Integration of Strategic Plan with Performance Management

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					              The Era of Integration

  Linking Budget, Finance and Performance
               Management


C. Morgan Kinghorn, CGFM, Chief Operating Officer, Grant
             Thornton Global Public Sector

                    August 22, 2007
Agenda



 •   Focusing on Results – the State of the
     Current Art
 •   Meeting the Integration Challenge –
     Advancing the State of the Art
 •   Integration in Action: the Fish and Wildlife
     Story



                           2
Increasing focus on results


•   Citizens and stakeholders expect results from their
    government
•   Government Officers report results using the following:
    – President's Management Agenda (PMA)
    – Program Assessment and Rating Tool (PART)
•   All 50 states have requirements for performance budgeting
•   Local governments lead the way in responding to citizens'
    needs for services
•   Environment of limited resources and competing priorities
    forces agencies to make hard choices regarding program
    funding
•   Increasing pressure to achieve the greatest quantifiable
    result at the lowest cost
                                 3
What do we today…




    Strategic                   Cost      Performance
                Budget
      Plan                   Management     Metrics




   Budget, Performance and Financial
  organizations operate in "Silos" with no
         alignment or integration
                         4
Results focus propels change


• Environment of limited resources and competing priorities
  forces agencies to make hard choices regarding program
  funding
• Increasing pressure to achieve the greatest quantifiable
  result at the lowest cost
• New method for success:
    Integrate cost and performance information into the
     budget formulation process
    Link resources requested to expected strategic and
     programmatic outcomes
    Transition from an inputs/outputs focus to outcomes focus

                                 5
Integration is the need of the hour



                                      Strategic
                                      Plan
                        Budget



                        Performance   Cost
                        Metrics       Management




                            6
What does an integrated approach require?




             Structure                                 Data

        Alignment of budget,               Timely, accurate and relevant
   performance, planning and cost            cost and performance data


                                    People

   Leaders with focus and vision of results management

   Managers who support and foster the use of financial and performance
    information to make decisions

   Good working relationship across Performance, Accounting, Policy,
    Program and Budget offices
                                       7
Strategic Planning: Aligning program outputs and
outcomes to agency mission




                           8
Budgeting: Moving beyond the traditional line item
budget for improved integration

 Unit cost and workload data informs budget requests
 Agencies leverage outcome-oriented performance
  results to strengthen budget justifications
 Budget decisions support performance plans to
  increase efficiency and effectiveness of limited
  resources
 Resource distribution aligns with agency priorities
  outlined in the strategic plan
 Technology-enabled solutions promote improved
  efficiency in the budgeting process and provide one
  version of the truth

                             9
Cost Management: Enhancing management
decisions using cost information

• Cost management infrastructure provides an organized
  framework for capturing agency costs to enhance planning
  and cost control

• Use cost management to obtain Reliable, Relevant and
  Regular cost information to support management decision-
  making

• Build an infrastructure that provides predictive
  capabilities such as scenario planning and "what-if"
  analyses to enhance the accuracy and effectiveness of
  resource distribution
                              10
Performance Metrics: Measuring what is relevant to
achieving the agency mission

   Develop a         Align the         Track
   balanced set of   lowest level of   measures that
   measures with     performance       break down
   clear targets     measures with     organizational
   and               the strategic     “stove piping”
   accountability    goals of the      and support
                     organization      optimization of
                                       work flow
                                       across
                                       organizational
                                       boundaries



Horizontal and vertical integration of measures to
         enable management for results
                              11
Budget, cost and performance integration ensures
better management of limited resources

• The coming together of budget, finance and performance,
  people, processes and technology:
    Enables managers to better understand and manage
     their "as-is" environment
    Propels efficiency and resource allocation
     improvements
    Allows forecasting of cost required to achieve strategic
     performance goals
    Provides agency performance rationale to support
     budget requests
    Helps agencies successfully fulfill reporting
     requirements

