Five questions to ask about a budget

Earlier this week I made a short presentation to some councillors and council officers at the North West Employers Scrutiny Network meeting. The brief I was given was to give the councillors some tools they could use in their upcoming work if scrutinising their council's budget proposals. 

What I came up with were five questions that the councillors could ask in their scrutiny meetings. Whilst these questions were conceived in the context of a scrutiny role it strikes me that they could apply to any budget, whether in the public or private sector or for operating or capital spending.

The five questions I suggested were:

How was the budget made?

There are different methods that can be used to produce a budget. The most common is incremental budgeting, where the new budget is based on the existing budget. This has the advantage of being easier to do but is not quick to respond to policy changes. Zero-based and priority-based budgeting address this weakness but have weaknesses of their own, namely they are time-consuming and complex.

What outputs will the budget deliver?

The thing about budgets is that they express plans in terms of money and that means that they focus on inputs: how many people, buildings, computers, vehicles, etc will we employ next year. However, the whole point of this plan is to achieve the organisation’s goals so it is important when looking at budgets to make the connections between the plans and the objectives.

Who has been consulted?
It is perfectly possible for a budget to be constructed by a team of finance staff without involving anybody else but the chances are that, however good the budget is, no-one will take ownership of it. That means that managers should be consulted on their own budget. In the public sector consultation has to go further, involving relevant stakeholders, even the general public, in the budget making process. There is a growing call for participatory budgeting.

What assumptions is the budget based on?

Budgets are forecasts and there are many assumptions and estimates that underpin the numbers. It is important to understand what assumptions have been made especially the major ones about pay and price rises, interest rates, staffing levels, demand for goods and services and income.

How robust is the budget?

Just because a budget is the result of an orderly, controlled process does not mean that it is any good. It might be that the managers and accountants have been unduly optimistic in their forecasts or there may be some significant risks that need to be understood. It is is fair to challenge the finance director and senior management about how they have assured themselves that the budget is robust.

I think all of the questions are good questions for any budget holder to ask about their proposed budgets but question 4 is especially important for them. If they do not understand and agree with the assumptions on which their budget is based then they are could have serious problems managing within it and yet still be held accountable. Complaining that the budget was wrong when you're already three quarters of the way through the year is not going to sound like you're a manager to be trusted.

You can download my presentation slides from here. As a follower of Presentation Zen, I produced a one page handout that was not the document produced by presentation software (what Garr Reynolds calls a ’slideument’). Feel free to download the PDF of the handout.

Will a strategic partnership save money for a police force

Last week I gave a short presentation to the joing national conference of the Police Authority Treasurers Society and the Directors of Finance of police forces. I have helped the police in Lincolnshire and West Midlands with the procurement of strategic partnerships but this talk was not about those projects. Instead I was commissioned to talk about the pros and cons of having a strategic partnership. I hope I achieved that. One treasurer said to me afterwards that is was "as balanced an exposition of the issues of outsourcing" as he'd heard. I guess that means I did what was asked of me.

I've posted the slide presentation on Slideshare.net and they are embedded below. They give a flavour of what I spoke about but I like to think that you get more from a presentation when I'm presenting it than from looking at the slides in isolation. So if you want to know more about this subject please feel free to get in touch with me.

Guardian Live Debate on Public Procurement

This Thursday (11 October) from 12pm to 2pm (British Summer Time) the Guardian website is hosting a live debate about procurement capability in the public sector and I have been invited to be on the panel of contributors. 

You can find the debate in the Comments section of this page. By all means take part if you can, but if you are not able to do so I believe all the comments remain available on the website afterwards to that readers can get useful tips.

I've never done anything like this before and I have no idea what kinds of questions might be raised but I am looking forward to it.

Local government needs to rethink its attitude to outsourcing

I think the following is a thought-provoking piece from the Guardian's website by John Tizard . Local authorities—and other public sector bodies—do need to think about what it is they want in terms of service and then work out how to get it. Times change and a key aspect of public service is the frequency of politicians, national and local, making changes. In some ways outsourcers can be more flexible than in-house staff and in other ways less flexible.

Perhaps now more than ever flexibility is needed in outsourcing contracts. There are ways of getting such flexibility, but to my mind it gets back to the issue that, despite 30 years of using private sector providers, there is a remarkable lack of commercial skill and knowledge within public sector organisations. Such skills are needed for two reasons. First, to be able to procure an outsourced provider that meets the organisations needs now and in the future and, second, to know when outsourcing is the wrong answer.

Double dip recession, calls for all Whitehall departments to prepare further cuts, the Comprehensive Spending Review brought forward to 2013, demographic growth, government borrowing remaining high – the financial prospects for local authorities are bleak.

Councils may have managed to balance their budgets for 2012-13 and for the remainder of the current spending review period (provided that they are not asked to find more savings), but are they ready for the next phase of austerity?

Given the immediacy of the cuts following the spending review and financial settlement in 2010, I suppose it was not surprising that few local authorities reached for genuinely radical changes over the last two years. They did not rush to outsourcing if they had not already commenced a procurement process before the autumn 2010.

It was a logical and rational position for local authorities to adopt. Traditional outsourcing arrangements take time to weave through complex and protracted procurement processes that cost large sums of money, consume senior officer time and rarely deliver immediate savings. Many of the savings that had been made by some earlier outsourcing of services such as back office or support services were no longer available, as councils themselves had become more efficient.

During a period of uncertainty, it's simply imprudent to lock up significant tranches of a local authority funding within inflexible contracts. The truth is that evidence of the success of outsourcing has been mixed at best.

