Sustainable Public Financial Management

Doug Hadden, VP Products

It’s the era of PFM myth building and myth busting.

Of clichés and fashion. Cynicism and risk aversion.

But, ultimately, it’s the era of increased insight into what works in public financial management reform.

2 Dimensional Debate

Current discussions about PFM effectiveness seem to centre about the relative merits of applied technology versus applied practice. There seems to be a view among many that proven practices can be automated via technology and so-called technical initiatives such as Governmental Financial Statistics (GFS) or International Public Sector Accounting Standards (IPSAS) will yield positive outcomes. There is an opposing view that the country context is critical: institutional capacity, macroeconomic situation and cultural norms should drive reform.

Both points of view are valid. The truth falls in a fuzzy place in-between. Where there are elements of both.

Best Practices vs. Country Context myth

”Best practices” has become a pervasive meme in the public and private sectors. Many suspect that this a code phrase to sell software (built-in “best practices”) or consulting. Matt Andrews of the Harvard Kennedy School has described the weaknesses of adapting so-called best practices , especially migrating a reform that seemed to work in one country to another . My sense is that the ‘best practice’ myth is unfortunately alive and well in public financial management. (‘Best practices’ remains a justification for donor funding for governance initiatives.) It’s going to take a few more years for this myth to die.

The opposing myth is that PFM reform success is more of an art than a science. If not the fine art of budgeting, spending, and managing public monies . In this view, PFM reform is the craft of understanding the country context. Richard Allen has stated that complexities of the reform process are not amenable to modeling; nor are the enabling conditions, political and administrative, that are critical for success and vary so widely from country to country. This myth is particularly strong in the PFM community. The result of which seems to be contradictory advice given PFM experts to the same government. It’s staggering the number of times that government officials are told to speed up or slow down reforms. To focus on budget planning or focus on budget execution first. To create an anti-corruption commission or undergo public service reform first.

PFM reform success cannot be divined through some kind of black magic?

That’s why we look at the set of practices that have been known to work. These are good practices that enable PFM success under certain circumstances. Some practices are better based on the country context. The point here is that “county context” is not half the mystery it’s made out to be. We’ve got open data, PFM, governance and transparency assessments and macroeconomic country data. The information isn’t perfect – but enough to:

• Benchmark the country condition relative to other countries
• Evaluate what has and hasn’t worked in similar contexts
• Narrow down the good practices that can work
• And, the technology enablers of these practices

Technical reforms are effective or not effective?

There is evidence that initiating technical reforms without other conditions tends to have limited results. Matt Andrews found that governments could improve Public Expenditure and Financial Accountability (PEFA) scores in legal reform without necessarily putting those reforms into formal practice. And, as Jack Diamond, has has argued implementing technology such as Government Resource Planning (GRP) aka Integrated Financial Management Information Systems is no “panacea”.

Yet, technical reforms are significant themes for donors. And, GRP systems are considered to be a tool to enable PFM reform.

The notion that reform is 5% technology, or possibly no more than 1% technology was part of a recent discussion at http://www.freebalance.com/blog/?p=3969 . I was tweeting during the event and was asked what my view was. My view remains that these so-called technical reforms impact governance through changes in behaviour . As we have described in our FreeBalance Governance Framework :

1. GRP technology used to automate financial functions in government
2. provides a set of tools: controls, front-office, decision making
3. that are leveraged by institutions whose capabilities can improve or reduce effectiveness
4. that has positive or negative effects that are exposed in measures like credit ratings or corruption perception
5. that are used for important composite indicators like World Governance Indicators
6. that, with other indicators, show governance outcomes such as economic growth or educational improvements

Technical reforms are easy or not?

Some observers suggest that implementing technical reforms including the implementation of a financial management system is somewhat easy and less political. Philip Krause has suggested that these technical reforms are not of magnitude to, say, proper parliamentary accountability – which involves party systems, electoral systems, media freedom. There’s a difference between accountants tinkering with the chart of accounts and societal transformation . My comment at the time was: “I find this notion that there is a distinction between technical and political reforms to be artificial. Technical reforms represent a sub-set of political reforms.”

