Is the US federal government as productive as it could be? It’s been a near-constant question for the past 50 years. The government’s role and workforce expanded considerably with Franklin Roosevelt’s New Deal. By 1971, Richard Nixon had seized on productivity as an antidote to the nation’s economic woes. In 1988, Ronald Reagan issued an executive order to enroll every agency in a productivity improvement program. Later, the Clinton administration’s National Partnership for Reinventing Government aimed to modernize and streamline the federal government—resulting in roughly 400,000 fewer government workers by the end of the 1990s.
Today, productivity is again in the zeitgeist, as the United States seeks to redefine the role, scale, and scope of the federal government. The renewed push is timely: The US national debt has grown to $36 trillion. The Trump administration’s new Department of Government Efficiency is reviewing and reprioritizing federal spending. And in February 2025, the US Office of Management and Budget and US Office of Personnel Management directed most federal agencies to prepare plans for major reorganizations and reductions in force by the end of the 2025 fiscal year.
We have extensively researched the US government productivity opportunity and published our findings. The savings achievable through greater productivity are indeed vast. But getting there will require responsible, difficult choices. As Robert Frost suggested, the only way out is through. We believe that systematic, analytical approaches, like those described below, are likely the key to rapid and sustained results that save money without impairing the delivery of critical government functions.
The value at stake
Sizing the productivity opportunity is not straightforward. Because of the lack of economically measurable outputs, the total factor productivity of the public sector is challenging to calculate, making it difficult to make comparisons with other sectors of the economy. Combining McKinsey research with estimates by the US Government Accountability Office (GAO) results in a total potential productivity opportunity of up to $1 trillion, which is nearly 15 percent of the fiscal year 2024 enacted budget of about $6.8 trillion.
This estimate includes two elements: approximately $233 billion to $521 billion in fraud, waste, and abuse; and $400 billion to $450 billion in more efficient service delivery, mostly within departments. Because these numbers are so large, it won’t be easy to capture the productivity opportunity while also maintaining the essential functions of government. Simple cost cuts may achieve some savings, but spending tends to creep back in, and essential services may suffer. Furthermore, our research shows that 80 percent of major change efforts in government fail to meet their goals.
Tackle fraud, waste, and abuse
In fiscal year 2024, Medicare and Medicaid alone reported about $85 billion in improper payments. And pandemic support programs such as the Economic Injury Disaster Loan and the Paycheck Protection Program may have disbursed more than $200 billion in fraudulent claims. Despite decades of efforts, government fraud remains a major challenge, often more so than in the private sector due to a lack of risk mitigation skills within agencies, lack of a mandate from top leadership, and inconsistency in how the workforce executes fraud mitigation.
Fraud interventions that have proved effective in other sectors include sharing data across agencies, verifying customer information in real time, auditing areas of highest risk, and monitoring compliance. Best-in-class private sector organizations use probabilistic methods—rather than legacy approaches, which involve investigating each fraud case individually—to prevent millions of potential fraud cases each year. This approach is particularly useful against sophisticated fraudsters, who are hard to track through traditional methods. Sometimes, it involves increasing “friction in uncertainty,” which means placing the burden of proof on the consumer.
The federal and state agencies that have adopted such practices have seen positive results. For example, the National Association of State Workforce Agencies (NASWA) has established a comprehensive unemployment insurance (UI) integrity center to share data and information about new fraud schemes. This service has helped prevent about $5 billion in fraud as states have shared fraud patterns, UI recipient identities, lists of suspicious bank and email accounts, and tools to verify identities and bank accounts. While highly effective, deploying these tools requires substantial investment. Even with a potential 100-to-1 return on investment, the scale of fraud suggests a need for hundreds of millions of dollars to build the right systems and to hire a workforce with the right skills.
Improving productivity in mission delivery
Although most agree that the government delivers essential services, many, as noted earlier, question the cost. Getting more out of each government dollar—quickly, in a sustainable way, and without degrading services—requires an approach that focuses on mission delivery and outcomes while pulling the best ideas from all sources. We explored this fully in our recent article series; below we offer a condensed version, along with some new ideas.
To set the stage for a productivity overhaul, government budgeters can build an understanding of exactly how resources align to mission outcomes, an understanding one might call, with a nod to Ray Dalio, “radical financial transparency.” Traditional budgeting methods, often based on historical spending and inflation adjustments, fail to incentivize productivity and often overlook the true costs of missions and programs. Instead, with government agencies, it is important to start with a robust baseline of organizational missions or specific outcomes that the agency is tasked to achieve. Once identified, the next step is to align different types of resources (government versus vendor, fixed versus variable) with these missions. The match (or mismatch) between resources and missions identifies areas where agencies might cut back due to lack of mission alignment as well as sets a baseline from which to benchmark progress.
