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The business of running state government operations

New research from the National Association of State Chief Administrators and McKinsey looks at critical issues for state chief administrative officers in real estate, risk management, and digital government.

The priorities of a chief administrative officer (CAO) are numerous and varied—managing critical state functions, providing services and support to other agencies, supporting innovation and change, managing budget constraints, and continuously improving administrative strategies, initiatives, and processes. To help CAOs achieve their mission, the National Association of State Chief Administrators (NASCA) and McKinsey & Company partnered to produce a second annual Business of Running State Government Operations Survey on key issues affecting CAOs today. The survey results are published in three separate papers that focus on real estate, risk management, and digital government.

Insights on real estate

The 2018 survey identified real estate as a critical responsibility for CAOs, and the 2019 survey looked deeply into the challenges and opportunities CAOs face in this area.

Real estate and facilities management are a core part of every CAO’s job. In fact, real estate is where CAOs spend the greatest share of their time, about 20 percent of resource hours, relative to the full range of their responsibilities (Exhibit 1).

This high degree of time CAOs invest in real estate and facilities management is appropriate given the value at stake. The average state owns more than 15 million square feet of space across 2,200 buildings, much of which is managed by the CAO. CAOs, on average, spend almost $360 million a year of their annual budget and agency outlays on real estate–related activities. Most square footage managed by states is used for office space.

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All CAOs oversee real estate and share common concerns. The average CAO oversees upward of 2,200 owned and leased buildings. Of the buildings they own, about one-third are more than 50 years old. CAOs have 270 full-time equivalents (FTEs) working in real estate and facilities management, yet they struggle to find employees with the right technical skill set to manage their large portfolios. Indeed, they want to design buildings and spaces to improve the citizen experience and meet customer expectations, but CAOs are stymied by a median deferred maintenance backlog of almost $200 million.

This paper looks closely at four challenges CAOs face regarding real estate and facilities, and it highlights opportunities and best practices to help overcome these barriers:

  • Deferred maintenance is a perennial challenge; CAOs might want to consider disposing of the state’s most burdensome assets to alleviate this issue.
  • Optimizing the portfolio of real-estate assets can help capture synergies across tenants and allow for the best use of the space.
  • Knowing which performance metrics to use and how to analyze them can be difficult, but cracking the code can lead to more productive and proactive portfolio management.
  • The CAO mandate is to use real estate as a lever to enable productive and successful workspaces, but too often customer service fails to get the attention it requires; however, some CAOs are pursuing more customer-centric strategies and creating more dynamic workspaces.

To achieve the best possible outcomes, CAOs must take an integrated approach to portfolio management, considering these four categories. An integrated approach that also takes into account trends and initiatives is useful as CAOs develop their long-term strategies, helping them to better understand future needs. For example, solving the deferred-maintenance challenge in most states will require CAOs to decide which assets their states will need in the future and which can be monetized or sold. Forward-looking portfolio strategies can also help reduce footprint costs and address workforce demands.

This paper provides more detail on how real-estate management challenges manifest themselves day to day. We highlight a series of case studies from innovative CAOs as well as new approaches taken by both the public and private sectors.

Download 2019 business of running state government operations survey—insights on real estate, the full report on which this extract is based (PDF–968KB).

Report authors: Kelly Clark, John Means, Jamie Rogers, Rachel Schaff, and Joseph Truesdale

Insights on risk management

Based on a limited set of questions by design, this paper provides an overview of how state governments approach risk management. While almost all CAOs are responsible for risk management in some regard, the survey determined there is wide variation in how states delegate and manage those responsibilities. The survey revealed a wide range of approaches to risk management that can be sorted into four archetypes: risk collaborator, risk owner, risk prone, and risk responder (Exhibit 2). These archetypes are based on two dimensions of risk management: 1) how risk management and oversight is assigned and carried out across the state government, and 2) the frequency and structure of risk monitoring and evaluation.

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There is no one-size-fits-all risk management approach for states; indeed, the best risk-management approach for each state is highly dependent on structural factors related to an individual state’s context. For example, states may have different risk appetites, leading to varying levels of financial, environmental, or other regulations. They also have different levels of exposure to natural disasters, variable budgets, and economic downturns, among other factors.

Even with these structural differences, best practices dictate that there should be an overarching strategy and clear ownership approach, as there is with the risk owners, risk collaborators, and risk responders. Public-sector best practices also demonstrate that the most effective strategies are collaborative and enterprise-wide, backed by risk-management plans and procedures that align with the state’s risk appetite. 1 Once a state determines its risk-management strategy, it should assign clear, primary responsibility to an individual or group for this function. Failing to designate one point of contact as the primary responsible party has proven to leave certain risks unaddressed, while assigning responsibility to multiple groups can result in ambiguity and duplication of resources, undermining the overall approach.

Download 2019 business of running state government operations survey—insights on risk management, the full report on which this extract is based (PDF–448KB).

Report authors: Kelly Clark, Jamie Rogers, Rachel Schaff, and Joseph Truesdale

Insights on digital government

In the 2018 Business of Running State Government Operations survey, 60 percent of CAO respondents said that digitization and automation would be critical to their success in the coming year. The 2019 survey dove deeper into the value that digitization can bring to state governments and addressed whether that value is being realized.

According to respondents, there is widespread acceptance of the value of digitization, with 60 percent of CAOs reporting that they have a digital strategy in place. Many of those CAOs, however, report mixed success in implementing strategic plans, and they face challenges when driving utilization of digital tools within their agencies and throughout their state governments. This gap between vision and implementation of digital tools exists in procurement, finance, and facilities management, as well as other core CAO responsibilities (Exhibit 3).

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This paper explores the CAO’s role in driving digital adoption, as well as innovative and exciting steps being taken to accelerate the use of digital tools. More specifically, the paper finds the following points:

  • Despite the importance of a state-wide digital strategy and the critical role of leaders, funding, and performance management systems in executing digital transformations, only 60 percent of states have a digital strategy.
  • CAOs sit at the intersection of IT, finance, procurement, and HR. From this position, they can play a unique role in leading and implementing state-wide strategies. Some of the tools they have available for this include agile procurement processes for IT procurements and facilitating and enabling cross-agency collaborations.
  • Those initiatives need dedicated leadership, governance, and financial resources to be successful, all of which are challenges for the CAO to develop.
  • In their own agencies, CAOs see the value of digitization but many activities are still paper-based and adoption of new tools is slow.
  • Some CAOs are leading the way and finding creative means to overcome barriers, such as strengthening top-down support, doubling down on analytics, centering the conversation on the effect of digital on customer satisfaction, engaging in digital skill-building programs, and promoting broader mind-set shifts.

As CAOs work to close the gap between strategy and implementation, there is an opportunity to share best practices and lessons learned from several initiatives to improve digital excellence across the country. The 2019 survey captures existing efforts and solutions, setting a baseline for continued discussions and innovation among the community of CAOs.

Download 2019 business of running state government operations survey—insights on digital government, the full report on which this extract is based (PDF–840KB).

Report authors: Kelly Clark, Jamie Rogers, Rachel Schaff, Gayatri Shenai, and Joseph Truesdale

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