Reliable cost data
Third, fully allocated cost data are crucial to the success of any project to privatize or competitively source government activities. These data must be reliable, complete and accurate. Just estimating the cost is not good enough. It is essential to assess the total cost for the activity included on the opportunity inventory and also during the cost comparison process. It will be the baseline for measuring competing proposals, and for determining the savings after a project as been implemented. Using dollars as a measurement provide sound performance metrics for the project. The following questions will assist in the determination of the full cost.
- Has evidence been presented on the potential for significant enhancements to economy, efficiency, or effectiveness? That is:
- Has there been a cost/benefit analysis of a possible privatization?
- This can include the effects of shifting costs to service recipients.
- Have tangible benefits been identified? These can include:
- operating and capital cost savings,
- higher quality services,
- and more and/or better service delivery options.
- Would providing potential contractors with a draft "request for proposals" yield useful information on what cost and service quality improvements might be possible with privatization?
- Have the complete costs of alternative service providers been considered? These can include:
- the costs of retaining the activity in-house,
- cost implications of a long-term commitment,
- start-up and capital investment costs,
- conversion costs, including the sale of surplus property and transactional costs involved in displacing government employees, and
- government costs to monitor private sector performance.
- Does the relevant government office have the accounting systems to produce complete cost data, in order to make a valid comparison to the private sector's cost?
- If not, a valid cost system must be obtained. These can include
- activity-based cost preparation by a professional accounting or consulting firm, or
- use of a cost comparison program such as "COMPETE".
- Using estimated costs leads to problems later in the process.
- If the private sector is unable to meet its contractual obligations, have potential alternatives, and the estimated costs of resuming responsibility for the operation, been considered?
Disclaimer All Rights Reserved © 2000