Part one of this series of posts focused on errors that creep in during the design phase. In this section I'm going to focus a bit more on what you can broadly call errors that occur while a project is up and running.

Error 4

Narrowed focus in decision making

One exercise I have run several times with executives or cabinets involves working with them to elicit the outcomes that matter to them and the policy areas that they would like their administration to focus on, and then comparing that with the actual outcomes that the council’s budget and policy programme delivers.

This never fails to reveal a gap of some kind, between what the Council is doing and what the people who think they're running the Council would like it to be doing.

There are many reasons why gaps like this arise. The focus here is on an opportunity that we often miss to step back and ask whether we're focusing on the right things, and in particular whether we're alert to options and alternatives that we won't notice unless we look beyond the plans and performance management information that our organisation is serving up to us.

What’s needed are tools to prompt a broadening of focus from time to time, programmed in to governance and performance reporting frameworks and cycles, that make executives and Members reflect on the bigger picture, and check whether the decisions being served to them are leaving a gap to be filled.

We need to be asking questions like these from time to time – and unless our systems prompt us, we may only ask them when reality has given us a nudge!

“Why did we set this project or enterprise up?”

“Do the motivations we had then still drive our priorities now?”

“If we hadn’t started this project or enterprise, what options would we like to be reviewing now?”

“Does it need to be us who do this in the future, or could the activity be transferred to another entity because we’ve played our part?”

Of course, questions like these can obviously be seen as threatening – so people may want to avoid them. But when resources are so stretched, is that really an option?

Error 5

Mind the gap!

Arguably the most significant difference in financial management between the public and private sectors is cashflow.

Section 151s don’t need to project cashflows with the same urgency and rigour as finance teams in private businesses. Councils can choose to be good, prompt payers to help their local economies and suppliers, whereas many businesses want – or need – to exploit the gap between getting paid themselves and paying their suppliers.

Regeneration teams whose officers have all worked exclusively in publicly funded roles may not appreciate the extent to which the programmes submitted to them by construction partners are driven by cashflow optimisation.

Firms operating nationally can be helped enormously to reduce their working capital costs, and thereby to pocket margin, by securing public sector partners’ agreement to funding timelines that effectively mean taxpayers provide interest-free funding for some of the firm’s cost of capital at the expense of the public sector balance sheet.

The disciplines and expertise that make this happen are commonplace in private firms, but rarely needed in local government.

Now, when the dynamic switches to the need for oversight of a company, local authorities don’t always make sure they’ve filled this gap with independent expertise.

That can mean that the S151 is signing off cashflow reports that s/he isn’t really trained and experienced enough to interpret and evaluate.

It introduces the risk that a liability due to crystallise is excluded from a cashflow forecast and that this isn’t noticed.

Questions that should be asked about the probabilities that can be attached to cashflow projections may not be asked.

Imagine this scenario – a contingent liability has been estimated by your wholly-owned company’s finance director as having a 40% probability and therefore is not incorporated into its cashflow projections. As a consequence, approval is given to proceed with a project – and then the contingent liability crystallises, forcing the council to choose between augmenting its funding, cancelling the project or letting the company go under.

No-one’s to blame…

Coming next: planning for bad news and how to mitigate change blindness

How and when to think about setting up companies – part 2

Part one of this series of posts focused on errors that creep in during the design phase.

What will you write today?