Over the last few decades, local government has used outsourcing to the business sector for a number of reasons: to secure savings; to gain investment; to offer choice to users; to attract innovation and productivity improvements through competition; to address under-performance; and to transfer difficult management decisions outside the council.

These reasons vary both from authority to authority and also sometimes within the same councils between different servcies. This apparent inconsistency is understandable and appropriate, as outsourcing should only be pursued when and where it will add value.

These actions must be explained to the public. Outsourcing has not always been a success in adding public value, and those lessons need to be learned. Over two decades the scope of outsourcing and the services it involves has changed dramatically. In some ways, there has been a major move on from Compulsory Competitive Tendering (CCT) - but in others, regrettably, there hasn't.

Faced with the stark prospect of having to make even deeper cuts in the future, are we likely to witness a significant expansion of outsourcing to private companies? It is worrying to note that some local authorities are returning to some of the worst elements of CCT, more concerned purely with driving costs down then about quality or the terms and conditions of public servants. This will undoubtedly lead to long-term problems.

Thankfully, others are seeking strategic partnerships to both reduce costs and improve services, help manage demand for services, and to invest in wider social and economic objectives. Of course, these goals are not always compatible – especially when the overriding desire is to reduce spending. But attempting to reach them does require a new approach to partnership and collaboration between local authorities and the outsourcing industry. This requires constructive dialogue and a willingness by all parties to change their behaviours.

Local authorities are right to want greater transparency and accountability from providers. They should always want good terms and conditions for people delivering public services. However, local authorities should also be considering a wider selection of responses to their financial and policy imperatives, other than purely outsourcing. There has to be a role for in house provision, a greater role for the voluntary and community sector, for employee and user co-operatives, for partnerships with other authorities and the wider public sector, and other roles for business including in-sourcing.

The risk of blinkered thinking and lack of planning is that some councils will pursue a default and automatic outsourcing to the business sector believing it to be a panacea for their budget problems, or indeed for ideological reasons. Others will ignore the option for the exact opposite reasons.

Local government has to change, and change dramatically – in what it does and how it secures the results required by local people, communities and businesses. It has to be more open and transparent. It needs to be more fleet of foot. Set against that context, the old model of outsourcing has little to offer to meet these challenges. My prediction is that, over the coming years, the traditional outsourcing model will be left behind – so will be some of the current outsourcers.

Both providers and local authorities need to wake up to the new paradigm. They must reject simplistic options.

John Tizard is an independent strategic advisor and commentator on public policy and a member of the Guardian local government network editorial advisory panel

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Collaborate to improve value for money

Many of us would intuitively agree with the truism that two heads are better than one but that doesn't mean that we work that way. In the public sector there are often tens or even hundreds of organisations that carry out similar functions to each other but in different localities. Despite 20 or 30 years of talking about sharing services, in one way or another, little happens. Whilst most public bodies have the power to work with others they are not obliged to do so. That is not always the case, though.

Over the last year I have been working with Lincolnshire Police. In the UK police forces are expected to collaborate with each other in order to save money. This is not so relevant for routine policing but neighbouring forces can share in the savings made when specialist services are combined into a single team. There are examples of this all over the country.

I recently discovered that the Welsh Assembly has passed an act (acts are called measures, though, in Wales) that requires Welsh local authorities to collaborate with each other with a view to improving the overall efficiency and effectiveness of local government services. The measure is not prescriptive about which services to collaborate on or the form of the collaboration: these decisions are left to the local authorities to work out together.

One aspect of any collaborative arrangement that has to be resolved is what form the collaboration should take. In legal terms this could range from informal arrangements through delegation from one authority to another, a formal contractual arrangement to a joint venture company or joint committee. Recently the Welsh Local Government Association commissioned Trowers and Hamlins to give general legal advice on the pros and cons of the various collaborative arrangements that are available to local authorities. This guidance has just been published on the WLGA's website.

I mention this partly because I contributed to the document in terms of the financial implications of each of the possible arrangements. I also mention it, though, because it might be useful to managers in local authorities outside of Wales. The exact nuances of the law might be different—and any local authority, in Wales or elsewhere, should get specific legal advice on their specific proposals and not rely on the contents of a general report—but in broad terms the report can help decide which forms of collaboration might be suitable and which are not.

The future of public audit

I've just read a pamphlet called The Future of Public Audit (published by Solace Foundation Imprint). There are about a dozen articles/short essays in the pamphlet and, rather like the stereotypes of auditors, they are worthy but rather dull. Or, perhaps, a better adjective would be "earnest". The articles incorporate interesting ideas and insights about things like trust, transparency, the demise of the Audit Commission and self-improvement but they don't sparkle. Perhaps part of the reason for this is the subject matter itself but should articles about audit will always be so dry?

Perhaps it is the writers rather than the subject. All of the authors of the pamphlet I read were male, white and most were, to be polite about it, substantially experienced. We could do with some different people writing about this subject (and other aspects of financial management) to get some diversity of views and to do for the subject (in a small way) what Brian Cox is doing for science: making people interested in it.

I guess I have to be part of the answer. Here I am blogging about public finance so it is incumbent on me to make what I write interesting. I certainly hope to do that with posts like the one about the film Moneyball. I also try to do it in my lectures by including video and images in presentations and telling stories from my experience in order to illuminate the subject. But, nevertheless, I can't rest on my laurels. During the 1996 European Championships, Ruud Gullit coined the phrase "sexy football" to describe teams whose play was artistic and entertaining as well as effective. I don't think we can have "sexy audit" but could we at least have some sexy articles about audit? That's a challenge I've set myself.

Is Ruud thinking about how to make public audit sexy?