Performance Management and Budgeting in Finland

Transcription

1 Performance Management and Performance Based Budgeting Performance Management and Budgeting in Finland Panu Kukkonen Administrative Governance and Development

2 The Content of the Presentation Finnish economy and public sector State planning systems in Finland Performance budgeting in Finland Administrational Branch of Min. of Finance Performance management in practise The future of performance management in Finland

3 Performance Management and Performance Based Budgeting Finnish Economy and Public Sector Panu Kukkonen Administrative Governance and Development

4 The General Government of Finland General government finances Social security funds Central government finances Local government on-budget entities off-budget entities 4

5 Where do Tax Euros Derive from? General government revenue in 2008: EUR 99 bn / 53.5 % of GDP Other income; 7.9 Capital income; 9.1 Value-added tax and other indirect taxes; 23.9 Income and wealth taxes; 32.3 Social insurance contribution; 25.5 Source: Statistics Finland, National Accounts5

6 What are Tax Euros Spent on? General government expenditure in 2008: EUR 91 bn / 49.3 % of GDP General public services and interest expenses; 12,2 Defence; 2,8 Social security incl. statutory employee pensions; 37,7 Public order and safety; 2,5 Infrastructure and subsidies to economic development; 8,7 Environmental protection, housing and community amenities; 1,4 Health care; 13,0 Education; 10,9 Recreation, culture and religion; 2,1 Source: Statistics Finland, National Accounts 6

7 The Central Government of Finland The central government finances consist of: on-budget entities The President s office, the Parliament, 12 ministries government agencies (about 100) and departments; administrated by ministries off-budget entities 11 extra-budgetary government funds

8 The Government s Employees per Administrative Branch, April /2010 Parliament 915 President s office 88 Prime Minister s office 271 Ministry for Foreign Affairs Ministry of Justice Ministry of the Interior Ministry of Defence Ministry of Finance Ministry of Education and Culture Ministry of Agriculture and Forestry Ministry of Transport and Communications Ministry of Trade and Industry Ministry of Social Affairs and Health Ministry of the Environment In total

9 Trends in the national economy * 2010** 2011** GDP at market prices (EUR bn) 179,7 184,6 171,3 177,7 186,7 GDP, change in volume (%) 5,3 0,9-8,0 2,1 2,9 Unemployment rate (%) 6,9 6,4 8,2 8,6 8,2 Employment rate (%) 69,9 70,6 68,3 68,3 69,2 Consumer price index (%) 2,5 4,1 0,0 1,5 2,5 Interest rate (10 year bonds) (%) 4,3 4,3 3,7 3,3 4,0 9

10 On-budget Entities' Expenditure by Administrative Branch in 2011, according to Government s budget proposal, EUR bn President, Parliament, Council of State Foreign Affairs Justice Interior Defence Finance Education and Culture Agriculture and Forestry Transport and Communication Employment and Economy Social Affairs and Health Environment Interest payments on debt ,0 5,0 10,0 15,0 20,0 10

11 On-budget Revenue , EUR bn final suppl. budget III budget proposal Total tax revenue 31,5 32,7 35,5 - earned income and capital income tax 7,2 7,1 7,4 - corporate income tax 2,2 3,4 3,8 - value-added tax 13,3 13,4 14,2 - excise duties 5,1 5,2 6,0 Miscellaneous revenues 4,6 4,7 4,6 Interest income and profit transfers 1,2 1,4 1,6 Total revenue 1) 37,5 39,1 41,9 1) On-budget revenue excluding net borrowing and the use of accumulated surplus. 11

12 Central Government Budget Balance EUR bn EUR bn Balance Revenue excl. net borrowing Expenditure excl. debt servicing 12

13 Central Government Debt EUR bn % % of GDP EUR bn *12*14* 0 13

14 Performance Management and Performance Based Budgeting State Planning Systems in Finland Panu Kukkonen Administrative Governance and Development

15 Politics in Finland Most executive power in Finland is held by the Government. The Government is usually a coalition government formed by 3 5 parties. The government parties usually hold a majority of the seats in the Parliament. The Government Programme, established at the start of the electoral period is key in guiding the Government s activities

16 State Planning Systems Government Programme: The operational plan accepted by the government parties, where the most important government task areas have been agreed on Every Government formulates its own programme, and there is no standard structure for it The most important planning document

17 The Government Programme and the Budget The constitution requires the Government to establish the Government Programme and to present it to the Parliament as a report. The Government Programme defines the main lines of fiscal policy. In the Government Programme are included the fiscal policy rules and targets and spending limits for the electoral period. The budget proposal is drawn up in accordance with these guidelines.

