Sustainable Public Financial Management

By James Elrick

Good news. FreeBalance President & CEO Manuel Pietra is an awards finalist for the OCRI Next Generation Executive Award. OCRI is Ottawa’s economic development agency. It is the rallying point to bring business, education, research and talent together to create the winning economic conditions that allow Ottawa’s knowledge-based companies to thrive locally and compete globally. OCRI promotes sustainable economic development to maintain Ottawa’s high quality of life.

This award recognizes an individual who has had a significant impact on the success and/or transformation of their organization as a direct result of their leadership. The winner will be announced at the OCRI Awards on April 7, 2011 at the Hilton Lac Leamy. Here are reasons why Manuel is an awards finalist:

Unique Approach
In 2006, Pietra brought international experience to FreeBalance and introduced a new management team. FreeBalance was restructured into a global customer-centric company with a focus on government financial sustainability. The company added new customers in Canada, Pakistan, Panama, Palestine, Uganda, Kyrgyzstan, Namibia, and Liberia.

Pietra developed a unique approach to involve customers in the product development process, including the FreeBalance International Steering Committee (FISC). The steering committee is all about the government customers. FISC is an opportunity for public financial managers to share lessons learned. To discuss emerging trends. And, to set company direction. This is necessary for a customer-centric approach.

With the introduction of a new business strategy and customer-centric approach, FreeBalance is growing at a rate of 18-20% per year. And, the third quarter in 2010 has been the best in the company history. Global employee growth has kept pace as FreeBalance has been actively hiring to support the growing customer base.

FreeBalance customers span the globe and the user community includes public financial management (PFM) professionals in 18 countries, including Afghanistan, Canada, Iraq, Kosovo, Mongolia, Pakistan, Panama, Sierra Leone, Southern Sudan, and Timor-Leste among others. FreeBalance has more than 60,000 users around the world. FreeBalance software manages a global civil service workforce of 1.5 million and also manages a quarter trillion ($US) annual budgets worldwide.

Organizational Results
Pietra realized that values were important to sustain long-term corporate success. Effective PFM transforms countries. He implemented the Corporate Social Responsibility (CSR) philosophy at the core to the company mission. Global citizenship commits FreeBalance to international country development, knowledge sharing and service improvement.

Technology Results
Since 2006, Pietra has ensured that FreeBalance offers leading-edge technology that uses sustainable and proven open-source middleware and modern component-level Service-Oriented Architecture (SOA).

Unlike competitors, FreeBalance does not hide old technology with a web “wrapper”. The FreeBalance Accountability Suite is pure web. FreeBalance technology is optimized for government needs for scalability, usability and maintainability. FreeBalance software is built with reusable PFM components. This lowers total cost of ownership (TCO) for government customers and makes the technology more extensible. FreeBalance leverages technology best practices to achieve technology leapfrog over our competitors. FreeBalance offers full support for any commercial technology stack, so FreeBalance can support customer requirements with both open source and commercial technology.  

Doug Hadden, VP Products

There was an interesting tweet moment at the FreeBalance International Steering Committee meeting last week requesting a transcipt of some comments about open systems made by our President and CEO Manuel Pietra.  Manuel’s viewpoint was that developing software using open systems enables FreeBalance (and others) to more easily extend applications. That’s because the nature of software development has changed over the years from very explicit “use cases.” Software was developed with an end in mind. Workflow, rules and reports were developed to meet the articulated need. This methodology is changing to where software components could be reused for purposes beyond the imagination of the software developer. Open systems will become the norm because of this efficiency provided. It breaks the economy of scale advantage that large companies hold in the software industry.

Technology Transition to Open Systems

We are in a transition period from closed to open systems in the software industry. In the closed system era, integration within the product suite was considered paramount. Enterprise software companies competed on the basis of horizontal and vertical functionality.  Economies of scale meant that the largest vendors provided the best extensibility. Proprietary middleware was used to lock customers into the entire “stack”. Open systems were presented as risky because proprietary standards tended to be faster.

