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NCP. From Full Cost Pricing to Better Business Management and Decision-making by David Spearritt . Outline. Context and history Progress before BMAP Outline of BMAP Decision-making & business management Best practice examples Experience overseas and interstate Future directions.

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slide1

NCP

From Full Cost Pricing

to Better Business Management

and Decision-making

by

David Spearritt

outline
Outline
  • Context and history
  • Progress before BMAP
  • Outline of BMAP
  • Decision-making & business management
  • Best practice examples
  • Experience overseas and interstate
  • Future directions
ncp history
NCP History
  • 1993 Hilmer Inquiry into NCP
  • No mention of LG/ focus on Utilities
  • Aim - remove barriers to competitiveness
  • 1995 Cwth/State CoAG Agreements
    • Trade Practices Act to Govt Businesses
    • Competitive Neutrality – Govt Businesses
    • Anti-competitive laws review
    • National Access regime to infrastructure
    • Specific Industry reforms – eg Water
    • Included Local Government
  • Qld 2002 Initial deadline (LG Act)
queensland ncp approach
Queensland NCP Approach
  • 3 Types of Business Activity
    • Type I – Very Large
    • Type II – Large
    • Type III - Other
  • 3 Levels of reform
    • Corporatisation (Separate Company)
    • Commercialisation (Operate as if separate Co)
    • Full Cost Pricing (FCP)(Price as separate Co)
  • Public Benefit Assessment for Type I & II
queensland incentives
Queensland Incentives
  • Unique $150 million incentive package
  • Legislative reforms
  • Extensive training and guidelines
  • Queensland Competition Authority (QCA) oversight
what happened
What Happened
  • Good progress in most large LG’s
  • Poor progress in over 100 Council’s
  • Local Government’s overloaded
    • GST, AAS27, Assets, Y2K………..)
  • (Over half of incentive package unused by 2001, with only one year remaining
what went wrong
What Went Wrong
  • NCP bad name (= RIP)
  • Too many complex changes at once
  • Poor translation between economic principles and accounting/administration
  • Widespread misunderstandings
  • Poor QCA Feedback
  • Too-Hard basket
  • But many ‘intuitively’ operating business-like
slide8
BMAP
  • Local Government Association (LGAQ)
  • Renamed – Business Management Assistance Program (BMAP)
  • Funded from unused Incentive pool
  • One year extension to 2003
  • See www.orionco.net
bmap processes
BMAP Processes
  • Pilot study (Laidley)
  • Simplified guidelines (LG-speak)
  • Integrated into existing processes
  • In-house reviews and Action Plans
  • Ongoing mentoring
  • Regional Training
  • Software suppliers support
bmap themes
BMAP Themes
  • Renamed FCP as Full Cost Decision Making
  • Informed decision-making
  • Decision-making transparency
  • Pricing signals
  • Management efficiency
  • Subsidy transparency
    • (Community Service Obligations (CSO’s))
  • Asset Management
myths dispelled
Myths Dispelled
  • No Outsourcing required/ No CCT
  • No service reduction requirement
  • No exorbitant price increases required
  • No increased ongoing administration
changes required
Changes required
  • Council resolution and complaints process
  • Business delineation (sep regulatory, etc)
  • Administration and overhead allocation
  • Asset valuation/ depreciation/ adjustment (ROI)
  • Depreciation
  • Commercial rate of return
  • Tax equivalents
  • Other Competitive neutrality adjustments
  • Community Service Obligations
  • Ongoing implementation
  • Two-part Water tariffs/ COAG Water
best practice example 1
Best-Practice example #1
  • Douglas Shire – Daintree Ferry prices
    • Enormous public debate about prices
    • FCP not required
    • Voluntarily reviewed prices on FCP basis
    • Validated current charges and identified true cost of ‘free services’ as CSO’s
  • Main Roads Contract renegotiation
    • Achieved higher prices based on FCP review
best practice example 2 3
Best-Practice example #2,3
  • Burdekin Shire – all business activities
    • From zero to 80/90% in 1 year
    • Integrated into Revenue Policy and additional FCP statements in Budget
  • Charters Towers
    • Identified under-utilised plant – revamped plant hire processes -$150,000 pa savings
best practice example 4
Best-Practice example #4