18 The Current Government Programme and Public Economy To secure Public Economy Government is committed to confirm Central Government Finances according to current stability pact Target is to build budget surplus in Central Government which is 1 % of GNP in the end of term of Government (to enhance measures which improve employment)

19 Current Government Programme and Public Economy Reduction in taxes and increasing public spending can be implemented in Governmental term only if stable public economy and budget surplus are not violated Even during the severe recession budget deficit must not exceed 2,5 % of GNP -> to prevent budget deficit > 2,5 %, Government must enforce necessary measures to cut public spending

20 Other Planning Systems Government strategic doc. is accepted after decision of spending limits for the whole term of government -> subordinate to the spending limits In the middle of the term of Government is compiled a report how policy programmes and other have progressed Medium-term planning: operational and Financial plans Short-term planning: annual state budget procedure and annual performance agreement between ministry and agencies

21 Performance Management and Performance Based Budgeting Performance Budgeting in Finland Panu Kukkonen Administrative Governance and Development

22 Overview of Constitutional Provisions Parliament has full and unlimited budgetary power. Government prepares on the presentation of the Ministry of Finance the budget proposal and presents it to the Parliament. Parliament is free to modify it and Parliament publishes adopted Budget in the Collection of Statutes of Finland. Government is responsible for the implementation of the Budget to the Parliament.

23 The Spending Limits Rule, background After the 90 s recession Finland needed to assure international actors that it will take the necessary measures to bring the public economy back on track Now the ageing of the population will put an enormous pressure on public finances in the coming years, requires a method to constrain growth in spending Finnish targets need to be more ambitious than the criteria in the Stability and Growth pact Reformed spending limits system in place from 2003

24 Key features of the Spending Limits Expenses in two categories: to those under the binding spending limit and the others outside allows the automatic stabilizers to work spending limit confined to expenditure that is relevant to be controlled expenditure outside the limits: e.g. unemployment security expenditure, financial investments, debt interest payments, VAT expenditure, technically transmitted payments... About ¾ of the budget appropriations are scaled to the binding spending limits Link between central government revenue and expenditure is cut

25 On-budget Expenditure and Spending Limits 1) the spending limit rule has held back the increase in expenditure but allowed the automatic stabilizers to work EUR billion ,0 12,0 0,00 0,08 52,6 50,3 50,8 51,3 51,6 15,7 12,3 12,5 12,8 13,1 0,00 0,35 0,00 0,00 Spending limit 36,0 36,8 37,7 38,3 38,5 38, Source:Ministry of Finance Interest payments and cyclical expenditure Unallocated reserve and provisions for supplementary budgets Total expenditure included in the spending limit 1) Spending limit expenditure for at 2011 prices and expenditure for 2009 and 2010 at current prices. Year 2009 according to budgeted, year 2010 according to 3rd supplementary budget proposal and years according to Spending Limits Decision

26 The Central Government s Spending Limits (according to the government program ) Government decided at the start of its term the spending limits for the whole electoral period ( ) not legally binding, but is based on strong political commitment Central government expenditure within the spending limits is by 2011 at most EUR 1.3 bn higher than the technical level set before the 2007 elections Spending limits set on administrative branch level Unallocated reserve (total of EUR 200 mill) and supplementary budget provision (annual EUR 300 mill) for unexpected expenditure needs; note that supplementary budgets are included in the spending limits Measures in the government programme will be implemented insofar as it is possible within the parameters of the spending limits

27 The Central Government s Spending Limits Spending limits contains Government s most important guidelines and emphasis relating to state economy Budget proposals for every administrative branch and policy programme are set according to given spending limits Operational and financial plans for every administrative branch are compiled according to decided spending limits (spending limits on administrative branch level)

28 The Central Government s Spending Limits Ministries can make propositions about development projects (which can exceed spending limits of administration branch) -> however the central government s spending limits should keep constant -> need for allocation inside Spending limits Usually allocation inside spending limits in administration branch The central government s spending limits are compiled by Ministry of Finance for a coverage of the Government Lot of negositions between Ministry of Finance and other ministries

29 Spending Limits and Productivity Government has carried through productivity programme in as a part of spending limits Target is to decrease state personnel about in utilising productivity measures -> equavalent savings in state budget New target in period : decrease personnel 4 800

