Evaluation, statistics and OR

Welcome to my world, Mr Cameron!

"We was robbed" seemed to be the general opinion on the lack of success of the bid to host the World Cup 2018.  There were also comments about the unfairness of producing the bid with the best marks but not getting the job, and how the voting process should be changed, and the relative waste of spending money on producing materials as requested, when Britain was out of the process after the first bidding round.  It was all wrong and frightfully unfair!

You would think a politician would understand the vagaries of a voting system, but I doubt our Prime Minister, Prince William or David Beckham have had much experience in the last three years of public tendering processes.  This is why I say "welcome to my world!"

There are very few projects nowadays that are offered to external organisations (builders, consultants, advertising agencies to name a few) without some sort of tendering process, and while not of the scale of a World Cup bid, actually for a micro-enterprise like Plantagenet Consulting, the tendering process is a major expense.  First there is finding out about the tendering opportunity - BIS kindly provides the Supply 2 Gov website, but at about £250 per year subscription for anything other than the most basic view, this is not cheap (other portals are available I hasten to add). 

Relevant opportunities are either one off contracts or framework agreements.  For a business the size of Plantagenet Consulting, you can forget framework agreements - you can never get beyond the tickbox element for the various policies you have to have, as the fact that you have fewer than 5 employees, so you don't need them, is not a valid excuse in general.

So you are looking at an invitation to tender for a single contract.  If you are lucky, the potential client does not have a tendering portal such as Bravosolutions (again other portals are available) to battle against, and does not want a tender in hard copy (don't get me started on the challenges of the Mail system and courriers), but will accept an e-mail document. 

In order to produce a good tender, that meets the requirements of the potential client and represents you well, I estimate the minimum time required is 2 days, and the maximum viable time is two weeks, depending on the potential value of the project.  For a micro business that is between 2 and 10 days, and for an individual consultant, allowing for admin and such things we reckon there are 15 billable days in a month, but for a bigger project, you can see that every extra day is an opportunity cost of whatever your day rate happens to be.

If you are incredibly lucky, you get the project and away you go.  If you are "lucky" you are shortlisted, and get to go to all the additional expense of attending a beauty parade with a presentation of how you and yours would best meet the customer's needs.  You are never recompensed for attending these parades, even if it becomes clear that you are only making up numbers.  Sometimes your pitch wins, sometimes it doesn't.  And in at least 50% of cases, your excellent tender will be rejected (and realistically it will often be a higher per cent of cases), and sometimes you will get useful feedback and sometimes you won't.  If you do, it must be valued and pondered over.

Such is the world of the consultant, occasional highs leading to valuable work and rewarding new relationships, but so often counting the not inconsiderable cost of being one of those who didn't win.  Often as well, you feel that actually you did a good job, and deserved a better hearing, but as with the World Cup bid, it just didn't happen.

Mr Cameron, if you have read this, consider the amount of wasted effort and money in ALL unsuccessful bids around the country in a single year.  Your bid's failure was a bit more public than most, but you expect public suppliers to go through that self same process and beauty pagent, and invest proportionate costs.  In your failure, you found a peer group to relate to!

Are Quangos truly evil?

A new Government and new ideas - for some it is a time of new hope and excitement as people get to grips with their new responsibilities and start to make their mark on the country.  For many, many more it is a frustrating time as we try to second guess what the new Government will do and wait for permission to carry on with the process of running the country and its key services.  The rhetoric is amazing but what does it mean for the person in the office?

One of the big new ideas appears to be to remove Quangos and get rid of all that awful red tape that has been put in place in the last 12 years of Labour.  Bizarrely, quangos and all that red tape was there before too, but had different names.  Local enterprise boards that are being contemplated were Training and Enterprise Councils, and their Business Links.  All that red tape about learners was the Individualised Student Record and the Annual Pupil Census and the TFW8 (Training for Work form 8) instead of the Individual Learner Record and something too secret to mention from DWP (Department for Work and Pensions).