But there are nuances to this notion of “tinkering accountants” (and tinkering economists) that was exposed with a recent twitter exchange with Matt Andrews.

International accounting standards #ipsas or #ifrs seem solutions to global issues but are bound to be limited bit.ly/Xkodlm

— Matt Andrews (@governwell) April 3, 2013

@freebalance the issue is not whether it is complicated, but rather if it is complex.involves many people, cultural convergence, etc.

— Matt Andrews (@governwell) April 3, 2013

@freebalance I say complex because many people and value changes associated. Basic ideas like disclosure, etc. are required and often absent

— Matt Andrews (@governwell) April 3, 2013

Andrews suggests that the PFM tinkerers encounter political barriers. Our experience implementing in many countries is that this is true. However, the political disincentives and technical complexities differ for these practices:

• Support for Medium Term Expenditure Frameworks (MTEF) is highly political (can transform budget priorities and threaten vested interests) and highly technical (requires high capacity to manage multiple year budgets, use program budgeting and understand the long-term recurrent costs for public investment projects.
• Support for Accrual Accounting is highly political (shows the true value of government programs and the true government debt load that threatens patronage models of politics – also exposes arrears) and highly technical (capital asset depreciation, accounting for contingent liabilities).
• Support for International Public Sector Accounting Standards (IPSAS) has severe political implications if following the accrual standards. The support for cash-based IPSAS can have political implications in the accounting for sub-national and State-Owned Enterprises (SOE) requirements. And, there are significant technical problems to account for this. But, cash-based IPSAS support for national government accounting has moderate political implications because the data is not necessarily open and is easy to support in financial systems. The politics of making the data open. Of independent audit. Of legislative scrutiny. Well, that’s a different political issue from supporting IPSAS.
• Support for Government Financial Statistics (GFS) has limited political barriers because it helps justify donor funds and is of moderate technical complexity because it can be generated from financial systems when properly designed.

Conclusion: Nuance over Magic Bullet approaches

If PFM reform were well-understood, we’d be doing it better. Observers who focus primarily on a magic bullet as the critical success factor are doing us a disservice. Governance does not improve when government PFM decisions are weighted heavily to best practices, informal processes, ICT technology, human capacity, or ‘PFM as art’. Or, through tinkering accountants and economists. Or, self-congratulating donors, for that matter.

We are on the cusp of a scientific revolution in PFM reform and country development. Open data and ‘big data’ techniques are debunking strongly held myths . And, social media provides additional avenues for discussion that has only recently been available.

Let’s persist in breaking down the myths. Of opening data and discussions. And, turning PFM reform from art to science.

Doug Hadden, VP Products

We released a set of Public Financial Management (PFM) documents last week following on our mandate of sharing good practices for the community.

The second released document, embedded below, describes good practices in budget formulation. Governments are budget driven and use commitment accounting. Profit is the key concept in private sector accounting. Budget is the key concept in government.

That’s why budget formulation is so critical in government.

Budget is linked with policy and government objectives. It’s the formal and legal expression of government policy. That’s why many countries call a budget “the vote” or the “organic budget law”.

I’ve seen governments fall in Canada by losing the budget debate.

There are many budget formulation applications designed for the private sector. These software programs focus on fulfillment planning: logistics, manufacturing, assembly. Sure, financial planning is part of that. But the result of the planning is rarely multiple aggregate controls across different periods into the financial system. And, rarely handles supplemental budgets, virements, transfers, continuing resolutions and adjustments to tolerances.

And, let’s face it: budgets in the private sector are guidelines.

In government, the budget is the law.

Public Financial Management Good Practice Budget Formulation by FreeBalanceGRP

Doug Hadden, VP Products

We take a bit of a different approach to communications with our market. A little less marketing and a little more sharing good practices. (Our mission is to bring good governance to countries around the world.) We were happy this week to release a set of  ”good practice” documents at the FreeBalance International Steering Committee (FISC) convention this week.

