Why the NHS should Beware the Sunk Cost Trap

The Public Accounts Committee has reported on the NHS National Programme for IT (NPfIT) and, as expected, their report is scathing.

This follows an equally damning report from the National Audit Office (NAO) earlier this year.  (By the way, when you click on the link to my earlier blog, you’ll get a quick guide to the acronym spaghetti that comes when you mix IT projects with Government departments!).

The Report’s Conclusions

Not to put too fine a point on it, The Public Accounts Committee said that the problems with the electronic Detailed Care Records system are making the £7bn project “unworkable”.  £2.7bn has already been spent on what one member of the committee, Richard Bacon, described as a “pipedream”.

The Chair of the Committee, Margaret Hodge, said: “Trying to create a one-size-fits-all system in the NHS was a massive risk and has proven to be unworkable. It should now urgently review whether it is worth continuing with the remaining elements of the care records system.”

Background article from the BBC

Interviews with Richard Bacon on BBC TV News and
the Radio 4 Today Programme

The Sunk Cost Trap

It is far too easy to look at the committed £2.7bn and see that as a reason to keep going – to avoid the financial, psychological and political pain of having to write it off.  This is our psychological instinct.

It is called the “sunk cost trap” – paying too much attention to the committed investment.  Any decision making must be in reference to the future options: if we do this, the costs and benefits will be these.  No future action will recoup the past investment.  It is gone.

So the analysis must look at what actions will give the best results in spending the remaining budget, some £4.3bn.  The unspent £4.3bn could be re-allocated, to buy other, proven systems, and this achieve good value for money… or maybe spent directly on patient care.

This is provided the Government can extract itself from a complex web of massive contracts with global IT companies, who would, no doubt, want to fight tooth and nail to protect their investments.  This cost and risk must be factored into any calculation upon which a decision is based.

One Advantage

The current situation offers one big advantage over many failing Government projects.  The present Government did not commission the project and, indeed, opposed it.  This means that there is no sunk “political cost” and it is easy to see Ministers distancing themselves further from it.  Indeed, we are already seeing this from current Health Secretary, Andrew Lansley, seen here in a BBC interview.

The “so what?”

Currently, Government is talking about getting the best from its contracts.  This may be the best option, but it must evaluate all of its options before making a decision, without thought of the £2.7bn already spent.

We will see: The Department of Health has confirmed that it will announce plans for the future of ICT in the NHS this autumn.

NAO damning report on NHS NPfIT

A snappy title?  I doubt I could have fitted the full names into the title box, so:

NAO: The UK’s National Audit Office scrutinises public spending on behalf of Parliament.  More here.

NHS: The National Health Service – still, despite political rhetoric, one of the very best health services in the world and still free at the point of need. More here.

NPfIT: The National Programme for IT (information Technology).  Sometimes called “Connecting for Health” it is an £11billion+ programme to create unified broadband network to share patient records across the whole NHS. More here.

How Damning?

Very: their report “concludes that the £2.7 billion spent so far on care records systems does not represent value for money. And, based on performance so far, the NAO has no grounds for confidence that the remaining planned spending of £4.3 billion on care records systems [one part of NPfIT] will be any different.”  Ouch!  (from the press release)

Some of my former colleagues have worked on this project, so I need to tread a little carefully, especially as some I like and respect greatly.

But the NAO’s conclusions speak for themselves:

“This is yet another example of a department fundamentally underestimating the scale and complexity of a major IT-enabled change programme” said Amyas Morse, head of the NAO.

Change – Projects – Risk

The subtitle of this blog: “Change-Projects-Risk” is there because the three are intimately linked.  At Deloitte, at the time I was leaving, several partners made it clear to me that “Change Management and Project Management are different disciplines: you are a Project Manager, Mike”

I saw this – and still see this – as nonsense.  Change management and project management are labels for two ends of a spectrum and whilst I understand the business need to create artificial divides to make a service offering clear, the real world is messier.  And the management of project and change risk is vital – all the more so as the scale and complexity rises.

And when this attitude contaminates the thinking of practitioners on the ground, as I suspect it did with some of the leaders of NPfIT, then the lack of sophistication has consequences.

Many Many Reasons

The NAO report does not go into the reasons for the failings in great depth.  But it is clear that there are many many reasons for the NPfIT’s failings – as you would expect – a complex set of issues in a complex world.

The “so what?”

I wrote Risk Happens! for this very reason – too few project managers give sufficient time and effort to identifying potential points of failure, dealing with them and managing risk.  Planning is often over-confident by a BIG margin.

I’d love to write “Change Happens!” about managing the change that runs alongside major projects, but two publishers have told me “books on change management don’t sell.”  Unless, that is, they feature loveable mice or penguins.

But I have plans… watch this space.

For fuller details of the NAO reports:

• Full report
• Executive Summary
• Press Release