The reason some of these quangos at least are out there is because the huge departments at Moorfoot and Longbenton among others have been scaled down pretty drastically, but the work remains, it is just done by an organisation with a contract and some other responsibilities thrown in like being nice to other organisations with a related remit.  But as it is a separate organisation, you can gradually over time make working conditions intolerable and force people off work with stress and still feel good about Civil Service bashing.  The unions are fragmented and unable to help staff to regain self-respect and a reasonable work-life balance or indeed a working day of less than 9 hours, excluding travel.  Many of these individuals are therefore looking forward to the time when their last vestige of benefit in working for the public good kicks in - their frozen Civil Service pension.  Let's hope they are allowed to keep it.

The bid idea of removing red tape and oversight and leaving schools, colleges and hospitals free to determine their own priorities and spending only works until one of them, or someone related but removed from them, slips up and suddenly there has to be regulation to control the use of public funds.  Until the MP expenses scandal, Colleges were being encouraged to drive up quality and standards themselves and through peer review. When the scandal broke, self-regulation was consigned to the scrap heap - if MPs couldn't be trusted to behave, how could Colleges possibly cope with the responsibility of improving themselves?

So the cycle starts again, and the big ideas will be touted round.  Public servants will lose their jobs, small consultancies will go through hard times (this NEVER happens to the Big Five), lots of new brochures and policies will be printed and lots of red tape repealed or banned, until the next slip up and misuse of public funds is spotted and it all builds again.  In about a decade I will be able to recycle this article and sprinkle just a little more cynicism into it, having been round the loop again.

Who changed the definition of NEETS?

I have spent years monitoring NEETS - those not in education, employment or training.

First time round, we called it the Success Index and it was run in Coventry and Warwickshire and showed the first destination post-GCSEs for young people aged 16 or so in the sub-region.  It was published towards the end of the autumn term and was used as a measure of success in inspiring young people in the area. 

The original definition was that a young person had to be in education or training with work, and we used to have a lot of debate with Connexions about a job without training - due to really tricky semantics.  If a young person was on a training programme with Marks & Spencer or AXA, they often weren't counted as being in a positive destination as the training wasn't to a recognised qualification.  However the unqualified young man who was helping his Dad out as a scaffolder was a tricky one - should we grass them up to the HSE?

Then the concept of NEETS came up, so that whole debate was put on the back burner, as you could be in education, employment or training, and it was a positive outcome.  Then people started to get clever and think about what happened at the end of year 12, so ever more sophisticated methods for tracking young people were needed, and Connexions case workers were at the front of collecting the data.  Now when we just did the Success Index, we did find that people who went to public school for their sixth form education ended up as non-positive outcomes, as they were generally lost to the state careers system - is that the same for NEETs?

Today I find that there is a whole new category of NEET - actually we used to call them unemployed - young people aged 19 to 24 not in education, employment or training.  Here we get into seriously tricky water on definitions.  What about young mothers?  What about unpaid carers? What about unpaid postgraduate academics?  What about school leavers and graduates on gap years?  What about volunteers?  As one gets older, the range of options and life choices that are totally valid but don't sit comfortably within the categories of in employment or in education or in training get ever more numerous. 

Why call these people NEETs?  It takes the strength away from the 16 - 18 definition.  These people are unemployed or inactive.

It's official - it's a recession.

So there we have it - the official statistics point to a second quarter of falling Gross Domestic Product (GDP), which sets the definition of a recession.  Personally I always favoured The Economist's definition, which was also a lead indicator, which was the number of times the word recession was used in the press in a defined period.  If it hit a certain level, it was recession and the figures to confirm it would appear rather later.

Actually, on the official definition, we haven't seen a recession since the early 1990s - I am not sure where the Economist figures fit with that as I haven't subscribed for many years now.

Anyway, we can expect to see more misery in the news programmes, many more articles on how to survive a recession, how to manage the household budget in a recession, austerity food and drink, and pictures of people being turned out of their homes.  The early 1990s recession was grim I recall - I was lucky in that I had a job with a major company that wasn't about to make people redundant, but my husband had a new business start up that failed (albeit we managed to close it while it was solvent).  We had bought our first home, but interest rates went mad and property prices fell.  We lived in the North East too, where unemployment was already high and opportunities exceptionally rare.  My husband applied for one job with a drinks manufacturer that had 600 applicants - how can you chose the best person for the job in those circumstances?

