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Budget reductions and accountability final


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Do budget cuts drive accountability and force decision makers to make better and more efficient budgetary decisions? This question is not only an issue for state and local governments, but of corporations as well. In many companies, there is downward pressure to reduce information technology (IT) spending, even slashing budgets in order to “get things under control.” There were big IT layoffs at Boeing in 2010, yet IT organizations are still expected to perform at pre-2010 levels. Based upon current literature and examples from the Boeing company and the City of Bellevue, the outstanding characteristic is that the more proactive a management team is to develop good governance processes, the quicker it can respond with better decisions when budget cuts do occur. This paper will address the needs and benefits of good governance, as well as the leadership required to be proactive in order to realize the benefits of a solid governance framework.

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Budget reductions and accountability final

  1. 1. Tim WashingtonMarch 21st, 2011MNGT 596 “Budget Reductions and Decision Making Accountability”Introduction In the 2010 elections, Washington state voters faced several initiatives aimed atraising taxes to close the gap in the budget shortfall. The taxes were needed to continuesupporting “important” programs and vital public necessities. Nevertheless, the commonbacklash to these initiatives was a demand for more fiscal responsibility. The tax initiativeswere rejected by the voters, thus sending a powerful message to the state and localgovernments to a do a better job with the limited budget available. As the Seattle Timeswas covering articles on the tax initiatives, it was not uncommon for hundreds ofcomments to be posted on their website. Repeating themes emerged such as: “[the government] cannot spend the revenue they already get in a responsible manner….Learn to spend responsibly….” (Gilmore) “It is time that the State Government started living with the tough choices we are all making and ask ‘What do we cut next?’ instead of ‘What do we tax next?’” (Gilmore) “Its not taxation which is the problem, its wasteful spending. Face the real issue = CUT SPENDING” (Garber, “Businesses Divided”) “The answer is not more money, it is better priorities and better efficiency” (Garber, “I-1098”) The question then is, do budget cuts drive accountability and force decision makers tomake better and more efficient budgetary decisions? This question is not only an issue forstate and local governments, but of corporations as well. In many companies, there isdownward pressure to reduce information technology (IT) spending, even slashingbudgets in order to “get things under control.” There were big IT layoffs at Boeing in 2010,yet IT organizations are still expected to perform at pre-2010 levels. Based upon currentliterature and examples from the Boeing company and the City of Bellevue, theoutstanding characteristic is that the more proactive a management team is to developgood governance processes, the quicker it can respond with better decisions when budgetcuts do occur. This paper will address the needs and benefits of good governance, as wellas the leadership required to be proactive in order to realize the benefits of a solidgovernance framework.
  2. 2. Budget Reductions and Decision Making AccountabilityPart 1: Governance Research The core issue that this paper aims to resolve is how corporate and local governancecan meet the greatest number of needs for their stakeholders in both the short-term andlong-term in the face of an economic downturn and resulting budget cuts. “Good”decisions can be defined as decisions that maximize value in both the short-term andlong-term. The allocation of funds through a budgeting process is a key mechanism formeeting these needs. “The budget process needs to represent not only the interests andneeds of the moment, but also those of the future. If the needs of today’s taxpayers arenot properly balanced with those of tomorrow’s, future generations may suffer a loss inliving standards and may have to contend with a severe economic crisis” (FiscalStewardship). As this quote points out, if the short-term and long-term needs are notbalanced, citizens may suffer a loss in living standards in the future. By extension, thesame holds true for corporations; without balance, companies may see lower profits in thefuture or even bankruptcy. When budget cuts occur, what is at stake therefore, is thequality of life for local citizens and the existence, growth, and profitability of corporations.In order to ensure that ‘good’ decisions are made that protect the quality of life for citizensand the profitability and growth of corporations, accountability mechanisms need to be putin place. The concept of accountability has numerous facets (Tippett). According to theCommittee on the Fiscal Future of the United States, the governance framework isnecessary to hold leaders accountable for meeting targets (Fiscal Stewardship).“Broadbent and Laughlin argue that there are two aspects of accountability: publicaccountability, that involves the public as principals and is concerned with issues ofdemocracy and trust; and managerial accountability, that is concerned with day-to-dayoperations of the organization” (Tippett). Accountability may also be synonymous with fairand equitable processes as well as transparency. “‘Accountability’ and ‘accountable’ havestrong positive connotations; they hold promises of fair and equitable governance. Itcomes close to ‘responsiveness’ and ‘a sense of responsibility’, a willingness to act in atransparent, fair, and equitable way. Koppell distinguishes no less than five differentdimensions of accountability—transparency, liability, controllability, responsibility, andresponsiveness” (Bovens). Moreover, “it will no longer be sufficient for public officials andlocal governments to demonstrate efficiency (doing more with less) and sound businessprinciples (MBO, TQM, and High Performance). They must go further to demonstrate theiraccountability for the appropriate, proper and intended use of resources” (Gibson). In Page 2 of 25
  3. 3. Budget Reductions and Decision Making Accountabilityaddition, it is good leadership that drives accountability, according to Jeff Jager of Point BInc. True leaders hold decision makers accountable for their decisions. These quoteshighlight three components of accountability and are shown in figure 1: 1. Governance as the framework which enables accountability 2. A common purpose and shared vision with strategic goals to demonstrate accountability 3. Leadership to drive accountabilityFigure 1 Leadership to Drive Accountability Governance as A Common Purpose and Shared Vision the Framework With Strategic Goals Which Enables to Demonstrate Accountability Accountability For the remainder of the first section of the paper we will explore these three aspectsof accountability as it relates to the budgetary process.Governance as the Framework According to Peter Weill and Jeanne Ross, experts in information technologygovernance, governance can be defined as “specifying the decision rights andaccountability framework to encourage desirable behavior…” (Weill 2). Clearly, this refersto the people making decisions, a process for making decisions, and accountability to helpensure that good decisions are made. The importance of governance cannot beoverstated. According to Howard A. Rubin, a former executive vice president at the MetaGroup, “a good governance structure is central to making [the investment process] work.”These quotes highlight the need for a well defined and properly structured governance inorder to manage the investment process. According to Gil Makleff, the six pillars ofgovernance include: Page 3 of 25
