Timo Ligi and Erik Akse, regulatory impact assessment in Montenegro, Budva 18-19 May 2016

© OECD
AjointinitiativeoftheOECDandtheEuropeanUnion,
principallyfinancedbytheEU
Regulatory Impact Assessment
in Montenegro
SIGMA support project
Timo Ligi and Erik Akse
Budva, 18 & 19 May 2016

Introduction
• The main aim of the workshop is to provide practical
support for the Regulatory Impact Assessment (RIA)
of the selected regulations
• Expect the WS to provide an overview of what needs
to be done to complete your RIA (not the final
version)
• This will be achieved through:
 Short description of the relevant RIA theory with
universal examples;
 Practical work and feedback in order to prepare
good quality RIA reports.
1

Day 1
• Planning of the workshop
• Lunch
• Dinner arrangements
2

Day 2
• Planning of the workshop
• Lunch
• Travel back on 19 May
3

Work distribution
• Timo Ligi: Company Law and Law on
Foreigners
• Erik Akse: Inspire Implementation, Law on
Fresh Water Fishing and Law on spatial
planning/building permits
• MoF colleagues: please join the relevant teams
from the line ministries and work with them
4

Day 1
• Focus on
 Policy cycle
 Role of RIA
 Problem definition
 Objective setting
 Option analysis
 Impact identification
5

The policy cycle and
the roles of RIA
Erik Akse
6

RIA elements
• Step 1: Problem definition
• Step 2: Objective setting
• Step 3: Option identification
• Step 4: Impact Identification and Option
analysis
• Step 5: Option comparison
• Step 6: Implementation and monitoring
7

The EU Policy Cycle
8

Models for (R)IA in Europe
• Many countries in process of building up RIA
capacity or considering RIA implementation
• MNE: RIA treated as summary of the process
after draft law is developed
• European Commission: IA and legislative
drafting as parallel processes
• Kosovo: IA first (Concept Paper), developing
draft law after adoption of analytical report
9

The roles of Impact Assessment
• Set process standards
• Provide a uniform research framework
• Provide the analytical basis to assess impacts
• Strengthen cooperation within the administration
• Ensure involvement of stakeholders
• Obtain evidence and experience to support decisions
• Providing an overview of a complex series of effects that
legislation often has
• Make sure that new rules have added value and are fit for
purpose
• Setting the basis for evaluation and providing the
framework for improving policy & legislative development
10

RIA WS part 1
Step 1: Problem definition
Step 2: Objective setting
Step 3: Option identification
Timo Ligi
11

How to define the problem?
• What is the (extent of the) problem?
• What are the causes?
• What are the consequences?
• Who are affected by the problem and its impacts?
How?
• How would the problem evolve without
regulatory changes?
• Does the problem exist because of lack of
regulation? Or: Why the problem has not been
solved by the existing regulatory framework?
12

The problem tree
13

How to set the objectives?
• Formulate goals so that they correspond to the
problems, consequences and causes
• Limit the number of goals, and clearly set
priorities
• Ensure goals are in accordance with strategies
and programs of the Government
14

SMART objectives
• Specific: precise and concrete so that they are
understood similarly by all
• Measurable: should define a desired future state in
measurable terms
• Achievable: those who are responsible for them must
be able to achieve them
• Realistic: so that those responsible see them as
meaningful
• Time-dependent: must be related to a fixed date or
time period
15

Spectrum of options
• Traditional approach – Adoption of regulations,
implementation, instructions, monitoring of
implementation, application of sanctions
• Co-regulation - Transfer of authority to representative
associations
• Self-regulation - Voluntary codes and standards
• Economic instruments - taxes, subsidies, fees,
transferable rights
• Informational approach - Informational and
educational campaigns
• No regulation - Market solution - no need for any
intervention 16

How to identify relevant and
feasible options?
• Identify policy options to meet the objectives
(relevant – feasible – preferred options)
• Consider regulatory and non-regulatory
options
• Narrow the number of options through
screening for constraints, and measuring
against pre-defined criteria
17

