The Era of Integration Linking Budget, Finance and Performance Management C. Morgan Kinghorn, CGFM, Chief Operating

1. The Era of Integration Linking Budget, Finance and Performance Management C. Morgan Kinghorn, CGFM, Chief Operating Officer, Grant Thornton Global Public SectorAugust 22, 2007

2. 2 Agenda Focusing on Results � the State of the Current Art Meeting the Integration Challenge � Advancing the State of the Art Integration in Action: the Fish and Wildlife Story

3. 3 Increasing focus on results Citizens and stakeholders expect results from their government Government Officers report results using the following: President's Management Agenda (PMA) Program Assessment and Rating Tool (PART) All 50 states have requirements for performance budgeting Local governments lead the way in responding to citizens' needs for services Environment of limited resources and competing priorities forces agencies to make hard choices regarding program funding Increasing pressure to achieve the greatest quantifiable result at the lowest cost

4. 4 What do we today� Budget, Performance and Financial organizations operate in "Silos" with no alignment or integration

5. 5 Results focus propels change Environment of limited resources and competing priorities forces agencies to make hard choices regarding program funding Increasing pressure to achieve the greatest quantifiable result at the lowest cost New method for success: Integrate cost and performance information into the budget formulation process Link resources requested to expected strategic and programmatic outcomes Transition from an inputs/outputs focus to outcomes focus

6. 6 Integration is the need of the hour

7. 7 What does an integrated approach require?

8. 8 Strategic Planning: Aligning program outputs and outcomes to agency mission

9. 9 Budgeting: Moving beyond the traditional line item budget for improved integration Unit cost and workload data informs budget requests Agencies leverage outcome-oriented performance results to strengthen budget justifications Budget decisions support performance plans to increase efficiency and effectiveness of limited resources Resource distribution aligns with agency priorities outlined in the strategic plan Technology-enabled solutions promote improved efficiency in the budgeting process and provide one version of the truth

10. 10 Cost Management: Enhancing management decisions using cost information

11. 11 Performance Metrics: Measuring what is relevant to achieving the agency mission

12. 12 Budget, cost and performance integration ensures better management of limited resources The coming together of budget, finance and performance, people, processes and technology: Enables managers to better understand and manage their "as-is" environment Propels efficiency and resource allocation improvements Allows forecasting of cost required to achieve strategic performance goals Provides agency performance rationale to support budget requests Helps agencies successfully fulfill reporting requirements

13. 13 Meeting the Integration Challenge

14. 14

15. 15 BPI Maturity Model provides a framework to view best practices across phases Our performance management framework outlines a phased approach for developing performance management work products. The Integration Framework organizes activities required to develop work products that define the target state using five work streams. Work streams are based on Zachman Framework. The Integration Framework identifies work products to be developed during each phase of TSV analysis. Integration Framework work products provide input to Federal Student Aid target state EA. Our performance management framework outlines a phased approach for developing performance management work products. The Integration Framework organizes activities required to develop work products that define the target state using five work streams. Work streams are based on Zachman Framework. The Integration Framework identifies work products to be developed during each phase of TSV analysis. Integration Framework work products provide input to Federal Student Aid target state EA.

16. 16 Sample of best practices and techniques in budget and performance integration Configure performance mgt and BI applications Develop training course/curriculum Develop end-user training materials Conduct training sessions Make system and standard reports available to end-users Configure performance mgt and BI applications Develop training course/curriculum Develop end-user training materials Conduct training sessions Make system and standard reports available to end-users

17. 17 Activity Based Costing � Moving away from the traditional cost view Really understand what you are doing Really understand the costs of what you are doingReally understand what you are doing Really understand the costs of what you are doing

18. 18 Change Readiness Assessment The CAM-I development team, calling upon their extensive and collective backgrounds of over 300 years experience in implementing MCA, developed 20 hypothesis statements that are high probability indicators of organizational readiness for MCA.The CAM-I development team, calling upon their extensive and collective backgrounds of over 300 years experience in implementing MCA, developed 20 hypothesis statements that are high probability indicators of organizational readiness for MCA.