This time round we both have small businesses, we have no mortgage, but our savings are being eaten away by low interest rates, poor investment conditions and performance, and inflation.  We are also affected by a weak pound.

So, 2009 promises fun and games for all.  However to be full of doom and gloom is also not helpful - if we all stop spending, retrench and focus in on ourselves and our misery, we will contribute to helping the recession thrive and go on for longer.  Perhaps it is time for a nice new pair of shoes in the knowledge that I am helping the economy?

Fast Moving Markets

Normally I would use this blog to comment on the latest developments in the news in my chosen areas of interest - skills, employment trends, currency exchange rates and occasionally the economy.  However the unprecedented world economic climate is moving so rapidly that is currently almost impossible to do.

However others are not so cowardly as me and are prepared and paid to put their heads above the parapet and comment.  I feel for them, I really do!  On Monday morning I was intending to write something about pound/euro exchange rates - not least as they had finally edged up a bit and I was feeling marginally less poor.  Then Monday lunchtime happened and 4 cents down against the euro, and I felt poor again.  The FTSE is all over the place but I thought I could blag a blog on leading indicators and the relationship between theFTSE and the DOW, but yesterday the DOW went up and today the FTSE goes down.

A good FTSE indicator can be the investment decisions of a fellow blogger "Allatsea", but on that basis, I am sure that his predictions for today will go up rather than the usual down.

It is not even possible to discuss adult learning policy and unemployment as that is all moving at a tremendous pace at the moment as well.  The LSC is launching its Integrated Employment and Skills packages but they are having to be responsive to local needs which change daily.  Sadly the numbers losing their jobs changes on a daily basis as well, so all I can offer there is more gloom.

Perhaps I need to follow the route of the newspapers and pull together some recession busting Skills, stats and OR tips to make people's lives easier and cheaper?  No, I will make it a point of honour to comment on something soon that isn't likely to change while I write the blog!

Power bill rises and the dash for gas

In amidst the coverage of the American Presidential election on the 5th November, were comments on a finding from the OECD that gas and electricity bills in Britain had risen twice as quickly as in France and Germany and more than in most developed countries.  There was little analysis apart from the fact that Britain has less storage capacity for gas than other countries (only 13 days).  There was a quote from the Energy Retailers' Association that pointed out that OECD figures failed to demonstrate that British customers had historically had lower prices than their chums in Europe.

As a former gas demand forecaster and former British Gas worker, I think there are a few facts to be put in the public (albeit not well looked at) domain.  Something a little over 15 years ago, the then Conservative Government allowed electricity producers to use gas to fire power stations.  Up until that time, natural gas had been considered too precious and strategic a commodity to be used in that way, but with the mines effectively closed, the country needed a power source.  At the time, those of us in gas demand forecasting said that it would cause problems and that UK sourced gas, if used in such a way would run out in about 15 to 20 years, unless serious other sources were found.

North Sea UK gas is nearly gone now and there are a lot of power stations using gas to generate electricity.  If this wasn't the case, then the Bacton gas pocket plus the gas holders would enable the UK to store gas for rather more than 13 days consumption - it is our use of gas as a way of generating electricity that has in many ways caused that problem - that and trying to develop competition in the gas supply market.

In France, there is estimated to be 122 days storage potential, but then in France 85% of electricity is produced through the nuclear route, so stockpiles are not required for the generators.  In addition, natural gas supply networks are much more limited in scope and not everyone has gas central heating.  Electricity is cheap enough to be a viable alternative and domestic electricity supplies are limited by how much you are allowed on your tariff to take off the system at any one time.  This system limit is applied in France and Germany, but is unknown in the UK.  Our personal contract allows us a maximum of 9kW at any one time for example - which at the macro level helps to smooth peaks of electricity demand.

The other slightly mysterious take on this, is that Gaz de France is heavily regulated by government and limited on what it can charge domestic customers, and once you leave GdF, you can never return to the regulated market, making competition for domestic customers something that is much less appealing.

With such disparities in the system, are the OECD really measuring like for like?

Red Tail Lights

Currently everyone is obsessed with the movements of stock exchanges, exchange rates and oil prices.  Each news bulletin seems to start with the latest percentage fall in the FTSE, the Dow or the Cac40.  We are able to monitor the changes in near real time via feeds from the BBC, BFM or CNN and can feel close to the action and depressed or elated accordingly.  But is this a good thing?

