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FreeBalance®                Public Financial Management                       Good PracticesPFM Domain          GRP IMPLEM...
what is the need for      The quality of public financial management (PFM) systems is a key determinantPFM and GRP       ...
what is the           In the book, Discipline of Market Leaders, authors Michael Treacy and Fredappropriate            Wi...
what is customer-   There are many implications for software and technology manufacturers that wishcentric product     to ...
The PFM Component Map was developed for the design of the FreeBalance Accountability Suite.        What are some relevant ...
Budget                                 Private Sector                               Public Sector                       Si...
Financials                          Private Sector                                   Public Sector                     Fin...
Companies that operate in multiple            Governments must operate with                       countries have bank acco...
Can be informal or formal. Focus in on        Highly formal. Different purchasing                   “spend management.    ...
how does the           The traditional approach to GRP implementation using third-party systemstechnology supply       in...
how does a               Holistic process to integrate product development directly with support and“solution” focus     ...
what typical            Organization structure: eliminate barriers between support, services andindustry processes       ...
what are good         Conclusionspractices for         1. Adjust organizational structure and processes to address key GRP...
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Good Practices in Government Resource Planning Vendor Specialization

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Describes the characteristics necessary for vendors who specialize in public financial management and government resources planning (GRP)

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Good Practices in Government Resource Planning Vendor Specialization

  1. 1. FreeBalance® Public Financial Management Good PracticesPFM Domain GRP IMPLEMENTATION & SUSTAINABILITYGood Practice EFFECTIVE GRP SPECIALIZATIONApplicable ALL GOVERNMENTS, ALL LEVELS OF GOVERNMENT
  2. 2. what is the need for  The quality of public financial management (PFM) systems is a key determinantPFM and GRP of government effectiveness. The capacity to direct, manage and track publicspecialist spending allows governments to pursue their national objectives and accountorganizations? for the use of public resources and donor funds.  Governments are increasingly adopting Commercial-Off-the-Shelf (COTS) software to replace legacy and custom developed software applications for financial, budget, expenditure, tax, treasury and civil service management.  Government organizations can chose to acquire Enterprise Resource Planning (ERP) software from large software firms whose software is used in multiple “vertical” markets or Government Resource Planning (GRP) software designed exclusively for governments.  Research shows that there is significant risk of cost overruns, late delivery, poor Total Cost of Ownership (TCO), payment problems and failure to meet objectives in COTS software for PFM.  There is a need for organizations that provide PFM products and services to help governments overcome risk factors. 2FreeBalance®
  3. 3. what is the  In the book, Discipline of Market Leaders, authors Michael Treacy and Fredappropriate Wiersema suggest that successful businesses adopt “operational leadership”“business model” “product leadership” or “customer intimacy.” Treacy and Wiersema suggest thatfor GRP success? market leaders can only focus on one of these areas to become a market leader. Customer intimacy is defined as “selling the customer a total solution, not just a product or service.”  In the book, Blue Ocean Strategy, authors W. Chan Kim and Renée Mauborgne suggest that businesses should find new strategies that make competitors irrelevant. Traditional business methods should be questioned.  The emergence of the “social enterprise” model, in the global context, is an opportunity for businesses to create a sustainable business model.  The increase in open source infrastructure, global connectivity, social media, VoIP and mobile is an opportunity for organizations to rethink traditional business models.  The traditional business model for technology manufacturers is “product leadership” while many service providers focus on “operational leadership” or “customer intimacy.” The traditional technology supply chain creates incentives that add risk to GRP implementations.  A customer intimate and social enterprise approach that avoids the traditional supply chain can make competitors irrelevant. A “solution” focus enables organizations to rethink the business environment by tailoring products and services to meet customer needs. 3FreeBalance®
