14 Departments must have effective oversight of cost reduction measures, and their impact on achieving objectives, to reduce costs sustainably. Risks to budgets and objectives should be monitored in an integrated way. Contingency plans need to allow for the likelihood that not all cost reduction measures will be successful, and new risks may materialise.
15 The Department's monitoring of cost reduction measures does not provide a strategic overview of whether transport spending is becoming more cost-effective, in particular because financial and performance reporting is not fully integrated. The Department has detailed information on individual cost reduction measures that the central department is delivering but its monitoring of cost reductions by third parties is more light touch, and varies according to control and oversight arrangements. The Department improved its oversight of Transport for London's infrastructure investment. In other respects, the Department does not have regular progress reports on cost reduction by Transport for London or local authorities, or on the risks that cutting costs places on delivering the Department's objectives. High-level monitoring does not quantify overall progress. Nor does it join up information on the cost and impact of budget reductions, and the links to objectives are not clearly stated.
16 One year after the spending review, it is too early to assess with confidence progress on the major cost reduction measures. The Department's assessment is that it is on track for delivering nearly all of the cost reduction measures it is responsible for. We have not validated this assessment, as most of the critical milestones against which progress can be judged lie ahead.
17 There are a range of risks to the Department's spending plans which could result in expenditure being higher or lower than expected. One area of immediate risk relates to rail franchises, where the Department is exposed to variations both in rail revenues, which have historically proved difficult to forecast accurately, and to commercial negotiations with Train Operating Companies. The Department also recognises that it potentially faces significant financial risk from higher than expected inflation. Where the Department gives cash grants to local authorities and Transport for London, inflation risk is passed on through their budgets, but this could still impact on the Department achieving its local transport objectives. For other areas of the Department, shortfalls could require further reductions to budget lines unless other funds become available. Fluctuations in budgets present risks to value for money, for example, £237 million of efficiency savings at the Highways Agency are based on better contracting, of which a key part is certainty of funding. We believe that long lead times for infrastructure projects also limit the Department's flexibility to respond to changes in funding by accelerating or delaying projects.