calculating how to shake dice

When working with big planning spreadsheets there is a fairly well known scenario along the lines of: "Big Chief needs to make a speech and show some efficiencies. What can we do?"

A related modelling spreadsheet technique boils down to 'slide to the right, change the gradient and backload the numbers'. I've picked a random graph related to the universal credit rollout which illustrates the principle.

It's also fairly intuitive to graph readers. Things get delayed - in this model we see something yielding a lower result after an approximately five year slip, which occurs at the rate of around a one year slip per year, generally introduced in two phases.

There's a similar technique used on the OBR (Office of Budget Responsibility) report ahead of George Osborne's Spending Review on Wednesday.

The new OBR chart shows it will all come level in five years' time, although with some dramatic stuff happening in 2017-18 when there's a big tax hike as well as increased spending on RDEL and CDEL (Resource and Capital Department Expenditure Limits). That's all just far enough away for the government to have time make something up. It also means that some of the future difficult actions don't have to be revealed at present.

The planned outcome in all of this is that the numbers are still shown to come right by the end of the graph. It's like pushing the lump along under the carpet and hoping that there's somewhere for it to go without anyone noticing. The OBR don't do this, of course. They are reporting on what appears to be happening rather than actually dictating policy.

I'm guessing that someone had to have a 'Big Chief' conversation before the Spending Review. The apparent spreadsheet result has given Osborne some theoretical money to play with, magicked out of revised planning assumptions. That's where another spreadsheet technique comes into play.

I'll call it 'smudging' and it's the effect when producing graphs of numbers that look similar enough but can be used to tell a different story. In the above example we see that tiny smudge width which is the difference between the July and November OBR forecast. The value of the gap between the lines is around £27bn, so not bad for a smudge.

Osborne hasn't really mentioned that the gap is an aggregate (i.e. it is the 5 year aggregate, not a one year figure). It means the figure of £27bn being bandied around in Osborne's Spending Review needs to be treated with some caution.

There's a further subtlety, that although he's dropped the tax credit cuts, the Universal Credit system will eventually have a similar effect. It's described in the OBR chart 1.1 above - The scale of the yellow area represents the dramatic increases in taxation that tapers at first and then dramatically steps in.

Hidden behind all of this are the much bigger spreadsheets that don't just show the £27 billion delta. Instead they show the underlying debt of nowadays around £1.6 trillion. That's £1.6^E12 - yes it's large enough to refer to with scientific notation, because it won't all fit onto some calculators. And strangely enough, the steepest increases have been over the last few years...

In Osborne's post-speech interviews he said he wasn't gambling with the money. The OBR fan charts in the same report hint at otherwise.

I know these figures are really to protect the OBR's own forecasting, but they illustrate the potential volatility based upon use of high level modelling charts. The fan shows potential variance, banded with 20% probabilities. The message is that there's plenty of potential for things to change - risks one could say. The OBR is polite about some of the headline ones:

• economic risks, including UK productivity growth and the implications of lower growth in China
• uncertainties with the delivery of reforms to disability benefits and universal credit;
• the implications of the decision to reclassify housing associations from the private sector to the public sector;
• ongoing uncertainties around the large financial asset sales that are planned to take place over this Parliament; and
• the Government has set out a number of ambitions that have not yet been confirmed as firm policy decisions.

In planning terms it might be prudent to start looking at which of these risks can be turned into contributory factors for the next series of 'adjustments'.

Time for another shake of the planning dice?