Eggs, baskets, and Federal benchmarks Achieving financial management maturity

The more extensive a man s knowledge of what has been done, the greater will be his power of knowing what to do. Benjamin Disraeli (1804-1881) 2

Contents 4 It s enough to make anyone crack 5 The conundrum: Which comes first? 6 Not-so-dirty dozen 7 Time for an incubator 8 To get to the other side 10 A feather in your cap 11 Contacts Eggs, baskets, and Federal benchmarks Achieving financial management maturity 3

It s enough to make anyone crack Enhance internal controls. Integrate planning with budget, finance, and performance measurements. Increase financial reporting accuracy and timeliness. Reduce delinquent debts. During the past 20-plus years, as a result of these expanding directives, Federal agencies have markedly improved how they manage and account for public dollars. The mandates, though, rarely come with how-to guides or supportive funding. This has created a resource challenge for finance executives and managers. Responsibilities that were once above and beyond are now expected. Moreover, these expanded core functions compete for the time and money needed to provide the analytic and advisory support that agency leaders also increasingly require. Add in the constant stream of continuing resolutions and budgetary uncertainty, and the stress is enough to make anyone crack. Yet it is critical to hone your organization s ability to carry out its core responsibilities as quickly and efficiently as possible. Why? Because mastering the fundamentals frees resources to provide mission support to your agency s leaders, thereby adding value. 4

The conundrum: Which comes first? The first step toward achieving an optimal state of financial management maturity is to know what that state looks like. (If you do not, there is a good chance you are not yet there.) What you need is a framework that describes this state of maturity, fleshed out with real-world benchmarks and straightforward metrics. Government agencies, however, have limited access to performance benchmarks the information needed to compare your business processes and performance against industry leaders. Federal-specific metrics such as costs-per-output, transaction processing time, and staffing by function are largely unavailable. And when you can t get a peek at your peers performance data, it creates a chicken-or-egg situation; you need more than one data point to determine what constitutes below average, average, or above average performance. And if you don t know that, you can t benchmark. And so on. Benchmarks, and the framework they populate, help you identify areas most in need of improvement, determine objectives, and develop a specific plan to reach your goals. Without them, it is difficult to understand how large the gaps are between your current and desired future states of financial management maturity. Eggs, baskets, and Federal benchmarks Achieving financial management maturity 5

Not-so-dirty dozen Driven by the absence of widely available benchmarks, Deloitte has developed a framework comprising a dozen essential financial management functions, each of which falls into one of four categories core, value-creating, agency-specific, or finance-enabling. This model compiles the characteristics, behaviors, and capabilities of these functions, and it includes detailed descriptions and benchmarks for five progressive maturity levels initial, managed, defined, predictable, and optimal. Core functions are finance and budget policy, planning, budgeting, and finance and accounting. These areas are most closely linked with the value-preserving role of financial management. They include financial controls, waste and fraud prevention, budget creation, and the production of accurate and timely financial reports. Value-creating functions include finance analytics, performance planning and management, advisory support for agency leaders, and liaison work on behalf of the agency to the administration, appropriators, and the public. These functions are prospective, outward-facing, and harness the power of financial and performance data to provide agency leaders with well-informed and agile decision support. Agency-specific functions such as working capital fund management, acquisition and contract management, and grants management often but not always fall within the purview of finance executives. Finance-enabling functions include two key functions: information technology and human capital. As owners of the business data and systems, Federal financial managers have significant information technology responsibilities. And they need to pay careful attention to their most critical resource their human capital. Reflecting decades of our practitioners collective finance knowledge from across the public sector, Deloitte s Federal Financial Management Maturity Model can effectively render the chicken-or-egg conundrum irrelevant by relieving you of the task of searching for those sought-after benchmarks and leading practices. As used in this document, Deloitte means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. 6