30 Productivity Programme Rapid population ageing in Finland will lead enormous consumption of public services (needs for health and social services) and might weaken public economy -> needs to improve productivity and efficiency of public services Productivity programme will accustom demand of labor in public sector to the supply of labor in private sector: alleviate the lack of labor in private sector and decrease the expenditures of central government in the future In the end of 2015 savings are about mill. euros per year

31 Productivity Programme Productivity programme does not save Finnish public economy alone -> needs for other measures in the future

32 Experiences of Spending Limits New system of spending limits adopted in the 2003 government programme political commitment is strong (also in the opposition) historical experience shows merits of stability oriented, long-term fiscal policy a political change Positive experience both during an upswing (increase in revenue didn t spill over into higher expenditure) and downswing (automatic stabilizers have been allowed to work, stimulus measures have been possible but still a limit to the increase in expenditure growth) Last years have been very challenging to keep expenditure within the frames reallocations have been made all other fiscal targets have been lost spending limit rule as an important source of credibility

33 Problems with the Spending Limits The limits cover only the central government spending local governments provide over 2/3 of public services cost pressures are there Timing of the infrastructure investments PPP s are handled similarly than the conventional projects (cash based) there is a tendency to postpone investments to the next government period (this ties hands of the next government) The rule creates incentives for capital investments and other off-spending limit items bulk of economic stimulus in 2009 and 2010 is off-spending limits Creates incentives to use tax-expenditure problems with this quite limited Inflexibility as regards transfers between administrative branches not due to spending limit rules, but as a consequence of the political system

34 Operational and Economic Planning and State Budget Process January February March April May June July August September October November December Negotiations Preparing and drafting of operational and economic plans of the Ministries and the agencies Summary of the plan for the Ministry Preparation of spending limits Budget proposal prepared by the Ministries Budget proposal prepared by the Ministry of Finance Parliamentary handling and approval of the Budget Government negotiations and decision on spending limits Negotiations Government Budget session Government bill submitted to Parliament 34

35 March The Budget Process The government s decision on spending limits for the coming four years is taken It acts as a guideline in the budget preparations In the decision the allocation between the administrative branches is decided upon The ministries can in their budget proposals allocate the expenditure within the spending limits as they wish

36 May The ministries submit their budget proposals to the Ministry of Finance (MoF) June The Budget Process (continued) At the MoF the ministries proposals are considered at the level of civil servants (the officials at the Budget Department, the management of the Budget Department and the Secretary of State)

37 July The Minister of Finance decides on the Ministry of Finance s budget proposal and it is published August The Budget Process (continued) Each ministry and the MoF hold bilateral negotiations regarding the budget proposal The Government budget negotiations take place and the contents of the Government s budget proposal is decided upon

38 September The Budget Process (continued) The budget proposal is submitted to Parliament September-December Plenary debate, opinions of sectoral committees, hearings, deliberations of the Finance Committee December Parliament votes on the budget proposal taking into account the Parliament s own changes to the budget

39 Supplementary Budgets Are given if necessary, usually 2 3 each year The budgeting of unexpected revenue and expenditure, usually no active expenditure increases (recent years have been exceptional due to stimulus measures in supplementary budgets) Supplementary budgets are included in the spending limits

40 Budgetary Governance Principles Guidance and management of government activities are based on the management by results system which leaves considerable autonomy to the directors of government agencies to adopt measures they think provide the best performance. Budgeting is based in principle on the idea of a performance-informed budgeting in which the performance is linked to the appropriation in the explanatory statements of the budget. Budgeting of operating expenditure of government agencies is based on the principle of lump-sum budgeting, i.e. there is only one budget line available for the current operating costs of the agency.

41 Structure of the Budget Proposal General Strategy and Outlook Summary Tables Budget Statement General directives Revenue estimates Divided into four main titles (e.g. tax revenue) Appropriations Divided into fifteen main titles (e.g. administrative domain of Ministry of Social Affairs and Health) Appendices

42 Classifications in the Budget The proposed appropriations and revenue estimates main title class item Number code, name and sum for example > Ministry of Social Affairs and Health / family living and expenditure equalization / child allowance (EUR 1.4 bn) The appropriations are divided in the budget in items according to the type of appropriation consumption expenditure (01 29) transfers (30 69) capital expenditure (70 89) others (90 99)

