Transformation Playbook for Leaner Government and Better Results for Citizens

[terryfrazier]

Bringing our Federal Government into the 21st Century
Streamlining structure & process and implementing systems and best practices to reduce cost, balance our budget, serve citizens better and build a continuous improvement culture

Executive Summary
Objectives

• Eliminate Deficit Spending. Currently 31% of the 2023 $7T Federal budget.
• Implement management, organization and process best practices from the private sector.
• Create a persistent improvement and efficiency culture.
• “You cannot ‘automate’ a broken system. Automating broken systems, without streamlining organization structures and processes, will only make a broken system produce bad results quicker”.

Recommended Actions

• Increase the span of control across Federal departments to match private sector span of control.
• Consolidate the supporting value chain functions across all Federal departments, except the DoD.
• Create a permanent Department of Government Efficiency (DOGE) to:
• Independently review all appropriations.
• Identify wasteful spending that lacks sound ‘business cases’.
• Expose a) proposed wasteful appropriations, b) their legislative sponsors and c) lobbyists and special interest groups behind the proposal.
• Provide a transparent mechanism to apply direct citizen pressure to halt wasteful proposals.
• Freeze federal spending to 2024 levels for a five-year period.
• Pass a balanced budget amendment eliminating deficit spending within five years from the date of passage.

Results
Span of control efficiencies:

• Reduce federal employment 15%, $100B savings.
• Reduce middle and executive management positions by 30%, $20B savings.
  Supporting value chain consolidation:
  Additional middle and executive management position reductions by 11,000 positions, $2B savings.
  DOGE oversight:
• Assuming the time-tested 80:20 rule, about 20% of spending is likely ‘waste”.
• $7T x 20% == $1400B savings.
  Federal budget freeze:
• Assuming growth at a 2.5% rate of inflation, a freeze saves $737B over a five-year period.

Evolution of Federal Executive Structure

Current (2023) Federal Income and Expenditures

Notes on Federal expenditures.
Notes

• Total civilian federal workforce: Approximately 2.2 million employees @ ~$50–60 billion annually (2023).
• Benefits: Typically add 30%-35% to base salary.
• Locality pay: Typically adds 20%-25%
• Total Cost Estimate: Salaries, Benefits and Overhead: $65–80 billion annually.
• GS-1 to GS-5: ~892,500, ave. compensation: $35,000 , Total GS-1 to GS-5 compensation: $31.24 trillion.
• GS-6 to GS-9: ~535,500 , ave. compensation: $65,000, Total GS-6 to GS-9 compensation: $34.8075 trillion.
• GS-10 to GS-12: ~357,000 , ave. compensation: $105,000 , Total GS-6 to GS-9 compensation: $37.485 trillion
• GS-13: ~183,750 ~, ave. compensation: $125,000 , Total GS-13 compensation: ~$22.97 billion
• GS-14: ~110,250 ~, ave. compensation: ~$150,000 , Total GS-14 compensation: ~$16.54 billion
• GS-15: ~55,125 ~, ave. compensation: ~$185,000 , Total GS-15 compensation: ~$10.20 billion
• SES: ~18,375 ~, ave. compensation: ~$250,000 , Total SES compensation: ~$4.59 billion

Federal Government Cost Reduction Opportunities
There are three major areas where costs can be reduced in an organization:

• Reducing administration & overhead costs.

• Streamlining the organizational structure.

• Reducing goods and services produced.

• Assuming current administrative costs are accurate at only 2% of budget,
  There are only minor opportunities to reduce admin cost.
  Assuming current spending priorities are consistent with citizen needs, and ignoring ‘wasteful expenditures (see DOGE proposal):

• Beyond waste, there are only minor opportunities to reduce goods and services produced.

That leaves only streamlining the organizational structure to bring the budget into balance without impacting the goods and services produced. There are three key areas of opportunity:

• Improving the span of control.
• Consolidating the supporting value chains.
• Improving the frontline efficiency, i.e. reducing the numbers of supporting value chain workers per employee.

Federal Executive Department Span of Control Efficiencies
The current span of control across federal executive departments is shown in the table below.
As the table shows, the average span of control in the private sector is significantly more efficient than within the current federal executive branch organizational structure.
Streamline reporting structures by increasing the span of control can lead to significant savings.
a. Downsize middle and upper management.
b. Automate to optimize management planning & control processes.
c. Retain frontline workers who provides services.

