Service delivery, KPIs and public-private partnerships
The unit economics of public services, how to choose KPIs, and how public-private partnerships work, with worked examples on channel shift and a PPP value-for-money test.
Industry brief, with a one-minute summary: Government, public sector and non-profitsFirm processes and online tests change from year to year and differ by office. Use this to prepare, and confirm the exact current steps on the firm's own careers page.
Key takeaways
- Run a public service like an operation on a fixed budget: define the outcome, measure it with a few clear KPIs, find the capacity limit, and give each risk to the party, public or private, that can manage it best.
- Public services have units too: a passport application, a pupil, a patient, a tax return.
- Good KPIs are few, clear, measured the same way every time, and hard to game.
Key idea
Run a public service like an operation on a fixed budget: define the outcome, measure it with a few clear KPIs, find the capacity limit, and give each risk to the party, public or private, that can manage it best.
The unit economics of public services
Public services have units too: a passport application, a pupil, a patient, a tax return. The same tools apply. Unit cost is total cost divided by units served. Capacity is how many units the staff and systems can handle in a period. When demand is above capacity, a backlog (queue) builds up. Channel shift, moving people from in-person counters to online services, is one of the biggest levers, because a digital transaction usually costs far less than a face-to-face one. Digital public infrastructure can reach huge scale: India's UPI payment system handled a record 24.51 billion transactions in August 2026 (NPCI data reported by Business Standard).
Worked case
Channel shift at a passport office
The prompt
A passport office in a fictional country handles 1.2 million applications a year: 80 percent in person at a cost of USD 30 each and 20 percent online at USD 6 each. If the online share rises to 60 percent, how much does the office save each year?
The structure
- Cost = applications x (in-person share x in-person cost + online share x online cost)
- Cost today
- Cost at 60 percent online
- Key: Saving
Working it through
1. Average cost today
80 percent at USD 30 and 20 percent at USD 6.
Average cost per application today (USD):0.8 × 30 + 0.2 × 6 = 25.22. Cost today
Times 1.2 million applications.
Yearly cost today (USD):1,200,000 × (0.8 × 30 + 0.2 × 6) = 30,240,0003. Cost at 60 percent online
40 percent at USD 30 and 60 percent at USD 6.
Yearly cost at 60 percent online (USD):1,200,000 × (0.4 × 30 + 0.6 × 6) = 18,720,0004. Saving
The difference.
Yearly saving (USD):30,240,000 - 18,720,000 = 11,520,0005. Saving in percent
Saving divided by cost today.
Saving (percent):11,520,000 ÷ 30,240,000 × 100 = 38.1
The recommendation
The office should move applications online, because raising the online share from 20 to 60 percent saves about USD 11.5 million a year, 38 percent of today's USD 30.2 million cost. First, an online application costs USD 6 against USD 30 in person. Second, the average cost per application falls from USD 25.20 to USD 15.60. The risk is shutting out people who cannot use online services, such as older people or those without internet access, so keep a good in-person route. As a next step, pilot the online route with one group of applicants and track completion rates.
KPIs: measuring what matters
| KPI type | What it answers | Examples |
|---|---|---|
| Input | What did we spend? | Budget spent, staff hired |
| Output | What did we do? | Patients treated, kilometres of road built |
| Outcome | What changed for people? | Waiting time, literacy rate, road deaths per 100,000 people |
| Efficiency | What did each unit cost? | Cost per pupil, cost per case processed |
| Equity | Who benefits, and who is left out? | Outcomes by region, income or gender |
| Satisfaction and trust | How do people rate the service? | Survey scores, complaints |
So-what
A good scorecard has a few outcome KPIs at the top, with efficiency and equity next to them.
Good KPIs are few, clear, measured the same way every time, and hard to game. When a number becomes a target, people may improve the number without improving the service, for example by moving patients between waiting lists instead of treating them. Pair each target with a check that catches gaming, and keep at least one outcome measure.