  4. 4. what is customer- There are many implications for software and technology manufacturers that wishcentric product to become customer intimate.development?  Product complexity needs to be reduced to make implementations more sustainable. That’s because rarely can you find a technical assistance related document that does not refer to the need for capacity building in developing countries and the retirement of the baby boom generation in more developed countries. Software designed for GRP needs to be intuitive and designed for PFM. The systems administration burden to manage change and troubleshoot should be reduced. Methods to reduce errors and help users should be added.  The GRP sustainability challenges, particularly in developing countries, necessitate different product designs. Connectivity is limited so large bandwidth computer applications do not translate well to the developing nation context. Access to electricity is also a serious problem, so there is a focus on low power solutions to make ICT sustainable. The environmental impact to generate electricity exacerbates climate change in fragile ecosystems. Inefficient software design draws hardware resources, power and bandwidth. This is known as software bloat: wasting power in smart phones to Enterprise Resource Planning (ERP) software. It’s also comes from squeezing more unneeded features into software.  The need to support Green IT is a consideration in more developed countries.  Customer engagement for product enhancement is critical. Software companies hoping to compete against traditional vendors must enable customers to adapt product roadmaps and release functionality when it is convenient to customers.what does software  Most application software manufacturers sell the benefits of underlyingarchitecture have to technology. That technology is often “legacy” or designed for differentdo with GRP? industries. Any software architecture design requires compromise. The software infrastructure designed for the private sector may not meet the “non functional” requirements for PFM.  Critical non-functional requirements for GRP include adaptability because governments change configurations to suit reform changes, optimal technical footprint and usability.  GRP software should also be designed to support functional needs. Modern software design includes techniques to articulate the general scope of a domain like PFM.  Functional and non-functional software design provides software manufacturers and government customers with potential to meet future needs, known as “extensibility.” 4FreeBalance®
  5. 5. The PFM Component Map was developed for the design of the FreeBalance Accountability Suite. What are some relevant differences between public and private sector “enterprise software”?General Private Sector Public Sector Customization is almost always required Customization needed for private sector by software designed to apply to many software in government. Core financialImplementation markets. functions are similar among governments and government tiers so can be configured in GRP. Focus in creating efficient and effective Many business process changes require relatively static “end state” including legal reform. Reform and modernizationModernization business process re-engineering. Limited on-going requiring frequent software changes in systems expected. changes. Private sector tends to have highly-trained Public sector in developing countries tends knowledge workers. Learning to set-up, to have fewer PFM and ITC experts.Capacity manage and use complex software Developed countries see effect of baby considered “the cost of doing business”. boom retirement on institutional capacity. 5FreeBalance®
  6. 6. Budget Private Sector Public Sector Simple COA except for very large Complex COA. Typically includesChart of Accounts companies. Typically includes object code, program, project, performance, object, cost centre, organization segments. responsibility, organization and more. Budget is a guideline for business. Budget Budget is the legal embodiment ofBudget control mechanisms in most businesses are government plans and policy. Formal loose and flexible budget control mechanisms. Concept is not usually relevant. Authorization for government unit toAppropriation spend. Typically budgets one year in advance. Typically budgets multiple years –Budget window medium term. Performance outcomes are indicators that Performance outcomes are the bottom the company believes that improves line. Multiple measurements are needed bottom line: profitability. Tends to be a because there is no “bottom line” like simple relationship between indicators and profit. All input information is financialPerformance profit. Multiple data sources where related to budget and all output and performance management stand-alone outcome information needs to be directly software often used. tied to the GRP system. Performance management software is integrated with budget management. Financial indicators linked to financial All performance indicators need to be in indicators. Non-financial indicators are the COA because all financial and non-Performance Linkage often not linked to financial indicators. financial indicators need to be linked to financial outputs. Outcomes are mostly achieved within a Outcomes are mostly achieved inOutcomes fiscal year. multiple years. Use of medium-term frameworks for multiple year planning. Relatively simple. Highly sophisticated with period controls,Budget Complexity multi-tiered and budget variance analysis. Relatively simple. In-year modifications to Complex governance structures. MaterialBudget Modifications the budget rare. Profit and opportunity changes to budget during year oftenduring Fiscal Year justifies spending regardless of budget. requires legislative act. Relatively simple, often accomplished on It can be very complex with differentBudget Preparation spreadsheets. levels or approvals, laws and restrictions. Relatively simple approval processes. Conditions can be restrictive withBudget Allocation complex approval and tolerance rules. 6FreeBalance®
