Sustainable Public Financial Management

Doug Hadden, VP Products

44 Million Dollars to move an operating ERP application to the cloud? And, a departmental government application at that, according to a recent report. (A large department in the American government.)

$44M buys a lot of software and services. Whole countries pay less than that for turnkey government financial management systems (including hardware, implementation, training and maintenance) for 5 years. Is this highway robbery to move a working ERP to the cloud?

How could this cost $44M?

• The ERP implementation was the most expensive IT project (begun in 2003) executed by the department so we can assume that the system is complex
• It's ERP – Enterprise Resource Planning, rather than GRP – Government Rescource Planning, so the costs are much higher because of customization – and this system looks highly customized making changes difficult and expensive
• The technology used by the ERP company for on-premises is legacy and not easily deployed via a cloud (private or otherwise)
• There are approximately 70,000 FTEs in the department so a little over $600 per employee (to move to the cloud) 

$44M Can buy a whole new modern system…

My assessment is that the scope of use that includes financial management, procurement, travel, fleet management, grants and reporting could be replaced with modern technology for less.

• GRP systems are designed for government to reduce the need to customize.
• Modern pure-web technologies can migrate to the cloud easily.
• Integration is facilitated in modern technology through the use of industry rather than proprietary ERP vendor integration methods.
• No wonder systems integration firms are so keen on the cloud!

Prognosis

The $44M spent seems to be to prolong a technically obsolete system. It's true that back in 2003, the state-of-the-art was web-enabled systems that wrapped the web around client/server technology. It's also true that the core technology supported by the vendor remains client/server (although they have made numerous acquisitions or pure-web technology). It appears that:

• The organization has taken a risk-adverse approach by not considering modern technology and can be expected to pay significantly for that choice
• There is the view that the long-term costs will be reduced thanks to the cloud deployment – although I wonder whether that's just a data centre called a "private cloud" with improved virtualization
• The department will be hamstrung and less able to make business process changes in the future

Doug Hadden, VP Products

Managing Change in a Dynamic World

I spent the last 2 weeks at the Harvard Kennedy School in this intense executive eduction course led by Matt Andrews. This is very much an "advanced management" course for the international public sector that attracts high quality speakers and participants. I tweeted some of the lessons during the course, embedded below.

Our “storified” curated tweets from the recent Financial Management Institute (FMI) of Canada PSMW conference in Toronto. The conference was intended to have a global Public Financial Management (PFM) focus.

A group of earnest Public Financial Management (PFM) professionals from an Asian country visited Ottawa on a study tour a few years ago. A briefing by the Treasury Board Secretariat explained the approach used by the Canadian federal government for consolidating information across departments and agencies. The Asians claimed that this approach wouldn’t work. It is, they said, an acknowledged “best practice” that all government organizations, at every level of government, shares a single common public accounts classification.

Professor Matt Andrews takes on the tyranny of “best practices” in developing country PFM advice in The Limits of Institutional Reform. My previous reviews described the importance of the work in describing solutions to the problem of PFM reform failure, and suggested improvement to the work to address alternative explanations. Curiously, I picked up on the case study approach which can result in anecdotal evidence. Then I started this entry with an anecdote…

The Best Practice Myth

“Best practices” has become a buzzword in both public policy and information technology. (That’s a disturbing sign.) My sense is that “best practices” was never meant to be a universal prescription, yet this seems to be the market trend. It has become consultant-speak. And, excellent branding.

 And, ERP-speak. (As in: this is what the software does, so it must be a best practice. Eric Kimberling from Panorama Consulting : calls it the “best practices” trap.)

This isn’t the first time that I’ve encountered the notion that country context determines good practices. In 2008, Michael Ruffner of the United States Department of the Treasury made an interesting presentation on the fallacy of PFM best practices. Ruffner pointed out the problems with focusing on process rather than culture and defining instruments such as Medium Term Expenditure Frameworks.

The recent best-seller by Stephen M. Shapiro, Best Practices Are Stupid: 40 Ways to Out-Innovate the Competition , explains the conception handcuffs to innovation of following the myth.

Yet, as I’ve mentioned before, my sense is that the ‘best practice’ myth is unfortunately alive and well in public financial management. There is some movement, I hope, into a more nuanced view thanks to Limits.

