Posted by: knightbird | January 1, 2016

Value Capture When Public Revenue is Declining

A multitude of organizations in Alaska are examining the states fiscal issues and putting recommendations forward on how to deal with declining revenue. They advocate for various strategies that include cutting the state budget, raising existing taxes, creating new taxes, and using the Reserve Fund to provide a gentle landing for the state economy. Some are advocating for diversifying the economy. And recently, the Obamacare medicaid expansion was a political issue because of it’s possible impact on the state budget, both positive and negative. In this post, I want to talk about Value Capture from the existing state budget.

In an earlier post, I didn’t really define “Value Capture” as much as I explained it using examples. But Value Capture is the simple act of doing more value providing work with existing or diminished resources. I didn’t use public service examples in the earlier post, but they are easier to come up with.

The Red River Army Depot in Texas achieved a 3,400% increase in output, using the same resources, by application of Lean Management principles. In a 10 hour shift, they managed .5 vehicles rehabilitated. They increased that to 32 vehicles rehabilitated in a 10 hour shift. You might come back and say, but that isn’t government service. And I would bet to differ. In our state government, we have a lot of different types of vehicles-automobiles, buses, airplanes, boats, ferries and lots of others. But point taken. We often think of government services as more paperwork. Let’s try the one on for size. Local government regulations are administered using a permitting process. You submit an application to build to a government agency and you wait. And wait. And wait some more. Waiting has a cost, and it’s recognized as one of the 8 types of waste in Lean Thinking. Here is an improvement report from the National Association of Home Builders.

Kittitas County, Wash. overhauled their permitting approval process in 2015 by taking part in the State of Washington Audit Office’s Lean Academy. Kittitas’s Community Development Services Department (the county permitting department), underwent 8 days of training in the academy in which the entire permitting process was mapped and then optimally redesigned. As a result, the permit application package for single-family residential building permits was reduced from 26 to 17 pages, and permit processing time went from seven weeks to four weeks or less.

Although benefits aren’t discussed, some of them are obvious. A 17 page application takes less time to prepare and less time to review. And a 3 week reduction in the approval time lets a builder start building 3 weeks earlier. In other examples, fewer employees are needed to achieve the same volume of work, and that’s Value Capture.

Value Capture’s primary benefit is that you can do an equal or greater volume of work with the same or fewer resources. At Red River, because their productivity increased so dramatically, they were able to do a greater volume of work with the same resources. They don’t reduce their own budget, but they put a lot more vehicles back into service quicker, which provides Value Capture for their customers. But because they are a government service, their revenue doesn’t increase. They are funded by appropriations contained in a budget. The beauty of Value Capture is that if their budget is reduced, their original output will still be exceeded. A budget cut of 50% means that their output becomes 16 vehicles per day instead of 32—still an amazing improvement.

What does this mean for Alaska, if adoption of Lean Government thinking can be done right?  As the Executive Director of a non-profit organization doing mainly government type work, we achieved a rate of Value Capture of about 26%. This rate of Value Capture is about midway among the possibilities. And it would only have increased as we improved our lean management skills.

Done correctly, converting state of Alaska management to a lean system could produce a 25% or greater Value Capture. That means we could do the same (or even greater) quantify of work with fewer resources. If your division has 500 employees, we could do the same volume of work with 400 employees. (I have dealt with how to address employee issues in a past post, but you don’t go into lean telling employees to work themselves out of a job.

A strategic concept that few seem to grasp is that through your improvement, you are able to help your customer achieve Value Capture. The builder who uses fewer resources to prepare an application and is able to start work 3 weeks earlier can capture additional value as well.

Value Capture is available to all of us. We can’t always increase our revenue even when we do a great job, and the public sector is a prime example. There is always heavy pressure to reduce budgets and get more work out of your public work force. This is a way to do it while increase both Value Capture and Add for public service customers.

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