Saving McKinsey

Where's the savings?

McKinsey is costing the government US$ 9.1 million. That works out to about Nu 432 million. That’s a lot of money. The government knows it. And that’s probably why the government makes it a point to tell us that the McKinsey project will bring about “savings” in excess of the US$ 9.1 million being charged by them.

About two years ago, when McKinsey’s “accelerating Bhutan’s socio-economic development” project was first announced, we were told that, “The savings the government makes through this project will more than make up for the consultancy cost.”

A year later, amid increasing public concern about the usefulness of McKinsey’s recommendations in the tourism and construction sectors, we were told that the project had identified, “A preliminary saving potential of Nu 500M over the 10th Plan period for government has been identified.”

A few months after that, when the PM was asked why McKinsey were hired when our own civil servants could have done whatever the consultants were doing, we were told that, “through the project, a saving potential of Nu 500M in the health and constructions sectors has been identified, while additional savings are also being identified in the ICT and agriculture sectors.”

But can McKinsey really bring about savings to offset their huge fees? And, more importantly, will the savings bought about by McKinsey be real?

McKinsey have almost completed their project. So it’s time to evaluate their work. And it’s time to count our “savings”.

Fist, McKinsey says that we can save Nu 13 million by “having a long-term contract with one supplier, and bringing in supplies directly from the wholesaler” when buying medical supplies.

Okay … but is this really something that we didn’t already know? And aren’t there reasons – to prevent corruption, for example – why our financial rules purposely discourage long-term contracts with any one particular supplier or buy directly from wholesalers?

If purchasing medical supplies directly from the source is a good idea, why stop there? Why not purchase paper directly? And vehicles? And fuel?

Second, McKinsey says that using higher-grade steel – Fe500 instead of Fe415 – in government constructions would bring about savings. Higher-grade steel means higher costs, but “theoretically, upgrading to better quality of steel would mean the quantity required will be reduced.”

That’s probably correct – Fe500, a relatively new product in India, is being marketed aggressively and is already becoming popular. So McKinsey or not, wouldn’t construction in Bhutan – yes, including government construction – have naturally migrated to Fe500?

Third, McKinsey says that importing bitumen packed in polybags instead of barrels will result in savings. But it appears that polybag bitumen is not yet available in India. And anyway even if it was available in India, and even it was cheaper, wouldn’t we have the common sense to buy bitumen packaged in polybags over the more expensive barrels?

Fourth, McKinsey says that the government should buy cement directly from the cement factories, and claim for a rebate on the cement it purchases. That rebate, it turns out, is actually the commission cement manufacturers give their agents. So yes, the government will save money by going directly to the source. But in doing so, they’ll be functioning as cement agents. And they’ll drive all the current cement agents out of business.

It’s good that McKinsey is identifying savings for the government. But the savings must be real. The ones they’ve identified so far won’t do.