There is an expectation that software companies generate “collateral” including glossy product pamphlets filled with the buzzwords of the day. Large quantities are typically produced to weigh down unsuspecting conference attendees. Salespeople have been known to feel naked without a handful of brochures.

Collateral Damage?

Does anyone derive value from “collateral”? Do pamphlets have relevant information that helps sell products or helps in the buying decision? How many pages remain unread and end up as landfill? It’s not sustainable.

Just because other companies generate pamphlets in great quantities doesn’t make it right.

Listening to What Government Professionals are Asking

It might not come as a surprise to you that FreeBalance is not blessed (cursed?) with a large marketing department. The marketing function at FreeBalance is far more integrated with the business than I’ve witnessed in other companies. We’ve realized that it is far more important to understand the Public Financial Management (PFM) domain and listed to customers and prospective customers to prioritize marketing activities.

What are professionals asking?

They’re asking for insight into how to improve governance – regardless of what financial system is in use. And, prove that this insight is valid.

We’ve collected the frequently asked questions – but unlike the typical superficial FAQ, we drill into it and provide our perspective with links to publicly available information.

Why “Good Practices” and not “Best Practices”?

In my opinion, “best practices” is consultant-speak and vendor-speak. Buy their products and services and you can be the “best”.

Here’s the thing: there are very few PFM “best practices.”

• Government context is different among countries so a practice that is best for one country is not the best for the other
• More “advanced practices” can generate inefficiency in governments with lower capacity
• Some so-called “best practices” have theoretical rather than proven benefits
• May “best practices” are nothing more than the way the financial software was written

Nevertheless, there are a number of bad practices that ought to be avoided.

Good Practices Library

Published

• 13-01 GRP Total Cost of Ownership (TCO)
• 13-02 Government Budget Formulation
• 13-03 Using GRP for Anti-Corruption
• 13-04 Aligning GRP with PFM Reform – Sequencing GRP
• 13-05 Multiple Year Chart of Accounts (COA)
• 13-06 GRP Reform and Modernization
• 13-07 Good Practices in Government Resource Planning Specialization

Planned

• GRP in Developing and Developed Countries
• GRP Lessons Learned
• GRP Project Governance
• GRP Shared Services
• GRP Controls
• Open Systems for GRP
• Comprehensive PFM Capacity Building
• Change Management in GRP Implentations

Doug Hadden, VP Products

I’ve noticed an interesting trend in Public Financial Management (PFM) conferences such as FMI here in Ottawa: the “premature” ERP success story. This is how it works:

1. The “case study” has no case: The ERP implementation is in progress and is not yet live – 12 to 24 months into the project.
2. The “business case” has no case: Claims are made about the business case – the results that will be achieved but have not yet accrued. Wishful thinking.
3. Phantom Best Practices: Business process changes will be described and consultant-speak like “best practices” will be emphasized – yet few of these so-called “best” practices will be explained. Code customization will be justified when the vanilla configuration isn’t a best practice.
4. Subtotal Cost of Ownership: Some costs will be described, but no breakdown. Many costs may be omitted: training & certification, staff retention, upgrading, further phases, additional external consultants.
5. Cracks in the Silver Lining: Despite the optimism of the ERP implementation team, a few “challenge” themes emerge: integration (which is touted as a benefit of ERP, but isn’t), training (and more training), and consulting (high costs and lack of expertise).

There is very much a blind unquestioning belief around “best practices.” Eric Kimberling from Panorama Consulting takes on this myth from a blog entry today:

Beware of the “best practices” trap. Many ERP vendors tout their pre-configured industry solutions, suggesting that their software is designed and built for your industry. While this may be true of niche providers, larger ERP systems such as SAP, Oracle and Microsoft Dynamics simply cannot be everything to everyone. As a result, they counter these perceived disadvantages by driving home industry “best practices” sales messaging, which has varying degrees of relevance. In most industries in which we work – especially the more complex ones such as food and beverage or aerospace and defense – these best practices are largely irrelevant, necessitating extensive reconfiguration to meet the unique needs and complexities of the individual organizations implementing them.