Exercise 1: drafting part of your
RIA report
• Break up into groups for each file: line ministry
staff plus representative MoF RIA unit
• Write down in bullet points:
 Problem definition
 Objectives
 Options
• Report back during group discussion (appoint a
spokesperson – time per group 10 minutes)
18

Feedback session
• Reporting back on the exercise to draft a part
of your RIA report
• Feedback from colleagues
• Opportunity to use this session to structure
your RIA
19

RIA WS Part 2
Step 4: Impact Identification and Option analysis
Erik Akse
20

Predicting impacts
• Let practical questions lead you:
 What is it that is supposed to change to improve
the problem?
 Who benefits? Who carries the costs?
 Which parts of the administration need to
implement, enforce and/or monitor the new rules?
 How does consultation guarantee that all relevant
stakeholders are well informed and have the
opportunity to provide their input?
21

Spectrum of impacts
Fiscal: impacts on public expenditures and revenues
Social: job quality; non –discrimination; health and
safety; crime, security; access to social protection,
health and education etc.
Environmental: environmental quality;
renewable resources; biodiversity etc.
Economic: business operations; investment; trade;
consumers and households etc.

Special focus areas for IA
• Budget Impact / Fiscal Impact
• Fundamental Rights
• SMEs
• Competition
• International Competitiveness
• Consumers
• Health
• Regional Impacts
• Administrative Burdens
• Compliance Costs
• etc
23

Positive and Negative Impacts
Assess the additional costs and benefits compared to the situation in which no additional
action would be taken, i.e. compared to the “do nothing” option
BENEFITS COSTS
GAINS LOSSES RESTORED LOSSES GAINS FORGONE

Large or small impacts: Proportionality of the
analysis & quantification of impacts
Full monetization of impacts
Partial evaluation of impacts in
monetary units
Quantification of costs and
benefits
Full description of costs and
benefits
Identification of advantages
and disadvantages
When data is not sufficient, make assumptions (examples from other
domains, other countries, opinion of stakeholders and experts, but avoid
“capture”)

Example of impact:
Reduction in business costs
0
200
400
600
800
1000
1200
2014 2015 2016 2017 2018 2019 2020
Baseline Option A Option B
Impact
option A
Impact
option B

Example of impact:
Revenues to state budget
forgone
0
50
100
150
200
2014 2015 2016 2017 2018 2019 2020
Baseline Option A Option B
Impact
option A
Impact
option B

Distribution of benefits and
costs in time
2014 2015 2016 2017 2018 2019 2020
Benefits
Costs
2014 2015 2016 2017 2018 2019 2020
Benefits
Costs

Types of impacts
• One-off impact (example: trainings to increase
administrative capacity; changing working practices
due to new legislative requirements such as updating
forms and getting to understand the rules)
• Impacts limited in time (example: increased
expenditure through subsidy scheme; increased
inspections to monitor implementation)
• Long-term or permanent impacts (example:
permanent annual benefits from ban of smoking in
public places; increased staffing)

• Use consultation to identify impacts
• Describe main costs and benefits for each option
• Provide a qualitative description for each impact, always
• Quantify impacts as much as possible as long as it is proportionate
• Assess additional costs and benefits compared to the baseline
• Analyse separately, where necessary, some specific impacts (impacts on
SMEs, competition, etc.)
• Present a summary of positive and negative economic, social and
environmental impacts for the analysed options
• The benefits of proposed options should justify the costs in terms of, for
example, net benefits or cost-effectiveness
Key Quality Criteria for the
analysis of Impacts

Exercise 2: drafting part of your
RIA report
• Break up into groups for each file: line ministry
staff plus representative MoF RIA unit
• Write down in bullet points:
 Expected impacts
• Report back during group discussion (appoint a
spokesperson – time per group 10 minutes)
31

Feedback session
• Reporting back on the exercise to draft a part
of your RIA report
• Opportunity to use this session to structure
your RIA
32

End of Day 1
• Wrap up: Q&A
• Dinner planning
• Start of WS session of 19 May: 9.00 h
33