  4. 4. Budget Reductions and Decision Making Accountability  Timing: when are decisions made? Annually, quarterly, just in time, over multiple years?  Decision Style: how is consensus achieved: in groups, by voting, or through a dictatorship?  Organizational level: who is involved in the decisions? A board, a multi-functional steering committee, a project management office?  Thresholds: what are thresholds defined by? Budgets? FTEs? Cross business unit projects?  Decision Criteria: what other criteria affect decision making? Financial impact, strategic impact, risk levels, architectural fit?  Decisions: how do projects originate and get prioritized? How do they get funded? Who tracks their implementation? These six pillars form a framework that provides a critical accountability mechanismthrough which fair and equitable investment decisions can be made. It is important forcorporations and city governments to include these elements into the governanceprocess. By getting agreement on governance processes amongst decision makers, thegoverning body can utilize the framework above in a more harmonious and successfulmanner. “Those [organizations] with effective governance have actively designed a set ofIT governance mechanisms (committees, budgeting processes, approvals, and so on) thatencourage behavior consistent with the organization’s mission, strategy, values, norms,and culture” (Weill 2). One of the key words in this sentence is ‘actively designed’.Successful organizations actively design their governance processes to align with theirvision, mission, strategy, and culture. By extension, those organizations that haphazardlydesign their governance processes may struggle and even fail to make good investmentdecisions. Weill also argues that “IT governance is the most important factor in generatingbusiness value from IT” (Weill vii). Moreover, “Effective IT governance is the single mostimportant predictor of the value an organization generates from IT” (Weill 4). This is apowerful statement. While this paper has a broader focus than just IT, the point is wellmade that governance not only makes a significant contribution to a company, but evenmore, is the single most important predictor of the value that can be generated by variousdepartments. With such a framework, budgetary decisions can be made in a fair and equitablemanner. These budgetary decisions are really investment decisions—where to spend,how much to spend, and when to spend. Collectively, we can view these investmentdecisions as a portfolio of investments. The concept of portfolio management (whetherfinancial portfolios or project portfolios) becomes very important when balancing long-termand short-term needs. According to K.C. Yelin, “an enterprise portfolio management Page 4 of 25
  5. 5. Budget Reductions and Decision Making Accountabilityframework can provide structure, context, and information enabling executive participationand appropriate decision making” (Levine 227). Therefore, investment decisions are reallyjust the output of a decision making process. The ‘portfolio management framework’ is acritical component for making better decisions in the short-term and long-term and directlyties in the concepts of governance and accountability; “portfolio management withoutgovernance is an empty concept” (Datz).A Common Purpose and Shared Vision With Strategic Goals to DemonstrateAccountability Not only does a governance framework need to be put in place, accountability needsto be demonstrated to stakeholders as well. Again, “…[public officials and localgovernments] must go further to demonstrate their accountability for the appropriate,proper and intended use of resources” (Gibson). Efficient use of resources is necessarybut no longer sufficient—leaders must demonstrate accountability to their stakeholders byproving that limited resources are being allocated to the highest priorities goals andprojects. This points to the need for a common purpose, a shared vision with agreed uponstrategic goals. “Accountability, in turn, requires a shared framework for the interpretationof basic values, one that must be developed jointly by bureaucrats and citizens in real-world situations” (ibid). The interpretation of basic values starts with understanding thepurpose of the organization (ideation). In the book Executing Your Strategy: How to Break Things Down and Get ThingsDone, Mark Morgan highlights that “the most effective individuals and corporations arethose that take great pains to understand and cultivate a sense of identity, purpose, andlong-range intention” (p. 28). He continues by making the statement that “clarifyingidentity, purpose, and intention is the critical first step toward doing the right things” (p.30). According to “The Aligned Enterprise: Orchestrating the Next Level of Performance”,published by IP Solutions through a joint effort with Stanford University and adapted fromExecuting Your Strategy, “ideation provides a context for people to perform within. Withthis context, people can make decisions that affect the overall enterprise in supportiveways”. Therefore, understanding the purpose of the organization is required in order tomake good decisions that support its overall purpose. In addition to a common purpose, every successful organization needs a shared visionwith strategic goals in order to make the right decisions. “Vision comprises strategy,metrics, and goals. After all, if your goals are unclear, it doesn’t really matter how you getthere. Although this management concept is far from new, companies still suffer from a Page 5 of 25
  6. 6. Budget Reductions and Decision Making Accountabilitylack of clarity about their paths (strategy), the goals the paths are supposed to lead to,and the metrics that measure success” (The Aligned Enterprise). The Organization forEconomic Cooperation and Development (OECD) released a publication in 2004 entitled“OECD Principles of Corporate Governance”. In this paper, the organization highlights thatcorporate governance “provides the structure through which the objectives of thecompany are set, and the means of attaining those objectives and monitoringperformance are determined”. The concern then is that if organizational goals are ill-defined and there is no pronounced strategic direction, then by default, any decision isacceptable because there is no defined end goal to arrive at. Understanding andcommunicating organizational goals is another crucial step for making good investmentdecisions. “Enterprises with clarity and focus generally produce better results in anyendeavor” (Weill 27). Organizations therefore need to be proactive in developing long-term strategic plans and criteria for defining good investments so that “good” decisionscan be aligned to the goals and strategies of the organization. Our working definition of a ‘good’ decision includes maximizing value in the long-run;this necessitates having strategic goals and a vision of what the future state of theorganization looks like. Having strategic goals implies that the organization needs to makeimprovements or invest in certain areas in order to create a better future which we couldcall the “future state”. Understanding the future state enables a governance team to createa strategic roadmap which helps the organization understand what it needs to do to reachthe destination of the roadmap. Without proactively developing a plan and knowing whatthe future state looks like, the organization could perpetually operate in a reactive mode.Therefore, these strategic goals and plans become the measures by which leadersdemonstrate accountability for the appropriate, proper and intended use of resources.Funding decisions should be made based upon the strategic goals and plans.Leadership to Drive Accountability Leadership is a critical component that brings the governance framework and thevision and goals of the organization together. Good leaders will develop the right goalsand strategies for the organization. At the same time, good leaders will also develop thenecessary governance infrastructure to make good decisions that will drive the executionof the strategy they have put in place. More over, good leaders will hold managementaccountable for following the governance process and will take ownership for achieving Page 6 of 25