Time for an incubator Our flexible model can be applied to assess the maturity levels of all your finance functions or one or two specific ones. The approach enables Deloitte to help you: Compare your performance against objective benchmarks Isolate and map process, policy, business system, or personnel challenges Gauge how far you must grow to achieve various levels of maturity We then work with you to prioritize opportunities, calculate your potential return on investment, and build your business case. Deloitte understands the cost-benefit analysis needs of mission-driven organizations, which are readily supported by the fine-grained detail of the model. Once your opportunities are prioritized, the model s range of maturity levels allows you to set your targets and tailor an investment strategy that will help you achieve your goals. The process assess, prioritize, plan, execute is straightforward. But the tool adds the rigor and objectivity you need to get you through an often challenging and uncertain exercise. In a sense, it is an incubator that can help nurture your desired state of financial management maturity. (See Figure 1.) Figure 1: Deloitte s finance maturity model in action Finance Functions Budgeting Performance Planning & Management PLAN Value-Creating Functions PRIORITIZE Core Functions Finance & Accounting Planning Finance & Budget Policy Finance-Enabling Functions Information Technology Grants Management Human Resources Acquisition & Contracts Agency-Specific Functions ASSESS Advisory & Liaison Working Capital Fund Finance Analytics PROCESS EXECUTE Desired State Eggs, baskets, and Federal benchmarks Achieving financial management maturity 7

To get to the other side As you consider your next steps, keep in mind the experiences and outcomes of those who have already crossed this road. Why did they do it? In some cases, a crisis inspired the change that ultimately led to a new level of competency, performance, and maturity in a financial management discipline. In another, it was the need to develop maturity from scratch in a new organization. Whatever the impetus, Deloitte s approach and knowledge embodied in the maturity model helped to lay the groundwork for our clients successes. Case study #1: Vendor (over) payment The challenge The plan The execution The payoff Vendor pay management was slow and inefficient, leading to millions of dollars in interest payments to vendors for late payment fees annually. The agency set out to redesign its processes and staff its operations with appropriately skilled resources. It borrowed leadership and experience from another agency to re-engineer its business processes and made necessary personnel changes. After eight months, the agency reduced late payment interest by 57 percent, to the tune of several hundreds of thousands of dollars a month. It boosted its overall maturity rating level two notches, from initial to defined. Financial maturity growth: Case study #2: A (working) working capital fund The challenge The plan The execution The payoff Large overhead charges The agency hired Deloitte The agency changed the Overhead expenses were for bureau services to work with internal way overhead charges substantially reduced, provided through its finance leaders to were accounted for and saving $10 million annually working capital fund recalibrate the structure of charged to reimbursable and improving the caused the loss of its overhead charges. customers. agency s relationship with customers. Its maturity level rose from managed to defined. reimbursable customers and millions of dollars in revenue. Financial maturity growth: 8

Case study #3: Budgeting basics The challenge The plan The execution The payoff At a newly formed agency, the budget function was immature, lacked standard procedures, and employed inefficient and undocumented business processes. The budget director hired Deloitte to help the agency assess its processes, identify the target state, chart the course, and get it to its destination. Processes were revamped and documented, and employees were trained in budgeting leading practices. Significantly improved budget submissions enabled agency growth over a multiyear period. Better funds management reduced expired and cancelled funds by millions of dollars. Its maturity rating jumped two levels, from initial to defined. Financial maturity growth: Eggs, baskets, and Federal benchmarks Achieving financial management maturity 9

A feather in your cap A continually shifting external environment requires that today s Federal financial managers reconsider how they perform their roles. New mandates and directives appear at regular intervals, creating responsibilities that most would have been hard-pressed to predict. Internal agency demands mean that leaders need advisors who are skilled in burgeoning disciplines such as finance analytics and performance management a natural fit for financial managers. What was once above and beyond is now given, and the bar for performance has been set even higher. Now is the time to assess the maturity of your organization s financial management functions and determine which ones need the most nurturing. Because only when you have the basics mastered can you focus on adding value beyond core accounting and finance. And that s when your agency s leaders will see you as a true business partner. 10

Contacts Vincent Dennis Principal Deloitte Consulting LLP vdennis@deloitte.com +1 571 882 6030 Keith Pfromer Director Deloitte Consulting LLP kpfromer@deloitte.com +1 571 814 7720 Eggs, baskets, and Federal benchmarks Achieving financial management maturity 11