costs (scale thinking), working to those measures will drive costs up. And why do I think they might? This thinking has been at the heart of previous benchmarking schemes and is central to the 'scale' agenda which is creating massive costs.
My advice to the mandarins is: if you really have to benchmark on cost, ensure one measure is the total cost of flow, with no allocated overheads, and the other is a reliable measure of capacity. Do not make the mistake of choosing volumes of work, as much of the current volume is failure demand. For capacity start with the number of customers served.
But the measures that people need - and those being used by local authorities achieving outstanding efficiencies - are measures related to the purpose of their services from the customers' point of view. These pass the test of a good measure: can it help us understand and improve performance? Unit costs will, like benchmarking, be the fast route to mediocrity.
John Seddon is a Fellow of ResPublica, lead consultant of Vanguard and author of Systems Thinking in the Public Sector.