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STUDY!

UNDERSTANDING!THE!COST!OF!
GOVERNMENT!SERVICES!
A!unit!costing!approach!to!diversify!revenues!and!improve!
public!management!in!GCC!countries!!
!
!
Heiko!Ammermann,!Andreas!Buelow!
!
January,!2016!

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Table"of"Contents"
1." Fiscal"reform"by"lowering"the"deficit"from"government"services"...................................................."4"
2." Creating"cost"transparency"in"the"public"administration"................................................................"5"
3." Unit"costing:"pragmatic,"robust,"straightforward"to"implement"......................................................"5"
4." Lessons"learned"from"GCC"implementation"................................................................................."7"
5." Working"with"Roland"Berger".........................................................................................................."8"

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Governments!across!the!Gulf!region!
share!the!challenges!created!by!lower!oil!
prices!and!their!effects!on!public!
revenues."With"oil"and"gas"providing"an"
average"of"80"percent"of"state"income"in"
GCC"countries,"the"estimated"drop"in"export"
earnings"of"around"USD"250"billion"in"2015"
alone"has"put"public"finances"under"
substantial"strain."
"
While" GCC" countries" have" successfully" bridged" periods" of" low" oil" prices" in" the" past," the" current"
situation"is"especially"challenging."Todays"public"budgets"require"a"much"higher"oil"price"to"stay"in"
fiscal" balance." Spending" cuts" are" constrained" by" social" reasons," by" the" need" for" continued"
investment" in" education" and" economic" diversification," and" by" the" regions" difficult" security"
environment." Whats" more," a" quick" recovery" to" old" price" levels" seems" unlikely" given" sluggish"
demand"growth,"persistent"oversupply"and"the"prospect"of"additional"production"by"Iran."
Fortunately,"most"GCC"countries"enjoy"strong"reserves"and"low"public"debt,"giving"them"substantial"
flexibility" in" adjusting" to" lower" revenues." But" drawing" down" reserves" and" issuing" new" debt" is" no"
substitute"for"sustainable"public"finances"able"to"withstand"current"and"future"oil"price"shocks."
Already,"governments"in"the"region"have"responded"with"fiscal"adjustments,"including"cuts"in"nonY
priority"spending,"changes"in"domestic"energy"pricing"and"proposals"for"tax"reform."
Figure"1:"Declining"earnings"from"oil"export!

Kuwait

Bahrain
Qatar
UAE
Saudi&Arabia

Oman

USD

250'bn
export&earnings&in&2015

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ppt files_GCC unit costing_hs2.pptx

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1.!

FISCAL!REFORM!BY!LOWERING!THE!DEFICIT!FROM!
GOVERNMENT!SERVICES!

As"GCC"policymakers"evaluate"their"fiscal"options,"one"important"avenue"for"reform"is"lowering"the"
gaping"deficit"from"providing"government"services"to"citizens"and"businesses.""
GCC"governments"provide"a"large"portfolio"of"services,"from"issuing"licenses"and"maintaining"public"
registers"to"the"many"services"provided"by"customs,"telecommunications,"transportation"and"other"
authorities."Many"of"these"services"are"provided"either"free"of"charge"or"at"a"small"fraction"of"their"
cost." They" require" a" large" and" expensive" resource" base," including" staff," buildings," equipment," IT"
and"many"other"types"of"inputs."The"exact"cost"of"providing"each"service"is"often"opaque,"yet"the"
sum"of"these"costs"is"a"major"driver"of"government"spending.""
In" one" GCC" government" budget" recently" examined" by" Roland" Berger," services" to" citizens" and"
businesses" made" up" 21" percent" of" all" recurrent" state" expenditure," yet" fees" from" these" services"
generated"a"mere"3"percent"of"state"revenues."Reducing"this"extremely"large"gap"is"now"an"urgent"
policy"priority."
Figure"2:"Government"services"

"

Vast%portfolio%of%services%through%different%authorities

Government)services)for)
citizens)and)business)make)up)
"

21%

of)government)
spending,)

but)
only

3%

of)fees
generated "

"

"

!
ppt files_GCC unit costing_hs2.pptx

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2.!

CREATING!COST!TRANSPARENCY!IN!THE!PUBLIC!
ADMINISTRATION!

