Digital funding was broken

Digital services are vital in any modern government. They help to build trust by meeting citizens where they are. However, with annual budgeting cycles and rigid policies, the traditional approach to funding tends to hinder the success of digital projects.

In 2018, I’d been blogging about some of the challenges with investment in government digital services:

• https://www.linkedin.com/pulse/dr-risky-assumptions-how-i-learned-stop-worrying-love-sam-court/
• https://www.linkedin.com/pulse/parasitic-consultants-draining-australias-ability-digitally-sam-court/
• https://www.linkedin.com/pulse/when-designing-better-services-focus-more-operating-model-sam-court/

Rather than throwing stones from outside the glasshouse, I was invited to join the NSW Government’s Department of Customer Service to help explore ways to improve funding for digital services. Over the 4 years I was there, we achieved a lot:

• Conducted research to gain a shared understand the problem and the develop a blueprint
  https://www.digital.nsw.gov.au/article/a-blueprint-for-digital-delivery-nsw
• Designed the fund’s concept and operating model, including an Agile Business Case template and assurance approach that embedded the NSW Service Design Standard
  https://www.digital.nsw.gov.au/article/how-might-we-%E2%80%A6-change-digital-funding-game
• Developed the legislation required to establish the fund, and sourced an initial $100m
• Provided assurance services to ensure applicants were well aligned with the fund’s goals
• Expanded the scope of the fund with an additional $1.5bn
  https://www.themandarin.com.au/135268-nsw-invests-1-6b-in-digital-infrastructure-fund/
• Adapted the scope and operations to the dynamics required during the COVID-19 pandemic
• Secured a top-up for the fund with a further $500m
• Developed a Digital & ICT Investment Strategy (DIIS) to guide the fund into a more sustainable operational context
  https://www.digital.nsw.gov.au/article/making-collaboration-across-functions-a-reality-new-nsw-digital-ict-investment-strategy

This case study reviews my experiences helping DCS reform digital funding to achieve outcomes that better meet citizens’ needs.

Stimulating growth

In 2019, the NSW government established the Digital Restart Fund (DRF) to enhance government services through technology. The fund aimed to address issues related to legacy technologies, changing public needs, and a lack of flexibility in funding and governance models. To achieve this, the new funding model in NSW made three critical changes:

• Incremental Funding: Funding was released in smaller increments based on progress towards specific outcomes, promoting agile behaviour and reducing risk.
• Persistent Teams: Funding shifted from multi-year projects to supporting persistent teams that delivered end-to-end customer journeys, ensuring continuity and expertise.
• Outcome-Focused Governance: Ministerial-level committees governed the fund, demanding demonstrable progress towards improved customer outcomes before releasing new funding.

The NSW government witnessed rapid growth in the fund, and the relatively  small initial budget of $50 million per year was expanded to $2.1 billion over four years.

Universal challenges with funding

Traditional government funding models for technology projects have a tendency to fail, particularly with digital initiatives. The UK’s GDS was established to improve government technology performance, with notable success in the GOV.UK platform. However, other countries faced similar challenges and struggled to improve success rates.

Critical Challenges in Traditional Funding Models:

• Governance and funding do not support digital delivery: Traditional funding decisions are often made before an initiative starts, leading to a lack of financial scrutiny during the project and hindering cost-saving innovations.
• Siloed funding inhibits collaboration: Cross-agency initiatives require collaboration, but traditional funding models often follow organisational boundaries, preventing effective cooperation.
• Risk-averse funding inhibits experimentation: Traditional funding processes discourage experimentation, reducing the potential for innovation and adaptation.
• Funding models are ill-suited to a changing environment: Rapidly evolving digital services require flexibility, which is lacking in traditional stage-gated funding and project management practices.

Reforming funding

To improve digital funding and encourage agile practices, we developed a series of principles to guide our work:

• Fund less, but fund more often: Implement smaller, frequent funding releases to align with digital delivery rhythms and support innovative work without long budget cycles.
• Announce more achievements and fewer intentions: Focus on delivering features and functionality that benefit citizens instead of making big spending commitments without concrete outcomes.
• Regularly review every part of the budget: Adopt a model that scrutinises project funding and business-as-usual funding, allowing for strategic reprioritization of funds.
• Fund persistent, mission-centred, multidisciplinary teams: Provide sustainable funding to support the permanence and effectiveness of teams, encouraging successful and experienced delivery.
• Build modern governance and management practices: Develop a governance model that empowers teams, encourages experimentation, and supports evidence-based decision-making.
• Encourage emerging and experimental practices: Create a balanced portfolio to spread risk and foster digital innovation, recognizing that some experiments may yield high returns.
• Embrace cloud technology and a little opex over a lot of capex: Shift from capital expenditure to operational expenditure to support scalable, configurable solutions.

Conclusion

Digital funding reform is essential for government success in the digital age. NSW has demonstrated that embracing an agile and flexible funding model can lead to improved services, increased trust, and better outcomes for citizens.

I left DCS in 2022. In just its third year, DRF had allocated $687 million in funding to 107 digital and ICT projects.

Collaboration between digital and financial professionals is crucial to simplify approvals processes and enable digital transformation. Governments must boldly and openly adopt these reforms to become effective and trusted institutions in the eyes of citizens.