Stratwegic Business Plan Part-2 Tarun Das

8/14/2019 Stratwegic Business Plan Part-2 Tarun Das

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Strategic Planning Part-2 by Tarun Das 2

5. Appraisal of Present SBPs


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5.1 Appraisal of Present SBPs

We have gone through the latest SBPsof the HQs of the MOF, MOECS, MOHand MOSWL.

However, we have not seen any SBP

for an Agency under these Ministries. The reason for selecting these

Ministries is that they account formajor share (more than 75%) of the

govt budget, and also very importantby functional classification of budget.


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5.2 In 2006 MOF, MOSWL, MOECS & MOHaccounted for 75% of the CG Budget

Finance

26%

Soial

Welfare22%

Eduation18%

Transport

10%

Health9%

Justice

5%

Others

10%


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5.3 Govt Expenditure by Functions(%) Average of 2004 and 2005

Expenditure by Function (%) 2004-2005

Gen services,29

Defence, 5

Social

security, 22

Housing &

comnty, 1

Education, 19

Econ services,

11

Health, 10

Others, 3Gen services

Defence

Social security

Housing & comnty

Education

Econ services

Health

Others


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5.4 Appraisal of Present SBPs

We have held discussions on SBP andMaster Plans with officials of theseMinistries, as well as with theirnational and international consultants.

All the Ministries must becomplemented for producing excellentand comprehensive Reports.

We appreciate very much their hard

work and high quality of reports.However, there is always some scopefor improvements.


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5.6 Desired Uniform Structure

1. Foreword by the Minister2. GMs Statement3. Vision, Mission, Values, Priorities and Clients4. Environment Analysis in terms of Strength-

Weakness-Opportunities-Threats (SWOT)

5. Strategic Purpose and Objectives6. Specifications of Activities, Outputs,Outcomes and Goals

7. Structure and Organization8. Budget for the Strategic Planning Period9. Monitoring and Assessment System10.Annex: Implementation and Evaluation

Report of the previous SBP


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5.7 References to MDGs First three chapters viz. Foreword, GMs

statement, Vision and Mission can beimproved by referring to the concernedtargets in Millennium Development Goals(MDGs) and the Master Plan (2006-2015).

Along with other nations of the world,

Mongolia has committed to achieve the UN-MDGs by 2015 in the following areas: reduction of poverty and hunger, achievement of universal education, ensuring equality for women,

improvement in health, environmental sustainability and global partnership in development.


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5.8 References to MDGs

3. Since their adoption in 2000, the MDGs

have become the overarching objective ofall UN agencies and funding organisations.4. They have reached to the top policy agenda

and are being mainstreamed into thenational development plans of many

developing countries.5. Their reference at the very outset in the

Ministers and GMs statements willdemonstrate, to the citizens and to theinternational community at large, thatMongolian govt is fully committed andmaking best efforts to achieve MDGs in thespheres of education, health, socialsecurity and poverty reduction by 2015.


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5.9 Outputs and Outcomes

1. As regards outputs and outcomes, there is a

genuine difficulty in the identification ofoutputs and outcomes by the Head Quarter(HQ) of any Ministry.

2. Most of the outputs as described presentlyby the HQ are not really outputs but

activities (or the functions) of the Ministry.3. Most of these activities relate to routine

works or the policy advice and policyplanning for the HQ and Agencies under it.

4. In the strict sense of the term, policy advicecannot be regarded as an output as it is notquantifiable and its quality is not uniformover time and over individuals.


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5. In fact, policy advice and associated

functions should be regarded asActivitiesor Processes which help to transform

inputs and resources (in terms of man,materials, machines, money etc.) into

Outputsand finallyOutcomes.6. At present in any SBP for the HQ there is avery elaborate description of theseactivities or the so-called outputs.

7. This list may be kept as an internal

document for guidance of activities.8. But, a short version of major activities maybe reported in the SBP for public use.


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9. Although in a strict economic sense, policyadvice cannot be taken as an output, amajor part of the time of the officers at theHQ is spent on policy advice and planning.

