Sustainable Public Financial Management

Similarities between Government Performance and Canadian Culture?

Doug Hadden, VP Products

New governments talk about improving performance.  The American federal government has experienced waves of performance management initiatives. Yet, there is the meme of “big inefficient government” in the United States. This seems to be a common theme in the press, among thinktanks and opposition politicians. It makes for good copy.

Examples:

• Annual Teddy Awards in Canada for government waste
• Recent GAO spending scandal in the U.S.
• Call from the House of Lords in the UK to scrap the foreign aid target.

Should we be cynical?

Should “government performance” be added to the litany of oxymorons like “military intelligence”, “business ethics”,  “British cuisine” or “Canadian culture”?

After all, if businesses can improve performance, why not government? It’s a popular sentiment – as this scene from the 1993 movie “Dave” shows.

Government isn’t business

Dave manages to cut the budget.  But did these cuts improve effectiveness? That’s the rub: in business we have a bottom line: profit. Key Performance Indicators can align with this bottom line. And, you know that the KPIs are incorrect if the indicators are good but the business is showing a loss. (Or, vice versa.)

The performance calculation differs.  Business: outcomes drive financials (profit). Government: financials (budget) drives outcomes. Government performance is more complex than business performance:

1. Outcomes are much more difficult to validate in government because is not aligned to an objective bottom line like profit
2. Budgets impose more controls on spending in government including restricted flexibility for managers to optimize performance whereas companies can increase spending to generate more revenue or cut costs to reduce expenditures
3. Politics drives input-focused (i.e. spending in the politician’s district) decisions that are imposed on public servants
4. Financials in the public sector is rarely operating on full accrual accounting, so standard private sector financial measurements like Return on Investment that could help determine effectiveness are difficult to calculate

Government Performance Tools

Corporate Performance Management (CPM) is a category of tools including reporting, dashboard, budget and data mining. These are useful tools. Yet, commercial CPM tools designed for the private sector are often missing needed government functionality:

1. Budget preparation where performance information is directly tied to the creation of financial budgets and controls
2. Forecasting where expenditures are compared with outcomes during the fiscal year to enable performance improvements while ensuring that budgets are not overspent
3. Macroeconomic data where key economic information is aligned to the “macro-fiscal” framework and KPIs
4. Transparency where government objectives and results are transparently provided to civil society – the kind of information that even publicly-held companies consider business secrets

Performance measurements are more difficult to determine for governments than companies. The private sector has an objective measurement for performance: profit.  FreeBalance presented the case for linking Government Performance Management with Government 2.0 at the recent Financial Management Institute Professional Development Week.

The technical discipline of “corporate performance management” provides governments with compelling planning and analytical tools. However, the “performance management” discipline is narrow focused and does not include all relevant aspects of government performance. Government 2.0 is a new trend in government transformation. Our presentation describes how Government 2.0 will transform the practice of public financial management. We describe how the government “back-office” benefits from citizen and civil society collaboration.

The practical application of performance management techniques in government has had mixed results. Unlike the private sector, Government Performance Management has no easily identifiable “bottom-line.” Government initiatives have unexpected positive and negative consequences. The selection of specific outputs and outcomes does not provide a 360 degree view of government performance.

Government 2.0 is the use of Web 2.0 techniques to enable collaboration among like-minded people in government. Government 2.0 provides the tools necessary to link government initiatives with societal impact. It also enables governments to improve performance by leveraging the wisdom of crowds.

This is section 2 of a series of blog entries creating a Government IFMIS Technology Evaluation Guide. This includes information to assist in evaluating IFMIS options and the technology requirements for FreeBalance IFMIS implementations. These series will be combined with feedback to produce a comprehensive Technology Evaluation Guide to be published on our web site.

There is a notion that government financial and human resource management is a variation of the private sector. Many observers argue that governments want to operate more like businesses. (Notwithstanding the current financial crisis.)  The discussion about Public Financial Management (PFM) can often be dominated by terminology from the private sector: “business rules”, “business process”, and “lines of business”. 

It is true that government can leverage lessons learned from the private sector. The mission of governments differ from companies in many ways:

• Governments focus on mission effectiveness and outcome results. Companies focus on competitiveness and profit.
• Governments strive for accessibility to all citizens. Companies focus on one or more target markets.
• Government priorities are set through the legislative process. Company priorities are set by managers and shareholders.
• Governments strive for standardization across government entities. Companies strive for differentiation.

There are many similarities in financial and human resource management between the public and private sectors. For example, all modern accounting systems use ledgers and journals. Significant differences remain. These differences can be considered for any acquisition of a Government Integrated Financial Management Information Systems (IFMIS). Functional requirements can be more or less complex than the private sector.

System Set-Up