The software industry is in a transition period where proprietary systems are opening up. This is often seen as a way to extend proprietary systems by the larger vendors. There is a concerted effort to build out an eco-system of partners who add value to proprietary systems. We believe that this will transition to fully open systems. Software companies will compete on openness and customer processes rather than lock-in.

Transparency Transition to Open Systems

We also appear to be in a transition period in government transparency. Governments have begun to publish information in document or machine readable format rather than relying on access to information requests as the primary method of transparency. The press is becoming “disintermediated” thanks to transparency portals. And, more governments are realizing that publication of government data can act as an economic engine, or, as Tim O’Reilly calls it, “government as platform.”These two trends in open systems an open government are more than coincidental. It is difficult and expensive to create open data from closed systems. That’s why many open government projects run into problems.

Historical Perspective

Software systems have become more open over time. Early computing did not have the luxury of processing and memory that we have today. The environment was closed and applications were closed systems.  Applications were focused on high value elements of business processes. Software has become more open as the software footprint has grown.

1990s to early 2000s saw the rise of Enterprise Resource Planning (ERP) software replacing  previous business systems. These applications covered multiple horizontal and vertical markets (as defined as ERP II by Gartner Group). Instrasuite integration became a competitive differentiator. The “dot com” era saw a boom and bust of e-commerce applications. The key problem in for dot com providers was the need to create the entire transaction infrastructure. This left some winners like eBay and Amazon who were able to achieve the economies of scale.

We are currently in the early days of “cloud computing” and “Web 2.0″ eras. Although there remains some closed systems, the software market is moving rapidly to open systems. This includes the use of open source middleware like MySQL, Linux, Hibernate that enables organizations to develop extensible and robust transaction systems. Middleware has become commoditized.

The Future of Open Systems

Government Resource Planning (GRP), transparency portals and enterprise software are transitioning to open systems. The next era will be characterized by:

• Component-based Service-Oriented Architectures where applications can be assembled from Object Oriented components from different manufacturers.
• Machine readable systems where applications will support domain industry standards, XML/Web services as a matter of course rather than explicit interfaces on monolithic architecture (what we call Monolithic Integration Architecture).
• Deployment options for centralized, de-centralized, shared services, and hosted without compromising functional completeness or system flexibility.

José  Saldanha, FreeBalance Vice President of Research and Development, described and demonstrated new technology at the FreeBalance International Steering Committee (FISC) conference in Madeira Portugal. He described how FreeBalance uses open source middleware. Mr. Saldanha pointed out that the FreeBalance software is not open source.

Open Source

Vendors who sell a proprietary stack often means that the vendor has control over customers, according to Mr. Saldanha. The open FreeBalance system gives customers a wide choice in middleware and flexibility to change out components in the past. He described the differences in costs between open and closed source.  Mr. Saldanha described how open source middleware reduces the problem of “bloatware”.

Mr. Saldanha describing advantages of component Service-Oriented Architecture (SOA), and Servlet vs. Enterprise Java Beans to achieve a smaller technical footprint and better performance. He described how enterprise software is often tested in the “swimming pool” but open source tested in the “ocean”. He described the advantages of using the latest technology for security and quality.

Updated User Interface

José  Saldanha demonstrated the new user-interface functional design. This includes ability for users to develop custom menus.  Users can search for menu items by typing items. Breadcrumbs take the user to where users located.  This upgrade of usability also improved performance significantly with rapid page rendering.

Layered Design

Mr. Saldanha described the layered structure in the FreeBalance Accountability Suite and FreeBalance Accountability Platform.  He pointed out that this approach provides good reusability and extensibility. This also improves maintenance.  The layered technical design makes for ease of deployment and improves scalability. He described the de-coupling points in the software.