I remember being at an Operational Research Society conference a number of years ago, and listening to another delegate commenting on the phenomenon of slowing traffic and stopped traffic on Britain's motorways.  His view was that there was a phenomenon of brake light traffic jams, where a car slows using its brakes, and the one behind slows as well using their brakes and as the phenomenon goes down the line of drivers, the effect magnifies until traffic comes to a halt for no obvious reason than weight of traffic compounded by someone using their brakes about 15 miles and 15 minutes ahead of you.  In areas where there is little traffic, you don't get the same effect.

Now I can't help wondering if an element of the current fall in share prices isn't following the same form of phenomenon.  Despite the extra funds being pushed into banks and the support from the IMF, at the moment (to be VERY precise as these things change by the hour - so 10:36am GMT on Monday 27th October) the main European exchanges are all showing falls of between 3.64% on the Dax, through 4.81% on the FTSE to 6.18% on the Cac40.  But they are following the lead or the red brake lights of Tokyo and Korea who fell overnight.  We need one of the indices to not show red, so that others can take their feet off the brakes and let the rescue packages do their thing.

Of course the fly in the ointment is always those who decide, once there has been some growth again, to take their profits, which can push things back again.  We do need to stop seeing red all the time however, if any sort of confidence is to develop.

Financial Market Regulation

The current number 1 topic of news and conversation today is quite rightly the meltdown of the global financial markets.  The effects that this is having on anyone's day to day life and future prospects are awesome.  From employment prospects to housing to holidays to pensions, everyone is affected and it is nearly impossible currently to gauge whether it will be a passing pain or a fundamental restructuring of modern finances.

But should we be surprised?  Not really, as even this millennium there have been enough examples of corporate sharp practice and lack of serious regulation to warn us that not all is necessarily as wonderful as we would like to believe.  In May 2006 I reviewed for the Journal of the Operational Research Society an excellent book by Roy C Smith and Ingo Walter called "Governing the Modern Corporation" which went a long way to describing quite how the dot com bubble and the Enron fiasco could happen.

Contrasting with that, if one reads the Skills Assessments of various London based organisations such as the Financial Services Sector Skills Council or the London Development Agency, or even Boris Johnson (although as Mayor of London he isn't totally unbiased), one would think that financial institutions are philanthropic organisations purely out for the public good.  Yet how can the lure of seven figure bonuses or higher ensure that activity is scrupulous?

It seems to me, and I hope I am wrong, as it won't be pretty, that there could be a major and serious market correction and it will hurt.  It seems the public are no longer prepared to laugh off the City bonuses, the over-heated housing market is finally calming down, and we have got to a crunch point in market regulation.  As long as the financial institutions could ensure that normal people's wealth increased as well as their own, and that no one got embarrassed, they were free to find ever more "creative" ways to operate, and no one dared to say no to them as they might go elsewhere.

The potential blackmail is now loosing its force, failures such as Northern Rock, Bradford and Bingley and Lehman Brothers have embarrassed Governments and politicians will need to be seen to be acting.  [Quote from the 19th September 2008 edition of Private Eye "Number Crunching: $6.6 billion - losses by Lehman Brothers in 2008 up to point it went bankrupt; $8.7 billion - staff bonuses paid out by Lehman Brothers in 2006".]

And what of the little people like you and me?  Forget about a comfortable retirement, your pension pot value could well fall by a quarter this year!  But for those of us in our forties and younger, did we ever think we would be able to retire?  Make sure you enjoy what you do - you will be doing it a long time!

Getting the unemployed back to work

Both the UK and France have come up with plans for this over the past week, limiting access to benefits for the unemployed. 

The French have gone for a definition of the rights and duties of the unemployed, which link receiving benefits to whether or not the unemployed person rejects a reasonable offer of work.  The reasonable offer is defined and changes with time, so that shortly after being laid off, you have the right to expect at least 95% of your previous salary, but after a year, a reasonable job will pay you the same or more as your benefits rights.  Similarly the distance you have to travel to a suitable offer is defined and does change over time, the reasonable limit being an each way journey of 1 hour by public transport or over 30 kilometres each way, whichever is longer.  This system does bring a certain level of bureaucracy, as one would expect from the French, but the travel limits are interesting in a country where it is assumed you will go home for a full four course lunch.

