Priority Based Budgeting[PBB]

Overview

August 2015

The financial position of the UK Public Sector is challenging and likely to become more so

Last week Chancellor George Osborne announced

the 2015 Comprehensive Spending Review [CSR2],

due to conclude on 25th November 2015, in a bid to

find an additional £20bn savings in public spending

Departments will be asked to consider scenarios of

25 per cent and 40 per cent savings in their

resource budgets by 2019-20 in real terms.

Following on from CSR 1, savings and efficiencies

will become ever more difficult to identify and

deliver.

It is highly unlikely that any “unprotected”

Government Department will be able to avoid

Service reductions during the coming four years

UK Police Forces, for example, responded to CSR 1 with a wide range of change initiatives

The response of UK Policing to CSR 1 has been impressive. HMIC found only three forces in England and

Wales that “require improvement in their response to the spending review.”

The challenge however is to maintain the level of savings and efficiency achieved to date.

Challenges to achieving planned efficiencies and identifying sufficient new ones include;

i. Achieving projected savings for currently planned and in progress change

ii. Identifying additional changes now that “low hanging fruit” has been picked

iii. Maintaining, indeed increasing, officer and staff energy and commitment to ever more

challenging change

iv. Identifying and realising the numerous small scale improvements that can, collectively,

contribute significant savings

However, despite this apparent success, working with UK Forces since 2010 has convinced me that:

1. Traditional, Transformation style, change initiatives [overall] have not and will not deliver all of the

Benefits anticipated for them; Reasons for these shortfalls include:

1. Original overestimation or double counting of Benefits by focussed project team

2. Resistance to what are considered “Corporate” change initiatives by officers and staff

3. Benefits cannot be fully assigned to responsible function managers, making tracking and

assurance difficult

2. The scale of change and cost reduction required by CSR 2 can only be achieved by mobilising the

energy and knowledge of all officers and staff within the force

3. Responsibility for resource and financial management must be assigned to officers and staff

responsible for managing operations and services.

4. Only by being directly involved in resource planning and budgeting will responsible managers

become skilled and competent in resource and financial management

PBB is a zero / priority based planning method of assigning limited resources based on risk and benefit

PBB directs scarce resources to priority activities across the organisation, focussing maximum available

resources on key services.

PBB is undertaken by the managers and staff who run the business. As a result these managers

develop new planning and implementation skills which are retained for future application

Highly successful deployments of PBB in the policing sector have been completed in Greater

Manchester, West Midlands, Western Australia and Cheshie, during the last five years.

The outcomes and feedback from establishing PBB are positive and consistent;

i. PBB enables an organisation to achieve a balanced budget

ii. The PBB process is remarkably open, honest and robust

Priority Based Budgeting [PBB] has a unique track record of producing robust resource plans and budgets

Leading Change [What Leaders must communicate and deliver]

Need Vision Objectives Benefits Decisions

PPB Approach & Toolset

Department Managers

identify and design Change

Senior Management Review Panel

directs & decides using

consistent, robust

information

Consistent, straight-forward

analysis tools & techniques

Planning Guidelines

communicate Vision &

Objectives

Structured proposals balance,

efficiency , cost reduction

and risk.

Clear process, rapid

execution[typically less

than 20 weeks from start to

decision]

Deploys a full range of

performance improvement

tools and techniques

Change is implemented

by Department Managers

using planning and execution tools linked to

proposals

Adopting Change [Ref. Anthony Greenfield; 5 Forces of Change]

Certainty Purpose Control Connected Success

Sustainable change requires leaders to lead, for this they must know how to lead. Change also requires all stakeholders to adopt change which requires all options to be robustly debated and fairly evaluated.

The PPB process, and the tools it deploys, provide the components required to achieve sustainable Change and realisable savings. It enables leaders to lead with clarity, and it “feels fair” for all stakeholders.

Why is PPB so effective at delivering enduring change?

Agree objectives, including savings targets. Confirm cost and resource baseline . Define organisation level services.

The PBB project is formally launched by means of half day training workshops for all managers involved.

Baseline, participants and activities

Identify and confirm:

1. current cost baseline to be included within PBB . Normally the current year budget or actual expenditure, if the budget does not represent current spending.

2. identification of all participants in the process, i.e. Budget Subject Managers [BSMs], who will be responsible for developing and ultimately owning the budgets agreed. The total in scope budget is allocated to Budget Managers to establish clear responsibilities for each cost element and type.