                                12
Meeting the Integration Challenge




                          13
Budget and Performance Integration (BPI) Maturity
Model: Roadmap for successful integration
Initial               Early project            Basic capability            Enhanced              Transition to continuous
assessment            gains/compliance         Implemented            Capability Implemented          improvement
          Initiating                Operating                Integrating              Optimizing               Innovating
        Budget control            Workload control           Performance                                           Strategic
                                                                                    Internal Alignment
      "Don't overspend"              "Operate"                   goals                                            Innovation
  Have a compliant and governed          Provide enough resources to        Demonstration that results      Performance optimization, Continuous improvement
  budget and cost management             deliver upon the mission of        are or are not being achieved   performance-aligned       and innovations, cross-
  process. Remediation projects and      the organization.                  for the funds expended.         resources                 Agency insights
  staff support services.
                      Budget Formulation (Traditional)
  •Traditional budget formulation       •Workload analysis (financial and
                                                                                                  Budget and Performance Integration
  support (base+)                       non-financial)
  •Data collection processes support    •Scenario analysis (what-if          • BPI assessment and               • Benchmarking             • Marginal cost of
  (automation/templates)                analysis)                              implementation strategy          • Earned value               outcomes capabilities
  •Program and policy analysis (to      •Budget allocation and execution     • Integrated                         management               • Cross-Agency or cross-
  support budget)                                                              performance/business             • Capacity Planning and      organizational insights
                      Budget Execution (Traditional)                           framework/strategic                Optimization
                                                                               hierarchy                        • Performance-based
 •Standard Operating procedures        •Modeling and analytical support
 •Internal controls                    •Outlay analysis                      • Program performance                budget prioritization
 •Status of funds reporting                                                    measurement/management/          • Scenario-based planning
 •Budget projection analysis                                                   assessments                      • Risk based budgeting
                                                                             • PART support                     • Predictive budget models
                         Cost/fee management.
                                       • Workload Studies                    • ABC/M and cost                     and analyses
 • Fee Studies                                                                 management
 • Pilot Studies                       • Enterprise Implementation                                              • Statistical analysis
                                       Assessment/Strategy                   • Strategic planning               • Organizational change
                                                                             • Risk-based budgeting               management
                       Performance Management                                • Scenario-based planning          • ABC/M and cost
 •Requirements analysis and regulatory •Performance measurement –            • Results studies                    management
 compliance support (e.g., GPRA)       workload/ operational measurement     • Performance budgeting            • BPI Solution
                                                                               (formulation of perf. budgets)     Implementation
                   Data cleansing, Integration & mining
                                                                             • BPI solution implementation
 •Data reconciliation                  •Data management                               • Requirements
 •Current state, systems inventory,    •Requirements Analysis                           analysis, design
 source of record                      •Tools/models                                  • COTS evaluation
                                       •Data cleansing and integration              14
BPI Maturity Model provides a framework to view
best practices across phases

                             Initiating            Operating         Integrating   Optimizing   Innovating

                         Budget control         Workload control    Performance     Internal     Strategic
                        "Don't overspend"         "Operate"            goals       Alignment    Innovation




                                                          Lifecycle Phases
Budget formulation

Budget execution
                                 Work Streams




Cost/fee management

Performance mgt.


Data cleansing/integ.


Integration


                                                               15
Sample of best practices and techniques in budget
and performance integration


                          Initiating         Operating        Integrating

                       Budget control    Workload control    Performance
                     "Don't overspend"      "Operate"           goals



 Performance mgt.                                            PMMM profile



                    Activity-based           Change
  Cost/fee mgt.                          Readiness profile
                       costing

                                                             Performance
   Integration                                                budgeting




                                           16
Activity Based Costing – Moving away from the
traditional cost view

      General Ledger View                                         Activity-Based Costing View
Salaries            $300,000                                    Tag species        $100,000
Benefits              25,000                                    Harvest samples      35,000
Travel                55,000             ABC Drivers            Maintain tanks       75,000
                                         • Hours
Communications        20,000             • % Time               Survey populations   10,000
Contracts             90,000             • Square Ft.           Acquire water       290,000
Equipment             60,000                                    Develop plans       160,000
Supplies              40,000                                    Restore wetlands     20,000
  Total             $590,000                                      Total            $590,000




 Reports WHAT is spent                                            Reports HOW it is spent
 Expense categories                                                   Processes

           ABC models can also assign activity costs to strategic goals, outputs and/or customers
                                                      17
  Change Readiness Assessment