10.Besides, output budgeting in Australia,

which is pioneer in output budgetingrecognize policy advice as an output.11. Mongolian Public Sector Management and

Finance Act 2002 also recognizes policyadvice as an output (Articles 23.2 & 23.3).

12.Considering all these facts we may considerpolicy advice as an output of the HQ.


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5.12 Headquarter Budget In this respect, it is worth noting that the

share of HQ budget in the total budget of

the Ministry is very small. As there are fixed costs for administration,

the share is higher for smaller Ministriesand lower for larger ministries.

Nevertheless, in large sectoral ministriessuch as MOF, MOH, MOSWL and MOECSwith staff directly involved in actual servicedelivery down to the grassroots level, inaddition to their planning, distributive,

regulatory and coordination functions; avery small HQ budget may put constraintson their efficiency and productivity.

There is a need to enhance both the staffand budget for the HQ of these ministries.


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5.13 HQ Budget as % ofMinistrys Total Budget in 2003


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5.14 HQ Budget as % ofMinistrys Total Budget in 2003


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5.15 Budget Allocations in 2006

Ministry Total As % HQ HQ as %

Budget of Total Budget of Total

MOF 312238 27 1227 0.39

MOECS 208715 18 287 0.14

MOSWL 263172 22 925 0.35MOH 103168 9 436 0.42

MOJ 61212 5 489 0.80

MOT 72052 6 534 0.74

MOE 36331 3 609 1.67

OTHERS 119772 10 37203 31.06

TOTAL 1176659 100 41710 3.54


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5.16 Some Suggestions

My suggestion is to prepare only one document

for the SBP for the Ministry as a whole i.e. tocombine SBPs of the HQ and all Agencies underit for effective budgeting and co-ordination. TheState Secretary may be given this responsibility.

However, as usual, MOUs will be signed with the

Agency Heads with performance parameters. Ifthey perform better, they may be allowed toretain profits for future expansion.

Such an arrangement is feasible under the Public

Sector Management and Finance Law 2002provided that the concerned Portfolio Ministerconsiders it efficient and the GM of theconcerned Agency also agrees (Article 19.4).


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6. Stylized Design of a SBP


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6.1 Stylized Design of a SBP


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6.2 Basic characteristics of indicators The basic criterion is that the output and

outcome indicators, as far as feasible, shouldbe CREAM.

Clear- Precise, unambiguous, tangibleand quantifiable

Relevant-Appropriate for the strategicobjectives Economic-Available at reasonable cost

and within reasonable time periodAdequate- Provides sufficient basis to

access performance Monitorable-Amenable to independent/

objective evaluation


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6.3 Components of a Typical SBP

Inputs(man, materials, machines etc) are thebasic requirements for any output andstrategic planning.

Activities or Processesare those which

transform inputs into outputs. Outputsare the immediate or end results of

activities. Outcomesare the medium termimpact of government policies and programs,

whereas goalsare the wide spread and longterm impacts on the economy, even after thestrategic planning period had been over.


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6.4 Top-Down Approach

While preparingStrategic BusinessPlan, we need toadopt a Top-Down Approach.

Outcome

Output

Activities

inputs


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6.5 Example: Australian Treasury Budget

Outcome Output Groups 2005-06

(A$ Mln)Outcome 1:Soundmacroeconomic

environment

Output group 1.1:Macroeconomicgroup

35.8

Outcome 2:Effective govtspending and

taxationarrangements

Output group 2.1:Fiscal groupOutput group 2.2:

Revenue group

58.4

Outcome 3:Well functioningmarkets

Output group 3.1:Markets group

90.3


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6.6 Australian Treasury Budget 2005-06Outcome Output Groups (A$ Million)1: Sound

macroeconomicenvironment

1.1: Macroeconomic

1.1.1 Domestic economic Policyadvice and forecasting (8.9)1.1.2 International eco. policyadvice and assessment (26.9)

2: Effective govtspending andtaxationarrangements

2.1: Fiscal group2.1.1 Budget policy advice andcoordination (4.3)2.1.2 Commonwealth statefinancial policy advice (2.8)