Taking on PFM Best Practices Mimicry

Andrews pulls no punches by describing the “tyranny of the experts” who “overspecify reforms” and “oversimplify the content” through “functional mimicry” of practices from other countries.

Despite my comments on my previous post about the limits of anecdotes, the following observation by Andrews rings true:  “International organizations, local policy makers, and private consultants combine to enforce the presumption that the most advanced countries have already discovered the one best institutional blueprint for development and that its applicability transcends national cultures and circumstances…The assumption is that superior externally sourced solutions will eventually prevail if local leaders allow them to.”

I’ve seen this in action many times. Public servants from developing countries come to conferences to learn about the latest “best practices”. Foreign advisors wax poetically about the reform successes in their home country. We see the push to accrual accounting – virtually every RFP we respond to for financial systems maps out a transition from cash to accrual accounting over a period of 2 to 5 years.

Meanwhile, those with real-life experience in many countries, as Andrews has, tend to look at reform in a more pragmattic way. For example, Stephen Symansky, formerly with the IMF, described the focus on “policy” in post-conflict countries as ill conceived. Post-conflict countries have no basis for policy according to Dr. Symansky. “You got to get the nuts and bolts right,” he said at one our customer FreeBalance International Steering Committee (FISC) meetings.

At our recent FISC meeting in Ottawa in January, a discussion ensued about the variability of advice given by PFM experts. We’ve seen situations where one group of experts recommends faster but incremental reforms while others suggest stopping any reforms altogether until a laundry list of diagnostics is completed with years of capacity building.

Positive Signs? From Best to Good Practices…

We are committed to the International Consortium on Governmental Financial Management (ICGFM). Our President and CEO, Manuel Pietra, is the current volunteer ICGFM President. I’m on the Program Steering Committee and have been known to tweet a bit from ICGFM events. The most recent event, late month, was titled Good Public Financial Management Practices in a Period of Global Adjustment. 

We were able to include some “polling questions” at the event and used a survey application at our booth to draw out PFM perceptions. As you can see in the presentation below, many of the survey questions were generated based on Limits. (We also gave away 5 signed copies of the book as door prizes – substituting Canadian Ice Wine for winners who did not read English.)

We found mixed views about the “best practices” concept.  76% of respondents thought that there were good practices based on the country context, yet the majority thought that best practices speeds reform. Perhaps the question should have been worded differently. Maybe, as Andrews points out, grant applications using concepts of “best practices” are more likely to be funded.

The politics and incentives of PFM technical assistance is likely my next posting in what is rapidly exceeding a trilogy of reviews.

My review of The Limits of Institutional Reform by Matt Andrews, The Solutions of Institutional Reform, was overwhelmingly positive. Other reviews have also been very positive. Especially about the diagnosis of what doesn’t work in Public Financial Management (PFM) reform and how to fix it.

That doesn’t mean that the book makes an infallible case. There is a data problem that leaves holes in the argument for those pre-disposed to take different views.

And, I’ve met some of these people. I don’t think that these folks will be significantly swayed from removing “best practices” or legal reform as step 1 from the PFM pedestal.

In the spirit of what I hope to be constructive…

Case Study Approach

Andrews describes specific examples of PFM gone wrong. I understand the need to use narrative to connect beyond the abstract. Of course, Andrews is a Harvard professor and Harvard is known for the “case study” approach to learning.

Yet, I find that the case study method leaves much room for alternative explanation. Or, becomes anecdotal.  I’ve noticed that case study scenarios in the Harvard Business Review can generate a broad difference in opinion among experts. (Not to mention how Evgeny Morozov or Dombisa Moyo use anecdotes to validate sometimes absurd views in my opinion.)

Don’t get me wrong, the examples used by Andrews are compelling. Only the dogmatic are likely to find fault given so many cases. Nevertheless, the book would benefit by exploring more fully why alternative explanations are likely not valid.

I also think that more cases are needed to show how the Problem-Driven Iterative Adaption (PDIA) approach (or proto-PDIA) worked effectively. My sense is that Andrews covers the “how the project would have been different if PDIA was used” well.

Of course, my “anecdotal” experience aligns very well with Limits.

Andrews uses graphs and illustrations to explain his point. This “visualization” communicates the message much better than the case study approach.

Data Sources

Andrews relies on data from Public Expenditure and Financial Accountability (PEFA) assessments. Other assessments of open budgets, government effectiveness and corruption are used. Andrews is critical of many of these measurements, including the ones he uses.

