Expenditure review of a state roads agency: finding the savings and building the reform programme
PUBLIC SECTOR · EXPENDITURE REVIEW · OPERATING MODEL
The situation
A state government roads and traffic agency was carrying a cost base of around $5.8 billion a year against a funding envelope that was not going to move. Expenditure had grown at roughly five per cent a year for most of a decade, and on that trend the agency faced a requirement to find in the order of $260 million a year in efficiencies or avoided demand growth within four years simply to live inside its forward estimates. Around $79 million of that was already committed through savings measures announced but not yet delivered. At the same time the agency’s own asset management plan showed that holding the road network at an acceptable level of risk needed several hundred million dollars a year more in recurrent maintenance, not less.
The structural picture was harder than the arithmetic. The agency had an unusually broad mandate running the length of the roads value chain, from planning and construction through maintenance to vehicle registration and customer service. Its delivery model was still organised around regional boundaries drawn when the network was a collection of local roads, while the network itself had matured into a small number of major corridors. Corporate functions were dispersed rather than consolidated. Around a quarter of the workforce was over fifty five. And a substantial share of the cost base was effectively non contestable, either locked into existing employment arrangements or passed through to local councils. Treasury commissioned the review as part of a whole of government value and services programme.
Before
Five per cent annual cost growth
Regionally structured delivery
Savings targets without a plan
Fragmented corporate functions
Largely non contestable cost base
The work
Retained by Treasury to lead the review, we ran a structured scan of the agency’s expenditure and produced a costed reform programme. It ran across five strands:
Built a complete cost and revenue baseline across the full $5.8 billion, split by cost element, by directorate, and by funding source, then defined precisely which parts of it were addressable and which were not. Roughly one third of the base, about $1.6 billion, was taken forward for detailed assessment, weighted deliberately towards recurrent costs because that is where the forward gap sat.
Benchmarked the agency’s workforce, operating costs, maintenance spend and service footprint against comparable jurisdictions, normalised for network size, population, registered vehicles and land area, so that differences in scale stopped being an excuse and started being a question.
Modelled the gap to forward estimates under both linear and exponential growth assumptions, then decomposed it into savings already committed, structural cost growth, and demand driven risk, so the executive could see which part of the problem each opportunity actually addressed.
Identified, sized and validated twenty eight opportunities directly with the agency’s own executives, each carrying a confidence rating, a complexity rating, a sensitivity rating, an explicit upside case and, unusually, an explicit downside case setting out what would have to go wrong and how much of the benefit would be lost.
Clustered the opportunities into four workstreams covering operating model, infrastructure planning and delivery, service delivery, and commercial services, then designed the programme framework to run them: executive sponsorship by stream, a benefits realisation office, and a roadmap sequenced across nine quarters that integrated the review’s opportunities with the savings measures already in flight and the agency’s existing cultural change programme.
After
Three and a half per cent growth needed to close the gap
Functional delivery model designed
Twenty eight validated opportunities
Four stream reform programme
Contestability strategy and market sounding
The outcome
Opportunities supporting approximately $140 million a year in net recurrent savings at maturity, with a further $159 million a year in capital avoidance, each one validated with the executive who would have to deliver it rather than asserted by the reviewers.
A four stream reform programme with named executive sponsors, a benefits realisation office, and a nine quarter roadmap, designed to run for eighteen months to three years and to absorb the agency’s existing savings initiatives rather than compete with them.
A clean separation between what could be delivered inside the existing business model and the larger structural questions that sat above it, including the ownership and financing of the tolled motorway network, the sourcing strategy for non core and specialist functions, the funding relationship with local councils, and whether the agency was the right natural owner of its commercial businesses.
Around twenty million dollars of the benefits depended on employment policy change, and a further tranche on customer service policy decisions that had not been made, and the report said so rather than presenting a single confident number to a Treasury that would have preferred one.