  7. 7. Budget Reductions and Decision Making Accountabilitythe organizational goals. In sum, leadership drives accountability. We will look at thesepoints in more detail below.Leadership and Governance Governance and leadership work together mutually. “Fiscal targets and goals are notself-enforcing. Rather, a framework is necessary to hold leaders accountable for meetingtargets” (Fiscal Stewardship). This quote strengthens the need for a strong governanceframework and points out that leaders need to be held accountable for generating greatervalue in the short-term and long-term. However, accountability is not limited to thegovernance framework. One World Trust, an international think tank that advocatesdecision-making and governance reform, uses the following definition of accountability: First and foremost accountability is about engaging with, and being responsive to, stakeholders; taking into consideration their needs and views in decision-making and providing an explanation as to why they were or were not taken on board. In this way, accountability is less a mechanism of control and more a process for learning. Being accountable is about being open with stakeholders, engaging with them in an ongoing dialogue and learning from the interaction. Accountability can generate ownership of decisions and projects and enhance the sustainability of activities. Ultimately it provides a pathway to better performance.These attributes are really pointing to better leadership as a means for drivingaccountability since good leaders will engage with and respond to stakeholders in an openmanner. According to Peter Weill, leaders should be engaged in actively designinggovernance mechanisms (Weill 2). Governance should not be a delegated activity, butrequires active participation in order to make it successful. Good leaders then will adoptand drive governance processes which in turn hold decision makers accountable fordeveloping good solutions and finalizing good budgets. Proactive leadership is also essential in institutionalizing and living the governanceframework. Governance processes are significantly undermined by leaders who say onething and do another. “The transition to living the framework requires powerful leadershipand discipline” (Levine 227). If management is not held accountable to followinggovernance processes, the entire governance framework falls apart. “It’s not enough for aleader to do things right; he must do the right thing” (Bennis). Leaders must be careful tomaintain credibility among their employees by living the values of the governanceprocesses that have been put in place, otherwise company morale can suffer. Likewise,by following through with governance processes to achieve strategic goals, leaders Page 7 of 25
  8. 8. Budget Reductions and Decision Making Accountabilitydemonstrate accountability and further strengthen the institutionalization of governancethroughout the entire company. In addition, Peter Weill in IT Governance lists seven success factors for ITgovernance, the first three of which directly relate to leadership. Firstly, “the mostimportant predictor of top governance performance was the percentage of managers inleadership positions who could accurately describe their enterprise’s IT governance” (p.124). Leaders and managers at all levels of an organization need to know how thegovernance processes work—if decision makers don’t understand it, it will not be used orused ineffectively. The second factor related to leadership’s engagement with theorganization around governance processes. Often this took the form of variouscommunications with managers and employees. The third factor was direct involvement ofsenior management in the governance process. There was a direct correlation betweeninvolvement and governance performance. As obvious as this sounds, being directlyinvolved with governance processes sends a strong message to the rest of theorganization.Leadership and Vision Leadership is also integral to driving successful strategic execution. Leaders must notonly help develop the organization vision, strategy, and goals, but must also engageemployees to understand the vision and work toward the goals. “Successful strategicsystem implementations demand business leaders with the vision to define and implementthe change” (Weill 41). In a recent New York Times article titled “Google’s Quest to Builda Better Boss”, one of the habits of effective Google managers that Google discoveredwas to “have a clear vision and strategy for the team” (Bryant). Even though this samefinding has been published numerous times before, the point is further strengthenedthrough Google’s extensive analytical research on its own managers. According to Warren Bennis, leaders need to think strategically by understanding thefinal goal, evaluate possible routes, determine the best route to get there, and then “climbthe mountain” (Bennis). In doing so, these leaders become responsible and accountablefor bringing their organization from point A to point B. The way they accomplish it includesdeveloping and sharing the organizational vision. Ron Woodbury, a CIO for Altura CreditUnion, elaborates on this point in his discussion on leading a team across a bridgeblindfolded. One of his fundamental leadership take-aways from the experience was to“spend a little more time up front to ensure everyone is informed and understands thevision, opportunities, and obstacles—then forge forward as a cohesive team on a path to Page 8 of 25
  9. 9. Budget Reductions and Decision Making Accountabilitysuccess” (Woodbury 70). Finally, “a real essential for effective leadership is that you can’tforce people to do very much. They have to want to, and most times I think they want to ifthey respect the individual who is out front, if they have confidence that the person hassome sort of vision for the company” (Don Ritchey, quoted by Bennis). Good leaders whoearn the respect of their people will be able to lead them to accomplish the strategic goalsof the company.Leadership in the Current Economic Climate In the current economic environment, leadership is also essential for driving positivechange. With both our country and state strapped with enormous debt, good leadership isneeded to guide us out of this difficult economic situation and “political leadership isessential to fiscal reform” (Fiscal Stewardship). As discussed at the beginning of thispaper, the counterargument against raising taxes was focused on responsible spending,reduced spending, and developing better priorities. This requires leaders to make difficultdecisions to establish trade-offs with the current budget. According to Thomas Friedman,a New York Times columnist, leadership in the new era involves the difficult task of takingthings away (reduced spending) to get the fiscal house of the United States in order.Fiscal responsibility includes a clear understanding of what is most important versusthings that are less important, communicating these priorities, and then making trade-offsto reduce spending in less important areas. However, Friedman warns that if our currentleadership does not take this path, the financial market may do it for us in a brutal way,thus lowering the standard of living for the people (Friedman). “The leaders who will deserve praise in this new era are those who develop a hybridpolitics that persuades a majority of voters to cut where we must so we can invest wherewe must” (ibid). Again, this necessitates the development and communication of priorities.Without understanding priorities, it will be impossible to convey to stakeholders (UScitizens in Friedman’s article) why certain cuts need to be made. However, the focus is notmerely on budget cuts, but rather how to allocate funding to the highest priorities thatsupport the greater good. By inference, Friedman seems to suggest that US priorities arenot well developed or communicated; this is the fault of leaders. The same need applies atthe state and local levels and even within corporations. Friedman further elaborates thatthese issues need to be addressed in a fundamental way, not in a “piecemeal” way, theresult of which is a “lifestyle of just survival” (ibid). Leaders are accountable for developingstrategic goals and priorities, and leaders are equally responsible for executing upon themto ensure a higher quality of life for local citizens as well as the existence, growth, and Page 9 of 25
  10. 10. Budget Reductions and Decision Making Accountabilityprofitability of corporations. “If business leaders do not assume responsibility forconverting [IT capabilities] into value, the risk of failure is high” (Weill 66). In this first section, business and academic literature was surveyed to determine howorganizations could improve fiscal responsibility. As we saw, accountability mechanismsneed to be put in place in order to accomplish this. Moreover, accountability is not asimple topic but can be addressed with three elements: a governance framework thatenables accountability, a common purpose and shared vision with strategic goals todemonstrate accountability, and leadership to drive accountability. The next part of thispaper focuses on two local examples of governance.Part 2: Local Examples Boeing Commercial Airplanes (BCA) Computing Governance is a representative of aprivate corporation, and the City of Bellevue represents a local city government. Bothreveal some of the elements of accountability discussed in the previous section. In thissection we will compare some of the points above with the examples below.Example 1: BCA Computing Governance Boeing Commercial Airplanes (BCA) employs a computing governance board toreview significant information technology (IT) investments and provides funding for ITwork. “The goal of the computing governance is to provide processes, data and tools thatallow BCA to work across organizational boundaries to gather, prioritize and approverequirements for computing investments that result in an optimized portfolio ofinvestments and service level agreements (SLA’s), link to specific BCA strategies,generate the highest value, and are aligned architecturally with the BCA and BoeingEnterprise ‘go forward’ application roadmaps” (BCA Computing Governance Overview).According to the governance board’s charter, this governance board is specificallyresponsible for the following items:  Managing a centralized funding pool for IT expenditures in accordance with affordability targets  Ensuring alignment with the Enterprise IT Business Plan  Making authorization and priority decisions on all BCA investments in information technology  This ensures that IT investments enable BCA business strategies and drive value  This ensures that IT investments support key initiatives that are not on an airplane Program’s critical path  Integrating computing investment requests and prioritize based on the project business case and strategic fit Page 10 of 25
  11. 11. Budget Reductions and Decision Making Accountability  Conducting gated investment reviews to:  Monitor computing investments against cost, schedule and estimated benefits  Ensure benefits for completed projects are booked in the BCA business plan  Validate projects continued alignment with Business Process and Tool Strategy  Collaborating with IT on infrastructure strategies This board has also clearly articulated that governance in the context of computinginvestments refers to a business process that helps ensure proper allocation of ITresources to BCA computing investments projects in order to maximize value to BCA. Inaddition, the governance board also administrates a finance discipline to actually bookbenefits derived from IT investments against formal organizational business plans. Within the BCA computing governance are two boards operating at two differentlevels. At the first level is a Strategic Integrated Design Team (SIDT) that comprises BCArepresentatives from the various Business Units, functions (e.g. engineering, suppliermanagement, manufacturing), and IT lower level managers and could be considered thefirst “line of defense” against misaligned projects. The SIDT reviews all project requestsand prioritizes work based on the value derived from the business case as well asstrategic alignment. When project costs exceed a certain budgetary threshold, the SIDTprepares a recommendation and escalates the project investment to the ComputingManagement Board (CMB). The CMB comprises executive level management from IT andBCA; they are responsible for authorizing the work and ensuring that the proposed valuegets realized and captured in a business plan. The computing investment process includes a series of gate reviews, whereby aproject team must comply with and fulfill all necessary requirements before moving on tothe next phase. Each phase includes a finance review with a Finance focal to first reviewthe costs and benefits to ensure that the numbers are sound and secondly to calculate anupdated return on investment (ROI) and net present value (NPV). Due to the complexity ofBoeing IT, an architecture review is also included to make sure that nothing is out ofalignment with current IT architecture standards. Finally, a business plan review isconducted to ensure that benefits are captured in a long-term business plan. The fourprimary phases are as follows: 1) Opportunity Evaluation (OE) to develop a formal proposal and calculate benefits Page 11 of 25
  12. 12. Budget Reductions and Decision Making Accountability 2) Preliminary Analysis to define the technical requirements 3) Architecture to “define the framework” 4) Design, Construct, and Implement which represents the bulk of the project to build, test, train, and deliver the final IT solution. The computing governance process described above is a strong framework forallocating hundreds of millions of dollars of IT spending across BCA each year. Two of itsbiggest strengths come from including the right level of management in the decisionmaking, and applying consistent financial measurements and incorporating the financialcosts and benefits into organizational business plans. The ensuing accountabilityframework promotes healthy and cost-reducing projects that increase value for BCA. BrettRoberts, a senior manager who oversees the BCA computing governance process, pointsout that having an integrated governance process is part of the infrastructure required todo a good job of evaluating project proposals. “Without governance, deciding what to keepand what to cut becomes a sales job” (Roberts). By instituting better governance, it ispossible to provide greater visibility and clearly show executive management the impactsof potential budget cuts. In other words, the message becomes, “if we make cuts, here’swhat we lose”. This becomes a matter transparency; the transparency of the process.Without good consistent processes, funding decisions will get made based on the bestsales pitch and good decisions will be made inconsistently. “Governance as a foundationenables good choices. Then we can answer other questions such as, ‘what will we lose ifwe don’t do something’. Governance is an enabler for quicker decisions” (ibid). By havingthe governance infrastructure as the foundation, BCA has been able to do a better job offairly and effectively evaluating the value of projects. When asked about budget cuts, Roberts and Jack Medley, another senior managerwho participates in the BCA computing governance process, both agree that budget cutshelp drive accountability and improve decision making to a certain extent due to increasedscrutiny of spending. One example they cited was that recent cuts forced the company tolook at two-sided printing. In the past, printers with good two-sided printing functionalitywere too expensive and too slow to do the job reasonably. However, due to the budgetingpressure, the company recently took another look at it and realized that it was noweconomically feasible and would save significant paper costs in addition to being good forthe environment. Without the cuts, the company would not have made changes to theirprinters. Page 12 of 25
