The SCM – main issues, advantages and challenges of quantificationof administrative costs

Daniel TrnkaRegulatory Policy Division,Directorate for Public Governance and Territorial DevelopmentOECD

28 June 2011, Jerusalem 

What is the Standard Cost Model?• Invented by the Dutch Ministry of Economic

Affairs in the mid 90s • A tool to measure administrative costs and

express them in monetary terms• Advantages:

– SCM makes costs ‘visible’ – Easy to measure, monitor & communicate– Uniformity, transparency, reliability and comparability– Commitment & awareness of policymakers– Enables to distribute the target across adminsitration

• Disadvantages:– May be too costly– Focus only on one part of costs, not benefits

Different costs of regulations

The costs of regulation to businesses

Direct financialcosts

Compliancecosts

Long-termstructural costs

Indirect financial costs(substantive compliancecosts)

Administrative costs

What are administrative costs?

• Administrative costs/burdens (AB) are the costs imposed on businesses, when complying with information obligations stemming from government regulation

• Costs of paperwork – e.g. filling in forms, submitting them to the administrative authorities

• But also – gathering, processing and updating data, inspections

The methodology for AC measurement

The Standard Cost Model

Possible to differentiate between particular regulations, ministries, sectors of regulation

Methodological questions

• Business As Usual (BAU) costs • Costs of material, equipment• Statistical relevance• Costs of informing third parties

(customers, trade unions…)

A zero based measurement• Starting point and source of information for a

reduction programme• 4 stages:

– Inventory of legislation– Desk research – sources of regulation, type of IO,

identification of regulated entities– Measurement (interviews, expert meetings, testing)– Reporting

• Should all regulations be included?– Beyond Pareto principle - 10% of the IO’s accounts for

90% of AC– Prioritisation – risk of omitting important areas

Statistical relevance

• SCM based on assumptions, not on precise numbers

• 3 to 5 measurements per IO (and consultations of stakeholders) - a sophisticated rule of thumb

• If results converge, 3 to 5 is enough, if not, need a bigger sample

Simplification proposals• Possible measures:

– Abolishing regulations / information obligations

– Streamlining procedures– Harmonizing definitions (e.g. Wages)– Data sharing inside adminsitration– Reducing frequency of information

obligations (Monthly becomes Quarterly ; Quarterly becomes Annual)

– Altering target groups (e.g. SMEs exemption)

– Using ICT (e.g. e-filling, pre-filled forms)

Inter-agency co-ordination

• One ministry/special agency/centre of government

• Inter-agency co-ordination structures

• Political support, necessary teeth• Distributed targets? Same for

everyone?

Institutional setup

• Example of Viet Nam

Involvement of Stakeholders

• Extremely important throughout the whole project:– Defining priorities– Measuring and testing– Looking for simplification proposals

• Website for submitting ideas• Steering committee, working groups• Advisory committee

Main success factors• Political support, top-level, across

administration• Comprehensive strategies, integration

with other policies• Communication and co-operation with

stakeholders• Targeting, prioritisation• Institutional set up, capacity building• Continuous evaluation, benchmarking

Main challenges• Sustained momentum • Cutting dead wood • Last mile issue• Communication – with stakeholders, of results,

managing expectations• Possible discrepancy between the most

burdensome and the most irritating regulations• Integration with e-government efforts• Evaluation• Potential squeezing-out effect• Integration with other policies• Integration into ex ante impact assessment

For more information see:• OECD Cutting Red Tape series:

– National Strategies for Administrative Simplification– Businesses' Views on Red Tape– Comparing Administrative Burdens across Countries– Progress in Public Management in the Middle East and North

Africa– Why Is Administrative Simplification So Complicated?– Country reviews: the Netherlands, Portugal. Poland, Viet Nam

• Overcoming Barriers to Administrative Simplification Strategies: Guidance for Policy Makers

• SCM Network: http://www.administrative-burdens.com/

New OECD Recommendation2.6 Eliminate unnecessary regulatory costs imposed on users of regulation2.4 Co-operate with stakeholders on developing new and reviewing

existing regulations by … Structuring reviews of regulations around users’ needs, co-operating with them through the whole process …

5.2 Reviews should be scheduled to assess all regulation systematically over time, and reduce regulatory burdens. Priority should be given to regulation with significant economic impacts and/or causing highest irritation among users and/or impact on risk management.

5.5 Programmes of administrative simplification should include measurements of the aggregate burdens of regulation and consider the use of explicit targets as a means to lessen administrative costs for citizens and businesses. Qualitative methods should complement the quantitative methods to better target the efforts.

5.6 Administrative simplification programmes should be evaluated for their “value-for-money”. Evaluation should not only focus on the quantification of administrative burdens reduced but also on other outcomes and effects for society.

Thank you!

daniel.trnka@oecd.orgwww.oecd.org/regreform