43 Performance Management and Performance Based Budgeting Administrative Branch of Ministry of Finance Panu Kukkonen Administrative Governance and Development

44 Ministry of Finance s branch of government Limited Companies Agencies Business enterprises and funds TRADING HOUSE HANSEL LTD central purchasing body for the public sector ASSET MANAGEMENT COMPANY ARSENAL LTD - in liquidation THE STATE TREASURY THE GOVERNMENT INSTITUTE FOR ECONOMIC RESEARCH TAX ADMINISTRATION STATISTICS FINLAND FINNISH CUSTOMS STATE PROVINCIAL OFFICES LOCAL REGISTER OFFICES POPULATION REGISTER OFFICES SHARED SERVICES CENTER OF STATE GOVERNMENT ( ) *) SENATE PROPERTIES - handles ownership functions mainly for State-owned office, university and other special premises THE STATE PENSIONS FUND THE GOVERNMENT GUARANTEE FUND HAUS Finnish Institute of Public Management Ltd training and consultancy both in Finland and abroad Yrityspankki Skop Oyj, - in liquidation *) financial administration and human resources management 44

45 Ministry of Finance prepares economic and fiscal policy drafts the annual Budget offers experience in tax policy matters is responsible for drafting policy on the financial markets prepares State employer and human resources policy is responsible for the overall development of public administration is in charge of the legislative and financial requirements of local government functions participates in the work of the European Union and many international organizations

46 Tax Administration Description of work: to safeguard the society s tax revenue Number of Staff: 5,595 (in full-time equivalents) Taxes collected: 57.5 billion in 2009 Costs: 377 million in 2009 Strategy and basic performance targets: To ensure the tax revenue by providing proactive guidance and good service as well as by conducting credible tax control Customers can contribute to their tax issues with as little cost and inconvenience as possible Operations are both productive and economic Tax organisation has innovative potential

47 Finnish Customs Description of Work: contributes to ensuring an undisturbed operation of the internal market of the EU facilitates international goods trade and ensures compliance with provisions collects the duties, taxes and charges on foreign trade and on the production of goods correctly combats customs crime and threats to health and safety as well as to the economic interests of Finland and the EU

48 State of vill and basic performance targets: International operator Finnish Customs is an important operator within the EU and in the World Customs Organization, as well as a central operator in facilitating the economic cooperation between the EU and Russia Promotes foreign trade Finnish Customs Customs facilitates the foreign trade conducted by companies through customer cooperation and application of electronic data transmission in managing logistics chains Collects taxes on goods efficiently Customs collects the duties, taxes and charges on foreign trade and on the production of goods efficiently and correctly, using electronic systems

49 Protects society Finnish Customs Expert competence on cross-border traffic and taxation is the basis of the successful and target-oriented crime prevention of Customs. Customs promotes internal security with other security authorities, especially in the PCB cooperation (PCB = Police, Customs and Border Guard). Customs protects the consumers and the environment by controlling imported foodstuffs and consumer goods by enforcing import and export restriction Number of Staff: (in full-time equivalent) in 2009 Costs: 167,3 million euros in 2009 Total revenues collected (VAT, excise duties, car tax, customs): 8,6 billion euros in 2009

50 Statistics Finland's mission is to combine collected data with its expertise to produce statistics and information services for the needs of society, promote the use of statistics and develop national official statistics Statistics Finland's task is to Statistics Finland Compile statistics and reports concerning social conditions Collect and maintain data files on society Provide information service and promote the use of statistics Develop statistical methods and conduct studies supporting the development of statistics Develop the national statistical service in co-operation with other Government officials Co-ordinate the national statistical service Participate in and co-ordinate Finland's international statistical cooperation

51 Number of Staff: 876 (full-time equivalents) in 2009 Cost: 57,7 million euros Statistics Finland

52 The Population Register Centre The basic task is to enable usage of the data contained in the Population Information System and the PRC's certified electronic services to support society's functions and information services and management the PRC promotes the protection of privacy and personal data as well as information security and the development of and compliance with good data processing and data management practices Together with the local register offices, the PRC is the data controller for the Finnish Population Information System. The PRC maintains and develops the Population Information System, its data and data quality as well as certified electronic services. The PRC offers Population Information System information services and certificate services The Population Register Centre also develops and maintains the Public Sector Contact Directory (JULHA) and performs duties related to elections

