The document discusses key considerations for effective specialization in government resource planning (GRP). It notes that traditional approaches to GRP implementation increase risk, and software manufacturers should adopt a customer-intimate solution focus to better enable public financial management reform. This involves directly linking product development, support, and implementation services to smoothly address customer needs and problems. Holistic methods are also needed to provide reform roadmaps tailored to each country context.

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Public Financial Management
Good Practices
PFM Domain GRP IMPLEMENTATION & SUSTAINABILITY
Good Practice EFFECTIVE GRP SPECIALIZATION
Applicable ALL GOVERNMENTS, ALL LEVELS OF GOVERNMENT

2. what is the need for  The quality of public financial management (PFM) systems is a key determinant
PFM and GRP of government effectiveness. The capacity to direct, manage and track public
specialist spending allows governments to pursue their national objectives and account
organizations? 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.
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3. what is the  In the book, Discipline of Market Leaders, authors Michael Treacy and Fred
appropriate Wiersema suggest that successful businesses adopt “operational leadership”
“business model” “product leadership” or “customer intimacy.” Treacy and Wiersema suggest that
for 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.
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4. what is customer- There are many implications for software and technology manufacturers that wish
centric 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 underlying
architecture have to technology. That technology is often “legacy” or designed for different
do 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.”
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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 financial
Implementation 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 modernization
Modernization
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.
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6. Budget Private Sector Public Sector
Simple COA except for very large Complex COA. Typically includes
Chart 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 of
Budget 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 to
Appropriation
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 financial
Performance 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 in
Outcomes 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. Material
Budget Modifications
the budget rare. Profit and opportunity changes to budget during year often
during Fiscal Year
justifies spending regardless of budget. requires legislative act.
Relatively simple, often accomplished on It can be very complex with different
Budget Preparation
spreadsheets. levels or approvals, laws and restrictions.
Relatively simple approval processes. Conditions can be restrictive with
Budget Allocation
complex approval and tolerance rules.
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7. Financials Private Sector Public Sector
Financial, Managerial, Cost and Tax. Commitment, Managerial, Financial and
Accounting Types
Cost.
Little notion of “budget execution” in Budget execution and accounting
Budget 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 fund
Funds
can have unique rules and controls.
Special projects are typically completed in a Special projects last more than a year
Projects
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 program
Management
additional revenue when applicable. benefits. Never over spend.
Budgets do not affect the General Ledger General Ledger needs to be synchronized
GL 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 posted
GL 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, Accounts
Ledgers Payable, Accounts Receivable and Payroll Payable, Accounts Receivable and Payroll
sub-ledgers. sub-ledgers.
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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 can
Multiple 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 dominate
Statutory 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, modified
Accounting Methods
accrual or accrual.
Special accounting Goodwill, revenue recognition. Recognizing parastatal organizations and
concepts Public Private Partnerships
Focus on profitability enables overspending Cannot overspend budget except with
Operational to increase revenue. Cutting back on special circumstances. Budget changes
Management 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 depreciation
Asset and Liability rules on depreciation, write-off. functions. However, contingent liabilities
Management are much more difficult to characterize
with any degree of certainty.
Complex sales processes – discounts, price Simple sales processes, highly
Revenue discrimination, volume purchasing etc. complicated taxation calculations and
processes.
Requirement for project accounting for Requirement for project accounting for
Project Management
some private sector organizations. some public sector organizations.
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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. Spend
Procurement
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 audit
Audit
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 of
Grant 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. Budget
Human 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 payment
Payroll 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 complex
Recruitment
civil service rules. Must ensure
recruitment of disadvantaged groups.
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10. how does the  The traditional approach to GRP implementation using third-party systems
technology supply integration firms with little or no involvement of the software manufacturer
chain 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.
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11. how does a  Holistic process to integrate product development directly with support and
“solution” focus implementation enables customer-centric product development with a solution
change the services rather than product focus. Systems integration firms are engaged to ensure
approach 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.
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12. what typical  Organization structure: eliminate barriers between support, services and
industry processes product development groups
can 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
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13. what are good Conclusions
practices for 1. Adjust organizational structure and processes to address key GRP success factors
specializing 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
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