Measuring procurement savings; $300 billion saved or $72 billion spent?

The difficulties of measuring procurement 'savings' are a favourite topic of ours, and there's a long record in the UK and elsewhere of both private sector organisations and (perhaps even more so) public bodies  'bigging up' their savings in order to look good.

But retiring US Secretary of Defense Robert Gates has made the biggest claim I've ever seen claim so far and, perhaps, also the biggest gap between a reported 'saving' and reality -  a small matter of $372 billion!  As the Huffington Post reports,

At a May 24 farewell speech to the American Enterprise Institute in Washington, Gates repeated his own claim, made frequently earlier, that "All told, over the past two years, more than 30 programs were cancelled, capped, or ended that, if pursued to completion, would have cost more than $300 billion." (See the speech here.)

But, the Post claims, this ignores new programmes that started up in the same time. The  most objective measure is the Department of Defense Selected Acquisition Reports (SARs), which track the number of major hardware programs and their acquisition costs. Here's the Post again:

In September 2008, just before Barack Obama was elected and selected Robert Gates as his Secretary of Defense, there were 91 Major Defense Acquisition Programs (MDAPs). They were projected to cost $1,648 billion dollars.  In April 2009, Gates announced the termination of various defense programs. The SAR that next came out, in December 2009, showed the number of MDAPs had indeed declined: to 87 programs, costing a little less ($1,616 billion).

Nine months later, ... the SAR that came out in September 2010 showed the number of MDAPs had increased to 94. Their cost also increased -- to $1,679 billion.  The most recent SAR, for December 2010, shows another increase, both in programs (to 95) and money (to $1,720 billion).

So arguably, the number of programmes has gone up by 4 and the total cost by $72 billion, rather than the $300 billion 'saving' Gates is claiming as his valedictory.

It sort of puts the UK procurement savings targets into perspective doesn't it? And, joking aside, it does show the difficulty of really measuring savings, particularly when it's over a number of years, and we have demand management driven changes to take account of, as well as pure commercial actions.

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