The British "Work for Benefits" plan was revealed on Monday, and has the support of New Labour and the Conservatives (spooky).  It aims to reduce the number of people receiving benefits and will look at Job-seekers Allowance as well as Incapacity Benefits.  I have a few concerns about work to receive benefits - whose jobs are being taken to do this work?  If people are removed from benefits but can't find work, how do they live? 

While there are undeserving poor out there, there are also deserving poor who need help.  I have a neighbour who is an alcoholic.  He keeps being put in prison, but unless the underlying causes of his alcoholism are addressed, he is incapable of functioning according to the norms of society, so comes out, re-offends and is straight back in prison as a recidivist.

What jobs are we prepared to put people out of, in order that people on benefits can do that work?  This is a similar problem to what do we do with people who are given community orders instead of prison sentences.  Are these people taking jobs that others might find a good market niche and profitable for themselves?

I try not to push Internet sites that are not mainstream, but the Daily Mash had an extreme but amusing take on what the unemployed might do, and it definitely struck a chord with me.  Are we pushing people into meaningless activities to justify their benefits, and if we aren't, have we just displaced a problem?

Housing Market Correction or .....

the end of the world as we know it (many thanks, R.E.M.)?

Last week I spent quite a bit of time with two economists that I respect enormously, and one topic of conversation was the state of the economy and the indicators not just from the UK, but Europe and America too.  Over the next few weeks I hope to explore a number of these, and today's offering is UK house prices.

As many readers know, I am not the greatest fan of media presentation of statistics and their interpretation, but on one topic I am nothing to my husband who will happily rant on the misleading and contradictory indicators published on house prices.  This is much in the news currently as Nationwide - the latest to publish their monthly overview of the market - signal a price fall of 2.5% in May (interesting as the month doesn't end until Saturday) and somewhere deep in the small print they point out that this is a seasonally adjusted figure.  The Daily Telegraph have picked up this story and run with it, pointing out that taking out the seasonal adjustment (which they seem to think is cheating anyway) the actual fall was 2.8% - a whole 12% different!!

The BBC have also picked up the story as you would expect and have also published a series of expert reactions to the figures and to the current market as a whole.  It is particularly interesting to look at the different views of various players in this field - lenders, estate agents, government departments and professional bodies - definitely worth a read!

One interesting aspect of the coverage in the Telegraph is to point out how the statistics actually differ that are being offered.  Estate agency chains can look at either the prices in their windows or the home valuations for mortgage approvals (though it is not totally clear how they deal with retention issues) - the Nationwide use the latter.  But neither of these are exactly what a piece of real estate actually sells for - so selling values are best observed though the figures produced by the Land Registry.  The Royal Institute of Chartered Surveyors look in addition at transaction volumes to see how the market is moving.  No danger of comparing like with like then, unless you keep an eye on longitudinal data from one or other source!

It seems fairly clear from all sources that house prices are falling on average and are likely to continue to fall for a while yet.  There could well be local and regional variations, which will mean that if you look at a particular area, you might be able to disprove the trend - our old house and its neighbours seems to have remained static in value for the past 4 years.

However I also seem to remember that for the past 7 to 8 years, there have been rumblings about house price inflation being too great and how impossible things are for first time buyers and how the bubble will surely break sometime soon and how driving the economy through house prices is a bad thing and how house prices will remain high as demand outstrips supply.  Well demand still outstrips supply (I assume people haven't just evaporated and there haven't been that many houses built in the past 5 years), and things may get more affordable for first time buyers, but the credit crunch means they also have to have a chunk of savings for a hefty deposit.  Of course with low interest rates, their savings aren't increasing very fast, and while the City has had billions in bonus payments, most share based investment schemes seem to have done badly recently, so that deposit is just as hard to develop.

The market is changing, that is for sure.  Take your pick of the pundits, throw a dice, cut a pack of cards - none of them really know how things are going to develop, as the wider economy is in a very strange place.  Me?  I'm investing in gold!