53 The Population Register Centre Number of Staff: 121(full-time equivalents) in 2009 Cost: 21,2 million euros

54 The State Treasury State Treasury runs the State s internal financial and fiscal administration, pension and damage compensation plans as well as military injury and veterans affairs. It develops general government control systems, produce financial and personnel management support services for the government and, for our part, take care of the government s employees ability to work. The Government IT Shared Service Centre and the Government Human resource Services -unit offer services for the whole state administration Very broad client base: besides government units, clients include municipalities, state-aided institutions, etc. State Treasury s individual clients include the personnel of the above-mentioned agencies, beneficiaries of Treasure lending activities and persons entitled to receive military injury compensation or various other types of compensation

55 The State Treasury s Organisation operates under the Ministry of Finance, is a service bureau that is run on quality management principles. It operates in three divisions: Administrative Management serves the State corporation as the financial and personnel administration expert by generating Grouplevel information on a centralized basis, guiding the production of administrative information and the use of procedures in administration, and by directing the use of purchased services The Finance division manages the central government s debt and liquidity. The Finance division also administers most of the loans and interest-rate subsidies granted from central government funds, some of the State guarantees, State inheritances and payment exemptions

56 The State Treasury s Organisation The Insurance division is the State s insurance institution. It promotes risk management in the entire central government. The division handles statutory employment pensions, accident, rehabilitation and liability insurance for State bureaus and institutions. It also provides the stipulated compensation services for war veterans and other beneficiaries. The Government IT Shared Service Centre is an internal Government service unit, the functions of which are development, procurement and organisation of shared Government IT services.

57 The State Treasury Number of Staff: 822 (full-time equivalents) in 2009 Cost: 86,5 million euros in 2009

58 Regional State Administrative Agencies Six regional state administrative agencies started operating on 1st January The agencies tasks consist of those of the former state provincial offices, occupational health and safety districts, environmental permit agencies and regional environmental centres. The agencies work in close collaboration with local authorities. The agencies foster regional parity by executing all legislative implementation, steering and supervision functions in the regions. The agencies strengthen implementation of basic rights and legal protection, access to basic public services, environmental protection, environmental sustainability, public safety and a safe and healthy living and working environment in the regions.

59 Regional State Administrative Agencies Areas of responsibility: Base public services, legal rights and permits Occupational safety and health Environmental permits Fire and rescue services and preparedness Police.

60 Regional State Administrative Agencies Number of Staff: (full-time equivalents) in 2010 Cost: 150 million euros in 2010

61 Local Register Offices Local register offices are local state administrative authorities. There are 24 local register offices in Finland. The Local Register Offices are responsible for maintaining their regional Population Information System and their local information services, as well as for acting as both the local authority handling Trade Register and the Register of Associations matters and the guardianship authority. Other services offered by the local register offices include the maintenance of the boat register, notary public services, the investigation of impediments to marriage and performances of civil marriages, name changes and the confirmation of the list of parties to estate inventories. Number of staff in 2009: 650

62 Government Institute for Economic Research Government Institute for Economic Research analyses public finances in Finland and evaluates economic reforms. Other research areas include the labour market and the long-term prospects of the economy. The purpose of VATT research is to support informed decision-making and its focus is on policy-relevant topics. The Institute has complete independence in conducting its research, which meets high standards of scientific quality. It has invested special effort in developing a sound modelling infrastructure, upgrading methods of impact assessment and improving its knowledge base on public finance institutions. For these reasons, VATT is a well-respected partner in numerous research projects. VATT currently has a staff of 60 persons. Its researchers are in high demand by various economic policy working groups.

63 Government Institute for Economic Research VATT research covers three main areas: the effectiveness of public services, taxation and social transfers, and the labour market and policies promoting growth. The policy analysis and modelling unit is charged with maintaining and developing economic models and promoting their wider use.

64 Performance Management and Performance Based Budgeting Performance Management in Practise Panu Kukkonen Administrative Governance and Development

65 Main Principles of Performance Management To find balance between resources and targets, efficiency and quality To ensure the desired effects are costefficiently achieved Accountability: responsibility to report and give true and fair view of the operational performance of the agency -> annual report

66 Main Principles of Performance Management: The Hierarchy of The Targets Social/policy effectiveness (outcomes) Based on the Government Programme and the Government Strategy Document Operational performance (outputs) Agreements on performance targets between line ministries and agencies Targets for: Operational efficiency (economic efficiency, productivity and profitability) Outputs and quality management Management and development of human resources