  • Maryborough City Council
    • Revamped entire rates regime
      • Resolved major inequities
      • Justifiable charging basis
    • New admin charges based on cost-drivers
    • Improved management of Brolga Theatre with identification of CSO’s
    • New Corporate Plan and financial strategy based on Long term financial modelling
    • FCP pricing for new Waste Joint Venture
    • Integrated asset management funding
    • Reviewing Balance Sheet structure
best practice example 5
Best Practice Example #5
  • Ipswich City Council
    • Internal Provider Units – FCP
    • Service Level Agreements – unit prices per service
    • 20% reduction in overheads after 3 years
    • Balance Sheet Restructuring
    • Helped overcome major revenue loss
    • Improved pricing and rating incidence
bmap successes
BMAP successes
  • New processes used for:
    • Improved decision making
    • Solving real problems
    • Demonstrating value for money in Council services
    • Demonstrating real cost of community support/concessions
    • More realistic pricing
    • Decisions based on full costs
    • Greater awareness of asset management
    • Better understanding of Water business cash
bmap lessons
BMAP Lessons
  • Keep it simple
  • Demonstrate the usefulness of the reform
  • Integrate with existing processes & systems
  • $’s and laws alone won’t achieve results
  • Need targeted support
  • Phased approach alternative (annual steps):
    • Structural (Business delineation)
    • Overhead allocation
    • Policies (Resolution, CSO, Complaints)
    • Assets (Valn, depn, optimisation, contributed)
    • Commercial (Tax, ROR, other adjustments)
interstate developments
Interstate Developments
  • Victoria
    • Compulsory Competitive Tendering
    • Now replaced by Best Value
  • Other States took legislative approach
  • Qld - greater accountability v regulation
  • National Competition Council (NCC) regards BMAP as best-practice.
overseas
Overseas
  • Corporatisation very common – larger businesses, esp developing countries
  • Cash accounting – limits effectiveness
  • Few countries have Type 3 reforms
  • NZ – LA Trading Enterprises (LATE’s)
    • Recent reforms to increase accountability
  • USA –
    • Widespread market testing/contracting
    • Cash accounting and no competitive neutrality
overseas cont
Overseas (cont)
  • UK- CCT initially
    • Commercialisation plus market testing
    • Compulsory Competitive Tendering (CCT)
    • Direct Service/Labour Org’s (DSO/DLO)
    • Eg 70% of IT, 30% of HR must be tendered
uk best value
UK Best Value
  • Now replaced by Best Value
    • 4C’s: Challenge, Compare, Consult, Compete
    • (CCT still required in specified areas)
    • Comprehensive Performance Assessment
    • Audit Commission review
    • Performance Indicators
    • Best Value Accounting - Code of Practice
    • Overall Council assessment (Poor ->Excellent)
    • Called ‘regulated accountability’
    • Replaces/extends ‘regulated competition’
    • DLO/DSO’s being disbanded v integration
uk best value cont
UK Best Value (cont)
  • What is the council trying to achieve?
    • Ambition/ Focus/ Prioritisation
  • Delivery of priorities
    • Capacity/ Performance management
  • What has the council achieved / not achieved
    • Achievements/ Investments
  • Future Directions
    • Learning/ Future plans
worldwide trends
Worldwide trends
  • More emphasis on Accountability
  • Use of regulatory drivers & inspections
  • Convergence on comparative performance indicators (but no theory)
  • Corporatisation of larger businesses
  • Accrual Accounting worldwide
  • International Accounting Standards
queensland lg implications
Queensland LG Implications
  • ABC-MAP Trilogy by LGAQ
  • A = Accountability and Governance
    • (LGAct Councillor responsibilities poorly implemented –> focus on strategic/policy)
  • B = Business Management (BMAP)
  • C = Community Consultation/ Corporate Planning
  • Similar to Best Value 4C’s, without inspections
further information
Further Information
  • See Orion’s website www.orionco.net
    • Best Value
    • Australian, and International Comp policies
    • Queensland documents/ guidelines
    • Performance Indicators
    • Accounting
    • This presentation

Or contact David on 1300 767 466 or

[email protected]

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