19. 19 Risk mitigation strategies are identified to address high-risk areas

20. 20

21. 21 An integrated framework for success

22. 22 The Fish and Wildlife (FWS) Story - Starting from a different perspective

23. 23 Guiding principles for integration at the Fish and Wildlife Service Alignment Identification of measurable agency and program outcomes Aligned from top-to-bottom Linkage Integration with financial systems Historical cost data Integration with program management systems Performance data Integration in decision making Budget formulation Resource allocation

24. 24 FWS integration framework

25. 25 ABC costs associated with performance hierarchy and goals

26. 26 In this example the FWS Directorate was asked to set Service priorities for FY08 based on the FWS Operational Plan Performance goals They ranked the 35 performance goals � on what they thought was most important for the bureau in the next few years. . Remembering that this was a budget exercise � but in the context of performance and cost. - they need to reduce their budget by -$50M Starting with the FY07 Presidents Budget, the exercise entailed an integration of the actual ABC cost data (from FY2005, annualized for 2006 and projected to FY 2007 & 2008) and the Performance data (FY 2005-2006-2007) . Each decision was based on a change (cut, increase, or make no change) by percentage to the expected performance targets and, therefore, to the dollars. In this example the FWS Directorate was asked to set Service priorities for FY08 based on the FWS Operational Plan Performance goals They ranked the 35 performance goals � on what they thought was most important for the bureau in the next few years. . Remembering that this was a budget exercise � but in the context of performance and cost. - they need to reduce their budget by -$50M Starting with the FY07 Presidents Budget, the exercise entailed an integration of the actual ABC cost data (from FY2005, annualized for 2006 and projected to FY 2007 & 2008) and the Performance data (FY 2005-2006-2007) . Each decision was based on a change (cut, increase, or make no change) by percentage to the expected performance targets and, therefore, to the dollars.

27. 27 Performance budgeting approach: Step 2 -- Determine Best Investment for Maximum Results The Directorate looked within their first level of decisions by program to best allocate the resources for a goal. For this example, Partners was allocated an additional $5M of base money because they knew they could leverage Partner dollars to get increased performance 2-to-1. The expected performance was increased, while the total dollars for the goal remained the same. The Directorate looked within their first level of decisions by program to best allocate the resources for a goal. For this example, Partners was allocated an additional $5M of base money because they knew they could leverage Partner dollars to get increased performance 2-to-1. The expected performance was increased, while the total dollars for the goal remained the same.

28. 28 Performance budgeting approach: Step 3 -- View FY08 Results by Performance Goal The reallocation of dollars shown on the previous slide yielded a 60,000 acres increase, with no change in Federal Dollars due to Program reallocation. The reallocation of dollars shown on the previous slide yielded a 60,000 acres increase, with no change in Federal Dollars due to Program reallocation.

29. 29 Performance budgeting approach: Step 4 -- View Results by Budget Activity & Subactivity The Integrated cost & performance business intelligence crosswalk of performance-based results allows us to translate the Directorate decisions from the performance goal view to the traditional budget view. The Integrated cost & performance business intelligence crosswalk of performance-based results allows us to translate the Directorate decisions from the performance goal view to the traditional budget view.

30. 30 Key learning points from the FWS implementation Align individual program plans to overarching Bureau goals and measures Measure key performance metrics Allow alignment/structure to guide what matters Assess usefulness of current measures Include financial component in measurements Don�t just capture performance information, use it Link to budgeting, individual performance plans Look below measures to gauge effectiveness of program delivery Emphasizing results as an INTEGRAL part of budgeting NC is doing a good job of asking of input, output, process and results measures for key fund goals But it appears that goals are not linked to funding requests To succeed, must make sure those goals are aligned up and down the organization � from the shop floor to the strategy level.Emphasizing results as an INTEGRAL part of budgeting NC is doing a good job of asking of input, output, process and results measures for key fund goals But it appears that goals are not linked to funding requests To succeed, must make sure those goals are aligned up and down the organization � from the shop floor to the strategy level.

31. Questions or comments?