67 The performance prism Societal impact targets (outcomes) Societal effectiveness Policy effectiveness: Societal impacts (outcomes) Operational performance targets (outputs) Operational efficiency economy productivity profitability costrecovery rate Outputs and quality management commodities and public goods service ability and quality How operations and use of finances have influenced the societal impacts Operational results (outputs) Human resources development

68 Responsability of Performance Management in Administrative Branch of Ministry of Finance The minister (a head of the ministry) has an overall responsability of performance management on his ministry s administrative branch The main strategic lines and decisions relating to performance management are made in the ministry s steering committee of administrative sector (leading by undersecretary) The departments of Min. has a responsibility to steer agencies which are part of department s branch/substance (like Tax dept. -> National Board of Taxation, Nat. Board of Customs)

69 Responsability of Performance Management in Administrative Branch of Ministry of Finance Each agencies (Nat. Board of Tax, Statistics Finland etc.) belong to administrative branch has an so called accountable person (expert) in ministry These experts with financial manager and development expert of min. form so called steering group practises, problems Other participants: IT-expert, acquisitions, estates, human resources

70 Roles of Performance Management Policy effectiveness: ministers Strategic steering: State secretary: meetings of general directors of agencies which are part of ministerial administrative sector Under state secretary: steering committee of ministerial administrative sector Development expert/administration unit: co-ordination and development of strategic procedure

71 Roles of Performance Management Performance management in practise (substance steering): Tax dept.: National Board of Taxes and National Board of Customs Economics dept.: Government Institute for Econ. Research Public Management dept.: Statistics Finland, local government (county adm.), Population Register Centre, Public IT management Financial Market dept. and Office for the Government as an employer: State treasury

72 Roles of Performance Management General steering: Administration unit: financial administration, ITadministration in ministerial admin. sector, personnel administration (human resources) Subjects: good leadership productivity programme regional programme (public services from capital region to the provinces -> maintain activities in all over Finland)

73 Roles of Performance Management Subjects (continue): Financial- and personnel administration Readiness for change in environment (permanent and perpetual state of change) IT Acquisitions Premises

74 Ministry and it s depts as a Performance Manager To act as a performance manager on it s administration branch (tax dept.- > Finnish Customs and Tax administration) Main tasks in Performance management to prepaire annual budget proposal (April-May) Depts give a comment to Administration dept. on budget proposals (tax. dept comments Nat. Board of Tax and Nat. Board of Customs)

75 Ministry as a Performance Manager Management dept. pulls together the comments and prepaire the budget proposal of all ministerial administrative sector Half-year review (August): Discussion with agencies on implementation of ongoing year s operational performance targets Compiling process of operational and financial plan of agencies and performance agreement Strategy discussions in September are the starting point for operational and financial planning

76 The Ministry as a Performance Manager Operational and financial plans of agencies are send to Ministry in the beginning of October 2010 Min. departments scrutinize them and gives comments to Administ. dept. which gather all comments together and compile operational and financial plan of whole ministerial administrative sector

77 Legislation Constitution State Budget Act principles of operational and financial planning and reporting State Budget Decree defines the contents of the budget proposals and operational and financial plans Ministry of Finance s regulations on operational and financial planning and compilation of the proposals for budget and central government spending limits

78 Legislation Government and Min. of Finance can give more orders or regulations concerning content or procedure of spending limits, budget proposals or operation and economic plans Ministries business is to give more accurate orders to their administration branch ->duty to inform agencies and offices

79 The Purpose of Operational and Financial Planning to support profitability, productivity, efficiency and quality of public services to give basis and arguments to compilation of spending limits and annual state budget to give basis and arguments to management and steering of state administration to give basis and arguments for annual performance targets to secure the consistency between state units to operation and financial plans are included the most important descriptions relating to agency s activity and performance targets

80 The Operational and Financial Plans A tool of planning in every administration branch Incl. all significant plans in administration branch (policy programmes, performance targets, resources) Coming financial concequenses and decisions (made by government) are anticipated in plans Ministries should take account spending limits and other government s decisions and emphasis

81 The Operational and Financial Plans Operation and financial for next four years March 2010: Decision of spending limits for years August-September 2010: Budget proposal 2011 January 2011: Operational and financial plans from the line ministries to Ministry of Finance March 2011: Dec. of spending limits for years Annual procedure