The problem is that there are no perfect PFM data sources. These leaves a lot of wiggle room for those with alternative theories, unfortunately. We also use all of the sources used by Andrews to help countries determine reform priorities.

My sense is that few would argue that there is a gap between PFM practice and PFM laws. Many may suggest that this is alright. Or, that the data is somewhat inconclusive and that the gap is narrower than we think.

This is where I begin to nitpick about the editing…

Limits has a compelling argument. Perhaps I am predisposed to agree with the argument.  

Andrews provides an outline of the argument in the introduction. There is a lot of re-foreshadowing of the argument in the text. Maybe some call-out boxes would have been helpful for some. The argument is well summarized at the end of chapters.

I found that this made for a bit too much repetition. That apparently, the editor failed to notice.

It was like the masterpiece that could have been more of a masterpiece.

Doug Hadden, VP Products

My colleague, Hal Le, gave an overview of FreeBalance and our Public Financial Management (PFM) experiences last week at the Confederation of Asian and Pacific Accountants conference in Vancouver. The presentation (embedded below) provides:

• Reveals what a "free balance" actually is and why Government Resource Planning (GRP) differs from Enterprise Resource Planning (ERP)
• Description of the governance challenge and opportunities in developing countries
• Overview of how technology can help reduce procurement corruption, primarily through automated controls
• Description of how GRP enables insitutional factors to improve governance
• Emerging ideas about turning PFM reform sequencing from an art form to a science
• Leveraging transparency and open data to help reform sequencing
• The problem of high failure rates in financial management systems implemented in government
• How GRP can be sustainable in developing countries

Doug Hadden, VP Products

Why haven’t we turned Public Financial Management (PFM) reform sequencing into a science? The PFM discourse seems to revolve around generalities and conventional thinking: “the country context is key” or “leadership is needed.” Some brave souls go so far as to suggest PFM reform is a forlorn hope. And, many observers shoe horn pet theories into the fray.

It is in this environment that The Limits of Institutional Reform by Matt Andrews is a welcome relief. Andrews goes further than diagnosing what works and doesn’t work. He proposes a solution called Problem-Driven Iterative Adaption (PDIA).

Limits is too rich a work to comprehensively review in one shot. I’ll add observations about the data, tragedy of best practices and impact of technology in further posts.

Complexity of Institutional Reform

Andrews delves into the soft underbelly of PFM reform. He describes how reform comes with “considerable expense, and with great anticipation” yet fails to achieve desired results despite decades of practical experience.  Improved management of public financials is accepted as an important element in improved governance. Andrews finds a gap between legal reform and informal practices.

This is where “country context” becomes critical in diagnosing reform paths. Andrews digs beyond the generalities of “context” to include “regulative, normative and cultural-cognitive elements” of reform. He describes how “informal elements of incumbent logics holding on even when regularive mechanims appear to change.” Legal reform is seen as “signalling” the international community that a government is in process of change – even though there could be very little real change in informal processes. Laws and senior leadership “buy-in” is not sufficient for institutions to change.

Andrews suggests that we shouldn’t attempt to simplify the complexities of institutional reform. There is no magic bullet – it’s a question of embracing the complexity to map a path to success.

Problem-Driven Iterative Adaption

Andrews provides a template for PFM practitioners. This isn’t “Project Management 101” – or “Change Management 101” for that matter. Limits provides some specialized tools that are critical for practitioners:

• Identifying stakeholder problems that can be overcome by reform and identifying the likely change-agents. These change leaders are rarely at the top of government (more “functional leadership”) and rarely external to the government. And, many.
• A method to dig into the real problems
• A five stage process of institutional change consisting of deinstitutionalization, preinstitutionalization, theorization, diffusion and reinstitutionalization
• The need for iteration to gain momentum: the “quick wins” that reduce organizational resistance to change.
• Questioning the use of “isomorphic” solutions – those that worked elsewhere under completely different circumstance.
• Determining the severity of PFM reform change required, and hence, the depth of effort required.