3. identification of the services and outcomes in scope. These high level services will be further developed by BSMs during the PBB process.

Objectives and guidelines

Agree and document objectives for the PBB exercise:-

1. A financial improvement target, in either cost or percentage terms, e.g. The PBB process will be required to produce an agreed budget that is X % lower than 2014 / 15 expenditure.

2. Guidance on currently planned , expected or required changes that will [or may] impact the organisation during the planning period. e.g. major organisational changes, reorganisation, revised operating models.

3. Agree composition of the PBB Review Panel. This panel will challenge and ultimately approve PBB proposals . The Review Panel will need to comprise between three and five members of senior management.

Launch workshop

Half day briefing and training events for all BSMs and Senior Managers. The session will instruct the participants how the PBB project will be undertaken, their roles, the activities they will undertake and the deliverables they will be responsible for

The session will include practical guidance on how to complete the various tasks required during PBB and instruction on the forms and spreadsheets to be used.

Following this session BSMs will be equipped to commence the Analysis stage of PBB.

PBB Pre-Project Phase

PBB – Indicative Project Plan

1. Service Definition Analysis and Costing

2. Identify and evaluate efficiency improvements and

Service Level options

3. Service Prioritisation and

selection

4. Service Design &Implementation

Planning 5. Implementation

Project Management & Coordination

Training, support, challenge and provision of advice to BSMs

Phases

PBB workbooks [One per Subject Area] analysing FTE and other costs to servicesPlanning GuidelinesPanel Discussion

Draft Proposals – inc. Benefits / costs of Method, Volume and Service Level options Panel Discussion

Final proposals – i.e. more detail of costs and impactPanel DecisionRanked list of prioritised Service LevelsAgreed funding decision [Drawing the Line]

Redesigned Services to meet agreed prioritiesRevised Operating ModelImplementation Plans

Implementation of all changes required to achieve the agreed resource plan / budget

Outputs

ObjectiveConfirm resourcesDefine servicesSet objectives and directionConfirm Planning Guidelines

Present improvement opportunitiesAgree structure and content of Service LevelsConfirm direction

Approving or rejecting proposed Method and Volume ChangesAgreeing and scoring proposed Service Levels

Agreed implementation plans for all subject areas Agreed organisational design / configuration

Reconfiguration of in scope Budget Subjects to meet budget and performance objectives.

Cross lifecycle activity

Panel 1Early September

Panel 2Mid-October

Panel 3 & FundingEnd November Early February End May

CommenceASAP

1. Service Definition Analysis and Costing

A structured Activity Analysis in the first phase of a PBB project. Completing this

structured analysis of resources, costs and their application, ensures that all

participants develop a clear and consistent understanding of how resources are

currently utilised. In this manner Activity Analysis develops the structure and baseline

information that informs later stages of the PBB project and in particular, enables the

Review Panel to test and explore budget proposals and changes.

Budget Subject Area

Budget Subject Manager

Description Volume Description Description Volume

Key Service # 1Key Service # 2Key Service # 3Key Service # 4Key Service # 5Key Service # 6Key Service # 7Key Service # 8Key Service # 9Key Service # 10

FTE £ (000's0Police Officers 40.0 2,181.2 Police Staff 103.0 10,203.5 Other Costs 5,122.2 Income 686.3- Total Budget Subject Expenditure 143.0 16,820.5

Improvement Opportunities

Services Provided

Improvement Opportunities

Description [Continued]Inputs Received Activities Undertaken

Controls Applied

Improvement Opportunities

Improvement Opportunities

Resources Utilised

Improvement Opportunities

Priority Based BudgetingService Definition & Analysis

Using proven Activity Analysis tools Budget Subject

Managers quickly produce consistent and insightful

analysis of employee activity and cost data

2. Identify and evaluate service improvements

Having established and quantified current services, outcomes and costs, each BSM works to develop a structured proposal which addresses, Volume Changes. Method Changes and Service Level options.

Delivering services more efficiently and effectively

Step 1. Quantify changes in demand, i.e. Volume Changes

Demand for services may vary between years. Step 1 quantifies the impact of known or anticipated changes.

Step 2. Identify and evaluate “Method Changes”

Method Changes are efficiency improvements which will provide the same service for a lower cost. Examples include, improved processes , use of technology, procurement savings and improved staff utilisation

Step 3. Identify and evaluate “ Service Levels”

Service Levels are packages of services, ranked for their importance to customers and users. Service Levels form the building blocks of a Priority Resource Plan. Service levels are defined as ;

Minimum – statutory / legal requirement

Intermediate – practically deliverable Service Level, higher cost and lower risk than Minimum,

Current – levels of Service currently provided but at lower cost as a result of proposed Method Changes

Enhanced – Services, not currently provided but valuable enough to be considered for additional funds.