DAY 2
• Focus on:
 Consultation
 Data gathering
 Budget Impact Assessment
 Fiscal Impact Assessment
 Implementation
 Standard Cost Model
34

RIA WS Part 3
Stakeholder consultation and stakeholder
identification
Erik Akse
35

Policy development
• Problem analysis
• Objectives definition
• Defining options
• Impact analysis
• Selection of best option
• Adoption
• Implementation, monitoring and
evaluation
36

The EU Policy Cycle
37

Why consult?
• Testing policy ideas
• Obtaining additional information: facts,
figures, suggestions etc
• Obtaining a feeling of the acceptance of a
proposal
• Showing that you know the impact and
who is affected
• Preparing your minister by knowing what
reactions there might be to a proposal
38

Consultation in practice
Consultation builds on your expertise!
Four questions that guide consultation:
1. Who to consult?
2. How to consult?
3. When to consult?
4. On what to consult?
39

Q1: Who to consult?
• Most affected stakeholders
• Most interested stakeholders
• Stakeholders that are potential partners
• Organisations that are needed to make the
proposal work
40

Q2: How to consult?
• Knowing who to contact is the first step
• The way you organise a consultation determines in
part the outcome, e.g. targeted vs public consultation
• Weigh the pros and cons of consultation mechanisms
and choose the appropriate method
• Email: cheap, reaches many, response rates often low
• Letters: costly, reach many, response rates often low
• Conferences: costly, reach specific audience,
discussion platform
• Interviews: costly, reach a few, in-depth knowledge,
dialogue 41

Q3: When to consult?
• What information do you need?
• Do you know the problem definition well enough?
• Are the objectives reasonable?
• Do you feel comfortable about the options?
• Are the impacts clear?
• Consult while you are developing a RIA and reach
out to stakeholders before you make relevant
decisions
42

Q4: On what to consult?
• Only you can determine this
• Know what you need to know
• A bad consultation is wasted time for all involved,
including you
• The more you consult, the easier is it to dose the
information you want to discuss
• The more you consult, the better you can discuss
each aspect in depth
• The more you consult, the more people might get
annoyed and unwilling to reply (depending on how
you consult)
43

Planning for consultation
• What is the final deadline for the RIA?
• When are the responses needed?
• What resources are available?
• Which information is missing?
• What preparation is needed?
• Does the minister want or need to be involved?
• With whom to cooperate?
• Who will do what?
44

Consultation as a project
• Drafting a RIA is a project in itself
• Consultation is a separate sub-project that
is essential to complete the RIA
• When done right, it will provide you with
the information you need or show that
you did your utmost best to obtain it
• Distribute the work, where possible,
according to preferences for specific
consultation methods
45

Making consultation work
Essential to understand your target audience:
• How will your message be received?
• How much time do stakeholders have?
• What are the capacities of stakeholders?
• Where lies their interest?
• How can their involvement be boosted?
Important to translate these questions into the
work plan for your consultation
46

Making a consultation useful
• Consult when it fits the development of
the RIA and your analysis
• Consult multiple times when necessary
• Invest sufficient time in analysing the
replies
• Show where stakeholders made a
difference
• Make sure you provide feedback
47

Exercise 3: identifying
stakeholders
Three main groups of stakeholders
1. External stakeholders (business, NGOs etc)
2. Semi-internal: enforcement/inspection authorities,
regional and local authorities
3. Internal: other ministries
• Please list your stakeholders according to this
classification
• Be as specific as possible (e.g. define the specific
business organisations and NGOs)
48

RIA WS Part 4
Data gathering
Erik Akse
49

Data and RIA
• RIA is made for legislation that is meant to
solve problems; statistics regularly do not
capture the issue at hand
• Often, data is available but it needs to be
analysed, dissected and/or repackaged
• Essential to know what you need to know and
who might hold the information you need
• RIA provides tools, in particular the SCM, to
organise and present data in a practical way
50

Data sources
• Your knowledge and experience (including making
assumptions)
• Knowledge and experience of colleagues
(including from other institutions)
• Consultation (informal and formal) with those
likely to be affected
• Consultation with experts
• Market reports, official statistics, internet
information
• Comparisons of international data and material
51