Resonating Analysis

FreeBalance has been involved in PFM reform in developing countries since the late 1990’s. We participate in conferences and share ideas and practices. Many of the ideas in Limits resonates with our experiences including:

• More successful PFM reforms are driven by a cadre of change agents who have resilience to achieve sustainable changes.
• Many PFM reforms are touted for “what will be achieved” as programs are rolled-out where many technology-enabled initiatives are delivered late, over-budget and fail to meet objectives.
• “Big bang” approaches to change rarely work – iterative small steps are more likely to succeed in the long run.
• Crises create an environment more ready to change. Disruption from other factors is more likely to create an internal viewpoint that change is needed.
• PFM projects that begin with improved budget preparation and macroeconomic planning fail to improve spending. PFM reform typically should start with budget execution control.
• Budgets for training, capacity building, professionalizing and certification are rarely sufficient. It’s a shame that so much is spent on technical assistance up-front followed by information systems and so little on creating a critical mass of expertise in government and effective incentives.

What’s so wrong some “signalling”?

I agree that legal reform often provides superficial change on the ground. Other PFM initiatives around transparency: budget, revenue and procurement – can be more than a signal. It’s more difficult to hide poor governance in this environment and very difficult to re-introduce opaque processes.

Signalling can be an important political incentive. Yes, change agents are required – but change agents have little influence without some political will at the top. My sense is that governance signals is part of the arsenal of reform. And, in this environment where the press is fast to blame corruption and mismanagement at the feet of developing countries, it could be a powerful tool.

Just another Book?

What is our reaction to Limits? A couple of book reviews and we’re back to our old ways?

We’ve been updating our i³+qM methodology to achieve improved reform results. This might seem a bit change for a software products company to focus on methodology – but we’ve learned that, although technology provides some reform solutions, comprehensive and holistic processes must be aligned with Government Resource Planning (GRP) software.

So, we’re in the process of updating the methodology to better prescribe public financial management solutions by identifying the country context better.

But, there is a lot of work to do. To break conventional thinking. For example, our recent survey earlier this month found a split of 51% to 49% on the idea that PFM reform is a science rather than an art form, while there was a split of 55% to 45% that PFM reform should be a science rather than an art form.

Doug Hadden, VP Products

We participated in the 27th. Annual International Consortium on Governmental Financial Management (ICGFM) conference last week in Miami. There was about 275 participants from over 45 countries during the 5 day event. This is the premier global event to learn about Public Financial Management (PFM) trends and good practices. We continued our mandate of sharing these good practices through tweeting and currating those tweets. We also conducted a survey at our booth and used polling devices to answer a series of questions about the state of PFM reform, the quality of technical assistance and satisfication with government Financial Management Information Systems (FMIS) – that we prefer to call Government Resource Planning (GRP). We used a number of similar questions across the two mechanisms and have posted our results below. Some conclusions from the survey and poll:

• General view that PFM reform is on-track in developing countries but there has been a slow-down
• Satisfaction with technical assistance is good but there is a lack of consistency in advice from donors
• There is a growing recognition that "best practices" should be avoided and there are more important factors to PFM reform sustainability than legal reform
• Satisfaction with FMIS systems remains fair and it is not clear whether many of the systems implemented are sustainable

We currated our tweets during sessions:

• Good Practice Lessons Learned from 27th Annual ICGFM Conference [summary]
• Change Management and PFM Reform
• Case Studies: PFM Reforms in Latin America and the Caribbean
• PFM Reforms In Georgia After the Global Crisis
• Performance Management in the Public Sector—Country Case Studies and Recent Innovations
• Introduction to Risk Management in Government
• Lessons Learned: Successful Examples of Fiscal Adjustment
• Increasing Budget Transparency at the Sub-National Level
• Open Government as an Efficient and Effective Public Financial Management Framework
• Sustaining Public Finance and Economic Reforms in Malawi
• The Supreme Audit Institutions Performance Measurement Framework
• Increased Efficiency and Effectiveness; Anti-Corruption; and, International Audit Standards
• The Revised COSO Internal Control Framework
• ICGFM Workshop on PFM Trends (for the ICGFM Report)
• Thinking Outside the Box: Thoughts of Moving Beyond the Traditional Budget
• IPSAS Compilation and Certification Program for Developing Countries

This weekly news update provides the Government Resource Planning (GRP) community with a brief overview of recent FreeBalance developments and relevant industry news.

How Can Government Resource Planning (GRP) Software Automate Good Governance?