  13. 13. Budget Reductions and Decision Making Accountability The primary concern pointed out by Roberts, is when budget cuts are made that affectthe mission (“cut to the bone”) and reduce essential services and features. The resultingdecisions are not effective and end up creating more harm than good. Based on pastexperience and observations, he also noted that when budget cuts are too severe,organizations will try to game the system and hide information so as not to be severelyimpacted by budget cuts. This shows that not all budget cuts drive positive change, butshould be done with careful consideration to the essential products and services affected.To counteract this problem, he recommends understanding the source of the cuts, whichshould allow for the transparent discussions mentioned above that would help convey thedollar value lost as a result of the cuts. One of the challenges expressed by Robert is changing the mindset of people withinthe company to not focus merely on costs, but also pay attention to value, which mayinclude financial as well as strategic benefits. He believes there is a shared sense of value(i.e. the value proposition) between governance board members, but when times weretough and recent cuts were made, there was very little discussion about the amount ofvalue being left on the table. The finance organization is traditionally focused on cost, butboth Finance and the Computing Management Board (CMB) should aim to get to the pointof consistently communicating value. In this way, rather than accepting the budget cuts atface value, the CMB can communicate back to the executives how much money, in termsof future returns, is foregone (‘left on the table’) as a result of the cuts. “This type ofthinking needs to be driven deeper into the organizations” (ibid). Another challenge highlighted was in the area of strategic planning. Robertscommented that some governance operations are too reactive and that BCA should bemore proactive with understanding the future computing needs because it is tooexpensive to reinvent processes and computing systems for new airplanes. Althoughcriteria does exist for evaluating project proposals and ensuring proper alignment, theCMB has the opportunity to make further improvements in terms of capability processesby developing a forward thinking strategic roadmap. A strategic roadmap would provide avision for where computing funding should be allocated and how it will help drive BCAtoward a preferred future state. Another advantage for having such a roadmap would beto understand impacts and schedule slides to strategic objectives when new projectrequests are made that would divert funds away from strategic items. A comprehensiveroadmap would also help overcome the strong silos that still exist between business units Page 13 of 25
  14. 14. Budget Reductions and Decision Making Accountabilityand functions. By understanding the future needs of each business unit, commoncomputing systems could be developed that meet the needs of multiple business unitsand cost the company less money to operate in the long-run. In contrast, unless thevarious business units communicate their computing needs, multiple overlappingcomputing systems may be developed that cost the company significantly more money inthe future. This highlights the need for comprehensive strategic planning by theComputing Management Board.Example 2: The City of Bellevue The city of Bellevue with its new budgeting process is a great example of proactiveleadership, collaboration, value focus, and governance. Two interviews with City ofBellevue council members, Jennifer Robertson and Claudia Balducci, yielded great insightabout Bellevue’s history and the current work around Bellevue’s new budgeting process.In the past, cities could expect 6% annual property tax increases for budgeting purposes.Later, local initiatives cut that to 2% and then eventually to 1% annually. With the rest ofthe country in a recession, the city saw indicators that the recession would hit theNorthwest and further reduce city revenue. Even with frugal spending and carefuloversight, the council proactively made plans to address the recession by developing anew budgeting process called “Budget One”. After speaking with the two council members, it was very clear that strong leadershipdrove the new budgeting process. Documentation on the city’s website very clearlyoutlined both the need for a new budgeting process and the method for doing so. Themessage was carefully framed to convey that the new budget process would befoundational and would set the future direction of the city. The expectations were alsoclear, “for all of us, this budget process will be one of the most challenging in our city’shistory” (Budget One). Strong communication is a mandatory requirement for facilitating change, and the citywas upfront that the recession affecting the United States and locally in Bellevue wouldresult in a multi-million dollar operating budget deficit for the 2011-2012 Budget. The citywas candid about its capital program by stating, “our long term capital program cannot besustained as planned with the decline in future revenues anticipated by our forecast”(ibid). Moreover, the city faced a broader challenge and communicated it in the followingway: We face a second challenge—the need to refine our business practices to ensure they meet community needs. Our traditional way of developing a Page 14 of 25
  15. 15. Budget Reductions and Decision Making Accountability budget—department by department—must make way for a process that targets spending with specific community needs. “Budget One” is our new budget development process. It embodies the philosophy of our One City effort that stresses teamwork, transparency, collaboration, shared leadership, and broad employee participation in the decision-making processes. It embraces the leadership philosophy that our collective success is larger than any one of us individually. In keeping with our leadership philosophy, Budget One offers us both challenge and opportunity. For this new budget process to work, we must seek innovative ways to cut costs (ibid). This call for broad employee participation exemplifies the leadership component fordeveloping the new budgeting process. The need for change was clear, and the messageabove successfully rallied city participants to develop a brand new budget with a brandnew process. The need for leadership was expanded beyond the city council to includecity employees. Balducci stated that a lot of discussions took place to get the staff onboard. The council recognized that getting people to buy into the process is important, sothe time and energy was spent to make sure the message was communicated. Robertsonexplained that the best of the best employees with the most leadership