How local governments can continue to meet citizen needs: A strategy for boosting efficiency with a dwindling budgetHow local governments can continue to meet citizen needs: A strategy for boosting efficiency with a dwindling budget

C. Northcote Parkinson, a British naval historian, wrote, “Work expands so as to fill the time available for its completion.”

Parkinson meant the comment to be a humorous critique of the efficiency of public administration and civil service bureaucracy. He noted that taxpayers assume that a rising number of civil servants reflects a growing volume of work to be done while acknowledging that employees often use the same amount of time to perform a task regardless of the volume of work. Parkinson’s law is a call for governments to turn toward process improvement, greater accountability and, ultimately, outsourcing.

Many state and local agencies are grappling with budget challenges and hiring holds going into fiscal 2025. They are tasked to reduce spending, but not services—and the standout strategy for that is outsourcing.

Strategic outsourcing
What would it take for a government organization to send workload to an outsource provider? In a word: surge. That could be higher-than-anticipated Medicaid enrollment, growth in state-subsidized childcare programs or a backlog of disaster claims being coordinated at the county level.

Outsourcing functions can help state and local governments keep pace with increasing demands around citizen services, improve productivity and reduce costs. At a time when Federal grants to state programs are up, many agencies continue to find themselves pinched because of increasing staffing costs, increasing infrastructure costs and public expectations for timeliness, accuracy and transparency on par with private sector businesses.

Outsourcing allows government organizations to use skilled employees for various needs but limits the costs and scope versus increasing internal staff. The benefits of outsourcing include:

Lower labor costs: Outsourcing vendors can often provide the same work at a lower price than in-house employees, particularly when factoring in hiring, onboarding, and benefit costs. External service providers offer a more predictable and reliable cost model that helps government organizations budget and avoid overages.

Reduced overhead: Outsourcing can eliminate the need for equipment, office space and technology investments.

Faster project completion: Outsourcing can help organizations access a pool of skilled talent and have them dedicated to the project fully, which can lead to faster project start times and completion rates.

Improved efficiency: Outsourcing can help organizations streamline processes and free up internal resources to focus on other, more critical competencies.

Flexibility and scalability: Outsourcing can help organizations respond to fluctuations or sudden, emergent needs without derailing their budget.

A data-driven approach to evaluating outsourcing

Citing a need for fiscally responsible budget making, Maryland Governor Wes Moore slashed the Board of Public Works budget by $150 million for 2025 while promising no furloughs, layoffs or rollbacks of salary increases for employees. The cuts largely came from delaying hiring for state positions. Yet Maryland still needs to get the job done. By outsourcing services instead of hiring, the state might be able to make things work.

How can a government organization determine where outsourcing might be most impactful?

Thinking back to Parkinson’s law about work expanding to fill the time, governments should use a data-driven approach to operations, where metrics define workloads. By measuring the time for tasks and processes, they can establish baselines. Those numbers can be used to communicate expectations with employees.

At the same time, the organizations should look for and retain outside sources to support processes during surges, work shortages due to vacation, illness or holidays, and budget for compensation based on the activity performed—a number called the firm fixed unit price. Knowing the firm fixed unit price benefits both the organization/buyer and the service provider. The buyer knows exactly what their costs will be, and the seller is motivated to use continuous process improvement to maximize profitability.  

The entire mindset is a good way for leaders to measure internal productivity versus outsourced productivity. Data can simplify the buying decision: Is it more effective to spend in-house or to outsource?

The scale of government

Government agencies aren’t like small businesses. Their programs, even at the most local level, employ more people, involve more significant funding, and are more extensive in terms of scope and duration than most businesses. And they are accountable to state and federal laws and guidelines to use resources responsibly.

Outsourcing resource-intensive processes can free organizations to focus on core competencies where employees need specific knowledge and experience. The top solutions essential to large-scale programs include:

Of course, government organizations have also made a case for outsourcing entire departments to streamline operations, gain access to skilled employees and save money. Top targets include IT, human resources, finance and accounting, customer service and data analytics.

Government organizations, with set budgets and very visible performance standards, often feel caught between financial responsibility and mission needs. Outsourcing offers a strategy that helps reduce spending but not services.