2.1.3 Industry environment andsocial policy advice (7.3)2.2: Revenue group2.2.1 Taxation and incomesupport policy advice (44.0)


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6.7 Australian Treasury Budget 2005-06

Outcome Output Groups (A$ Million)

Outcome 3:Well functioningmarkets

Output group 3.1: Marketsgroup3.1.1 Foreign investment policyadvice and administration (4.1)

3.1.2 Financial system andcorporate governance policyadvice (22.9)3.1.3 Competition andconsumer policy advice (19.7)

3.1.4 Actuarial services (1.5)3.1.5 Circulating coins and likeproducts (42.1)


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6.8 Goals and Outcomes of MOF

As regards outcomes of the MOF, these willbe trends of major macro-economic and fiscalvariables (such as real GDP growth rate,inflation rate, ratios of public debt, externaldebt, current & overall balance to GDP etc.).

For other Ministries, the minimum outcomes

could be MDGs and other indicatorsmentioned in their Master Plans. Health Sector Strategic Master Plan (2006-

2015) prepared by the MOH, and the SocialSecurity Sector Strategy Paper prepared by

the MSWL providevarious output measures. Some suggestions on these aspects have

been provided by us for each Ministry.


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6.9 Output Indicators

Output indicators of the Departments couldbe the important policy documents, briefs oneconomic trends, other reports, surveysconducted, amendments of existing acts or

preparation of a new act etc. which arequantifiable, tangible and monitorable overtime.

Let us take the SBP of the MOF for the year

2005 as given in the MOF SBP for 2005-2007. Similar tables can be prepared for other HQs.


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6.10 Output-Based Input Budgeting

Presently the HQ of a Ministry adopts amethodology which can be described asOutput-based or more accurately activity-based inputs costing and inputs budgeting.

The methodology consists of costing of inputs(in terms of personnel, goods and services,

and overheads) required to sustain theactivities for producing the desired outputs. It may be mentioned here that only Australia

and New Zealand adopts the methodology ofoutput budgeting, but most of the other

countries adopt the methodology ofoutput/activity-based inputs costing andinputs budgeting.


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7. OUTPUT BUDGETINGMDG Goals: 1. Reduce Poverty and Hunger

2. Achieve universal primary education3. Promote gender equality & empower women4.Reduce child mortality5. Improve maternal health6. Combat HIV/AIDS, Malaria, TB, other disease7. Ensure environmental sustainability8. Develop global partnership for development


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7.1 Output Costing and Budgeting

Under output budgeting, an identified

output becomes a cost and budgetcentre, so that the cost of that outputcan be estimated, budgeted, monitored,and evaluated.

If single output cannot be budgeted,then related outputs can form an outputgroup and the cost and budget centre.

The Departments and Agencies who areresponsible for the output should also beidentified and specified in the Budget.


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The Ministries have already identified inputs,

activities and output groups. MOF has also estimated total output cost for

broad output groups and sub-groups. Output budgeting becomes meaningful only

when the cost of each output is subject toaccounting and auditing. In other words,under the system of output budgeting, eachoutput becomes a cost centre.

In my opinion, this can be achieved only in aphased manner. At the first phase, eachdepartment can become a cost centre.


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Output budgeting needs to be organised

Department wise. Departmental budgetalong with outputs need to be specified sothat accounting and auditing byDepartments and Outputs are feasible.

My suggestion is that at the first stage thetotal departmental budgeting along withspecific outputs may be indicated in thebudget. In other words, Departments will becost centres.

At a later stage, when the system isdeveloped properly, the specific outputs canalso become cost centres.