  7. 7. Financials Private Sector Public Sector Financial, Managerial, Cost and Tax. Commitment, Managerial, Financial andAccounting Types Cost. Little notion of “budget execution” in Budget execution and accountingBudget Execution private sector financial management. functions fully integrated in GRP.Emphasis Assess profitability and shareholder value. Assess accountability and stewardship. Rarely any notion of multi-fund accounting. Multi-fund accounting where each fundFunds can have unique rules and controls. Special projects are typically completed in a Special projects last more than a yearProjects year. requiring multiple year commitments. Commitments and obligations do not hit Commitments and obligations are critical the General Ledger, so are not critical. to managing the budget of the Managers approve expenditures based on government and determining forecast.Commitments approval workflow. Managers approve requisitions and purchase orders after budget availability is confirmed by GRP system. Keep expenditures below budget. Cut costs Keep expenditures at budget levels.Expenditure and optimize revenue. Spend to generate Spend to achieve expected programManagement additional revenue when applicable. benefits. Never over spend. Budgets do not affect the General Ledger General Ledger needs to be synchronizedGL Synchronization (above the line vs. below the line). with budgets and commitments to ensure data integrity. Subledgers can be posted to GL at the end Sub-ledgers need to be postedGL Posting of fiscal periods – typically end of the immediately to the GL to show budget month. variance. Managerial (approval), cash management. Budget, appropriation, commitment, Segregation of duties. managerial and cash management.Controls Segregation of duties. Often use “responsibility centre”. Different controls depending on purchasing vehicle. Controls based on organizational structure. GRP supports multiple controls for annual budget, warrants and cash management.Control Detail Controls range from line item to aggregate controls. Support of General Ledger, Accounts Support of General Ledger, AccountsLedgers Payable, Accounts Receivable and Payroll Payable, Accounts Receivable and Payroll sub-ledgers. sub-ledgers. 7FreeBalance®
  8. 8. Companies that operate in multiple Governments must operate with countries have bank accounts in different reporting currency because of country currencies and treat cost centres based on laws and IPSAS rules. Governments canMultiple currencies the currency. operate with foreign currencies, but this must all be converted to the national currency. Balance sheet, profit and loss statement, Balance sheet, income statement, cash cash flow, changes in working capital. IFRS flow. IPSAS and GFS standards dominateStatutory Reports and GAAP dominate. XBRL under increased in developing countries. IFRS adoption in usage. many developed countries. Transparency is provided to shareholders. All citizens are shareholders. Typical Publically held companies provide reports requirement to publish government based on securities laws. Company intentions in detail, such as budget book,Transparency intentions kept private except for tactical and to report full results. Includes need reasons. Corporate governance gaining to report on economic activity. visibility. Transparency and accountability are major themes in government. Must be accrual. Can be cash, modified cash, modifiedAccounting Methods accrual or accrual.Special accounting Goodwill, revenue recognition. Recognizing parastatal organizations andconcepts Public Private Partnerships Focus on profitability enables overspending Cannot overspend budget except withOperational to increase revenue. Cutting back on special circumstances. Budget changesManagement expenditures results from changes in occur because of economic conditions. economic conditions. Focused on maximum return. Governments have broad objectives.Capital Expenditures Maximizing return is often not the primary reason for capital expenditures. Complex asset management, complex tax Generally simple with depreciationAsset and Liability rules on depreciation, write-off. functions. However, contingent liabilitiesManagement are much more difficult to characterize with any degree of certainty. Complex sales processes – discounts, price Simple sales processes, highlyRevenue discrimination, volume purchasing etc. complicated taxation calculations and processes. Requirement for project accounting for Requirement for project accounting forProject Management some private sector organizations. some public sector organizations. 8FreeBalance®
