Performance Budgeting Reforms – Sequencing and pacing of reform processes

5th Annual Meeting of OECD Senior Budget

Officials Network on Performance and Results 27-28 October 2008

By Niels Refslund, Chief Advisor,

Danish Agency for Governmental Management; Ministry of Finance

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Focus of Performance Based Budgeting (PBB)

•Management of public ressources:- Based on reliable and relevant information

- Connecting results with dedicated ressources

- Heading for effectiveness as to political goals

•A Management on all levels:- That pays respect to the difficulty of this approach

- That nevertheless encourages dynamic innovation:

- Evidence is needed (measurements and evaluations)

- Measurements can’t replace accountable leadership!

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The Parliamentary Chain of Control- Clarity of roles is important

The Government

The Administration

The Parliament

Electorate

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New Management-Policy Statement: (”Effectiveness and responsibility” - To be launched End of 2008)

I. Corporate governance- Holistic and proactive management- Management information (Performance Information/PI)

II. Contract management- Strategic focus on drivers/ core tasks- Effectiveness and dialogue/ incentives

III.Cost effectiveness- Accrual budgetting and accounting - Coupling of resources with results

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Re. I: Corporate governance

• Basic Control of economic preconditions and rules- Follow up: Budget and spending; Long term investment planning

- Quality of management information

• Improvement of corporate governance- Holistic approach to each Ministry and cross cutting Ministries

- Exploitation of scale of economy (shared services etc.)

- Evaluation; comparison/bench marking; best practice

• Coherence between resources and results- Goal and Performance/Results management

- Exploitation of accrual budgeting and accounting reform

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Re. II: Goal and Performance Management

• Demand for common corporate concept and approach

• Demand for active follow up of goals and performance

• Focus on few strategic drivers and effectiveness

• Long term contract; annual review; incentives

• Management dialogue – bottom up; ownership

• Stressing end user perspective (Raison d’etre)

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Outcome

Output

Services

Activities

Resources (input)

Financial means

Shift in focus for management

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Re. III: ”Cost Effectiveness” (Self-Evaluation) A tool to analyse and evaluate the quality of Economic Management

Infor-mation

Process/Tools

Demands

Goal and Performance Management

Activity and Ressource Management

Financial Management

Results

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The need for management differs due to tasks

• Common basic and legal requirements (60%)

• Specific management requirements dependent on

category of tasks for each public institution (40%)1. Dealing with cases; public administrative casework

2. Knowledge producing public institutions

3. Producers of Public Services; service delivery

4. Consultancy and Supervisory Public institutions

5. Institutions for tasks of readiness; alert; emergency

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Hierarchy of tasks Scope of Management Management Tasks

E.g. ongoing internal follow up on results and on cost-benefit analysis etc.

E.g. distribution of costs, capacity control, planning of investments

E.g. control of loan frameworks, liquidity, and follow up on budget and accounts

Outcomes

Output

Services

Activities

Resources

Financial means

Goals and Performance

Activities and Resources

Financial Management

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Total Score on level of Management

(Optimal Score versus Actual Management Score)

Financial Activity and Resources

Goals and Results

Potential degree of Management / Control (%)

Actual degree of Management / Control (%)

0

20

40

60

80

100

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Characteristics of danish PBB-reform processes

•Pragmatic (Flexibility)

•Experimental (Also risk for single case pressure)

•Participation from different involved groups (consensus/ inclusive approach)

•The main purpose is good performance, greater efficiency and better effectiveness

•Departement of Finance has the role as a reform driver

•And the Agency of Governmental Management is an agent for development and implementation

•The Parliament (Folketing)has only been little involved

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Historic glimps about PI related to State Budget (SB)

• 1965 – Intro of framework budgetting + activity information

• 1975 – Extended quantitative information + service standards

• 1987 – Budget reform; Schematic activity overview incl. info on demand, supply, resources/capacity, productivity, quality

• 1994 – Intro of business activity survey; tailor made

• 1999 – Intro of Annual Report incl. Accounts for each institution; decoupling of PI and SB to avoid mix of decisions

• 2005 – Adaption of Annual Report to requirements following the introduction af accrual budgetting & accounts (2003-2007)

• 2008 – Extended emphasis: Tailored management information

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National Auditors Office in action (Example):Report to Parliamentary State Auditors on development and quality assurance of University Educations

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The Danish Press initiates public discussion of the effect of Acitivity Based Budgeting (”Taximeter-System”):An example concerning higher education

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Main tools for performance management

• Accrual budgeting & accounting – Cost-Based appropriations- Focus on use of resources and cost distribution (by task-hierarchy etc.)- Long term investment planning (precondition for PBB!?)

• Performance agreements (contract based management)- Performance objectives and demanded results- Regular reporting – coupling of results with incentives

• Taximeter budgetting (activity based budgetting)- Actual performance (production) releases a calculated budget- Is applied for selected sectors: Education & hospitals

• Periodical/ Annual Reports (incl. performance reporting)- Statement of output performance & overall financial performance- Statement of approval & management accountability

• Evaluations & budget analysis (ad hoc, external/self evaluation)- Focus on selected policies, programmes or institutions

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How to motivate and pace performance – how to engage various actors ?

• Leadership accountability through:- Vision, mission, demands for results, service information

- Directors contract, incl. an element of bonus/incentives

- Management flexibility in line with accrual budgetting and acc.

• Employee dedication through:- Ongoing qualification measures – courses, on the job training etc.

- An element of incentives connected to personal effort/performance

• Competition and transparency:- Competition/ comparison between institutions (best practice etc.)

- Team work as well as competition/incentives at individual level

• Common political-administrative understanding of reform- F. ex. Launching of a comprehensive public sector ”Quality reform”

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•A ”Quality Reform” was launched as from 2007- High political priority: Rooted in Prime Ministers office

- Comprehensive dialogue with citizens and experts:

- 5 main lines of focus and priority:• Citizens choice, user involvement/personal responsibility• Coherent public service –respecting the individual citizen• Clear objectives/targets and responsibility for results • New ways of thinking - competition, innovation• Management, involvement, motivation of public employees

- Major challenges:• State-Municipality: Long range contract mgm. by objectives• Proper balance between front end efforts and documentation

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•Improvement of Management and Performance

Capabilities – renewed campaign 2008:

• Nine principles for good public service management:

- At eye level (meet the citizen where she/he is)

- Clear speach (Open and clear communication)

- Clear expectations (clarify for users what can be expected)

- Humbleness (be humble as to your role and power)

- Act on failures (failure must be adressed without hesitation)

- Professionalism (Skills and competence is basis for good service)

- Coherence (users must experience a unified public interface)

- Development (Developm. & innov. must mark the public sector)

- Ressources and reflection (Use public ressources carefully)