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NAO publishes guidance on cutting costs

The National Audit Office (NAO) has now published a paper entitled A short guide to structured cost reduction. The guide sets out the principles that public sector bodies should follow in order to cut costs in the short, medium and long term.

The Government has announced cuts of over £6bn in this financial year, and departments are being asked to look at how they can deliver more significant budget reductions as part of the spending review. Within this environment, public sector bodies are under pressure to identify savings quickly. However, departments that identify savings in an unstructured way risk making cuts that cost more in the medium term while missing the opportunity to streamline their work and make sustainable cost reductions.

From its unique position of providing independent opinion and evidence to Parliament, the NAO has drawn up the principles underlying a successful structured cost reduction. These principles are set out in the short guide, and they include:

  • a data-driven approach to understanding, comparing and interrogating costs;
  • a change in organisational culture;
  • an analytical framework for assessing opportunities to reduce costs;
  • an analysis of cost:value ratio;
  • a comprehensive risk assessment;
  • a robust, evidence-based cost-reduction strategy;
  • robust accountability arrangements;
  • a focus on realisation; and
  • establishing 'a business as usual' approach to cost reduction.

The guide also contains examples from NAO reports showing how the Government has previously tackled these challenges. It is available (along with other resources that may be helpful to cut costs in the public sector) on the NAO website at http://www.nao.org.uk/publications/1011/structured_cost_reduction.aspx .

Amyas Morse, the NAO Comptroller and Auditor General, will be discussing this subject at the Public Sector Non-Executive Directors' conference 'Better governance, fewer resources', 28 September 2010. The event is organised jointly by the NAO, ICAEW and Mazars. Further information about the conference is available at www.icaew.com