With this baseline, an effective redesign process then continues the “mission back” perspective, through questions such as: What is needed to deliver the missions of this agency? How are the outcomes best delivered (for example, in person or digitally)? This allows leaders to create an implementation plan centered on five levers: enhancing processes, optimizing the organizational structure, sourcing smarter, managing demand, and digitizing and automating. We believe these five levers—of the seven we identified in our earlier work—are the most salient for the US government today.
Enhancing processes: Zero-based redesign
Complete, zero-based process redesign (building processes from scratch rather than fixing existing ones) focuses on reducing pain points, redundancies, hand-offs, and overall time to output for both agency customers and employees. These redesigns can reduce costs while providing personalized customer service that results in improved citizen engagement and satisfaction. To get this right, and to sustain the cost savings, the focus has to be on creating easy, satisfying customer journeys. For instance, the US State Department has recently created fully online passport renewal options. This saves time for both staff and, more important, for the many citizens who no longer need to mail documents or show up at a passport office. In another example, a state unemployment agency mapped its processes, identified bottlenecks and breakdowns, designed new processes and forms, and helped its staff add new skills. As a result, it was able to clear a backlog of more than one million issues and increase overall productivity by 25 percent while also improving employee morale.
Optimizing the organizational structure
As new ways of working take shape, it is important to remember that successful organizational transformations go beyond the “lines and boxes” of formal structure or new “process maps.” Our research and experience show that organizations should consider five important tactics when undertaking a transformation.
To begin, organizations can revisit and realign the mission to identify those components that will remain critical in the future. They can then eliminate duplicate roles in the enterprise, such as the multiple teams that often conduct identical technical reviews. Third, they can optimize the spans and layers of the organization by simplifying reporting lines and consolidating management roles where necessary. Deploying advanced tools (such as gen AI and automation) is a fourth tactic; these tools can eliminate cumbersome activities and improve productivity across the entire organization. Finally, organizations can prioritize people through a strategic workforce plan that will ensure that the future-state organization can adapt to changing mission needs.
The combination of these tactics can dramatically increase the odds of achieving enduring impact.
Sourcing smarter
The federal government has an outsize opportunity to spend more wisely. It spends over $750 billion annually on outside contracts for goods and services, according to the GAO. In our experience, strategic approaches to category management, demand management, and vendor performance management have frequently saved businesses 10 to 15 percent. However, when these efforts are combined with concurrent core IT or business process efforts, as we discuss below, an additional savings of up to 30 percent can be captured. Strategic category management is particularly noteworthy. The largest spending categories are often similar across multiple departments. Centralizing management of these categories can reduce redundancy, lower costs through bulk purchasing, and create better conditions to more effectively manage suppliers. Just as important, centralizing procurement data can pave the way for gen AI and spend analytics, which can aid decision-making.
Managing demand: Asset optimization
A similar opportunity exists in managing demand for assets that the government has already paid for, mainly real estate but also infrastructure, raw land, equipment, and vehicles. Sometimes simple measures, such as a capital charge for using property, can encourage systemwide optimization. As part of the effort to manage demand, the federal government can also rethink the use and management of some government-owned property whose value may not be fully realized. In some cases, outright sales of assets can make both economic and practical sense. There’s precedent for this: The 1990 Base Realignment and Closure Act successfully closed and combined hundreds of military bases, producing billions in savings. The effort required a centralized approach to asset management and close coordination with the private sector. For those properties that remain in government hands, every little bit helps. Some localities have raised revenues by selling naming rights for buildings and even metro stops.
Digitizing and automating: Core technology
McKinsey analyzed 95 recent projects to modernize core IT at federal agencies, using GAO data and other sources. We found that 72 percent of the projects cost more than expected, took longer, or both. The largest projects did worse: 85 percent exceeded cost or timing estimates. In our analysis, most of these projects went poorly because of insufficient up-front discovery and planning; limited alignment among business, IT, and end users; and weak, process-focused program management and oversight. Crucially, as one federal chief information officer told us, IT and mission teams are often poorly aligned, and projects are launched based on what IT thinks the business wants rather than what it truly needs.
IT modernization remains an essential goal for the US government. To do it well, agencies could consider a new model that relies less on the traditional process-focused project management office and more on the knowledge and experience of end users, frontline leaders, technologists, and product management teams that can bridge these various perspectives. This new approach would involve several shifts, including establishing a product management function that can meet the technology delivery challenge; ensuring there is an accountable leader and a lean program management office that pressure-tests value and outcomes (as opposed to tracking progress); and designing future procurements to achieve business-driven outcomes. One state recently modernized its statewide enterprise resource planning platform along these lines, saving about $100 million in operating expenditures across several modules and achieving a 50 percent reduction in procurement timelines.
Our grandchildren will probably still be debating government productivity long after we’re gone. We don’t claim to have all the answers, but in our experience, the comprehensive approaches described above and in our earlier research can enhance mission outcomes, use limited resources more efficiently, and help restore public trust in critical institutions. We think these steps can improve US federal government performance for American citizens and the work experience for civil servants in the years ahead.
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