3. Service prioritisation and selection

Purpose and benefits

Retain customer security clearance Secure environment for staff

Minimise vandalism and theft Protect intellectual property

Method changes (£000)

Night security cover

Daytime access control

Daytime security rounds

24hr permanent manning

Automatic gates

CCTV for boundary

Electronic monitoring

-1-1-1

-30

-40

-30

M.

I.

C.

E.

1

2

1

2

50

76

35

80

(£000) RiskService levels

Total proposed

Current budget

6

8

241

298

81

100

%

-1 -37

(£000)Workload Changes

Project X ends (MOD)

Purpose and benefits

Retain customer security clearance Secure environment for staff

Minimise vandalism and theft Protect intellectual property

Method changes (£000)

Night security cover

Daytime access control

Daytime security rounds

24hr permanent manning

Automatic gates

CCTV for boundary

Electronic monitoring

-1-1-1

-30

-40

-30

M.

I.

C.

E.

1

2

1

2

50

76

35

80

(£000) RiskService levels

Total proposed

Current budget

6

8

241

298

81

100

%

-1 -37

(£000)Workload Changes

Project X ends (MOD)

Example: Security

1

2

3

4

5

6

7

8

9

10

Assessment of Service LevelRank

Essential to the business - unavoidable corporate or legal requirements

Critical - unavoidable without substantial loss or damage

Very attractive, important and productive increments of service

Important - hard to see how they could be dropped

Significant benefits but could conceivably be dropped

Desirable but first to be dropped if funding curtailed

Benchmark

Marginal but first to be supported if funding available

Possible but only if much increased funding available

Doubtful - not sufficient justification at present

Unlikely ever to be funded1

2

3

4

5

6

7

8

9

10

Assessment of Service LevelRank

1

2

3

4

5

6

7

8

9

10

Assessment of Service LevelRank

Essential to the business - unavoidable corporate or legal requirements

Critical - unavoidable without substantial loss or damage

Very attractive, important and productive increments of service

Important - hard to see how they could be dropped

Significant benefits but could conceivably be dropped

Desirable but first to be dropped if funding curtailed

Benchmark

Marginal but first to be supported if funding available

Possible but only if much increased funding available

Doubtful - not sufficient justification at present

Unlikely ever to be funded

Rank

12345678

91011

Rating

10.010.09.08.57.26.75.24.5

4.24.23.0

Level of Service

M Statutory AccountingM E.D.I. CustomersI Sales\purchase recordsM Record KeepingC Debt collectionI Large accountsI Advice to managersE Debtor management

C Full serviceC All customersE Consultancy service

Subject

AccountsOrder Proc.AccountsPersonnelAccounts

Order Proc.PersonnelAccounts

PersonnelOrder Proc.Personnel

No

11221

1052

442

£k

50157635351207280

985051

No

12467172224

283234

£k

5065141176211331403483

581631682

%

79

202631485870

849299

Increment Cumulative

Funding

Line

The ranked Service Level listing provides a prioritised list of resource allocation opportunities. Service Levels with higher scores are assigned resources before lower scores. Available resources will inevitably be exhausted before all potential [including Enhanced] Service Levels have been resourced. When this occurs, those Service Levels falling “below the line”, i.e. not resourced, will be those that management has assessed as less important. If un-resourced Service Levels are, upon reflection considered vital, then a re-ranking will be required to correctly balance requirements with available resources

Each BSM completes the standard [spreadsheet based] PBB documentation, quantifying the impacts of Volume Changes, Method Changes and Service Level Options, for their assigned subject area

The standard forms fulfil two vital roles:1. Provides the Review Panel with consistent information, enabling comparison

between proposals2. Ensures that all proposals are numerically correct

The Review Panel applies a robust scoring method to each Service Level for each Budget Subject to produce a ranked list of every Service Level proposal that is both logical and transparent.

4. Service Design & Implementation Planning

Once the final funding line has been agreed each BSM will produce an Implementation Plan for all approved Volume, Method and Service Level Changes within their Budget Subject.

These Implementation Plans are prepared using a standard PBB Planning Template; as illustrated below.

