Management of spending versus cuts: Deloitte view CSR 2010
Deloitte agrees that government finance leaders need to play a central role in delivering the austerity agenda. Finance directors should also be central to wider capability transformation efforts as delivery organisations evolve into leaner commissioning bodies. Success in this work depends on strong financial management, sound financial information, and strategic and informed decision-making on asset management and disposals. Finance professionals will have a lead role to play in managing outsourcing programmes and reworking business models to prepare for changes such as new revenue generation.
Our industry insights suggest finance director responses to cost reduction are mixed, with some senior officers unaware or unwilling to play a central role in either managing efficiency or redundancy programmes, or wider capability transformation efforts.
To close this gap, Deloitte has identified a series of areas where improvement is needed to, as the Government says in its Spending Review Framework document (PDF): “strengthen and re-position the role of the departmental finance director as an enabler of informed decision making at Board level.” Finance professionals within departments and local authorities will need to take on four essential roles: that of a steward, an operator, a strategist, and a catalyst for change across their organisation. These “four faces of finance” should be the driving force being corporate transformation in the public sector:
The ‘Steward’ role involves managing the assets of the organisation and supervising operational financial management at a detailed level. This work necessarily includes setting high standards of internal controls, and taking personal responsibility to ensure effective budgeting, planning, and forecasting systems are in place.
The Operator function helps ensure prudent use of resources by standardising, consolidating, and automating processes and systems to eliminate duplication. A good ‘operator’ applies forward-looking financial tools such as scenario planning and information analytics to maximise financial resources.
The Strategist role influences the organisation’s overall direction by providing financial leadership for government initiatives. It does so by providing relevant, accurate, and timely financial information to decision makers. A good Strategist uses the budget to drive government’s high-level strategy and provides financial analyses to help monitor progress to meeting improved outcomes.
The Catalyst role is chiefly about embedding a financial mindset across local stakeholder and the department more broadly. A good ‘catalyst’ works closely with business areas such as information technology, human resources, procurement, and other functions to drive organisational behaviour and focus on financial management. This includes providing a full suite of services for implementing enterprise-wide financial, HR and revenue systems to support more efficient and integrated operations. A good catalyst also prepares accurate and consistent costing information that is critical to identify opportunities for increasing service delivery efficiency.
In a recent speech discussing the post-Review climate the Deputy Prime Minister said: “Ministers standing at the despatch box will continue to be held responsible for decisions over which they no longer have any control. This will feel uncomfortable, to say the least.” Similarly, for supply and outsourcing reforms to work, finance leaders need to become increasingly comfortable with the idea of partners delivering significant areas of service on their behalf. This will require renewed focus on good governance as the complexity of supply chains increases, and clarity over the overall assurance framework and how it operates in practice. Increasingly, organisations will need to stand back and understand the value of various assurance providers.
Three further specific areas for improvement will be:
With tighter value for money tests on each investment decision, finance directors need to improve the link between financial information and the quality of public service delivery. With increased focus on transparency, ministers and the public will need information on exactly what has been spent on specific programmes, and what value delivery partners bring to each service area. Articulating and measuring the benefits of any given programme will become important.
In response, public bodies will need to bring together finance and operational information to draw better informed conclusions about value for money. Over 50 per cent of departments still report financial and operational performance information to the Board separately. Integrating this in information in useable form will be critical.
Research by the NAO shows that typically, the largest barrier to financial management improvement in the public sector is a lack of awareness and competency outside the core finance team. This is important at all levels, but especially at the top of organisations.
Many central bodies do not include financial management objectives in the performance appraisals of senior officers. This is typically not the case among local authorities, where emphasis on good financial management is in place across senior roles.
Our experience from the private sector indicates that creating close links, interdependent teams and even co-locating the business leader, finance, human resources and internal communications heads, significantly increases the likelihood of success in large transformation programmes. This emphasises the need for stronger business partnering behaviours from finance professionals and several leading organisations have invested in knowledge transfer and coaching sessions for top team members. This activity could be scaled up across the public sector.
There will be an increasing need for finance directors to improve their understanding of asset utilisation and its value to each organisation. Specific areas for development may include preparing assets for sale by increasing their attractiveness to buyers, and understanding the full range of options between outright ownership and outright sale. Improved management of assets will also extend to intellectual property. Within the Government’s transparency commitments, finance professionals will need to consider if the information they hold may be commercially utilised to create revenue streams as organisations become more self-sustaining or privatised.
Across each area, good corporate governance will be essential. Gillian Russell, Deloitte Public Sector Finance Partner, said:
“In the coming months, when ministers and permanent secretaries want to get a sense of what is possible, they should ask finance directors. Government finance professionals need to step up and play a central leadership role in almost all reforms described in the Spending Review. As a minimum, they should feel comfortable with the quality and integrity of the information on which they will make business-critical decisions. Their role will increasingly require them to enhance the level of engagement with senior stakeholders in the business, keep close to policy and delivery leads and commercial teams, and develop new management approaches to the changing delivery environment around them. “