Doug Hadden, VP Products

As we prepare for another Financial Management Institute of Canada conference: Focus on Value word comes of a canceled government Enterprise Resource Planning (ERP) project in the United States. (Speaking of value – or lack thereof.)  $1 Billion spent so far, estimated that it “would require an additional $1.1B for about a quarter of the original scope to continue and fielding would not be until 2020.” The original contract in 2005 was for $88.5M.  That’s a serious redefinition of “over budget”. Sadly, ERP failure in government is not uncommon.

$1,000,000,000 in Context

Let’s look at the numbers for a second. $1B buys about 5,000 person years.  It’s a decent research and development budget – probably more than any Canadian software manufacturer spends in a year. Or, multiple years, for that matter.

$1B buys about 250,000 named users for a typical core ERP application, at list price.  Maybe a million users at competitive rates for government. That’s more than enough licenses for every public servant in the Government of Canada. Twice over.

$1B represents between 50 to 150% of the annual revenue of well-known mid-tier ERP vendors.

It would have been sufficient to buy Instagram , almost enough  to handle an Apple IP lawsuit.  Pay for more than 2 years of the government contribution to PBS.

It might even be enough to buy off Dr. Evil.

The blameless ERP manufacturer

There is a tendency in these situations to blame the victim, the integrator or both. Rarely is the ERP software manufacturer directly blamed. Surely, the manufacturer knew that something was amiss. How?

• Proposal phase: ERP manufacturers support systems integration partners during the proposal period. Manufacturers know whether the ERP software meets government requirements and whether these requirements are unrealistic.
• Partner certification: Systems integration firms need to be certified to support ERP software. The software manufacturer should be blamed for certifying unqualified partners.
• Risk Management: ERP manufacturers develop and sell Governance, Risk and Compliance (GRC) software. You’d think that the ERP companies would use risk management processes internally to mitigate risks of failure.
• Implementation: ERP manufacturer representatives work with systems integration partners. There are frequent meetings, conferences, events. Therefore, the software manufacturer will have early warning about implementation problems.
• Customer Relationship Management: Yes, all major ERP vendors develop CRM software. They have customer analytical tools. Social media sentiment analysis. They promote “best practices” in customer relationship management.  You’d think that they track feature requests and bug reports from customers generating millions of dollars every year.
• Lobbying and listening: ERP manufacturers have strong lobbyists in Washington. It’s difficult to not hear about problems in the course of listening to implementation problems that become political.
• Inspector General and Government Accountability Office reports: Reports about ERP problems have surfaced publically over the past two years.  These reports are public and damning. And, it doesn’t take much effort to discover which ERP manufacturer products are failing to live up to expectations.  And, thanks to social media, the marketing noise created by ERP vendors cannot drown out these reports of failure.

We hear numerous horror stories about ERP in government financials. FreeBalance is a Government Resource Planning (GRP) vendor. Our software is designed exclusively for government. The evidence suggests that our approach results in much higher success rates than custom-developed software or ERP for Public Financial Management (PFM).

What should ERP manufacturers do?

The DoD ERP failure was for a logistics application. One would think that software developed for private sector manufacturing, logistics and fulfillment would adapt reasonably well for the government context. Even the military context.

In my opinion, ERP company management needs to smarten up. Spend less time arguing about which company packages “engineered systems” better or acquires better companies or has superior cloud solutions. Fix billion dollar mistakes. Create SWAT teams. Build-in escalation procedures for projects gone wrong.

Yes, this would cost money. My view is that if a company can afford to sponsor an America’s Cup yachting competition, they can afford to sponsor a government project or two.  And, it would help to improve their software and practices. Because, if this is what “best practices” look like, I shudder to see the results of “bad practices”

What should governments do?

