© OECD

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Regulatory Impact Assessmentin Montenegro

SIGMA support project

Timo Ligi and Erik Akse

Budva, 18 & 19 May 2016

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Introduction

• The main aim of the workshop is to provide practical support for the Regulatory Impact Assessment (RIA) of the selected regulations

• Expect the WS to provide an overview of what needs to be done to complete your RIA (not the final version)

• This will be achieved through: Short description of the relevant RIA theory with

universal examples; Practical work and feedback in order to prepare

good quality RIA reports.2

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Day 1

• Planning of the workshop• Lunch • Dinner arrangements

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Day 2

• Planning of the workshop• Lunch• Travel back on 19 May

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Work distribution

• Timo Ligi: Company Law and Law on Foreigners

• Erik Akse: Inspire Implementation, Law on Fresh Water Fishing and Law on spatial planning/building permits

• MoF colleagues: please join the relevant teams from the line ministries and work with them

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Day 1

• Focus on Policy cycle Role of RIA Problem definition Objective setting Option analysis Impact identification

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The policy cycle andthe roles of RIA

Erik Akse

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RIA elements

• Step 1: Problem definition• Step 2: Objective setting• Step 3: Option identification• Step 4: Impact Identification and Option

analysis • Step 5: Option comparison• Step 6: Implementation and monitoring

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The EU Policy Cycle

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Models for (R)IA in Europe

• Many countries in process of building up RIA capacity or considering RIA implementation

• MNE: RIA treated as summary of the process after draft law is developed

• European Commission: IA and legislative drafting as parallel processes

• Kosovo: IA first (Concept Paper), developing draft law after adoption of analytical report

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The roles of Impact Assessment• Set process standards• Provide a uniform research framework• Provide the analytical basis to assess impacts• Strengthen cooperation within the administration• Ensure involvement of stakeholders• Obtain evidence and experience to support decisions• Providing an overview of a complex series of effects that

legislation often has• Make sure that new rules have added value and are fit for

purpose• Setting the basis for evaluation and providing the

framework for improving policy & legislative development11

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RIA WS part 1

Step 1: Problem definitionStep 2: Objective setting

Step 3: Option identification

Timo Ligi

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How to define the problem?

• What is the (extent of the) problem?• What are the causes?• What are the consequences? • Who are affected by the problem and its impacts?

How?• How would the problem evolve without

regulatory changes? • Does the problem exist because of lack of

regulation? Or: Why the problem has not been solved by the existing regulatory framework?

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The problem tree

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How to set the objectives?

• Formulate goals so that they correspond to the problems, consequences and causes

• Limit the number of goals, and clearly set priorities

• Ensure goals are in accordance with strategies and programs of the Government

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SMART objectives

• Specific: precise and concrete so that they are understood similarly by all

• Measurable: should define a desired future state in measurable terms

• Achievable: those who are responsible for them must be able to achieve them

• Realistic: so that those responsible see them as meaningful

• Time-dependent: must be related to a fixed date or time period

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Spectrum of options

• Traditional approach – Adoption of regulations, implementation, instructions, monitoring of implementation, application of sanctions

• Co-regulation - Transfer of authority to representative associations

• Self-regulation - Voluntary codes and standards• Economic instruments - taxes, subsidies, fees,

transferable rights• Informational approach - Informational and

educational campaigns• No regulation - Market solution - no need for any

intervention 17

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How to identify relevant and feasible options?

• Identify policy options to meet the objectives (relevant – feasible – preferred options)

• Consider regulatory and non-regulatory options

• Narrow the number of options through screening for constraints, and measuring against pre-defined criteria

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Exercise 1: drafting part of your RIA report

• Break up into groups for each file: line ministry staff plus representative MoF RIA unit

• Write down in bullet points: Problem definition Objectives Options

• Report back during group discussion (appoint a spokesperson – time per group 10 minutes)

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Feedback session

• Reporting back on the exercise to draft a part of your RIA report

• Feedback from colleagues

• Opportunity to use this session to structure your RIA

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RIA WS Part 2

Step 4: Impact Identification and Option analysis

Erik Akse

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Predicting impacts

• Let practical questions lead you: What is it that is supposed to change to improve

the problem? Who benefits? Who carries the costs? Which parts of the administration need to

implement, enforce and/or monitor the new rules? How does consultation guarantee that all relevant

stakeholders are well informed and have the opportunity to provide their input?

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EUSpectrum of impacts

Fiscal: impacts on public expenditures and revenues

Social: job quality; non –discrimination; health and safety; crime, security; access to social protection, health and education etc.

Environmental: environmental quality; renewable resources; biodiversity etc.

Economic: business operations; investment; trade; consumers and households etc.