FreeBalance released a white paper describing how technology can assist governance reform in developing nation and emerging economy governments. The white paper was launched at the 27th Annual International Training Conference of the International Consortium on Governmental Financial Management (ICGFM) in Miami. The Automated Good Governance white paper consists of a framework with use cases.p>

Download the White Paper >>

Government Financial Management: Build vs. Buy Dilemma – The 3rd Option

We’ve been noticing the trend of high failure rates in government Financial Management Information Systems (FMIS) world-wide. Most governments use Commercial-Off-The-Shelf (COTS) software, yet there are regions where the choice is for bespoke systems. Experts in the field remain on the fence when it comes to the most sustainable choice for governments. The problem seems to be that build vs. buy ERP in government is often a choice between two evils.

Read the full story on the FreeBalance blog >>

Latin American Government Financial Software Trends

A FreeBalance team attended an Inter-American Development Bank workshop from May 15 to 17: International Workshop on Public Financial Management for IFMIS Coordinators. [Presentations are located on that web page and my Storify version of tweets during the event are below.] We prefer the term “Government Resource Planning” (GRP) to “Integrated Financial Management Information Systems” (IFMIS). Nevertheless, IFMIS (SIAF in Spanish) is the term most often used among International Financial Institutions.

Read more >>

Join FreeBalance at FMI event in Toronto, Canada

FreeBalance will be participating in the upcoming Financial Management Institute of Canada (FMI) Public Sector Management Workshop 2013. The theme of the workshop is “Financial Management in a Global Community”. It takes place from June 2 – 4 at the Marriott Eaton Centre in Toronto. The FMI has grown to thousands of members, both within and outside the public sector, all working to improve the financial management of all levels of government across Canada.

Read about PSMW 2013 >>

Ces nouvelles hebdomadaires apportent à la communauté de la planification des ressources gouvernementales (PRG) un aperçu général des récents développements de FreeBalance et des nouvelles pertinentes de l’industrie.

Comment un logiciel de planification des ressources gouvernementales (PRG) peut-il automatiser la bonne gouvernance?

FreeBalance a publié un livre blanc décrivant la façon dont la technologie peut faciliter la réforme de la gouvernance dans les gouvernements des nations en voie de développement et des pays émergeants. Le livre blanc a été publié lors de la 27e Conférence de formation annuelle internationale de l’International Consortium on Governmental Financial Management (ICGFM) à Miami. Le livre blanc sur la bonne gouvernance automatisée se compose d’un cadre accompagné de cas d’utilisation.

Télécharger le livre blanc >>

Gestion des finances du gouvernement : le dilemme entre la création par rapport à l’achat – La 3eoption

Nous avons remarqué la tendance élevée des taux d’échec des systèmes de renseignements sur la gestion financière (FMIS) dans le monde entier. La plupart des gouvernements utilisent des logiciels commerciaux sur étagère (COTS), et pourtant, il y a des régions où le choix s’oriente vers les systèmes sur mesure. Les experts sur place restent neutres lorsqu’il s’agit du choix le plus durable pour les gouvernements. Le problème entre la création par rapport à l’achat de solutions de PRE dans le gouvernement semble souvent être un choix entre deux maux.

Lire l’histoire complète sur le blogue de FreeBalance >>

Tendances des logiciels financiers des gouvernements d’Amérique latine

Du 15 au 17 mai, une équipe de FreeBalance a participé à l’atelier de développement de la Banque interaméricaine de développement : Atelier international sur la gestion des finances publiques pour les coordinateurs de l’IFMIS. [Les présentations se trouvent sur la présente page Web et la version Storify de mes gazouillis lors de l’évènement ci-dessous.] Nous préférons le terme « Planification des ressources gouvernementales » (PRG) à « Système intégré de gestion financière » (IFMIS). Néanmoins, IFMIS (SIAF en espagnol) est le terme le plus souvent utilisé au sein des institutions financières internationales.

Lire la suite >>

Rejoignez FreeBalance lors de l’évènement de l’IGF à Toronto au Canada

FreeBalance participera au prochain atelier sur la gestion du secteur public de 2013 de l’Institut de la gestion financière (IGF) du Canada. Le thème de l’atelier est la « Gestion financière dans une communauté mondiale ». Il aura lieu du 2 au 4 juin au Marriott Eaton Centre de Toronto. L’IGF est composé de milliers de membres, à l’intérieur et à l’extérieur du secteur public, qui travaillent tous à l’amélioration de la gestion financière à tous les niveaux du gouvernement à travers le Canada.

Lire la suite au sujet de l’AGSP 2013 >>