It’s not a mystery that there is high risk for failure in large government IT projects. Governments try to reduce risk by more stringently following practices that have failed in the past. As Einstein suggested, the definition of insanity is “doing the same thing over and over again and expecting different results”
It’s high time that government IT procurement professionals question conventional thinking:

• Bigger is better: Conventional thinking states that there is less risk in buying from the largest ERP manufacturers. Evidence suggests that the opposite is the case. The largest ERP manufacturers are involved in too many lines of business.
• Integration certification: Conventional thinking states that certification is the key to success. Large system integration companies leverage strong project methodologies. They win large complex projects because they meet stringent requirements. These companies are MIL-SPEC and CMMi certified. Project managers are experienced. Yet, these companies fail to deliver.
• Governance: Conventional thinking states that systems integration companies add value to ERP software and there is no need for ERP company commitments. That results in highly customized code with high upgrade and maintenance burden to governments. My sense is that there is an IT governance gap in government. ERP manufacturers typically operate at arms-length creating asymmetrical incentives. Government organizations are expected to adapt processes to the limited “out-of-the-box” functionality in ERP packages or face the consequences of massive customization.  Systems integration firms can generate more money through customization.
• Risk: A Government Accountability Office report found that the Department of Defence has yet to rate any IT project as “high risk.” A recent article concludes: “Auditors single out the performance of Defense enterprise resource planning projects, which outside observers–and even DoD officials–have characterized as troubled. For example, the Air Force’s Defense Enterprise Accounting and Management System, which is at least 2 years behind schedule and $500 million over its $1.1 billion budget, has never had a rating greater than “moderately low risk” on the IT dashboard. Similarly, the Army’s Global Combat Support System-Army, which is also at least 2 years behind schedule and $300 million over its $3.9 billion budget, has never had a rating greater than “moderately low risk.”

We’re at booths 23 and 24 at FMI this year. Come by and give us your views on our ERP vs. GRP survey.

Doug Hadden, VP Products

Where did the idea of best practices in public financial management come from? PFM experts agree that there are many good practices but few “best” practices. That’s because practice improvement, in the public sector, depends on the government context. Many so-called best practices, such as full accrual accounting, have limited incremental benefit to most governments. To many, the cost to train and implement accrual accounting, exceeds any benefit. It’s high time to break some of the myths of “best practices”. (I hope to do that in blog posts over the course of the next month.)

Private Sector and “Best Practices”

enterprise software and private sector

“Best practices” has become consultant-speak and justification for acquiring leading ERP software. I can’t help but wonder whether this is perpetrated because when one only has a hammer, every problem looks like a nail.

enterprise software and government

When companies whose software was originally designed for the private sector encounter government requirements, invariably, a theme arises: “government should be run like a business.” (Notwithstanding completely different accounting environments and the need for rich budget controls.) And, the private sector has “best practices” that are so “BEST” that these should be adopted by government.

In other words, when encountered with a screw – bang it in as hard as you can. Make sure that it can’t be removed without any damage. Call it a best practice. Insist that it “should” work, even when it isn’t working.

Government and Best Practices

GRP and government

We’ve talked a lot about how Government Resource Planning (GRP) is unique. For government. Not a variation of ERP.

As we navigate through the world of government financial practices in future blog posts, there is one thing to keep in mind: the public sector is always changing. Modernizing and reforming.

So, one needs to be able to remove the screw and insert a different one at the right time.

Doug Hadden, VP Products

Enterprise technology is obsolete. Take the icing off the technology “wedding cake” to find legacy client/server code. You’ve seen these very elegant diagrams with lots of boxes and arrows.

Should we care that the majority of software technology used by enterprises and governments is based on legacy technology? Some contend that technology no longer matters.

Here’s the argument: governments will have to customize the code anyway to meet unique requirements. Regulations, laws, national standards. And, governments will have to continually change the software code to reflect public financial management changes. So, the best thing is to develop coding expertise to keep legacy software alive.

And, by “customization”, I mean: writing and maintaining software code. (Ok- there are various levels of coding from “call-outs” and workflow scripting to down-and-dirty coding.)

A Sad State of Affairs

There seems to be a general acceptance of this expensive state of affairs. The frequent failures for private sector software in government is blamed on the customer (i.e. blame the victim) or systems integrator for not having the right process, governance methodologies, project commitment. It’s rarely blamed on the orignal vendor who provided the software in the first place.