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Special focus areas for IA

• Budget Impact / Fiscal Impact• Fundamental Rights• SMEs• Competition• International Competitiveness• Consumers• Health• Regional Impacts• Administrative Burdens• Compliance Costs • etc

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Positive and Negative Impacts

Assess the additional costs and benefits compared to the situation in which no additional action would be taken, i.e. compared to the “do nothing” option

BENEFITS COSTS

GAINS LOSSES RESTORED LOSSES GAINS FORGONE

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EULarge or small impacts: Proportionality of the

analysis & quantification of impacts

Full monetization of impacts

Partial evaluation of impacts in monetary units

Quantification of costs and benefits

Full description of costs and benefits

Identification of advantages and disadvantages

When data is not sufficient, make assumptions (examples from other domains, other countries, opinion of stakeholders and experts, but avoid “capture”)

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Example of impact:Reduction in business costs

0

200

400

600

800

1000

1200

2014 2015 2016 2017 2018 2019 2020

Baseline Option A Option B

Impact option A

Impact option B

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Example of impact:Revenues to state budget

forgone

0

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100

150

200

2014 2015 2016 2017 2018 2019 2020

Baseline Option A Option B

Impact option A

Impact option B

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Distribution of benefits and costs in time

2014 2015 2016 2017 2018 2019 2020

BenefitsCosts

2014 2015 2016 2017 2018 2019 2020

BenefitsCosts

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EUTypes of impacts

• One-off impact (example: trainings to increase administrative capacity; changing working practices due to new legislative requirements such as updating forms and getting to understand the rules)

• Impacts limited in time (example: increased expenditure through subsidy scheme; increased inspections to monitor implementation)

• Long-term or permanent impacts (example: permanent annual benefits from ban of smoking in public places; increased staffing)

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• Use consultation to identify impacts

• Describe main costs and benefits for each option

• Provide a qualitative description for each impact, always

• Quantify impacts as much as possible as long as it is proportionate

• Assess additional costs and benefits compared to the baseline

• Analyse separately, where necessary, some specific impacts (impacts on SMEs, competition, etc.)

• Present a summary of positive and negative economic, social and environmental impacts for the analysed options

• The benefits of proposed options should justify the costs in terms of, for example, net benefits or cost-effectiveness

Key Quality Criteria for the analysis of Impacts

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Exercise 2: drafting part of your RIA report

• Break up into groups for each file: line ministry

staff plus representative MoF RIA unit

• Write down in bullet points:

Expected impacts

• Report back during group discussion (appoint a

spokesperson – time per group 10 minutes)

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Feedback session

• Reporting back on the exercise to draft a part of your RIA report

• Feedback from colleagues

• Opportunity to use this session to structure your RIA

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End of Day 1

• Wrap up: Q&A

• Dinner planning

• Start of WS session of 19 May: 9.00 h

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DAY 2

• Focus on: Consultation Data gathering Budget Impact Assessment Fiscal Impact Assessment Implementation Standard Cost Model

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RIA WS Part 3

Stakeholder consultation and stakeholder identification

Erik Akse

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Policy development

• Problem analysis• Objectives definition• Defining options • Impact analysis• Selection of best option• Adoption• Implementation, monitoring and

evaluation37

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The EU Policy Cycle

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Why consult?

• Testing policy ideas• Obtaining additional information: facts,

figures, suggestions etc• Obtaining a feeling of the acceptance of a

proposal• Showing that you know the impact and

who is affected• Preparing your minister by knowing what

reactions there might be to a proposal39

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Consultation in practice

Consultation builds on your expertise!

Four questions that guide consultation:

1. Who to consult?

2. How to consult?

3. When to consult?

4. On what to consult?40

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Q1: Who to consult?

• Most affected stakeholders

• Most interested stakeholders

• Stakeholders that are potential partners

• Organisations that are needed to make the

proposal work

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Q2: How to consult?

• Knowing who to contact is the first step• The way you organise a consultation determines in

part the outcome, e.g. targeted vs public consultation• Weigh the pros and cons of consultation mechanisms

and choose the appropriate method• Email: cheap, reaches many, response rates often low• Letters: costly, reach many, response rates often low• Conferences: costly, reach specific audience, discussion

platform• Interviews: costly, reach a few, in-depth knowledge,

dialogue 42

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Q3: When to consult?

• What information do you need? • Do you know the problem definition well enough? • Are the objectives reasonable? • Do you feel comfortable about the options? • Are the impacts clear? • Consult while you are developing a RIA and reach

out to stakeholders before you make relevant decisions

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Q4: On what to consult?

• Only you can determine this• Know what you need to know• A bad consultation is wasted time for all involved,

including you• The more you consult, the easier is it to dose the

information you want to discuss• The more you consult, the better you can discuss

each aspect in depth• The more you consult, the more people might get

annoyed and unwilling to reply (depending on how you consult)

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Planning for consultation

• What is the final deadline for the RIA?• When are the responses needed?• What resources are available? • Which information is missing?• What preparation is needed?• Does the minister want or need to be involved?• With whom to cooperate?• Who will do what?