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7.4 MOF Output Budget for 2005

Output classes and sub-classes Person-days

Mln tog %

1. Economic Policy Advice 3958 67.5 12.7

1.1 State socio-econ SP 2880 44.3 8.3

1.2 Regional socio-econ SP 1078 23.2 4.3

2. Sector & inv. Management 3214 55.6 10.42.1 Sector & fincl. management 1743 29.9 5.6

2.2 State budget investment plan 1471 25.8 4.8

3.Budget Management 4343 79.9 15.0

3.1 Revenue policy, planning 1068 20.2 3.8

3.2 Expenditure policy, planning 1706 31.2 5.8

3.3 Unified budget planning 1569 28.5 5.3


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7.6 MOF Output Budget for 2005

Output classes and sub-classesPerson-

days

Mln tog

%

7. Accounting and auditing 2104 35.4 6.6

7.1 Accounting & audit policy 1468 25.3 4.7

7.2 State sector financial report 636 10.1 1.98. Govt admn management 6314 102.9 19.3

8.1 Admn, legality& HRM 3845 62.8 11.8

8.2 IT and advertisement1287 20.4 3.8

8.3 Monitoring and assessment 1182 19.7 3.7

Total output budget 32286 533.3 100.0


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7.7 MOF Output Budgeting

We have observed in the last three slides thatMOF has committed to deliver 8 outputgroups with 19 specific outputs.

For proper output budgeting, we need tokeep separate accounts for 19 separate

output/cost centres, and need to haveseparate budgets fo each of them.

In my opinion, this may not be feasible at thisstage of accounting and auditing in Mongolia.

But we need to have at least separatedepartmental budget with broad outputgroups in order to implement outputbudgeting.


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7.8 MOF Departmental Output Budgeting

Department

Output Group Mln Tog %1. Economic

Policy1. Economic Policy

Advice 67.5 8.5

2. Fiscal Policy& Coord.

2. Revenue,expenditure &investment policy

& planning 105.7 13.32.1 Revenue

Division 2.1 Revenue policy 20.2 2.5

2.2 ExpenditureDivision

2.2 Expenditurepolicy 31.2 3.9

2.3 FiscalConsolidationDiv

2.3 Unified budgetplanning 28.5 3.6

2.4 Investmentdivision

2.4 Investmentplanning 25.8 3.2


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Department

Output Group Mln Tog %3. Treasury 3. Govt cash assets

management 107.7 13.5

3.1 DebtManagement div 3.1 Govt debt

management 37.9 4.83.2 treasury expaccounting &reporting

3.2 consolidatedfinan report 33.5 4.2

3.3 Banking

settlement div

3.3 Banking

settlements 36.3 4.64. ProcurementPolicy &Coordination

4. Procurementpolicy & coord 34.4 4.3


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Department

Output Group Mln Tog %5. Loan & AidPolicy & Coord.

5. Foreign creditmanagement 49.8 6.2

6. Accountingpolicy &

Supervision

6. Accounting and

auditing 35.4 4.47. Financialsector policy

7. Financial sectorpolicy & regulation 29.9 3.8

8. State PublicAdmn including

State Secretary,Minister, ViceMinister

8. Govt admmnmanagement 366.9 46.0

Total Ministry of FinanceHQ 797.3 100


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8. Benchmarks and

Accrual AccountingMDG Goals: 1. Reduce Poverty and Hunger2. Achieve universal primary education3. Promote gender equality & empower women4.Reduce child mortality

5. Improve maternal health6. Combat HIV/AIDS, Malaria, TB, other disease7. Ensure environmental sustainability8. Develop global partnership for development


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8.1 Cash Accounting and Benchmarks

Costing Methodology adopted by the

Ministries is based on the cash accountingsystem. This is the traditional methodadopted by many developing countries.

The methodology is alright so long as theimplicit norms or benchmarks for costing

different heads are made explicit and aresubject to approval by the financial advisers. Although it is not categorically mentioned in

the SBPs of different Ministries,thereappears to be some symmetry, uniformity

and convergence of various norms forcosting.


