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Functional Reviews & Reengineering

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A functional review of government expenditures evaluates existing expenditure programs in terms of their results and efficiency. The product of such a review identifies possible expenditure savings and also revenue  enhancements, which would be available for reallocation to other activities or programs, or for improving the overall budget balance. It must be clearly understood that the reviews fit within an agreed fiscal strategy and are not treated as an opportunity to bid for additional funds.

The scope of such a review does not always cover all departments, or necessarily all areas of expenditure within departments. The focus should be on the major areas of spending, including health and education expenditure. As far as possible, the reviews should draw on existing information and previous reviews or studies, rather than reinventing the wheel.

Issues to be examined in each chosen department should include:

  1. What functions, activities or programs are currently being undertaken by each department? What do they cost and how many staff are they using?
  2. What is their rationale? How do they relate to any strategic objectives or priorities stated for these departments, if such objectives and priorities exist?
  3. To what extent have adequate medium term sectoral strategies been established to guide this process? What strengthening of policy capacities (analysis) is required in central agencies and sectoral (service delivery) departments?
  4. What are the apparent outcomes (effectiveness and service delivery quality) of these activities or programs? If activities or programs are ineffective or provide poor service delivery, what response or changes are required?
  5. What is the appropriate role of government in these areas? Are there activities or programs that do not appear to be a proper activity for government, and which therefore could be eliminated or transferred to the private or non-government sectors?
  6. Are there activities or programs for which new service delivery arrangements – such as contracting out, partnerships with the private and non-government sectors – would improve outcomes and efficiency?
  7. Are there activities or programs that appear to serve no useful purpose and could be abolished?
  8. For revenue generating departments, is there potential to increase revenues by improved administration or targeting?
  9. Are there activities or programs for which new or additional user charges would be appropriate – or where charges should be reduced or eliminated?
  10. Are there apparent duplications or overlaps between different activities or programs – either within or between departments – which could lead to rationalization and savings? Can a reduction be made in the number of individual agencies?
  11. What is the relationship between the national government and the provinces and districts in the delivery of services by these departments? Do existing arrangements provide for adequate local autonomy, but at the same time promote accountability for performance and policy overview by the national government for the achievement of national objectives? What funding and legal changes might be needed to achieve this?
  12. Do budgeted funds actually reach the point of service delivery? If cuts in allocations are needed during the year, where do these cuts normally fall?
  13. Are desirable activities or programs adequately funded to achieve their required results? If not what additional funding is necessary?
  14. What desirable activities or programs are over-funded or over-staffed and have possible efficiency gains? What is the extent of such possible efficiency gains? If staff reductions are desirable, should staff be retrenched or transferred to other functions, activities or programs? If retrenchment is desirable, what would be the costs and who will manage the process?
  15. What appear to be the major barriers in the central systems of budgeting and financial management, personnel management, and procurement to achieving better outcomes and efficiency?

The prepared report should include:

  1. a review of the issues outlined above
  2. an indication of the base-line expenditure necessary for each department to carry out its current functions, activities and programs
  3. a list of costed options for the government to consider in the development of the next budget
  4. a series of recommendations as to which options the government should adopt
  5. recommendations on strengthening policy capacity (analysis)
  6. a list of apparent key issues in performance monitoring and improving central management systems (budgeting and accounting, personnel, and procurement)

Cautions are appropriate since improvements resulting from functional reviews can be very short term if they do not originate within a hard budget constraint. Donors often soften hard budget constraints with aid additionality. In such cases, functional reviews can become simple staffing exercises, with the focus on how existing functions can be carried out with fewer staff.

Functional reviews in Kazakhstan in 1998-99 were effective, linking the reviews with a reform of the budget process. In Nicaragua structure and function diagnoses of 9 government agencies led to a program of emergency cuts and a new Executive Branch Organization law streamlining the central government. Thailand has embarked on functional reviews of its six economic ministries. These reviews have supported some re-engineering of processes in the Department of Commercial Registration of MOC and the Lands Department, as well as reforms in the Revenue Department, Customs Department, and Social Security Office. A number of these changes have involved "clients" (i.e., users of these government services) as part of improving performance by developing a customer focus.

Business process re-engineering                                 

It can be argued that the traditional vertically integrated hierarchy served the needs of the industrial age well. It organized work into groups of similar functions, making it easier to manage an uneducated work force, simplifying employee supervision, and maximizing the managerial span of control.

The term re-engineering has become a buzzword and is applied to many process and/or organizational development and process simplification methodologies. Business Process Re-engineering (BPR) is said to produce organizations that are better suited to the modern speed of communications and a better-informed and educated public and work force. Business Process Re-engineering is an organization and management philosophy.

A business process is defined as a series of work activities that produce output products and services. Activities take place through the interactions of people and technology. BPR asks questions such as:

  1. Is it the role of government to provide these services? Does it improve the social and economic welfare of its citizens?
  2. What is the cost/benefit of providing the service?
  3. Can we afford it? Does the business process provide a value-added that is justifiable in terms of the finite government funds?
  4. If the service should be provided, who can most effectively provide it? Is it the public sector, the private sector, or partnerships, etc?

BPR can be applied to a whole public service, a ministry or agency or an individual process or sub-process within a ministry or agency. Although the overall implementation steps usually remain constant, there is a need to customize the steps to the particular situational conditions of the host country.

BPR is a top-down approach and requires a sufficient degree of senior support and a mandate before it can be undertaken successfully.The preparation stage produces a mandate for change, an initial change management plan, a BPR organization team structure, a charter for the reengineering team(s), and the modernization’s strategic objectives, overall strategic framework and project plans. Initial high-level re-engineering entails clarification of the role of government, mission, mandate, and vision of the public service, as well as mapping strategic and core business processes prior to determining whether or not:

  • the service should be continued
  • who can best provide these services (agencies, ministries or private sector)
  • what strategic processes should be a priority for re-engineering

Subsequently, BPR defines the customers, measures of performance (and success), and the processes to reengineer.

Recommended readings:                                       

  • Moore, Mark H. 1995. Creating Public Value: Strategic Management in Government.  Cambridge, Mass.: Harvard University Press.
  • Girishankar, Navin, and Migara De Silva. 1998. "Strategic Management for Government Agencies: An Institutional Approach for Developing and Transitional Economies." World Bank Discussion Paper No. 386. World Bank,  Washington, D.C.
  • Tendler, Judith. 1997. Good Government in the Tropics. Baltimore, MD: Johns Hopkins University Press.

This page was developed by David Shand, Bob Beschel, and Nick Manning of the World Bank and Consulting and Audit Canada.  It was submitted on 6/8/00.


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