FreeBalance Accountability Platform

Mr. Saldanha described the differences in using the FreeBalance Accountability Platform to design government applications versus using traditional technical platforms. The FreeBalance IDE provides:

• Parameterization
• Form templates
• Report templates
• Internal messages
• Base government entities
• Security model
• Integration with FreeBalance Software
• Integrated Development Environment
• Technical Platform

The benefits of this approach include the ease of developing, integrating and maintaining software. This reduces costs.

Deployment and Scaling

Mr. Saldanha described horizontal and vertical scaling. He described the advantages of the new licensing functionality that support concurrent, named and enterprise users. The software can be licensed at very small components.  He described the license key to add users and modules.

FreeBalance Releases

FreeBalance will deliver one minor or major version of the software every year. Functional updates are released every year. Technical revisions are available on-demand. Version 7 supports upgrades from any version to any other version with no intermediate stages. FreeBalance produces four revisions of the software every day for continuous testing.

About FISC

The annual FreeBalance International Steering Committee (FISC) conference runs from January 16 – 19, 2011 in Madeira, Portugal. FISC provides an interactive forum to exchange Public Financial Management (PFM) good practices among international customers and PFM thought leaders. FISC drives the FreeBalance Accountability Suite product vision to direct FreeBalance GRP solutions. Previous FISC events were held in Mt. Tremblant, Canada (2010); Prague, Czech Republic (2009); Cascais, Portugal (2008); and London, United Kingdom (2007).

Doug Hadden, VP Products

Executive meetings with customers is a cornerstone of our customer-centric approach to Government customers. After all, why should salespeople have all the fun? More importantly, executives in companies need to have direct unfiltered feedback from customers. It provides the context for decision-making. And, it is particularly important in our case because we focus exclusively on a single market – government. Hence, a deep understanding of the customer context is critical to our continued growth and success. We’re in the midst of engaging our Government of Canada customers. We’ve also met with policy stakeholders and customers from other vendors, particularly at conferences.

There are some interesting trends in Public Financial Management (PFM)  in the Government of Canada.

Transparency and Government 2.0

FreeBalance Government of Canada customers discussed openness and Web 2.0. There is a general trend about Government 2.0 adoption in the Government of Canada. Our discussions transcended the typical concerns over quality, privacy, security and risk of open data. Internal transparency among government organizations was an unexpected theme. Transparency in government tends to cover budget and financial disclosure, open procurement and civil service recruitment and spending. It is often assumed that the government acts as a single actor in these transparency categories. Yet, there is an overlap in policy and budget transparency between policy and executing agencies. This mirrors the need for policy and budget transparency with civil society and businesses.

Governments are under significant pressure to achieve better value for money: improve results with fewer resources and lower budgets.  In Canada, this has created a portfolio of policy analysis covering the entire spectrum of PFM. Communications between policy and executing organizations can be improved and harmonized through the use of new technologies, often called “Government 2.0.” There is a concern that traditional methods of policy information gathering and policy making may not have the desired result. Particularly when these policies are intended to cover emerging technology and new paradigms. There is a need for the type of continuous engagement on ideas and solutions enabled by blogs and wikis to achieve value for results. 

We also found that the transparency categories listed above does not address the holistic transparency footprint. For example, policies on budget transparency can affect civil service reporting. General policies to improve effectiveness have significant impacts on procurement and civil service processes and transparency. Government of Canada policy and political organizations are also struggling with notions of privilege and confidentiality in the development of policy.

Functional Gaps Remain

There is a major trend to process standardization within the Government of Canada. Standard processes and classifications provide for more effective decision-making at lower costs than unique processes and classifications. Yet, there are unique requirements in most government organizations. That’s why these organizations are separate. Virtually every Government of Canada organization has at least one unique requirement that impacts information systems. This complicates standardization of processes, systems or classifications. Integration with unique applications has become a key need for information systems within the Government of Canada.

Of course, we also see many functional gaps within Commercial-Off-the-Shelf (COTS) information systems designed for the private sector. Many of these systems have to be enhanced with software applications designed for government. In particular, there are gaps in generic budget awareness in financial and human resources systems.