To"reduce"the"services"deficit,"policymakers"first"of"all"need"transparency"about"the"actual"cost"of"
supplying" each" government" service." This" requires" highYquality" data" not" just" about" attributable"
resources," but" a" detailed" understanding" of" the" various" processes" involved." Our" experience" has"
shown"us"that"too"often,"not"even"the"responsible"administrators"and"managers"know"all"the"hidden"
steps" and" costs" involved" in" providing" individual" services." Creating" this" kind" of" spending"
transparency"yields"three"important"benefits:""

Spending transparency Yield three important benefits

Figure"3:"Three"benefits"of"spending"transparency"

"

Provide(a(basis(for(modern(public(management(including(improved(
efficiency,(streamlining(procedures,(benchmarking(performance(and(comparison(
with(alternate(providers
Increase(non6oil(revenues(by(allowing(policy9makers(to(charge(the(actual(cost(
of(government(services
Supply(knowledge(and(data(to(enable(better(spending(choices(and(a(more(
informed(setting(of(policy(priorities,(including(an(empowerment(of(citizens(and(
businesses(to(make(an(informed(decision(on(whether(a(service(is(worth(the(cost
"
"
Beyond" controlling" costs," diversifying" revenues" and" professionalizing" public" management," the"
application" of" robust" cost" analysis" to" selected" services" and" administrative" units" also" creates"
leverage" to" change" mindsets" across" the" civil" administration" and" open" the" path" toward" further"
professionalization" and" reforms." Better" cost" transparency" also" enables" an" informed" debate" about"
the"true"cost"of"providing""free""or"lowYfee"services,"including"opportunity"costs"with"respect"to"other"
policy"priorities."
ppt files_GCC unit costing_hs.pptx

3.!

UNIT!COSTING:!PRAGMATIC,!ROBUST,!
STRAIGHTFORWARD!TO!IMPLEMENT!

Creating"transparency"of"cost"structures"is"best"done"using"a"unit"costing"approach,"which"assigns"
a"total"attributable"cost"(including"all"inputs"and"overhead)"to"each"individual"service"produced."This"
requires"data"and"capabilities.""
First," detailed" data" and" exact" descriptions" of" work" flow" are" often" not" fully" available" nor" fully"
standardized" across" government." Second," most" government" employees" are" not" trained" in"
procedures"such"as"process"mapping"or"cost"item"analysis."These"challenges"are"amplified"by"the"
sheer"number"of"different"services"provided"by"government"entities."
Therefore," any" unitYcosting" methodology" should" be" pragmatic," robust" and" standardized," so" that" it"
can" be" flexibly" applied" in" a" variety" of" government" settings." For" ease" of" implementation," the"
approach" should" use" standard" office" tools," not" complex" enterprise" or" customYbuilt" software." The"
focus"should"be"on"building"inYhouse"capacity"and"skills,"with"intensive"training"of"pilot"teams"who"

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can" then" act" as" multipliers" throughout" government." LongYterm" dependency" on" outside" suppliers"
should"be"avoided.""
From" our" experience," such" an" approach" " focusing" at" first" on" a" few" prioritized" administrative"
departments" and" services" is" more" likely" to" be" successful" than" a" "big" bang"" solution" based" on"
complex" specialized" software." It" enables" teams" within" ministries" and" public" agencies" to" analyze,"
understand"and"manage"their"cost"base.""
Once" exact" cost" and" process" information" has" been" obtained," measures" to" reduce" the" deficit" from"
services" can" then" be" implemented." This" includes" efficiency" improvements" from" a" simple"
streamlining" of" procedures" to" the" introduction" of" eYservices" where" appropriate." MakeYorYbuy"
decisions" and" prices" for" outside" services" can" be" reviewed" based" on" better" cost" information." Fees"
can"be"raised"to"cover"a"greater"share"of"actual"costs."Differentiated"services"can"be"introduced"at"
different"price"points"(for"example,"express"handling).""
Once"the"methodology"and"skills"are"in"place,"other"government"entities"can"be"gradually"included."
Perhaps" most" importantly," having" the" facts" about" actual" costs" enables" a" more" informed" debate"
about"the"costs"and"benefits"of"various"government"services,"policy"and"budget"priorities,"as"well"as"
future"reforms."
Figure"4:"Unit"costing"

Straight+
forward

UNIT8COSTING8
METHODOLOGY

Pragmatic

Robust

"

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ppt files_GCC unit costing_hs.pptx

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4.!

LESSONS!LEARNED!FROM!GCC!IMPLEMENTATION!

Roland" Berger" was" recently" retained" by" a" GCC" government" for" a" pilot" project" applying" our" unit"
costing"methodology"to"a"selected"portfolio"of"services."Before"the"project,"fees"only"recovered"17"
percent"of"total"outlays"for"government"services.""
Figure"5:"Some"key"findings"from"the"pilot"project"

Results'were'very'often'eye/opening,'uncovering'large'discrepancies'between'unit'costs'and'
prices'charged.'For'some'common'registration'procedures,'for'example,'the'fees'charged'
covered'as'little'as'4'percent'of'their'actual'cost.

Improvement'potential'can'be'found'virtually'everywhere.'Often,'the'same'levers'to'reduce'costs'
apply'across'many'different'government'entities'(e.g.'the'introduction'of'simple'e/services).

It'was'more'important'to'be'practical'than'overly'complex'or'precise.'Begin'with'available'data'
and'build'from'there.