qualities wereselected to lead the Results Teams and that picking the right leaders made the wholeprocess work smoother. Even though the process was very time consuming, everyonerose to the occasion. She also pointed out that one of the characteristics of a strongleader is the ability to hear other people without bringing too many emotions into theconversation. Being level headed, thinking outside the box, and working well togetherresulted in a fair process for all of the participants (Robertson). Both council members agreed that the latest biannual budget was the best oneproduced to date. Yet, leadership alone did not develop the budget, rather, a welldesigned budgeting process was developed and used that resulted in the best budgetunder the current economic climate. The City Council started by developing their topseven priorities: Safe Community, Improved Mobility, Innovative, Vibrant & CaringCommunity, Quality Neighborhoods, Healthy & Sustainable Environment, EconomicGrowth & Competitiveness, and Responsive Government. Employees were assigned toResults Teams and were asked to wear “citizen hats” to focus their thinking and efforts onwhat residents want from their city government. They were asked to think creatively andcollaborate with others, inside and outside of City Hall, to identify opportunities to find costsavings within current city operations. Balducci said that the process started with afundamentally different question. Instead of asking the traditional question of “what are wegoing to cut?”, the new question was “what are we buying?” It was made clear that thenew budget was a ‘fundamental reset’ and that this new question drove the conversation Page 15 of 25
  16. 16. Budget Reductions and Decision Making Accountabilityaround the value of each proposal, even of services that had been in existence for a longtime. The City of Bellevue wanted to have a clear idea of the costs and benefits of everyitem in the budget. Given the expectations, Balducci said that the number one success factor at thisphase in the process was to educate everyone about what goes on in the citygovernment. Employees had to learn about other areas. She mentioned that it is easy topoint the finger at another group where you have no experience and declare that thebudget cuts should come from that group; but once you understand what otherdepartments do, the challenges they face, and their current priorities, it is easier to cometogether to work on the budget and not point the finger so quickly. This required theResults Teams to operate as cross functional teams in order to understand the needs ofthe various departments. She continued by saying that the process was labor intensivebecause it had to be created for the first time, but wouldn’t be as labor intensive in thefuture. “We had to educate everyone this time about why it is important to deliver thebiggest bang for our tax payers’ buck. People need to know ‘how’ and ‘why’ we spendmoney. There was not much understanding about how our services were provided, butthe budget cuts forced us to better understand our own services. It cost us approximatelyone million dollars in time to develop our billion dollar budget, but it was money well spent,and the returns continue to grow. I would do it again” (Balducci). The Results Team were composed of five to six staff members and assigned to eachoutcome to identify the factors and purchasing strategies that have the most impact inachieving the outcome. Results Teams were asked to wear a “citizen hat” to evaluate theoutcome as a citizen might and not as representatives of their respective departments.This was to ensure that budget priorities are oriented toward what will best provide valueto those who have a stake in the community. Including a variety of positions and levels ofexperience on the Results Teams was consistent with the organizations LeadershipPhilosophy which encourages shared leadership and provides the opportunity to engagemore people in decision making and shape the direction of the organization. The broadparticipation positively impacted the final output. Each Results Team was responsible for developing Requests for Results (RFRs)which helped guide departments in the preparation of their proposals. The Results Teamsused many internal and external sources to create the RFRs including the City’s Missionand Vision, Comprehensive Plan, Community Vision, and internal and industry experts toidentify the types of activities that will best achieve the desired outcome. Such research is Page 16 of 25
  17. 17. Budget Reductions and Decision Making Accountabilitycommendable to help ensure that the city has done due diligence in providing the rightpriorities and factors for accomplishing the priorities. The culmination of this work was acause and effect map for each of the seven priorities, which provides a one pagesummary of each priority, a value statement from the community, detailed criteria (factors)for accomplishing the priorities, and community indicators for tracking the accomplishmentof the particular priority. For each primary factor, detailed purchasing strategies wereprovided to help guide the proposal process and provide focus on those proposals that willadd the most value and contribute most strongly toward the particular priority. An exampleof the ‘Safe Community’ cause and effect map is shown below along with the City’s owndefinitions for the various components of the strategy map (extracted from the BudgetOne process documentation). Cause & Effect Map—A visual representation of the pathway to the result. Usingwords and/or images, it helps viewers understand the cause-effect connection betweenactivities, strategies, factors, and the outcome. Cause and effect maps are included in theRequest for Results (previously called “strategy maps”). Page 17 of 25
  18. 18. Budget Reductions and Decision Making Accountability Community Value Statements—These statements provide broad direction on whatis important to people who live, work, and play in Bellevue. They can be focused on whatis of immediate value, an aspiration, or both. They must relate to the outcome and thatrelationship should be clear. Factors (Primary and Sub)—Factors are part of the cause and effect maps. Theyhelp to understand the cause-effect connections that achieve an outcome. Primary factorsactively contribute to the desired outcome, while sub-factors are secondary actions orprocesses that contribute to a primary factor which in turn contributes to the desiredoutcome. Community Indicator (CI)—A set of performance indicators for each of the City’soutcomes. CIs serve as high level indications that may be affected by change over time.They are high level “barometers” or “yardsticks” of progress. Together they measureprogress toward the City’s outcomes and goals. Purchasing Strategies—A set of actions defined by Results Teams to achieve anoutcome. A strategy is based on an understanding (or assumption) of the cause-effectconnection between specific actions and specific outcomes. When asked about some of the success factors for the city of Bellevue and theirbudgeting process, Robertson responded by saying that Bellevue has a very forwardthinking council and has had visionary leaders who have been good at identifying areas ofgrowth. One example she provided was the updating of the city’s utilities infrastructure.Bellevue recently raised utility rates in order to help cover the costs of the upgrade,knowing that other cities will have to raise rates significantly more in the future thanBellevue. The Council believes that Bellevue will have one of the lowest rates 10-15 yearsfrom now. Another example of forward thinking is related to road repair. Even though thecity gets criticized for ‘gold plating’ their projects, the council believes that the long-termcosts of maintaining roads are greater if repairs are delayed until after the streets havealready cracked. For this reason, Bellevue takes better care of their roads by repavingmore often (Robertson). These are also examples of proactive leadership.Part 3: Analysis and Take-aways After surveying current literature on governance, accountability, and leadership, andreviewing governance processes at the Boeing company and the City of Bellevue, thereare several key take-aways. Page 18 of 25