Key differences for private vs public sector are shown in the column above.
The facts of the matter are that private and public sector are both

• Under the regulatory requirements of the federal government.
• There are thousands of unique ‘missions’ in the private sector, yet they do not typically require narrow spans of control for oversight and ‘management’.

Improving Federal Department Span of Control

1. The table below shows the result of transitioning the Federal Executive Branch departments from current to average private sector span of control.
2. Increasing the span of control combined with increasing the size of teams leads to:
   a. 15% reduction in workforce.
   b. Significant downsize of middle and upper management.
   c. Increasing the size of teams to mitigate the impact on actual frontline support.
3. Management planning and control process assessment and subsequent process reengineering and automation should be carried out concurrent with increasing the span of control.

Federal Executive Department Supporting Value Chain Consolidation

• There is significant opportunities to reduce cost by consolidating the supporting value chains across the 15 executive departments and direct President reports.
• Supporting value chain functions, per Porter 1984) are illustrated below:
  
  
  
  Supporting functions which can be centralized include:

1. Manage Customer Service
2. Develop and Manage Human Capital
3. Manage Information Technology (IT)
4. Manage Financial Resources
5. Acquire, Construct, and Manage Assets
6. Manage Enterprise Risk, Compliance, Remediation,
7. and Resiliency
8. Manage External Relationships
9. Develop and Manage Business Capabilities

• Team-level frontline support personnel should be left distributed within the executive functions.
• The Department of Defense (DoD) is assumed exempt from this consolidation because of the unique nature of their mission.
• Mid-level and executive management in these functions should be consolidated into a central supporting value chain function responsible for these services across all 15 executive departments and agencies reporting direct to the President.
• Concurrent with the span of control transition, supporting value chain consolidation can further reduce mid-level and executive management by over 11,000 employees.
• Administrative process assessment and subsequent process reengineering and automation should be carried out concurrent with consolidation.

Federal Budget Freeze

• Organizational efficiencies through span of control and consolidation can produce major cost reduction.
• However, additional steps must be taken to eliminate the 31% deficit spending.
• A spending freeze can make a significant contribution.
• Assuming Social Security COLA increases are not included, and 2,5% inflation, a current $7T budget increases $178B simply via inflation.
• A federal budget freeze for 5 years would effectively eliminate over $700B in increases.

Other Considerations

• The Federal budget includes over 60% social spending.
• 32% of spending is Social Security and Medicare which is non-discretionary spending.
• $200+B was spent in 2023 on welfare (TANF, SNAP, Sec 8 housing, WIC, etc.).

Federal Modernization Game Plan

Notes

• Implement DOGE ASAP, least effort and lowest hanging fruit.
• Transition Supporting Value Cains
• Leave existing functionally aligned supporting value chain support-level resources in place.
• Consolidate supporting value chain mid/executive-level staff into central function.
• Downsize C-level and middle management positions as supporting value chain is consolidated.
• Increase span of control at C-level and middle management concurrent with downsizing.
• Kick off process assessments and targeted improvements with a plan to achieve objectives over a five-year period.
• Invest in IT systems concurrent with and driven by process improvement opportunities.
• Initiate a Lean Six Sigma culture to continually identify and act on ‘low hanging fruit’ opportunities.

Social Spending and Additional Considerations
Other Considerations

• The Federal budget includes over 60% social spending.
• 32% of spending is Social Security and Medicare which is non-discretionary spending.
• These costs index with inflation.

Welfare

• $200+B was spent in 2023 on welfare (TANF, SNAP, Sec 8 housing, WIC, etc.).
• Consideration should be given to:
• Requiring all able-bodied recipients to work.
• Preference should be for private sector employment.
• Federal employment should be the last resort but required if private sector not available.
• Incentivizing recipients to move permanently into the workforce.
• Welfare support should only fill the gap between employment wages and the minimum cost of living.
• An additional incentive, e.g 10%-20%, should be given for recipients to transition off welfare benefits within a five-year eriod.
• At the end of five years, welfare benefits should be reduced to further incentivize the recipient to return to the workforce.

Social Security and Medicare

• Once Federal deficit spending is eliminated, the top priority should be to next eliminate the Federal budget reliance on payroll taxes
• All payroll taxes should be directed into the Social Security Trust Fund, as originally designed.
• The Social Security Trust Fund should be placed under independent, private management to insure the optimal growth.
• Recipients should take personal ownership of their deposits into the Social Security Trust Fund.
• Retirement funds left at the end of a recipients life, should be directed back into the trust and distributed to lower income recipients.