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Government, public sector and non-profits
Lesson 2 of 3 Math checked Last reviewed 28 September 2026 15 min

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-profits

Firm 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?

Open this case to practice it with a partner

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. 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 = 25.2
  2. 2. Cost today

    Times 1.2 million applications.

    Yearly cost today (USD):1,200,000 × (0.8 × 30 + 0.2 × 6) = 30,240,000
  3. 3. 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) = 18,720,000
  4. 4. Saving

    The difference.

    Yearly saving (USD):30,240,000 - 18,720,000 = 11,520,000
  5. 5. 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

Six types of public-sector KPI
Six types of public-sector KPI
KPI typeWhat it answersExamples
InputWhat did we spend?Budget spent, staff hired
OutputWhat did we do?Patients treated, kilometres of road built
OutcomeWhat changed for people?Waiting time, literacy rate, road deaths per 100,000 people
EfficiencyWhat did each unit cost?Cost per pupil, cost per case processed
EquityWho benefits, and who is left out?Outcomes by region, income or gender
Satisfaction and trustHow 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.

Common delivery models, from fully public to PPP
Common delivery models, from fully public to PPP
ModelWho buildsWho pays for the buildingWho runs itHow the private partner is paidExample
Traditional procurement (design and build, or EPC: engineering, procurement and construction)Private contractorGovernmentGovernmentA construction priceMost public buildings
Design, build, finance, operate, maintain (DBFOM)PrivateMostly privatePrivateAvailability payments from government, cut if the asset is unavailable or performs badlyMany European hospitals and roads
Concession (user pays)PrivatePrivatePrivateTolls or fees from users; the private partner takes the demand riskToll roads, airports
Hybrid annuity model (India)Private40 percent paid by government during construction, 60 percent by the private partnerPrivateGovernment pays the rest back as annuities over the operating years, not linked to trafficNational highways
Build, operate, transfer (BOT)PrivatePrivatePrivate for a set period, then handed to governmentTariffs or government paymentsPower 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?

Open this case to practice it with a partner

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. 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 = 137
  2. 2. Option 2

    USD 10 million a year times 12.46.

    Present value of option 2 (USD millions):10 × 12.46 = 125
  3. 3. 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.

Timed math drill

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?

Timed math drill

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?

Structuring drill

A government plans a toll road PPP in a new corridor where future traffic is very uncertain. Which risk should the government probably keep?

Check your understanding

What is an availability payment?

Check your understanding

Why did the UK government stop using PFI for new projects in 2018?

Check your understanding

Which of these KPIs is an outcome?

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