  19. 19. Budget Reductions and Decision Making Accountability First, the foremost point from this research is the need to be proactive in developingthe governance framework, a shared vision, and strategic goals. These items are theresult of proactive leadership, leaders who understand that hard work is required up frontto develop these processes and goals and then share it with stakeholders. The moreproactive a management team is to develop good governance processes andcommunicate the organizational vision and goals, the quicker it can respond with betterdecisions when budget cuts do occur. This enables organizations to ‘cut where they mustso they can invest where they must’ (Friedman). With any significant budget cuts,organizations have to put new budgets in place. The difference in whether theorganization “responds” or “reacts” depends largely on the strength of the governanceprocesses that have been put in place and the leadership behind it. Responsivenesscarries with it the connotation of preparation, whereas being reactive can be linked toimpulsiveness. Organizations that do not have strong governance, leadership, andstrategic goals will react to budgetary pressures. Being proactive in defining anorganization’s course and establishing good governance processes empowers thegovernance team to be more nimble and respond faster and better to economicdownturns. Unfortunately, this is not an easy task. As noted in the Fiscal Responsibility article,“taking on the nation’s long-term fiscal challenge is…more akin to dealing with thetermites in the woodwork—a problem that is not immediately apparent but can bring theentire house down if not dealt with proactively” (Fiscal Responsibility). In the same article,the author bemoans the fact that historically, significant changes usually only come out ofa crisis. Yet, waiting for a crisis to happen before making significant changes is theantithesis of proactive leadership. One root cause for this attitude is due to the Americanfocus on short-term results, with little view of long-term consequences. Warren Bennissays that this short term thinking is “the societal disease of our time” (Bennis). Managers who operate predominantly in a reactive mode will be ill-prepared to makegood investment decisions when faced with eminent budget cuts. It is the responsibility ofa city’s or corporation’s leadership to develop, institutionalize, and live the valuesconveyed by good governance processes. The Boeing Company and The City of Bellevueare good examples of developing good governance processes. Boeing’s ComputingGovernance is a well developed governance structure that incorporates all six of thepillars of governance discussed earlier. It is robust enough to handle a divergent array ofcomplex projects and maintain financial and architectural accountability. As noted by Brett Page 19 of 25
  20. 20. Budget Reductions and Decision Making AccountabilityRoberts, one of the greatest strengths of the process is the consistent financial reviewsthat are booked against organizational long-term plans. The governance process alsodoes a good job of escalating project proposals across two different governance bodiesensuring that the proposal is reviewed by the appropriate level of management. The Cityof Bellevue did a great job of realizing that the economic climate was changing andrealized that it needed to develop a brand new budgeting process from the ground up thatwould include greater community participation and founded on agreed-upon priorities.Budget One was a success due to the active participation by City leadership in thegovernance process as well as involving City employees and citizens in developing futureproposals that align with City goals and objectives. Second, in order to balance long-term and short-term needs, leadership needs to dosix crucial things: communicate the organizational purpose and vision, developorganizational goals, document the organizational priorities, provide detailed decisionmaking criteria, identify the current state of the organization, and map out how to arrive atan agreed upon future state. These steps will provide a complete and transparent pictureof the organization, where it stands, where it wants to go, and what it will take to get there.Not only will this message be clear to the organization, but it will enable the accountabilityrequired to actually achieve the organizational goals. The City of Bellevue also did an outstanding job of demonstrating this with their causeand effect maps by making each map easy to read as well as easy to understand how thefactors and sub-factors contribute toward the priority. These maps can be used as acommunication vehicle for helping people understand where and why the city is allocatingfunds. Unfortunately, many companies never achieve such detailed ‘strategy maps’. Oftencompanies provide high level strategic priorities and ask organizations to prioritize theirown statements of work around the priorities. Yet, such high level goals are often toogeneric to be actionable. Detailed criteria, like the city of Bellevue produced, is required totranslate strategy into action. Many corporations could learn from Bellevue in developingmore detailed strategy maps. A third take-away was the shift in view that Balducci highlighted with the new BudgetOne process. Instead of starting with the old budget and ask, “what are we going to cut?”,the city council decided to start over with a brand new budget and ask the question “whatare we buying?” This is a complete and fundamental shift in thinking for developingbudgets. In order to answer the question, the city had to do extensive work to developpriorities and detailed decision making criteria along with a new proposal process. In the Page 20 of 25
  21. 21. Budget Reductions and Decision Making Accountabilitynew process, proposal teams were responsible for clearly outlining the value of eachproposal, aligning it to one distinguishable priority, and identifying metrics that wouldenable the city to track the value of each proposal. Based on the preceding literature and the experiences of the City of Bellevue, it isclear that there is greater leverage in governance decision-making through thedevelopment and communication of a cohesive vision and strategy than at the individualproject proposal level. In other words, without a shared vision and common strategicgoals, there will be inadequate criteria for screening out “bad” investments andgovernance bodies can spend significant time evaluating the merits of multiple projectproposals without arriving at a comprehensive and cohesive plan. Such reviews can turninto sales pitches that are not grounded in strategic criteria and do not align to theorganizational goals and objectives. Therefore, organizations will reap far greater benefitsby developing strategic goals with detailed criteria before evaluating project proposalswithin a budgeting process. Next, Balducci also pointed out that the number one success factor in the Budget Oneprocess was educating all the participating City employees about City governmentoperations. Without a shared view of how the city operates, it would have been too easyfor individual departments to go back to the old way of developing budgets and fight forincreased departmental funding. However, through additional cross-training and the use ofcross-functional teams, this