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Consultation as a project

• Drafting a RIA is a project in itself• Consultation is a separate sub-project that

is essential to complete the RIA• When done right, it will provide you with

the information you need or show that you did your utmost best to obtain it

• Distribute the work, where possible, according to preferences for specific consultation methods

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Making consultation work

Essential to understand your target audience:• How will your message be received?• How much time do stakeholders have?• What are the capacities of stakeholders?• Where lies their interest?• How can their involvement be boosted?

Important to translate these questions into the work plan for your consultation

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Making a consultation useful

• Consult when it fits the development of the RIA and your analysis

• Consult multiple times when necessary• Invest sufficient time in analysing the

replies• Show where stakeholders made a

difference • Make sure you provide feedback

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Exercise 3: identifying stakeholders

Three main groups of stakeholders1. External stakeholders (business, NGOs etc)2. Semi-internal: enforcement/inspection authorities,

regional and local authorities3. Internal: other ministries

• Please list your stakeholders according to this classification

• Be as specific as possible (e.g. define the specific business organisations and NGOs)

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RIA WS Part 4

Data gathering

Erik Akse

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Data and RIA

• RIA is made for legislation that is meant to solve problems; statistics regularly do not capture the issue at hand

• Often, data is available but it needs to be analysed, dissected and/or repackaged

• Essential to know what you need to know and who might hold the information you need

• RIA provides tools, in particular the SCM, to organise and present data in a practical way

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Data sources

• Your knowledge and experience (including making assumptions)

• Knowledge and experience of colleagues (including from other institutions)

• Consultation (informal and formal) with those likely to be affected

• Consultation with experts• Market reports, official statistics, internet

information• Comparisons of international data and material

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Types of data: from elaborate statistics to anecdotal evidence• Statistics & trends• Scientific analysis and reports• Surveys that provide opinions, ideas,

experiences and facts• In-depth interviews that provide deep insight

into a specific situation and that might yield a basis for broad policy action

• And any other information that can be properly gathered and enriches the analysis

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Lacking data?

• Know your data needs as early as possible• Check your opportunities to gather ‘missing’ data:

how hard is it really going to be?• Insufficient valid data?

• Benchmarks: other policy fields or international• Estimates and ranges based on expert knowledge• Use the RIA to propose improvements

• Test your assumptions with other experts and stakeholders

• Use targeted and clear questions during consultation since it affects your data quality

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Working with data

1. Collect data throughout your RIA work – its an iterative process

2. Validate assumptions through stakeholder consultation

3. No data? You are an expert so make reasonable assumptions and state them clearly

4. Present data in the RIA so a careful reader can follow to connect input data with outputs (i.e. the estimated effects)

5. Make weaknesses transparent and deal with uncertainties & data gaps openly

6. When necessary, use diverse sources to guard against bias

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Exercise 4: assessing data needs

• Based on your work from Day 1 and the identification of stakeholders, make an overview of the data that would improve your RIA

• Assess the importance of the data from ‘nice to have’ (score 1) to ‘essential’ (score 10)

• Assess how you might get the information that you would need and from whom, e.g. consultation, working group members etc

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Feedback session

• Reporting back on the exercise on assessing your data needs

• Feedback from colleagues

• Make notes as to what information you have and what information you think you still need

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RIA WS Part 5

Types of analysis, Budget Impact Assessment and Fiscal Impact Assessment

Erik Akse

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Types of analysis for RIA

Three main ways to assess the impacts

• Cost-benefit analysis (full or partial)

• Cost-effectiveness analysis

• Multi-criteria analysis

+ Budget IA and Fiscal IA

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Cost-benefit analysis (CBA)

Should be applied when• Most significant parts of the costs AND benefits can be

expressed in monetary terms. AND• When there is a degree of choice resulting from this analysis.

A proposal is considered justified when the analysis shows net benefits.

• Full CBA covers all benefits and costs in monetary terms.• Partial CBA combines monetary assessment of some parts of a

proposal complemented with a qualitative assessment of other costs and benefits.

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Cost-effectiveness analysis

• Works best when there is a specific end goal that needs to be reached: reducing certain pollutants in a river; building 3.000 new social housing apartments; implementing certain EU rules etc

• The total expenditure is compared to the effects this expenditure produces

• Expenditure should include all costs, also those of third parties

The option that costs the least ‘per unit of result’ is considered to be the best one.