82 The Structure of Operational and Financial Plans Basic calculation (for four year period): sizing according to last spending limits. Take account impacts of made pol. decisions and automatic factors. Presented in the first year price-level. Ministries can make propositions about development projects (which can exceed spending limits of administration branch) -> however the central government s spending limits should be kept constant -> need for allocation inside Spending limits Usually allocation inside spending limits in administration branch Operational and financial plans comprises calculations (financial frames) for every item level

83 The Operational and Financial Plan The agencies submitted their operational and financial plan to ministry in October 2010 for years : Changes in operational environment Policy effectiveness Main operational targets for years Operational efficiency economy productivity profitability cost-equivalence Financial plan for years Personnel

84 The Ministry as a Performance Manager Performance agreement in 2011 were compiled with agencies in November-December 2010 Discussions about financial plan for years continue till February > political decision of State Financial frame in March 2011 Ministry s comments on agencies annual reports and financial statements 2010 in May 2011 How agencies manage to fullfil performance targets set up year 2010

85 Current subjects The progress of productivity programme The progress of regional programme Strategy projects for example development of IT Strategy meetings twice a year (February and September) Planning days of ministerial administrative sector

86 Performance Targets Document Ministry set performance targets to its agencies in administration branch Written agreement between ministry and agency, verified after acceptance of budget proposal Performance targets concerning: Output and services -> quality, service capacity Operational efficiency-> economy, productivity, profitability, cost-equivalence Development

87 The Content and the Structure of Performance Agreements The guiding principle: to carry out the statutory duties of public bodies as efficiently and effectively as possible The performance agreement is a control tool whose use is based on a new kind of co-operation between a ministry and an agency -> the parties have arrived at an agreed result and consensus in their talks

88 The Content and the Structure of Performance Agreements The strategic approach of ministry s administrative sector should be manifested in the performance targets of agencies and institutions so that their operations would contribute to the attainment of the strategic targets of the operational branch as a whole Performance targets apply to both agency s basic operations and its development measures

89 The Model of Performance Agreement in The strategy of the agency in years : policy effectiveness summary of main outlines and point of emphasis -> strategic targets application to common strategy of the ministry s administrative sector changes in operational environment 2. Operational targets and measures to improve productivity economy and productivity

90 The Model of Performance Agreement in 2011 productivity in auxiliary function/activity IT financial and personnel management acquisition premises outputs and quality goods and services -> service capacity and quality personnel management and development leadership regeneration point of view of equality (between men and women or between different occupational groups)

91 The Model of Performance Agreement in 2011 the promotion of sustainable development 3. Resources incomes and outcomes amount of personnel main investments 4. Term (validity) of a performance agreement follow-up meetings Signatures

92 Basic Performance Criteria 1. Policy effectiveness (outcome targets) 2. Operational performance (output targets) Operational efficiency Outputs and quality management Human resource management

93 Operational Performance Targets Operational performance targets are emphasized in the performance targets of agencies and institutions. The targets should be connected with operations and resources as closely as possible, whereby their attainment depends directly on what the agency does and how it is managed.

94 The Operational Performance Targets Alongside positive performance targets and outcome targets, targets conserning unintended effects or side effects should also be set Performance targets are set primarily as indicators and only secondarily as verbal targets.

95 Good Performance Targets Targets are: connected with and derived from the basic tasks of a government agency strategic, essential from the point of view of operations clear, understandable for everybody concrete and operational evaluable, measurable and time-dependent preferably comparable such that the government agency itself can influence them ambitious and challenging, but attainable and realistic acceptable, jointly outlined and agreed such that they cover as large a part of the operations as possible while on the other hand determining priotities

96 Performance Reporting and Accounting Performance management obliges agencies to report on the attainment of performance targets -> annual report Not only evaluating the attainment of targets but also how much resources have been used to attain those targets Ministries receive monitoring information at the variety of meeting over the year Other reports during the year: The biannual report, usually prepaired in early autumn Economy monitoring data and statistics Annual report submitted together with the final accounts Separate reports on the progress of major projects

97 The Annual Report and Reporting of Results Every year, each ministry and agency prepaires final account -> the most important report in the accountability, content: 1. Annual report, detailing operational performance and its development, and policy effectiveness 2. Actual figures illustrating how well the budget has been implemented, in the central government budget implementation statement

98 The Final Accounts 3. Statement of revenue and expenditure illustrating revenue and costs 4. Blance sheet showing the financial situation on the date of the final accounts 5. Additional information, or financial statement