   Sample Hypothesis
                              Change Readiness Profile
                                                                                     The Change Readiness
 The organization is flat,                            1
                                                                                     Assessment leverages work
  less bureaucratic, and
                                         29 30 5            2   3                    from the industry thought
  has a process-                      28                            4
                                               4
  orientation                    27                                      5           leader in cost and performance
 The organizational           26
                                                   3
                                                                             6       management, CAM-I Each
  structure is stable and     25
                                                   2
                                                                                 7
                                                                                     question on the Changes
  has relatively low                               1                                 Readiness Assessment survey
  employee turnover           24                                                 8   addresses one or more of 20
                                                   0
 Management effectively      23                                                 9   key hypothesis. The
  communicates the            22                                            10       assessment determines which
  purpose and value of                                                               of these hold true for an
                               21                                          11
  system changes and                                                                 organization and which do not.
                                 20                                      12
  improvement initiatives                                                            Those that are further from
  to all levels of the                19                            13
                                           18 17            15 14
                                                                                     being true are the areas that
  organization
                                                   16                                represent the greatest risk to
 Management solicits                                                                implementation.
  and responds to
  feedback on new
  initiatives
                                                       18
 Risk mitigation strategies are identified to address
 high-risk areas

• Inadequate communication                                                           High-Level
                                                                                                                            Risk Mitigation Actions
                                                                                         Risks
causes implementation of
significant change initiatives to                                                                         Identify and charter Executive Steering Committee with oversight
be problematic for the agency                                                                              authority
                                                                                    Inadequate
                                                                                                          Identify and charter cross-functional working group to assist with
                                                                                    communication
                                                                                                           program-level communications and training
                                                                                    on objectives
                FHWA Change Readiness Profile
                                                                                                          Develop and sustain website with information and updates
                                                                                    and
                                                                                                          Develop and conduct executive, management, and senior analyst
                                                                                    expectations of
                                         2
                              30b 30d
                                 30c 4        3 4a 4b
                      29d
                           30a
                         29e                          4c 4d
                                                              4e                                           training sessions and/or “brown bags”
                    29c                                            5
                                                                                    MCA at all
                                                                                                      
                 29b                                            6a
               29a                   3                            6b
                                                                                                           Develop and distribute quarterly newsletter
              28                                                    6c
                                                                                    levels
                                                                                                      
            27                                                        6d
         26d
       26c                           2
                                                                        7a
                                                                          7b
                                                                                                           Communicate regularly with immediate updates on critical
                                                                                                           changes
      26b                                                                  8a
    26a                                                                      8b
    25                               1                                        8c
  24b                                                                          8d
  24a
   23
                                                                               9a
                                                                               9b
                                                                                                          Create overarching integrated performance management
                                     0
   22
   21
                                                                               9c
                                                                               10
                                                                                    Inadequate             methodology for FHWA, that provides ink between cost and
    20
    19d
                                                                              11
                                                                             12a
                                                                                    linkages               performance
                                                                                    between cost          Integrate strategic planning goals and metrics into the ABC
     19c                                                                    12b
      19b                                                                  12c
        19a                                                              12d
          18f
           18e
                                                                       12e
                                                                     12f            and                    model, as the first iteration of cost objects
                                                                                                      
              18d                                                  13a
                18c
                  18b
                     18a
                                                              13c
                                                            13d
                                                                 13b
                                                                                    performance            Communicate the ABC as a solution to federal requirements for
                        17                                13e
                           1615d 15b
                               15c 15a       14d14c14b
                                                       13f
                                                     14a
                                                                                    information            budget and performance integration (PMA) and performance
                                                                                                           budgets (A-11)

• The agency does not
currently provide good linkages
between cost and performance
across or up/down the
organization                                                                                          19
PMMM Profile: Allowing agencies to assess their
current state against key performance standards

                                         Performance standards

                                     •   Leadership                                                                5    Strategic
                                     •
                                     •
                                         Planning
                                         Performance Budget                                                            Integration
                                     •   Resourcing/Enabling Support
Degree of Change to Business Model




                                     •   Information/Data                                                                  OUTCOME INTEGRATION
                                     •
                                     •
                                         Delivery
                                         Measurement                                            4    Internal
                                     •   Assessment/Evaluation                                      Alignment
                                                                                                                 OUTCOME ORIENTED

                                                                                     Performance
                                                                                 3
                                                                                        Goals
                                                                                                    INTERMEDIATE OUTCOME
                                                                                                    ORIENTED
                                                                       2 Workload
                                                                          Control
                                                                                     PROCESS ORIENTED

                                             1       Budget
                                                     Control
                                                                           INPUT ORIENTED


                                                      Evolution of Enterprise Performance Management Improvements
                                                                                      20
An integrated framework for success


 (1) Mission                                                  (1) Why are we in business?

                       start        Mission
                                                              (2) What outcomes do we want
 (2) Goals                                                    this financial period?