Limitations• Leaves out proper balancing of the final benefit with the actual costs• Focus on one result risks loosing out of sight side-effects

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Multi-criteria analysis

• ‘None of the above’ category • Combining positive and negative impacts into a single framework • Allow easier comparison of scenarios through providing a structure• Others can follow the steps taken in the assessment• Combines a range of ways to compare options

Used when most relevant impacts cannot be monetised.

Limitations• High level of subjectivity• It might not be clear whether benefits outweigh costs

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Budget Impact Assessment

• Impact for the budget directly• Link to Medium Term Budget Plan• Covers implementation, inspection,

enforcement and monitoring activities• Needs to cover all relevant state bodies• When budget is available for a given year, your

claim on the funds limits the scope of other potential activities (e.g. training needs to be identified even when no additional funds are expected to be necessary)

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Fiscal Impact Assessment (FIA)

• Part of the main categories for analysis• Is more than a Budget Impact Analysis• FIA covers all changes to revenues and

expenditures of an administration: budget expenditure, tax incomes and tax losses

• It demands very detailed insight into the effected impacts of a proposal in terms of scope and background data

• Clear assumptions are essential• Best to work with upper and lower ranges

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FIA exampleLowering taxes on employment• Gross wage goes down and net wage stays the same (-)• Diminishing tax income from current employees (-)• Potential multiplier effects when specific taxes and fees are a

percentage of the gross income (-)• More people might apply for certain benefits when thresholds are

not adjusted (-)• More workers might join the formal economy (+)• Companies might employ more people (+)• Expenditure on (unemployment) benefits might go down (+)• Possibly lower gross wages in the public sector (+)• More people have more money to spend creating a second, yet

smaller wave of job creation (+)• More money in the economy: VAT & company profit base increase

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Discussion on German toll roads proposal

• Proposal to introduce toll charges for cars on German motorways (currently opposed by EU)

• Expected revenues: 3,7 billion euro, of which 3 billion from domestic drivers

• Net revenue: 500 million (due to reducing personal vehicle tax and 200 million in operating costs)

• These figures can be used for the Budget Impact Assessment (btw: they are contested)

• Which issues would you cover to make a proper Fiscal Impact Assessment?

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RIA WS Part 6

Standard Cost Model (SCM): structuring consequences for businesses, citizens

and administrations

Erik Akse

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SCM Quiz

Where did I find this:

P (price of procedure) x Q (total number of procedures)

= (H•T+A+E) • (N•F)

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SCM: history

• Developed in The Netherlands• Activity-based measurement approach• Presenting complex information in a structured manner

and thus allow for effective policy making• Linking the text of a law with actual implementation and

enforcement practice• It covered businesses first, but can be applied to citizens

and administrations as well• Its focus is on information obligations• However, the SCM methodology can be applied to predict

the effects of implementation requirements and other processes, e.g. set up new working practices

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SCM in practice

• Used in EU Impact Assessment• Administrative burden reduction programmes

(NL, DE, UK, DK, EU etc)• Dutch example:

2002: 16 billion euro burden measured; 25% reduction target set by the government

2003-2007: reduction of 4,2 billion euro 2008-2011: reduction of 1,8 billion euro 2012-2017: reduction of 2,5 billion euro

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SCM reduction examples

• eLogbook: saves time for ship captains and the administration, EU: 19 million euro

• Permit system one-stop-shop, NL: 56 million saved

• Unifying legal terminology and definitions in tax domain and social policy areas, NL: 295 million saved

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SCM: graphic overview

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SCM activities: example

• Filling in a form and send it to the government

Understanding what you need to do is an activity

Each question can be a separate activity

Process of quality control is an activity

Putting it in an envelope and sending it is an

activity

Printing costs and stamp are out-of-pocket costs73

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What’s the use of the SCM?

• Ensuring that new legislation is efficient and that existing rules are updated

• Reductions possibilities: Withdraw a law Eliminate an obligation Abolish specific activities Reduce the time needed Ensure that the wage factor goes down Reduce number of entities Reduce frequency of obligations

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SCM: tweaking the model

• Out-of-pockets costs for companies can replace the elements ‘Wage’ and ‘Time”

• For citizens, only time and out-of-pocket costs are measured

• Split implementation obligations into specific activities and predict the implementation workload for government organisations

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Exercise 5: SCM application

• Based on your work so far, identify the obligations for companies, citizens and/or administrations

• Write down which activities are necessary to fulfil with these obligations

• Make a distinction between expected activities: one-off, medium term and long term

• Use your expert knowledge to fill the SCM • If you lack information, assess where you

might find it and/or who might hold it76

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Feedback session

• Report on your experiences with the SCM: what was easy, what was hard, how useful could it be to you, etc

• Ask us for input and ideas

• Complete the model for your RIA

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End of Day 2

• Wrap up• Meeting schedule for Friday 20 May• Next steps• Travel back to Podgorica

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