Public-private partnerships (PPPs)
A public-private partnership is a long-term contract in which a private company builds and often finances and runs a public asset or service, takes on some of the risk, and is paid either by users (tolls or fees) or by the government, usually linked to performance (World Bank PPP Legal Resource Center). The aim is to give each risk, such as construction delays, maintenance or demand, to the party best able to manage it.
| Model | Who builds | Who pays for the building | Who runs it | How the private partner is paid | Example |
|---|---|---|---|---|---|
| Traditional procurement (design and build, or EPC: engineering, procurement and construction) | Private contractor | Government | Government | A construction price | Most public buildings |
| Design, build, finance, operate, maintain (DBFOM) | Private | Mostly private | Private | Availability payments from government, cut if the asset is unavailable or performs badly | Many European hospitals and roads |
| Concession (user pays) | Private | Private | Private | Tolls or fees from users; the private partner takes the demand risk | Toll roads, airports |
| Hybrid annuity model (India) | Private | 40 percent paid by government during construction, 60 percent by the private partner | Private | Government pays the rest back as annuities over the operating years, not linked to traffic | National highways |
| Build, operate, transfer (BOT) | Private | Private | Private for a set period, then handed to government | Tariffs or government payments | Power and water plants, for example in the Gulf |
So-what
The key design question is who carries demand risk. Where traffic or use is uncertain, governments often keep it and pay for availability instead.
PPPs are debated. The UK used a form called the Private Finance Initiative (PFI) widely from the 1990s, but in the 2018 Budget the government said it would not use PFI for new projects, calling it inflexible and overly complex; existing contracts continue (House of Commons Library). India's hybrid annuity model for highways, where the government pays 40 percent of the cost during construction, was designed to share risk after many earlier toll-road projects struggled with traffic risk (Government of India).
Worked case
A value-for-money test: build it ourselves or use a PPP?
The prompt
A regional government needs a new road. Option 1: build it itself for USD 100 million now and pay USD 3 million a year to maintain it for 20 years. Option 2: a PPP partner builds and maintains it, and the government pays USD 10 million a year for 20 years, reduced if lanes are closed. At a 5 percent discount rate, the present value of USD 1 a year for 20 years is about 12.46. Which option costs less in present value?
The structure
- Compare the present value of each option's payments
- Option 1: build cost now + PV of maintenance
- Option 2: PV of availability payments
- Key: Then test risks that are not in the numbers
Working it through
1. Option 1
USD 100 million now plus USD 3 million a year times 12.46.
Present value of option 1 (USD millions):100 + 3 × 12.46 = 1372. Option 2
USD 10 million a year times 12.46.
Present value of option 2 (USD millions):10 × 12.46 = 1253. Difference
Option 1 minus option 2.
PPP saving in present value (USD millions):137.38 - 124.6 = 12.78
The recommendation
On these numbers the PPP costs about USD 12.8 million less in present value. But test three things. First, option 1 assumes no cost overrun; public projects often overrun, which strengthens the PPP. Second, governments usually borrow more cheaply than private companies, so the PPP must save through better building and maintenance, not through finance. Third, a 20-year contract is hard to change if needs change. Many governments run this comparison formally, often called a public sector comparator.
Under India's hybrid annuity model, a highway costs INR 2,000 crore to build. How much does the government pay during construction, in INR crore?
A benefits office receives 12,000 claims a month and can process 10,000, so its backlog of 30,000 claims is growing. If it adds staff to process 14,000 a month, how many months will it take to clear the backlog?
A government plans a toll road PPP in a new corridor where future traffic is very uncertain. Which risk should the government probably keep?
What is an availability payment?
Why did the UK government stop using PFI for new projects in 2018?
Which of these KPIs is an outcome?
Sources for this lesson (5)
- World Bank PPP Legal Resource Center: about public-private partnerships
- House of Commons Library: "Goodbye PFI" (Budget 2018)
- Government of India, PIB: Hybrid Annuity Model for national highways
- Business Standard: UPI sets new record at 24.51 billion transactions in August 2026 (NPCI data)
- Recognized public explanations of case-interview concepts and frameworks
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