                                                              (3) What amount of product or
 (3) Demand                          Goals                    service will customers require?
     and capacity                                             How much demand can be
                                                              fulfilled in current state?


 (4) Performance                   Demands                    (4) What are measurable
     measures                      & Capacity                 behaviors to obtain goals? What
     and targets                                              are desired measurement
                                                 Leadership   levels?

                                                 Management
 (5) Cost drivers                                             (5) What variables drive
                                                              revenue and expenses?
                                    Costing     Performance
                    Cost drivers
 (6) Costing
                                    method       measures     (6) How do we capture cost to
     method                                                   compare to performance?



                                                21
The Fish and Wildlife (FWS) Story - Starting from a
different perspective




                           22
Guiding principles for integration at the Fish and
Wildlife Service
• Alignment
     • Identification of measurable agency and program outcomes
     • Aligned from top-to-bottom

• Linkage
     • Integration with financial systems
         • Historical cost data
     • Integration with program management systems
         • Performance data

• Integration in decision making
     • Budget formulation
     • Resource allocation


                                 23
FWS integration framework




                            24
ABC costs associated with performance hierarchy
and goals
                                                                                         Resource Protection                                            Mission
                                                                                            $395,640,668                                              Components
    Cost Flow From CSFs up to DOI Mission Components



                                                                                       Improve Health of Water,
                                                                                         Landscapes & Marine
                                                                                                                                                       DOI Goals
                                                                                              Resources
                                                                                          $183,962,479 (46%)


                                                                               DOI 1 Wetland, Riparian and Upland Areas:
                                                                                  % of acres or stream/shoreline miles
                                                                                  achieving desired conditions where                                DOI End Outcome
                                                                                condition is known and as specified in                              Measures & Costs
                                                                                          management plans
                                                                                          $144,905,593 (79%)


                                                                                   OP 1A restore/enhance X acres of
                                                                                  wetlands, Y acres of uplands, and Z
                                                                                                                                                     FWS Ops Goals
                                                                                    riparian stream/shoreline miles
                                                                                           $32,269,529 (22%)



                                                                                                                        CSF 1.3 Riparian stream/
                                                       CSF 1.1 Wetland acres            CSF 1.2 Uplands acres                                            Critical
                                                                                                                        shoreline miles restored/
                                                              restored                         restored                                                 Success
                                                                                                                                enhanced
                                                         $7,481,229 (23%)                 $20,156,303 (63%)                                             Factors
                                                                                                                           $4,631,997 (14%)



                                                                                            Activities                                                 Activities
                                                                                           $32,269,529
                                                                                                         25
Performance budgeting approach:
Step 1 -- Set priorities using Operational Goals
Directorate Homework                           Sample Data
                                                      Directorate
                                                       Average
                                       -$50M Target
       Bank Account




  OP 1A – Restore/Enhance
Wetlands, Uplands, and Riparian

   OP 1B – Manage/Protect
Wetlands, Uplands, and Riparian

  OP 4 – Contaminated Sites
  Remediated on FWS Lands




                                  26
Performance budgeting approach:
Step 2 -- Determine Best Investment for Maximum
Results                                    Sample Data




                                                         n/a

                                                         n/a
    $107/acre




    $48/acre




            Avg. 2 to 1 dollar match, more performance
            for the same Federal Dollars

                                               27
Performance budgeting approach:
Step 3 -- View FY08 Results by Performance Goal
                                                Sample Data

                         60,000 acre increase
                          in Performance, no
                           change in Federal
                                 dollars




                          28
Performance budgeting approach:
Step 4 -- View Results by Budget Activity & Subactivity
                                                      Sample Data




                                   budget structure
             Output of exercise by 29
Key learning points from the FWS implementation



• Align individual program plans to overarching Bureau goals
  and measures
• Measure key performance metrics
   – Allow alignment/structure to guide what matters
   – Assess usefulness of current measures
   – Include financial component in measurements
• Don’t just capture performance information, use it
   – Link to budgeting, individual performance plans
• Look below measures to gauge effectiveness of program
  delivery

                               30
Questions or comments?

				
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