Maintain'focus'by'starting'small'with'a'few'entities'and'big/ticket'services.'

Initial'momentum'and'buzz'can'lead'to'a'pull'by'other'entities'to'be'included,'especially'when'the'
project'is'conducted'in'a'dynamic,'interactive'manner'with'training'and'workshops'across'entities.

Central'ownership'of'the'project'is'crucial,'ideally'by'the'Ministry'of'Finance.'A'central'project'
team'should'pair'with'individual'teams'from'the'entities'involved.'

Strong'effort'must'go'into'capability'building'within'the'government'in'terms'of'process'
management,'functional'knowledge'and'the'application'of'standard'tools.

"
The"project"found"significant"savings"potential"of"up"to"75"percent"on"some"services."Cost"analysis"
is" providing" a" basis" to" raise" fees" and" increase" revenues," including" through" the" introduction" of"
differentiated"services"and"pricing."And"importantly,"the"project"has"helped"the"government"lay"the"
foundation"for"modern"management"in"the"public"sector."

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ppt files_GCC unit costing_hs.ppt

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5.!

WORKING!WITH!ROLAND!BERGER!

Roland" Berger," founded" in" 1967," is" one" of" the" worlds" leading" strategy" consultancies." With" 2,200"
employees"working"in"50"offices"in"36"countries"worldwide,"we!have!successful!operations!in!all!
major! international! markets.! The! strategy! consultancy! is! an! independent! partnership!
exclusively!owned!by!about!250!Partners.!
Roland"Berger"recently"completed"a"unit"costing"pilot"project"for"a"GCC"government."We"asked"our"
project"partner"at"the"Ministry"of"Finance"to"describe"the"project"and"the"Ministrys"collaboration"with"
Roland"Berger:"
"
Why!did!the!
government!choose!
to!implement!a!unit!
costing!project?!

"

The" Ministry" of" Finance" wanted" to" create" more" transparency" in" the"
governments" spending" on" government" services." Unit" costing" factors"
each"cost"driver"into"the"equation"and"gives"us"the"cost"of"providing"a"
specific"service."This"helps"us"understand"which"services"operate"at"a"
deficit" and" why," and" lets" us" implement" focused" improvement"
measures."

How!did!you!roll!out!
and!expand!the!
project?!
!

"

We" started" unit" costing" of" government" services" at" several" ministries"
and"government"entities"in"a"pilot"project"earlier"this"year."Since"then,"
we" have" expanded" our" scope" to" include" additional" ministries" and" are"
continuing" to" do" so." The" entities" involved" so" far" have" reacted" very"
positively" to" this" initiative" and" are" actively" contributing" to" the" effort,"
creating"a"platform"for"collaboration."

How!does!the!project! "
fit!into!the!Ministry!of!
Finances!broader!
strategy?!

The" project" is" important" to" the" Ministry" because" it" creates" more"
transparency" in" the" government's" service" delivery." The" project" has"
sparked" a" productive" cooperation" between" and" within" the" different"
ministries" and" entities." It" also" helps" improve" internal" buyYin" and"
ownership" for" cost" control." To" our" citizens" and" residents," the" results"
provide"facts"about"the"costs"of"providing"services,"the"prices"charged"
and"the"often"significant"deficit"incurred"by"the"government."

How!was!the!
collaboration!with!
Roland!Berger!on!
this!project?!
!

"

The"collaboration"was"very"good."Our"team"worked"hand"in"hand"with"
the"consultants"from"Roland"Berger,"and"we"placed"a"lot"of"emphasis"
on"knowledge"transfer"during"the"project."The"Roland"Berger"team"was"
very" engaged" in" training" our" team" members," both" through" formal"
training"sessions"and"on"the"job."This"proved"to"be"critically"important"
for" us" to" carry" on" independently" once" the" consulting" team" rolled" off."
Even"today,"the"teams"still"discuss"methodological"topics"from"time"to"
time"as"we"expand"the"project"to"include"new"services.""

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Authors!
We"welcome"your"questions,"comments"and"suggestions."

"
Heiko!Ammermann!
Partner"
+49"69"29924Y6237"
heiko.ammermann@rolandberger.com"

"

"
"
"

"

"
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"

"
Andreas!Buelow!
Principal"
+973"1360Y9900""
andreas.buelow@rolandberger.com"

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10"" COST"OF"GOVERNMENT"SERVICES!
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Publisher!
Roland!Berger!GmbH!
Sederanger"1"
80538"Munich"
Germany""
+49"89"9230Y0"
www.rolandberger.com"

"

Photo!credits!
Cover:"Fotolia"
"
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Disclaimer!
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information"provided"in"this"study"without"receiving"specific"professional"advice.""
Roland"Berger"GmbH"shall"not"be"liable"for"any"damages"resulting"from"the"use"of"information"
contained"in"the"study."
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andreas.buelow@rolandberger.com

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