Risk of Legacy Technology

Government of Canada organizations are struggling with modernizing the software portfolio. There is a range of legacy technology in use by the Government of Canada including custom-developed mainframe and client/server applications that were designed to address functional gaps. Sometimes the COTS private sector software alternatives were too expensive with unneeded feature sets. And, this older technology is often difficult and expensive to maintain. And, difficult to integrate. Yet, functionally critical.

Many Government of Canada organizations are leveraging the older generation of web-enabled software. This appears to be a risk.  There are many definitions of web enablement that has creating confusion. Many software vendors  position products as web-based when the user interface is presented in a browser and there are no plug-ins required to operate. However, many enterprise applications have client/server software at the core. This software operates through a translation layer that reduces performance and limits integration – particularly in the Service Oriented Architecture (SOA) environment envisioned in Enterprise Architectures.

The use of Cloud Computing and Software as a Service (SaaS) is growing dramatically in the private sector. Many incumbent enterprise software vendors not yet adapted to this market. For example, Salesforce.com provides configuration tools and integration points meet customer needs. The technology centrally hosts many customers with many configurations. Software designed for single on-premises deployment are difficult to adapt for the Cloud. And, for hosted shared services.

Total Cost of Ownership (TCO) and Sustainable PFM

The emphasis on value for money has enabled Government of Canada organizations to track the true cost of PFM software. Software, consulting, support and training services are often acquired seperately by Government of Canada organizations. The focus on TCO had identified the previously hidden costs for sustaining the PFM investment. Many Government of Canada organizations are discovering that some COTS and custom software requires significant on-going consulting fees. Training and certification requirements for some software applications have high recurrent annual costs.

Government of Canada organizations are discovering that cost saving associated with pooling resources are not significant. This seems to be dependent on the COTS solution selected. Despite savings through clustering departments, shared hosting, or centralizing data centres, there remains a high cost for Government of Canada organizations. It seems that economies of scale are hard to achieve when the software solution is not designed for this purpose. Of course, our position is that FreeBalance software has been designed for the government domain and new methods of deployment.

Customer Centric

I wroter earlier about improvements in FreeBalance customer support metrics. These metrics are outputs and may not be related to customer experience or expectation. And, improving processes to improve customer-centricity tends to have a delayed outcome as past problems are solved. Our Government of Canada customers told us that we have improved support. This was also confirmed in meetings that we have had with central authorities who also recognize how well we are supporting customers. Although, it should be noted that customer engagement is a journey and not a destination. We are always looking at ways to improve customer support and embedding customers into our software development processes.

International Success

Our Government of Canada customers are proud of the contribution they have made to FreeBalance GRP products. They know that the respected discipline in PFM in the Government of Canada is being used to improve governance in countries around the world. They are also benefiting from this market. The scalability and hosting requirements for international customers has been important in the technology design of Version 7 of the FreeBalance Accountability Suite. Functionality richness has also increased the product portfolio to meet more PFM needs in Canada.

by Doug Hadden, VP Products

The United States Financial Management Line of Business (FMLoB) moving to the “cloud”? Gartner Group concluding that “shared services” is on the descent to the trough of disillusionment? To say nothing of analysis like:

a disturbing feature of the current debate on shared services has been the absence of a well-articulated economic and political rationale for this form of service delivery, a lack of analysis of alternative models of shared service provision and a neglect of available empirical evidence.

Yet, there seems to be an overwhelming set of evidence that centrally hosting budget, financial, grant and human resource management has significant cost savings. In an era of “doing more with less”, why have shared services run into so many difficulties?

FreeBalance Point of View

Just to be clear – FreeBalance supports shared services. Our Government of Canada Cluster is a shared service. Canadian government organizations work together to reduce support costs, and set FreeBalance product direction. (Along with the FreeBalance International Steering Committee.) Most of our international customers operate on a government hosted centralized system or shared service.

