Matching resources to priorities
“You can have your cake and eat it too,” says Mark MacDonald.
The lead public financial management partner at consultancy EY is convinced that a well-conducted strategic expenditure review (SER) can serve up a menu of reforms that is both straightforward to prepare and easy to digest.
“It is almost always the case that you can find that the more effective outcome most often is the simpler one – and is therefore the more efficient one.”
MacDonald told a webinar that strong governance, robust evidence and professional excellence are all ingredients of a successful review.
Organised by Global Government Forum on the theme of Matching Resources to Priorities, the webinar was aimed at demystifying the SER process – a comprehensive examination of how effective public spending is at meeting a government’s goals and priorities.
These exercises delve deep into data to identify what is obstructing the achievement of policy targets, aiming to go beyond tactical cost cutting in order to refashion entire systems and structures in an effort to guarantee long-term delivery.
SERs have grown in profile as growing demand for public services has coincided with tightening public finances, placing a premium on efficiency.
MacDonald told the webinar that research by EY last year into how best to conduct reviews identified three essential steps.
“The design, diagnosis and delivery phases of expenditure and performance reviews are each in their way vital for the overall effectiveness of ensuring that, as public resources are allocated, they are done so efficiently and, most importantly, effectively in order to be able to actually deliver a government’s priorities,” he said.
“While hopefully that is intuitive, our experience is that strong discipline is required to achieve the benefits of strategic expenditure and performance reviews.”
EY considers a crucial point of departure for a review is good design, and this starts with robust governance: executives need to take “ownership” of this process and agree its methodology. The most effective reviews have often been undertaken by a special government-appointed taskforce reporting back to a treasury or finance department, who follow an evidence-based, consistent approach based on clear hypotheses.
The “heavy-lifting” is done during a second, diagnosis stage when evidence is gathered and analysed so that reforms can be recommended. Here, the mantra is due diligence where hard data provides the critical evidence base for testing hypotheses.
It is crucial to ensure the staff of department or agencies under review are fully included at every point – through interviews and problem-solving workshops – so as to reinforce their commitment to a review’s outcomes.
The final phase of a strategic review is delivery, where a realistic and achievable menu of reforms is served up based upon a “road map” for their implementation that outlines who is responsible for carrying them out.
While the complexity of the SER process can appear daunting, they can deliver transformational change.
Mohammed Alkhasawneh, EY’s Lead Partner for Public Financial Management in the Middle East and North Africa (MENA) region, outlined pricing reviews conducted on behalf of the governments of Kuwait and the United Arab Emirates (UAE), both of which have sought to wean themselves off oil revenues by repricing government services and subsidies.
Strategic reviews conducted over a 30-month period required extensive cataloguing of the goods and services offered by their governments and developed models to estimate costs and set new, fair prices.
In Kuwait, the strategic review rationalised 42 public subsidies – representing 23% of total government expenditure – with potentially very large savings. In the UAE, the review established an automated costing model and integrated this into existing IT systems to make future budgeting faster and more efficient.
Khasawneh said these reviews not only reduced spending and increased revenues, but boosted the effectiveness of decision-making.
“We have learned that it is very important for governments to have the right digital data and digital records of its services,” he said. “Both governments had a lot of paper-based records or data fragmented across various sources: digitising the data into a single database … allows for future study analysis to be conducted in a transparent manner and in a much faster way.”
Few individuals have as much experience of strategic reviews as former civil servant Bruce Hunter, a senior EY partner in Australia, who explained that he leaves “no stones unturned” in the search for results.
Hunter outlined four key questions that EY asks from the outset about a department or portfolio that is under review: “Is this function required? Should this function be performed by government? Should this function be owned by the department or portfolio? Can the function be improved?
“We will go right across and do a very holistic review making sure the department or portfolio is best placed to deliver on government outcomes.”
Steering the webinar audience through review methodology, Hunter explained how this incorporates a “contestability” test to establish whether citizens will be better served by functions being reformed or outsourced.
“Let’s not forget that the key focus of all of these reviews is the outcomes to citizens: we are trying to help the government of the day position itself and make sure its scarce resources are aligned to its priorities,” he said.
Certain themes recur during strategic reviews: a department or portfolio’s purpose is often unclear, cost-cutting pressures have eroded strategic policy and data-analysis capabilities, legacy programmes inherited by new governments can persist for decades, and manual processes and outdated systems endure.
“We consistently see that staff profiles across the public service are continuing to increase with lower levels of control: this means that we are paying more for lower-value transactions,” Hunter said.
For these reasons, a strategic review should not be seen as a one off – and a cyclical schedule of analysis may be in order to ensure governments remain nimble.
“These reviews challenge the agility, structure and governance of departments and portfolios, and I believe they should be conducted on a five-year cycle and then be supplemented by capability reviews.”
Outlining factors that make for a successful review, Hunter said it was crucial for reviewers to retain their independence in order to challenge a department’s work. Where their recommendations are discussed in confidence, they can be “frank and fearless” in their advice to government.
Experience suggested that key success factors are ample stakeholder engagement that encourages “buy in” at the most senior levels, and when EY consultants work alongside departmental staff who know the ropes in a “joint team” approach.
“On the flip side, if you are putting your best and brightest into that review team it means that they are also developing their future capability to be the leaders of tomorrow.”
Watch the recording of the webinar here:
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