  9. 9. Can be informal or formal. Focus in on Highly formal. Different purchasing “spend management. vehicles and methods. Complex procurement processes. WTO and EU rules require publicizing tenders. SpendProcurement management is one objective. Some government procurement is aimed at economic development such as promoting local small businesses. External audit typical. Need for financial Internal audit, usually through a Supreme compliance (i.e. SOX). Audit Institution. Also external audit by IFIs. Additional legislative auditAudit requirements: travel expenses, civil service salaries, citizen reporting. New focus on performance audits. Largest companies have foundations, but Governments provide grants, grant management software rarely used. contributions and loans. Multiple types ofGrant Management grants from simple eligibility to highly complex. Also complex post-award administrative functions.Civil Service Private Sector Public Sector Simple to complex human resource Complex human resource management management requirements depending on requirements. Many salary scales. company. Budget forecasts not required in Complex workforce management. BudgetHuman Resources HR software. forecasts required. Requires budget tracking and variance forecasting to prevent over-spending. Only large companies have complex Complex payroll across many salary payrolls. Electronic Funds Transfer (EFT) and scales and rules. Complex paymentPayroll cheques used. methods in many countries including pay masters, debit cards, cheques, EFT and vouchers.HR Benefits Health, dental, pensions, bonuses. Health, dental, pensions, loans, bonuses. Different methods used. Recruitment highly regulated. Need for transparency to ensure meeting complexRecruitment civil service rules. Must ensure recruitment of disadvantaged groups. 9FreeBalance®
  10. 10. how does the  The traditional approach to GRP implementation using third-party systemstechnology supply integration firms with little or no involvement of the software manufacturerchain impact increases implementation risk in developing countries.reform?  Some systems integration firms find incentives to increase costs and reduce financial sustainability. Some software manufacturers form part of “devil’s triangle”  Standard project management techniques have not overcome difficulties in implementing software in developing or developed countries. GRP implementations require more concentration on capacity, communications and change management.  GRP solutions that rely on code customization add complexity and cost. This complexity reduces momentum to the point where technology inhibits rather than enables government transformation.  Software manufacturers who hope to achieve success in GRP must have appropriate governance mechanisms whereby governments drive product enhancements.  Holistic methods can provide reform roadmaps based on the country context. Lessons learned can be used to improve GRP products. 10FreeBalance®
  11. 11. how does a  Holistic process to integrate product development directly with support and“solution” focus implementation enables customer-centric product development with a solutionchange the services rather than product focus. Systems integration firms are engaged to ensureapproach for sustainable reform.software  Customer support must be enabled as a key company distinctive competence.manufacturers? This means more than an empowered customer support organization – it means action to bring experts from all parts of the company to solve problems. It also means a linkage to product implementation to address problems before they start and end the “hand-off” culture of most companies.  Implementation Services need to be directly aligned to product and support. Customer needs must smoothly, without friction, pass into the product development organization. And, professional services processes need to adapt beyond simple Project Management 101 and product expertise to provide holistic solutions. This is a critical factor because many companies, when faced with a customer problem or opportunity, drop the ball because they think it’s outside their business. Customer-facing staff must advocate product and process changes to satisfy customer needs. 11FreeBalance®
  12. 12. what typical  Organization structure: eliminate barriers between support, services andindustry processes product development groupscan be improved?  Marketing: focus on understanding the GRP domain to develop unique tools to align with government needs and engage with the PFM community at conferences  Implementation: software vendors should take part in implementations to reduce customer risk while using lessons learned to improve product suites  Partnerships: Selecting partners based on government experience, skills and commitment to sustainability  Customer engagement: leverage customer steering committees with strong governance structures rather than user groups  Troubleshooting: escalate critical problems to company executives and cross functional SWAT teams  Performance Management: build company performance structure aligned to customer satisfaction and engagement with customer-centric development, the improvement of internal PFM knowledge and sharing of lessons learned with the PFM community 12FreeBalance®
  13. 13. what are good Conclusionspractices for 1. Adjust organizational structure and processes to address key GRP success factorsspecializing in GRP such as usability, capacity building and adaptability.and PFM? 2. Adopt a customer-intimate, social enterprise strategy and question typical technology practices. 3. Implement methods to ensure that products and processes are aligned with customer needs. 4. Build technology to suit government needs rather than use generic design. 5. Seek partners who add value and are focused on sustainability. 6. Create an internal performance culture aligned with customer needs. There are very few “best practices” but many “good practices” in Public Financial Management. FreeBalance, a global provider of Government Resource Planning (GRP) software and services shares good practices from experience with developed and developing country governments around the world. www.freebalance.com 13FreeBalance®

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