Should government customers accept this state-of-the-art of:

• High customization and maintenance costs
• Adapting government proven-processes to so-called industry “best practices”
• Product sunsetting and high upgrade costs
• Perpetual outside consultants who understand the underlying legacy technology
• Complex software requiring significant training

• Building special modules for unique needs because the functionality is missing in private-sector software

There is an Alternative

FreeBalance and the approach that we’ve taken is an alternative.

Don’t get me wrong: major enterprise software vendors have problems that I don’t want to have. Multiple acquired applications each using different programming languages. Multiple vertical and horizontal markets. That’s the advantage of being agile: you avoid these problems. Here’s the FreeBalance approach:

• Rebuild software using the latest architecture good practices (and make it open) so that there is no client/server translation layer, no legacy code constraining options. In other words, technology matters.
• Design with government exclusively in mind – the government domain for all functional and non-functional needs (i.e. GRP, not ERP).
• Software designed for shared services rather that re-purposed with brute force.

• Parameters to enable configuration and avoid customization – faster time to results and way lower TCO.

The Pendulum Swings the Other Way?

The enterprise software industry changed in the late 90s. The most successful vendors moved from single industry solutions to multiple industries. These vendors acquired other vendors. It was thought that it was less risky to buy from the very largest vendors.

Things have changed in the early 10s. For one thing, customers feel unheard by the largest vendors. And, there are alternative models such as cloud computing. This has caused many to reconsider the state of affairs. Especially when it is easier for agile vendors to create product suites using proven components and following standards. (Rather than proprietary middleware that is used to lock customers into legacy suites.)

Of course, some observers are incredilous.

How can FreeBalance have better technology? These larger vendors are very large – but their business is built on old technology, existing supply networks and they require the economies of scale to make middleware equivalent to open source.

How can FreeBalance meet needs through configuration? A single domain-government. (And, our platform has government-functionality built-in, so customers and consultants can build custom solutions for government fast too.)

How can FreeBalance win competitive tenders? Most of these tenders are 5-Year total cost of ownership. Lower hardware cost through an optimal footprint, ease of implementation and maitenance through configuration, less training – you get the point.

How can FreeBalance have more successful implementations? We have a track record of more on-time, on-budget, government-sustainable implementations than alternative solutions. It’s because of domain focus, including adapting our implementation methodology exclusively for government.

In my view, it is time to question the assumption that “bigger is better” in software. It’s time to question technology. To look at what really works.

Where practitioners meet to discuss Public Financial Management: http://pfmboard.com/

The structure of the site is interesting, with performance dimensions and Medium Term Expenditure Frameworks having the most discussion topics.

The discussion group has almost 300 members to date.

RSS feeds at: http://pfmboard.com/index.php?action=.xml;type=rss

Mobile site at: http://pfmboard.com/index.php?wap2

Doug Hadden, VP Products

We’ve discussed the current state-of-the-art in government shared services. There’s some discontent among government users for technology shared services. Despite a rather obvious set of benefits from standardization and consolidation of similar GRP functions such as budget, financial and human capital management. Gartner Group concluding that “shared services” is on the descent to the trough of disillusionment.

Process standardization is a key benefit experienced in the private sector. Standardization reduces cost for training, support and upgrading software. Private sector companies can benefit from best practices. They adjust their processes to achieve greater efficiency. Government doesn’t work that way. Adjusting processes to achieve greater efficiency or standardization often requires changes to the law. Privacy,agency  independence, de-centralization and other problems can make standardization exercises difficult. Shared services initiatives begin with analysis of the current situation. There can be significant commonality among government organizations.

The pattern of dissimilar processes expands based on the number of organizations compared. Even small government agencies can have significant differences in mandate. Problems encountered with standardization include:

• Disjointed processeswhere only parts of shared processes are standardized. The comprehensive “line of business” cannot be fully automated leaving government ministries, departments and agencies with the option of manual processes or creating special purpose tools. This has been a general problem in government IT that standardization can worsen rather than aleve.
• Diminishing returns where adapting organizational processes to the standard reduces efficiency or service delivery.
• Legal and processbarriers where standardization cannot be implemented by some organizations. This can dramatically reduce the return on investment for setting up an expensive shared services infrastructure if it cannot be leveraged by all government organizations.