Types of data: from elaborate
statistics to anecdotal evidence
• Statistics & trends
• Scientific analysis and reports
• Surveys that provide opinions, ideas,
experiences and facts
• In-depth interviews that provide deep insight
into a specific situation and that might yield a
basis for broad policy action
• And any other information that can be
properly gathered and enriches the analysis
52

Lacking data?
• Know your data needs as early as possible
• Check your opportunities to gather ‘missing’ data:
how hard is it really going to be?
• Insufficient valid data?
• Benchmarks: other policy fields or international
• Estimates and ranges based on expert knowledge
• Use the RIA to propose improvements
• Test your assumptions with other experts and
stakeholders
• Use targeted and clear questions during
consultation since it affects your data quality
53

Working with data
1. Collect data throughout your RIA work – its an iterative
process
2. Validate assumptions through stakeholder consultation
3. No data? You are an expert so make reasonable assumptions
and state them clearly
4. Present data in the RIA so a careful reader can follow to
connect input data with outputs (i.e. the estimated effects)
5. Make weaknesses transparent and deal with uncertainties &
data gaps openly
6. When necessary, use diverse sources to guard against bias
54

Exercise 4: assessing data needs
• Based on your work from Day 1 and the
identification of stakeholders, make an
overview of the data that would improve your
RIA
• Assess the importance of the data from ‘nice
to have’ (score 1) to ‘essential’ (score 10)
• Assess how you might get the information that
you would need and from whom, e.g.
consultation, working group members etc
55

Feedback session
• Reporting back on the exercise on assessing
your data needs
• Make notes as to what information you have
and what information you think you still need
56

RIA WS Part 5
Types of analysis, Budget Impact Assessment and
Fiscal Impact Assessment
Erik Akse
57

Types of analysis for RIA
Three main ways to assess the impacts
• Cost-benefit analysis (full or partial)
• Cost-effectiveness analysis
• Multi-criteria analysis
+ Budget IA and Fiscal IA
58

Cost-benefit analysis (CBA)
Should be applied when
• Most significant parts of the costs AND benefits can be
expressed in monetary terms.
AND
• When there is a degree of choice resulting from this analysis.
A proposal is considered justified when the analysis shows
net benefits.
• Full CBA covers all benefits and costs in monetary terms.
• Partial CBA combines monetary assessment of some parts of a
proposal complemented with a qualitative assessment of other
costs and benefits.
59

Cost-effectiveness analysis
• Works best when there is a specific end goal that needs to be
reached: reducing certain pollutants in a river; building 3.000 new
social housing apartments; implementing certain EU rules etc
• The total expenditure is compared to the effects this expenditure
produces
• Expenditure should include all costs, also those of third parties
The option that costs the least ‘per unit of result’ is considered
to be the best one.
Limitations
• Leaves out proper balancing of the final benefit with the actual costs
• Focus on one result risks loosing out of sight side-effects
60

Multi-criteria analysis
• ‘None of the above’ category
• Combining positive and negative impacts into a single framework
• Allow easier comparison of scenarios through providing a structure
• Others can follow the steps taken in the assessment
• Combines a range of ways to compare options
Used when most relevant impacts cannot be monetised.
Limitations
• High level of subjectivity
• It might not be clear whether benefits outweigh costs
61

Budget Impact Assessment
• Impact for the budget directly
• Link to Medium Term Budget Plan
• Covers implementation, inspection,
enforcement and monitoring activities
• Needs to cover all relevant state bodies
• When budget is available for a given year, your
claim on the funds limits the scope of other
potential activities (e.g. training needs to be
identified even when no additional funds are
expected to be necessary) 62

Fiscal Impact Assessment (FIA)
• Part of the main categories for analysis
• Is more than a Budget Impact Analysis
• FIA covers all changes to revenues and
expenditures of an administration: budget
expenditure, tax incomes and tax losses
• It demands very detailed insight into the effected
impacts of a proposal in terms of scope and
background data
• Clear assumptions are essential
• Best to work with upper and lower ranges
63