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8.2 Composition of Total Cost


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8.3 Composition of Total Cost


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8.4 Compensation to Employees

World Bank study on Mongolia Public Expenditureand Financial Management Review (2002) has

argued that among the transition economiesthe share of wages as a percentage in GDP inMongolia is relatively higher than that in othertransition economies.

We donot agree with such observation because

the analysis is subject to the following errors:(a) Concept of wages may be different (other

countries may receive many in-kindallowances which may not exist for Mongolia,

(b) Composition of GDP may also be different.(c) Due to these differences in the concept andscope of wages and salaries, it is difficult tomake meaningful international comparisons.

8 C i l


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8.5 Compensation to Employees

Table on next slide presents data onaverage personnel cost in MOF, MOECS and

MOH of Mongolia compared with that in thecorresponding Ministries and the CentralGovt of India, which had almost the sameper capita income (although in recent yearsthe Mongolia has higher per capita income).

Table indicates that the average cost pergovt official in any Ministry in India is muchhigher than that in Mongolia.

Even if we account for 30% rise of salariesfor govt officials in Mongolia in 2006, thepresent average salary per person inMongolia is less than half of that in India.

l


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8.6 Average Emoluments per Personin Mongolia and India (US dollar)

Average Employee Cost Per person per annum (US dollar)

Ministry/ Country 2004 2005 2006 2007

Mongolia- MOF 1469 1450 1970 1996

Mongolia- MOECS 1461 1503 2162

Mongolia- MOH 1327 1547 2195

India- MOF 4145 4134 4143

India- Min of Edu 4862 5067 5936

India- Min of Health 3827 4371 4435

India Central Govt 2706 2877 3397

Memorandum Items

Mongolia per capita income (US$) 676 785 951 1088

India: per capita income (US$) 637 719 792 868

8 7 Average Emoluments per Person


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8.7 Average Emoluments per Personin Mongolia and India

The differences will be much larger if one

considers the following factors:(i) The personnel costs for India include onlywages and salaries and do not includecontributions made by govt towardsprovident funds, pensions, life insuranceand health care.

(ii) The Indian govt officials receive manyother in-kind benefits such as govtaccommodation and its maintenance at

concessional rate, use of staff car ortransport allowance, free medicaltreatment, free telephones, magazines,newspapers, computers at residence etc.


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8 9 B h k


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8.9 Benchmarks

1. As regards Benchmarks on costing, due tovariations in the fiscal structure and scope

of activities of government in differentcountries, it is difficult to provide someinternational benchmarks for differentcomponents of cost.

2. However, benchmarks can be developed by

suggesting some improvements in onesown performance after comparing itsperformance in the past, performance in thepublic and private sectors, trends of otherfinancial variables (such as inflation, interestrates etc).

3. The Consultants will produce amethodological paperon benchmarks.

8 10 A l A ti


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8.10 Accrual Accounting

1. There is a need to move towards accrualaccounting system so that there are no

hidden costs and the full financial impact ofgovernment activities are captured in theBudget.

2. However, it may be mentioned here that onlyAustralia and New Zealand have been able to

adopt full accrual accounting, and all othercountries are adopting partial accrualaccounting which is known as cash plusaccrualaccounting.

3. The IMF Government Finance StatisticsManual (GFSM) 2001 recognizes that theimplementation of the accrual accounting cantake numerous forms and will depend oneach countrys circumstances.

8 11 Accrual Accounting IMF GFSM 2001


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8.11 Accrual Accounting- IMF GFSM-2001

4. For countries that have data only on a cash

basis, a first step could be to reclassify thesedata in the GFSM 2001framework.

5. Introduction of accrual reporting can take theform of either (i) the implementation of ad

hoc adjustments to the cash data (forexample, the recognition of in-kindtransactions and the accrual of interest) or(ii) the implementation of accrual accountingfor the source data.

6. Consultants will produce a methodologicalpaperon an operational system on cash plusaccrual accounting for Mongolia.


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Strategic Planning Part 2 by Tarun Das 54

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Stratwegic Business Plan Part-2 Tarun Das

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