Upon completion each BSM will submit their Implementation Plan to their Department Head for review and initial approval

Once the Budget Subject plan has been authorised by the Department Head , BSMs may commence implementation

Upon completion of all SMA plans for their Department,, each Department Head will prepare a Department summary, using a standard Template, that defines the key Milestones and Risks for the implementation of all Department changes

Each Department Head will present their Department plan summary to the Executive Team for final approval.

Once approved the Department summary plans will form the baseline for managing and reporting implementation progress and benefits realisation

Department Heads will present progress and achievement to the Executive Team every four weeks

PBB Roles & Responsibilities

Governance Structure Roles Review Panels

Command Team / Review Panel

Department Heads

Budget Subject Managers [BSMs]

Review Managers

Train Question

Challenge Link SMEs

Workbooks Support

• Set objectives• Provide guidance• Final funding decision

• Provide direction• Support to "BSM's“• Link common subjects• Review & challenge

• Analysis of current activity• Generation of options• Presentation of proposals• Implementation of change

• Challenge and sharing ideas• Resolution of linked ideas

and interdependencies• Panels preparation and

rehearsal

Command Team; PCC

Officer

Each BSM has a three 20 minute Review Panel meetings during the course of PBB to:

– present findings– explore

opportunities– validate findings and

assumptions – redirect effort– request / receive

Panel support

Example PBB Project Timetable

7/6/1414/6/1421/6/1428/6/14

5/7/1412/7/1419/7/1426/7/14

2/8/149/8/14

16/8/1423/8/1430/8/14

6/9/1413/9/1420/9/1427/9/144/10/14

11/10/1418/10/1425/10/14

1/11/148/11/14

15/11/1422/11/1429/11/14

6/12/1413/12/1420/12/1427/12/14

3/1/1510/1/1517/1/1524/1/1531/1/15

7/2/1514/2/1521/2/1528/2/15

Priority Based Budgeting - Project 16-Jun-14 21-Feb-15Planning & Team Development 16-Jun-14 28-Jun-14Data and Workbook Preparation 23-Jun-14 12-Jul-14SME Training 07-Jul-14 19-Jul-14SME Data Gathering & Activity Analysis 21-Jul-14 16-Aug-14Standardisation & Validation 18-Aug-14 23-Aug-14Practice / Mock Panel 25-Aug-14 30-Aug-14Panel Review I 01-Sep-14 06-Sep-14SME Draft Proposal Preparation 08-Sep-14 04-Oct-14Standardisation & Validation 06-Oct-14 11-Oct-14Practice / Mock Panel 06-Oct-14 11-Oct-14Panel Review II 13-Oct-14 18-Oct-14SME Final Proposal Preparation 20-Oct-14 15-Nov-14Standardisation & Validation 17-Nov-14 22-Nov-14Practice / Mock Panel 17-Nov-14 22-Nov-14Panel Review III 24-Nov-14 29-Nov-14Draft [pencil] funding line 01-Dec-14 06-Dec-14Review impact and interdependencies 08-Dec-14 10-Jan-15Consult re. Draft funding outcomes 08-Dec-14 10-Jan-15Confirms final [pen] funding line 12-Jan-15 17-Jan-15Implementation Planning 19-Jan-15 14-Feb-15Implementation Plan Approval 16-Feb-15 21-Feb-15

Jan. 2015 Feb. 2015AugustJulyJune November December

Start End

September October

Contact Details

If you require additional information about how PBB can enable your organisation to develop a robust and coherent response to funding and resource challenges, lese contact:-

Malcolm Anthony at ProjectProject Limited

Email :- malcolm@projectproject.co.uk

Mobile :- +44(0) 7712 777 641

In addition to extensive experience of delivering successful PBB initiatives, ProjectProject has a complete suite of the tools and learning resources required to enable you and your colleagues to develop a robust, deliverable, balanced budget and resourcing plan.

Appendix -Tools and Resources to support PBB Delivery

The PBB process is supported by standard tools and extensive documentation that has been developed and refined through numerous successful projects.

• Generic PBB project plans and timetable

• PBB Team Member training

• Budget Subject Manager training

• PBB Activity Analysis & Proposal Workbooks, inc. completion instructions

• Service Level identification tools and techniques

• Method improvement identification tools and techniques

• Panel Member roles, responsibilities and training materials

• Ranked priority listing and selection tool

• Implementation planning templates, inc. guidelines and instructions

• Implementation “readiness assessment” tools and guidelines

• Implementation reporting templates