If local governments are to successfully address challenges such as burgeoning urban populations, they need to improve performance management, a new CGMA report suggests.
Strong finance leadership plays a crucial role in driving this improvement, according to the report, Transformation and Transparency: Managing Local Government Performance, which was released this week.
Management consultant Stuart McGregor, ACMA, CGMA, draws on three decades of experience in the public sector – having worked in government and for government-owned trading companies in various management roles – to identify steps finance professionals can take to enable effective performance management in local authorities.
Earn the organisation’s trust
If finance professionals are to promote change effectively, the very first step they need to take is to build trust within the organisation and convince colleagues of the value that they can add.
“Local authorities suffer because finance colleagues are often seen as financial accountants rather than finance directors or finance business partners,” McGregor said. “In the public sector, the concept of performance management frequently doesn’t get combined with financial management until it reaches board level. Few resource managers ever see a truly combined management information report embracing metrics and performance with financial data.”
A wariness of why financial colleagues want to know things often means that managers often don’t enlist finance’s help to find solutions when there are signs that things are going wrong on a project or in a service area, McGregor said. There is a need to ensure that finance colleagues are engaged at the very outset of projects and change proposals, to help support the development and costings of options, rather than endorse expenditures after a choice is made.
One way finance professionals can help to change the perception other colleagues have of their role is to get to know better the services they are working with – visit the schools and see capital projects, sports centres, and other facilities or services the authority provides – to learn and demonstrate knowledge and understanding. This knowledge supports decision-making as it enables finance professionals to visualise the services and the potential consequences of their decisions.
This knowledge, for instance, might help a government better assess which is more cost-effective: filling in several potholes on a particular stretch of road or resurfacing the whole stretch, preventing the need for patchwork repairs in the next five to ten years.
“Be nosy,” McGregor said. “It’s your job. It also makes what we do more interesting and enables us to support others better.”
Use your knowledge
McGregor identified an opportunity for finance to make better use of its professional training. How many local authority accountants have gone back to their reference books to refresh their knowledge of absorption costing techniques to drive behaviour, or proper use of control loops, variance analysis, and forecasting models, or training in techniques such as LEAN or Six Sigma?
McGregor asked: If we are not using our professional skills, does the role really need a qualified accountant? If we do not use our skills fully, with all the techniques and concepts available to us, how can we influence decision-making and ensure there is a full understanding of the financial consequences, including the possible impact or benefit of unintended consequences that a decision might have on future efficiencies and economic gain?
The talent management path for finance professionals in local authorities could also be improved. Providing meaningful roles for newly qualified accountants where they can apply their training and keep their skills fresh is important. Schemes to mentor trainees on a one-to-one basis can keep the mentor on his or her toes as well as assist the trainee.
Authorities could also be better served if middle and senior departmental finance managers’ jobs were rotated so that they learn all the skillsets and understand the whole entity, ensuring a good grounding in services, capital investment, treasury, and reporting, rather than the tendency to stay within one genre.
This would help senior financial managers progress towards director roles in the future, ensuring they get experience of executive boards and wider engagement with politicians. “You spent many years studying and learning lots of ‘accounting stuff’ and techniques,” McGregor said. “Use that knowledge.”
Set new targets to drive performance
Existing local authority models do not encourage organisations to exceed their service delivery target, McGregor said.
Authorities should be brave enough to use stretch targets to drive performance. This involves managing expectations. If the stretch goal is not met, it should not be deemed a failure. However, if the basic targets are not met, action should be taken and resource managers and budget holders should be held accountable. Currently, resource managers might report failure and overspend, but they often do not analyse or manage. Similarly, the drivers of good performance are not always analysed and shared – a missed opportunity to strengthen future decisions, McGregor said.
Identifying the metrics that can provide insight relevant to the organisation is another area where finance can make an impact. Local authorities are required to report on a certain set of numbers in the name of transparency and to enable national comparisons.
There is also a disincentive to capture and report information that could reflect failure or underperformance. But if that information is not captured and reported internally, how do you improve?
Few commercial entities have to share all the data held, used, or captured on a request from the public, but the shadow of freedom of information should not prevent you from constructing local metrics that will allow for and influence genuine change and improvement, if it is presented and used in a constructive manner with the support of politicians and executives.
“Be a driver for improvement and change,” McGregor said. “It’s how we add value, rather than just adding to costs.”
One version of the truth
The veracity of information is another crucial factor. Finance professionals are often required to blend financial information and reporting to present what others believe the politicians may want to hear, or have it reflect, McGregor said. Furthermore, many decision-makers need to be educated to better understand how they could or should manage their forecasts or budgets.
If they don’t understand the numbers, you’re missing vital information when communicating with them, he said. The timing of when you choose to deliver information and advice is critical.
If you think something is going wrong, it’s better to communicate a prediction today than wait until you are certain something is going wrong, McGregor said. By the time the problem has surfaced, it could be too late to take action. “Be pragmatic by all means,” he added. “But someone appropriate has to hear it how it really is sometimes.”
Remember the bigger picture
Another obstacle to performance is often the lack of co-operation or information sharing between the various services within a local authority. Building trust across the organisation is crucial to addressing that, McGregor said. This then needs to also be expanded to facilitate joint working to achieve synergy with partner organisations.
When finance or data professionals are able to access all the different pockets of financial and non-financial data and take a holistic view, they can produce a connected story with a very powerful message that identifies where resources and efforts could or should be directed, he said.
By building trust and credibility within the organisation, leveraging their technical skills and organisational knowledge to identify the right metrics and provide insight, finance professionals can drive more effective performance management across the board in local authorities, so influencing the delivery of economic and efficiency savings, whilst maintaining or improving outcomes, McGregor said.
“We are guardians of the taxpayers’ money,” McGregor said. “That means not just counting it properly but using it efficiently, wisely, and delivering value.”
—Samantha White (email@example.com) is a CGMA Magazine senior editor.