This paper sets out a framework for effective management of staff costs in a  challenging environment of cost reduction in public services. It builds on the high level principles set out in the NAO’s short guide to structured cost reduction.

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Our framework sets out the NAO’s expectations for how organisations should approach the delivery of these savings in a way that minimises risk and maximises benefit to the taxpayer. The framework also includes our expectations for effective ongoing management of staff costs.

The framework is split into four parts:

Part One – Identifying and appraising options for staff cost reduction

Part Two – Planning staff cost reduction

Part Three – Delivering staff cost reduction

Part Four – Embedding a business as usual approach to staff cost management

Parts One to Three cover our expectations for good practice in the context of specific cost reduction programmes. These will range from small scale staff cost reduction programmes based around efficiencies within existing activities to much broader change programmes including organisational restructuring and use of technology. Our framework signposts approaches for identifying cost savings that organisations might use across this spectrum of activity, but it does not provide guidance on how to implement them.

Part Four of the framework provides expectations for ongoing activity around staff  cost management. While the focus of these principles will be on improving the capability of the business to improve staff cost management as part of business as usual, such activity will also have a role in supporting the successful delivery of specific programmes. Strong management information underpins each part of the framework, in particular:

  • high quality information that supports ongoing staff cost management; and
  • high quality analytical information that supports specific decision-making.

We recognise that constraints and barriers exist that may make it difficult or  even prevent central government organisations from applying these principles in some instances. These include the tensions between shorter term pressures to deliver savings in the current financial year, and the longer term investments in organisational change and IT systems required to provide the platform for fundamental service reform. However, ongoing staff cost management, including having robust systems, information and controls in place, will ensure that organisations are better placed to respond to such challenges.

August 2010