conflict was significantly reduced to the point that the greatestdebate took place over the last million dollars of the budget. The out-of-the-box crossfunctional approach was led by good leadership and highlights the need for greaterorganizational communication and a “big picture” view. Balducci and Robertson both strongly agreed that the 2010-2011 biannual budget wasthe best, but most time consuming one produced to date. The development of seven clearpriorities, detailed criteria, cross-functional training, and the new proposal process all tookmore effort than anticipated. These items simply required hours upon hours of discussionand review; there were no shortcuts. The end result, however, was a shared vision and aquality budgeting process that would enable the City of Bellevue to move forward in lightof reduced tax revenue. Both council members believed that the end result was worth theprice and would willingly do it again. The initial development of Bellevue’s Budget Oneprocess took time, but future budgets should be developed faster due to the learningcurve of the process. The key point here is that there are no short-cuts to developing andusing good governance processes. Getting people to agree on the priorities and vision of Page 21 of 25
  22. 22. Budget Reductions and Decision Making Accountabilitya city or corporation can be difficult, but is possible through extensive and transparentdiscussions among the various stakeholders and managers.Conclusion The focus of this paper was to understand whether budget cuts drive accountabilityand force decision makers to make better decisions. The background for this was the2010 Washington state elections where multiple tax initiatives were on the ballot. Votersrejected the measures and sent a message to the state and local governments thatgreater fiscal responsibility was expected. However, fiscal responsibility extends beyondstate and local governments into private corporations which also experience budget cutsbetween internal departments. To achieve fiscal responsibility, leaders must be heldaccountable for making good budgetary decisions. Based on current literature,accountability can be addressed with three elements: a governance framework thatenables accountability, a common purpose and shared vision with strategic goals todemonstrate accountability, and leadership to drive accountability. Organizations that are successful in proactively developing good governanceprocesses can respond quicker with better decisions when budget cuts do occur. This wasdemonstrated particularly by the City of Bellevue with its new Budget One process. Twocouncil members were interviewed for this paper and both agreed that although the newbudgeting process was challenging and time consuming, it yielded the best budget underthe current economic conditions. One of the outstanding features of Bellevue’s processwas the leadership required to drive both the development, communication, andaccountability of the new process. The City did a great job of identifying priorities andfactors that would contribute toward the fulfillment of those priorities. This resulted in amore transparent process that brought significantly more valuable proposals than in thepast. Boeing’s Computing Governance was a good example of a tiered governanceframework capable of handling a diverse set of complex needs. Two senior managersfrom the company both agreed that budget cuts do drive accountability and force betterdecision makers due to increased scrutiny. However, they both cautioned that such cutscan be effective up to the point of touching critical products or services. With the current economic environment, governments and corporations alike are facedwith heavy pressure to do more with less and demonstrate to stakeholders that resourcesare allocated to the right things. Local governments and corporations that invest in a Page 22 of 25
  23. 23. Budget Reductions and Decision Making Accountabilityrobust governance framework will be more prepared to face future economic downturnsthan those governments or organizations which simply react to the present situations.Hence, being proactive yields far greater returns in the long-run. However, developing a governance framework and an organizational vision withstrategic goals comes at a price. For the short-sighted organization, this price may be toohigh. Yet, this short-term price is low compared to the potential consequences of notdeveloping the vision and governance framework. Unfortunately, “the national obsessionwith the short term comes directly from business” making short term thinking “the societaldisease of our time” (Bennis). In the end, only strong proactive leadership will drive anorganization to develop a governance framework and an organizational vision. Suchleadership will ensure that the right decisions are made that will protect the quality of lifefor citizens and the profitability and growth of corporations. Page 23 of 25
  24. 24. Budget Reductions and Decision Making AccountabilityBibliography“The Aligned Enterprise: Orchestrating the Next Level of Performance”, by IP Solutions,January 2009.Balducci, Claudia. Personal interview on February 7th, 2011.Bennis, Warren. On Becoming A Leader. Philadelphia, PA: Basic Books, 2009.Bovens, Mark. “Two concepts of accountability”, Utrecht School of Governance, no date.Bryant, Adam. “Google’s Quest to Build a Better Boss” New York Times, March 12, 2011“Budget One Requests for Results”, April 6th, 2010., Todd. “Portfolio Management: How to Do It Right.” Ed. Todd Datz. May 1,2003. March 26, 2007. <>.“Fiscal Stewardship: A Budget Process for the Long Term” Chapter 10 of Choosing theNation’s Fiscal Future by the Committee on the Fiscal Future of the United States.Accessed at, Andrew. “Businesses divided over I-1098 income tax”, October 5th, 2010, SeattleTimes, accessed on seattletimes.com, Andrew. “I-1098: Would Legislature expand an income tax?”, October 17th, 2010,Seattle Times, access on seattletimes.com, Pamela D., Donald P. Lacy, and Michael J. Dougherty. “Improving Performanceand Accountability in Local Government with Citizen Participation”, The InnovationJournal: The Public Sector Innovation Journal Volume 10(1).Gilmore, Susan. “Q&A on initiative to repeal new beverage, candy tax”, October 27th,2010. Seattle Times, accessed on seattletimes.com, Gil. “The Seven Habits of Highly Effective IT Portfolio ManagementImplementations”, in Project Portfolio Management: A Practical Guide to SelectingProjects, Managing Portfolios, and Maximizing Profits, Harvey A, Levine. San Francisco,CA: Jossey Bass, 2005, pp. 176-182.Medley, Jack and Brett Roberts. Personal interview on March 1st, 2011. Page 24 of 25
  25. 25. Budget Reductions and Decision Making AccountabilityMorgan, Mark, Raymond E. Levitt, William Malek. Executing Your Strategy: How to BreakIt Down and Get It Done. Boston, MA: Harvard Business School Press, 2007."OECD Principles of Corporate Governance". The Organization for Economic Cooperationand Development, 2004.,3343,en_2649_34813_31530865_1_1_1_1,00.htmlRoberts, Brett. Personal interview on March 4th, 2011.Robertson, Jennifer. Personal interview on January 28th, 2011.Tippett, John and Ron Kluvers. “Accountability and Information in Local Government”,World Journal of Management Volume 2. Number 3. September 2010. Pp. 22 – 33Weill, Peter; Jeanne W Ross. IT Governance. Boston, Massachusetts: Harvard BusinessSchool Publishing, 2004.Woodbury, Ron. What I learned while moving a team across a bridge blindfolded. CreditUnion Management. August 2007, p. 70.Yelin, K.C. “The Role of Executives in Effective Project Portfolio Management”, in ProjectPortfolio Management: A Practical Guide to Selecting Projects, Managing Portfolios, andMaximizing Profits, Harvey A, Levine. San Francisco, CA: Jossey Bass, 2005, p. 227. Page 25 of 25