FIA example
Lowering taxes on employment
• Gross wage goes down and net wage stays the same (-)
• Diminishing tax income from current employees (-)
• Potential multiplier effects when specific taxes and fees are a
percentage of the gross income (-)
• More people might apply for certain benefits when thresholds are
not adjusted (-)
• More workers might join the formal economy (+)
• Companies might employ more people (+)
• Expenditure on (unemployment) benefits might go down (+)
• Possibly lower gross wages in the public sector (+)
• More people have more money to spend creating a second, yet
smaller wave of job creation (+)
• More money in the economy: VAT & company profit base increase (+)
64

Discussion on German toll roads
proposal
• Proposal to introduce toll charges for cars on German
motorways (currently opposed by EU)
• Expected revenues: 3,7 billion euro, of which 3 billion
from domestic drivers
• Net revenue: 500 million (due to reducing personal
vehicle tax and 200 million in operating costs)
• These figures can be used for the Budget Impact
Assessment (btw: they are contested)
• Which issues would you cover to make a proper Fiscal
Impact Assessment?
65

RIA WS Part 6
Standard Cost Model (SCM):
structuring consequences for businesses, citizens
and administrations
Erik Akse
66

SCM Quiz
Where did I find this:
P (price of procedure) x Q (total number of
procedures)
=
(H•T+A+E) • (N•F)
67

SCM: history
• Developed in The Netherlands
• Activity-based measurement approach
• Presenting complex information in a structured manner
and thus allow for effective policy making
• Linking the text of a law with actual implementation and
enforcement practice
• It covered businesses first, but can be applied to citizens
and administrations as well
• Its focus is on information obligations
• However, the SCM methodology can be applied to predict
the effects of implementation requirements and other
processes, e.g. set up new working practices
68

SCM in practice
• Used in EU Impact Assessment
• Administrative burden reduction programmes
(NL, DE, UK, DK, EU etc)
• Dutch example:
 2002: 16 billion euro burden measured; 25%
reduction target set by the government
 2003-2007: reduction of 4,2 billion euro
69

SCM reduction examples
• eLogbook: saves time for ship captains and the
administration, EU: 19 million euro
• Permit system one-stop-shop, NL: 56 million
saved
• Unifying legal terminology and definitions in
tax domain and social policy areas, NL: 295
million saved
70

SCM: graphic overview
71

SCM activities: example
• Filling in a form and send it to the government
 Understanding what you need to do is an activity
 Each question can be a separate activity
 Process of quality control is an activity
 Putting it in an envelope and sending it is an
activity
 Printing costs and stamp are out-of-pocket costs
72

What’s the use of the SCM?
• Ensuring that new legislation is efficient and
that existing rules are updated
• Reductions possibilities:
 Withdraw a law
 Eliminate an obligation
 Abolish specific activities
 Reduce the time needed
 Ensure that the wage factor goes down
 Reduce number of entities
 Reduce frequency of obligations
73

SCM: tweaking the model
• Out-of-pockets costs for companies can
replace the elements ‘Wage’ and ‘Time”
• For citizens, only time and out-of-pocket costs
are measured
• Split implementation obligations into specific
activities and predict the implementation
workload for government organisations
74

Exercise 5: SCM application
• Based on your work so far, identify the
obligations for companies, citizens and/or
administrations
• Write down which activities are necessary to
fulfil with these obligations
• Make a distinction between expected
activities: one-off, medium term and long term
• Use your expert knowledge to fill the SCM
• If you lack information, assess where you
might find it and/or who might hold it 75

Feedback session
• Report on your experiences with the SCM:
what was easy, what was hard, how useful
could it be to you, etc
• Ask us for input and ideas
• Complete the model for your RIA
76

End of Day 2
• Wrap up
• Meeting schedule for Friday 20 May
• Next steps
• Travel back to Podgorica
77

Timo Ligi and Erik Akse, regulatory impact assessment in Montenegro, Budva 18-19 May 2016

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