99 The Annual Report The annual report, included in final accounts, details operational performance and presents an analysis of the final accounts and performance -> covers accountability requirements Public document ->submitted to the ministry, to the State Audit Office and to the State Treasury

100 The Content of the Annual Report (true and fair information) 1. Management review 2. Performance description 2.1. Policy effectiveness 2.2. Operational performance Operational efficiency and its development Outputs and quality management Control and development of human resources 2.3. Results analysis and conclusion 3. Analysis of financial statement 4. Evaluation statement and confirmation statement on internal control

101 The Content of the Annual Report (true and fair information) 5. Results of regular overall evaluation 6. Summary of malpractices 7. Signatures and deadlines

102 The Annual Report and Ministry s Feedback The description of the performance of the operational branch of the ministry forms part of the Central Government Final Accounts Report In Central Government final accounts report ministries describe their own operational performance Government submits the report to Parliament

103 Public Statement of the Ministry and feedback to the Agency In its statement on the final account is a performance management tool which can address at least the following: A. Performance development a direct assessment of how the performance of an agency has evolved, using essential effectiveness, economy and quality factors and indicators or evaluation data an assessment of how an agency s performance capacity has evolved

104 Public Statement of the Ministry and Feedback to the Agency B. Estimates of operational performance a direct assessment of how well the major performance targets of the budget year have been attained an assessment of noncorformities and of the credibility of the reasons given for them an assessment of separately agreed or selected points such as how well the management system functions, how systematic the development efforts are, how high customer satisfaction is, and so on

105 Public Statement of the Ministry and Feedback to the Agency C. Quality of the reporting scope of reporting concerning the attainment of performance targets: does it cover the attainment of all the agreed performance targets? have any nonconformities been clearly presented, with reason given for them? has the significance of any nonconformities been analysed(e.g. whether the nonconformities are random and occasional or a symptom of a more permanent decline in performance)?

106 Public Statement of the Ministry and Feedback to the Agency D. Adequacy and reliability of performance data and basic material quality and reliability of the accounting system assessment of the adequacy and relevance of the indicators used in relation to the performance targets set how true and fair are the data in the performance report reliability of the financial statements have the appropriate analyses and conclusions been made from the basic material (i.e. are the conclusions consistent and clearly documented)

107 Public Statement of the Ministry Ministry submits a feedback of agency s annual report to the agency and State Audit Office State Audit Office feedback to ministry and agency Parliament feedback on the Central Government Final Report

108 Managerial Agreement Ministry and top managers of agency can make an agreement to evaluate the management of agency and performance management inside agency The agreement offers a foundation of profit sharing Ministry and head of agency agreed on targets for management for a long term period Targets can be to improve productivity in agency and commit top management to achieve targets

109 Publicity Operational and financial plans, performance targets agreements and final accounts and annual reports are public (normally presented in web site of agency)

110 Performance Management and Performance Based Budgeting Performance Management Briefly and the Future of Performance Management Panu Kukkonen Administrative Governance and Development

111 Background Introduced in the beginning of 90 s in phases Aim was to make production of public services and functioning of the offices more efficient Started with a budget reform Lump sum budgeting for agencies More freedom but also more responsibility for the state agencies Further information: Handbook on Performance Management governance_and_accountability/ handbo/handbook.pdf

112 The Process and Roles Main document is the State budget: The parliament sets performance targets in the annual budgets and gives the financing After the approval of the budget the line ministries make an agreement on performance targets with agencies Agencies and ministries report on the outcomes in State Final Accounts Report to the parliament

113 Legislation Constitution State Budget Act principles of operational and financial planning and reporting State Budget Decree defines the contents of the budget proposals and operational and financial plans Ministry of finance s regulations on operational and financial planning and compilation of the proposals for budget and central government spending limits

114 Lessons learned Precise targets concreteness Clear roles clear responsibilities Length of reporting period Reporting based on indicators Has not shifted attention from inputs to outcomes Budgeting still focuses on inputs!

115 The Future of Performance Management More closely linked to the Government Programme -> checking and updating the strategy (ministry s, agencies, administrational branch s) after new Government (Government programme and new spending limits) More horizontal aspects -> concern many administration

116 Group task for Wednesday Split up to 4-5 working groups according your organisation A task is to compile a short Performance agreement for your organisation A structure of your Performance agreement: 1. Depict possible changes in operational environment of your organisation Positive changes, potential, risks, threats.political, economical, international aspects.what can affect an operation of your organisation.

117 Performance Management and Performance Based Budgeting Thank You