Cost-Benefit of “One Size Fits All”

It’s  difficult to find anything but unbridled enthusiasm about shared services on the Internet. Of course, much of the content is fashioned by large vendors and consulting companies who benefit from shared services approaches. There are many compelling arguments that many processes in government organizations are identical or similar and should be standardized. Standardization simplifies support, enables personnel movement without re-training and facilitates product upgrades. It eliminates duplication. Gains economies of scale.

Yet, many government agencies have unique requirements. Some are legally mandated. There are often many systems in place to manage the entire budget cycle. Many governments find it difficult to support this legitimate variability in need. Many hosted shared services implementations host completely different instances of the same software. According to Jeff Steinhoff, formerly with the US Government and now with KPMG:

when people started going to huge ERP solutions, for which they were dumping hundreds of millions of dollars, in some cases in excess of $1 billion, they were over-engineered, not well designed, everybody invented their own wheel. There was just problem after problem.

That’s why most ERP vendors recommend that government shared services use “vanilla” implementations with zero code customization. Which is a bit of challenge. Especially using software designed for the private sector. Especially when there is constant reform and modernization in government. It’s not “one size fits all”, rather it is more a “lowest common denominator” for those government agencies with modest needs.

Shared Services Today: Square Pegs and Round Holes?

Maybe it’s time to consider that the problem isn’t the shared services round hole. Maybe the problem is the software square peg. That wasn’t designed to fit into the round hole. We need to round these square pegs to make shared services work.

Yes, the FreeBalance Accountability Suite Version 7 meets these needs. But, it’s not a big secret: it’s just software architecture best practices.

Governance: Tail wags dog?

Gartner Group has predicted:

By 2013, more than 60 per cent of existing IT shared services that do not revise their current governance model will not be able to achieve the benefits expected in the business case.

The software industry seems to work like this: vendors tell customers what they are going to get. Central shared services agencies decide how to overcome the software limitations. Departments and agency users are frustrated by software limitations. These users blame the central agency.

Most of the shared services governance literature describes how to manage decision-making within the government. The problem is that governments are not setting software product directions.

The big  dog needs to wag the tail.  Software companies must commit to meet government requirements. These companies should not be “hands-off” operating through consulting organizations. Software companies providing software for shared services – whose annual Total Cost of Ownership (TCO) for large governments is in the hundreds of millions of dollars – must devote resources to meet government needs. There must be steering committees that obligate vendors to meet government goals.  That’s governance.

FreeBalance_Cluster

Our Financial Management Institute of Canada (FMI) Professional Development Week started early with presentations to the FreeBalance Government of Canada Cluster and to our Performance Budgeting for Human Capital (PBHC) customers in Ottawa. FreeBalance has the largest cluster in the Government of Canada – 28 departments, agencies and commissions. And, PBHC has become the gold standard for civil service planning and salary planning. We’re participating in FMI as a sponsor. We’ll be talking about new product releases and describing how government performance management needs Government 2.0 in order to succeed.

The Cluster presentation was a deep dive into the technology of the FreeBalance Accountability Suite. Both presentations ended with invitations to join the on-line FreeBalance Customer Exchange. We started both presentations with a quick business update including mentioning the Uganda Civil Service Management implementation and the reduction of open support cases by 64% over the past 18 months.

This wasn’t your typical roadmap presentation: “this is what you’re going to get, this is when you’re going to get it, this is when you’re going to have to upgrade, if you don’t like it, it’s too bad.” After all, the FreeBalance roadmap is owned by customers. Our goal is to align our roadmap: government customers tell us what we are going to deliver and when we are going to deliver it.

 We described the FreeBalance Accountability Suite original design criteria. We believe that many problems experienced in the implementation of Government Resource Planning (GRP) systems originate with the design. We’ve written and presented our lesson-learned: the typical methods used by software vendors to design, develop and implement software needs to be adjusted to support Public Financial Management (PFM) needs.