The primary difficulty in achieving government shared services for “lines of business” isn’t standardization – it’s the technology tools used. Many shared services initiative use Enterprise Resource Planning (ERP) software developed for the private sector. This software has some unfortunate characteristics:

• Customization: the use of code customization to achieve government needs that increases the Total Cost of Ownership (TCO). This makes it difficult to transition sets of customized code to standard processes.
• Single instance: the design of private sector software expects a single entity operating standard processes. Many government shared services initiatives requires hosting multiple different instances, which defeats the purpose of shared services in the first place.
• Reliance of industry practices: this use of so-called “best practices” makes it difficult to standardize a complete process across multiple organizations. And, very difficult to support legal reform and modernization of financial processes.

We have been very adamant that software technology can be designed specifically for government. We’ve developed an innovative shared services technology approach. This approach is based on three important “non functional requirements” for the design of Version 7 of the FreeBalance Accountability Suite:

• Configuration where the broad spectrum of government processes can be easily configured and requires no customization.
• Multiple configurations where a single hosted system can support different configurations.
• Reliance of government good practices proven around the world to support change and modernization.

The FreeBalance approach to shared services supports a different deployment model:

• Standardization of many processes facilitated through the configuration approach. These processes will be standard and identical.
• Semi-standardization through a configuration rangewhere government organizations can select processes within a narrow approved range. Once again, this approach is supported through parameters in the FreeBalance Accountability Suite. Semi-standardization enables governments to achieve the benefits of consolidation by broadening the shared services footprint without significantly increasing costs.
• Local or central hostingof functions unique to the government organization. These functions may need to be separate from shared services because of legal requirements. Or, the processes are so unique as to make central hosting cost ineffective. The FreeBalance Accountability Suite supports this approach through hybrid deployment where processes can be hosted in more than one location.
• Phased migration of configurations where government organizations can move to compliant and mandated standard processes over time. This reduces the training costs and lack of productivity associated with switching solutions abruptly.

Doug Hadden, VP Products

Phasing of Public Financial Management (PFM) “reform, through achieving gradual manageable steps (DFID 2005)” is considered a good practice. In fact, if any thing in PFM is considered a best practice – it’s the phased implementation of PFM reform and supporting information systems as we’ve pointed out before and validated at numerous conferences.

The sequence of reform depends on the country context. “Implementing public finance reforms of any kind requires an understanding of the entire public finance system in place in that country. It requires an understanding of the institutional arrangements (Rodin-Brown 2008).” As a vendor specializing in the government domain, Government Resource Planning (GRP), FreeBalance has developed a methodology called progressive activation that enables governments to modernize over time. That’s because, unlike the private sector, technology solutions like GRP need to follow reform. A company can easily change a chart of accounts to improve performance tracking or adopt secure electronic cheques with electronic signatures. Governments often need to change the law to support these “business process” improvements.

There is no established sequence of reform (Allen 2009) except at a fairly high level. David Nummy from Grant Thornton provided a good PFM framework at our FreeBalance International Steering Committee meeting in 2008.

It is rather frustrating to government PFM practitioners to determine the sequence of technology adoption to follow reform. Some technology adoption does not require legal reform. As I discovered in the Kyrgyz Republic, there is an appetite to understand the benefits of financial, budget and civil service automation to help determine priorities for legal reform. We have always identifed the three dimensions of sequencing GRP technology:

1. Modules or functionality that is implemented by governments. We’ve created a PFM component map that provides an overview of general modules used in government GRP.
2. Decentralization or the rolling out of functionality to other government entities.
3. Modernization or reconfiguration of existing modules to support reform.

We have our first draft of a simplied scorecard to help identify the level of maturity of a government financial management software system. I’d very much like input and ideas. This will help all PFM practitioners regardless of software technology used.  The items in the “modernization” column may imply the acquisition of additional modules or it could be activating functionality that already exists. Governments can utlize the scorecard to show what is current implementd and what could be implemented in the future.