Social networking capabilities, often called Government 2.0,  are required for the current generation of pure-web GRP. We showed part of our original vision case from 2005. This original vision included the fundamental integration of transactions, content and collaboration within a single system architecture.

We described:

• Use of software architecture best practices
• Component-based Service-Oriented Architecture (SOA)
• Open system and open source support
• Ability to choose open source or commercial middleware
• Support for government-specific requirements
• Configuration and progressive activation approach
• The product commitments and roadmap for the next 18 months
• Support for shared services and cloud computing
• How the FreeBalance Accountability Platform can help develop custom applications

There were many questions that we were able to clarify:

• Version 7 of the FreeBalance Accountability Suite provides comprehensive human resources and payroll functionality – full civil service management
• FreeBalance is testing  software using VMWare
• The technical infrastructure is open – we are prepared to support other operating system environments other than Linux and Windows
• How “custom domains” differs from the typical “additional fields” approach
• How the technology is scalable and the scale of recent implementations
• Exact method for multiple year chart of accounts
• How customers can customize help, documentation and e-learning
• Software deployment

We look forward to more dialog with our Government of Canada customers. We described how customers can participate to help design, adapt and test. Web 2.0 tools provide companies with the ability to support customer disruptive  innovation, as described by Clayton Christensen.  It’s a far cry from the days of “Mad Men” – creating demand when there isn’t any. The management of the Cluster has been enabling more interaction among customers and with FreeBalance. We are working together to leverage tools to enable more peer communications.

This is section 2.1 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.

Financial management differs between the private and public sectors. The practice of acquiring an Integrated Financial Management Information Systems (IFMIS) often begins with the context of private sector accounting or existing software in use. These approaches can often mislead prioritization.

FreeBalance has developed a PFM Component Map that enables governments to effectively determine functional needs and priorities. The FreeBalance PFM Component Map provides a high level view to government financial functions. It is a target for determining the characteristics of an IFMIS. Governments can identify which components are needed and the level of importance. Government can map current systems against the component map to determine gaps. It enables determining the needed portfolio for automation, reform and improvement. No one vendor can provide a comprehensive PFM solution for the broad range of needs in government and the variability in country contexts.

A component is a defined piece of functionality that could operate stand-alone. The FreeBalance PFM Component Map enables drilling into more levels of detail to identify rich functional requirements.It also provides components for transparency and citizen service. The arrangement and definition of components is government centric. The main functional components for the FreeBalance PFM Component Map are:

1.   Government Performance Management
   •    Budget Planning/Formulation 
   •    Policy Management 
   •     Public Accounting and Budgetary Classification
   •     Performance Management
   •     Aid Management and Harmonization 
2.   Commitment and Budget Accounting
   •    Budget and Appropriation Control 
   •    Commitment and Obligation Control
   •    Budget Execution and Funds Release
3.   Government Financial Management
   •    Reform and Modernization Activation
   •    (Treasury) General Ledger  
   •    Project Accounting and Management
   •    Asset and Inventory Management assets and inventory management
4.   Treasury Management
   •    Cash Management
   •    Debt and Investment Management
   •    Foreign Exchange 
5.   Public Expenditure Management
   •  Procurement
   •  Grants Management and Intergovernmental Transfers
   •  Social Benefits
   •   Payment Management
6.   Government Receipts Management and Revenue Administration
   •  Non Tax Government Revenue
   •  Taxation 
7. Civil Service Management
   •  Civil Service Reform
   •  Payroll and Pensions
   •  Civil Service Workforce Management
   •  Movement life
   •  Capacity Management
   •  Benefits Management  

The use of component maps to identify priorities has become a good practice, particularly in today’s age of Service-Oriented Architectures (SOA). The New Language of Business is an excellent guide to this technique. 

The detailed  PFM Component Map is available on a non-disclosure basis by contacting FreeBalance: dhadden@freebalance.com.