Lessons Learned From Budget Reform at the World Bank. September 11, 2008

Transcription

1 Lessons Learned From Budget Reform at the World Bank September 11, 2008

2 Presentation Summary Budget Context Evolution of Budgeting at the World Bank The Framework for Budget Reform Key Elements of the New Budget System Ongoing Challenges 2

3 Current corporate envelope and key facts: Budget context The IBRD/IDA net administrative budget ($1.7 billion) covers the cost of management, staff, consultants, travel, communications, and facilities necessary for the day-to-day operations of the Bank. The total administrative budget is $2.2 billion (including the cost of the Executive Board, pension contributions, and institutional grants). Fiscal year 09 is the fourth year of zero real growth in the net administrative budget. We also have a capital budget of around $80m a year. 3

4 Through the 1980 s the Bank had position control: Budget primarily driven by headcount provided incentives for managers to hire expensive staff. led to steady upward trend in grade profile. units expected budget increases if specific costs (e.g. travel) were higher than plan no incentives to economize In the mid 90 s we moved to Dollar Budgeting: Managers manage total dollar envelope Evolution of Budgeting Managers decide mix of staff, consultants, and other expenses needed for work program. Managers accountable for impact of decisions on cost structure and flexibility 4

5 Evolution of Budgeting In the late 1990 s we introduced Program Budgeting: Budgets developed around programs, not expense lines Cost coefficients used where available Staff time tracked via a Time Recording System By 2005: The budget process had become very transaction intensive It was focused on inputs and outputs while Management wanted to talk about strategic alignment and understand links to the Results Agenda 5

6 A Framework for Budget Reform The 2005 budget reform had 4 objectives: 1. Provide greater strategic focus for corporate decision-making 2. Enhance the alignment with strategic priorities 3. Establish greater accountability for performance and results 4. Improve efficiency of efficiency and effectiveness The new process attempted to integrate strategy formulation, operational planning and budgeting, and performance measurement in a continuous cycle It was expected to take 5-6 years to implement 6

7 A Framework for Budget Reform At the center of the reform were a series of questions: 1 What Is the strategic context within which we are operating? Operating Environment What Actions are we taking to stay on track? Action Plans Strategic Direction 2 Are we focusing on the right things? Results Agenda Are we on track? How well are we performing? Strategy & Performance Monitoring Strategic Choices Are we deploying 3resources effectively to meet our objectives? Risk Management 4 How does risk impact our work programs? 7

8 Key Elements of the New Budget System Key elements ofthe new approach are: New 4 point engagement process with the Board 1 year budget within 3-year framework Budget managed within +/-2% Improved quarterly reporting with more candor and focus on the so what Strategy and Performance Contracts Introduction of productivity tax to improve productivity and release resources for redeployment to priority areas Integration of trust funds 8

9 Key Elements of the New Budget System Four points of Engagement with the Board (Draft) 1. Stock Taking: Presents a dynamic view of the planning process by considering emerging issues in the context of recent business trends and developments 2. Emerging Directions: managements preliminary views on the planning parameters that will underpin the development of three-year plans and budgets 3. Medium-Term Strategy, and Finance Paper: Seeks Board endorsement on the 3-year budget trajectory based on the Medium Term Strategic Context and the Bank s financial capacity 4. Budget Document: Seeks formal approval of the next fiscal year s budget 9

10 Key Elements of the New Budget System The budget is managed within a range of +/-2% $ Time A multi year perspective is necessary because of the nature of our business 10

11 Contents Key Elements of the New Budget System Performance is discussed with the Board s Budget Committee 1. Performance Summary Priority Areas and Global Initiatives Updates Financial Services Knowledge, Strategy and Learning Services Resources, Staffing, and Organization Item Recent Performance Looking Forward Strategy, Integration and Global Initiatives Strategy, Integration and Global Initiatives Financial Services Key Messages The MDs and CFO reviewed progress against the Six Strategic Themes in July and provided an update to the President. The World Bank's New Deal on Global Food Policy was translated into a 10-point plan, together with the establishment of the Global Food Crisis Response Program (GFRP). Assistance under the Food Crisis Response Program is presently provided in six countries totaling $m approved in FY08 and the current pipeline is at about $bn in IDA, IBRD and trust fund financing for an additional x countries. FY08 areas given additional resources demonstrated scale-up effects. Climate change lending dramatically increased from $m in FY07 to $m in FY08. Other highlights include the establishment of the $m (FY09-FY11) State and Peace-Building Fund (SPF). The Country Governance and Anti-Corruption process work accelerated, and the Stolen Assets Recovery Initiative (StAR) was launched to help developing countries track, freeze, and recover proceeds of corruption. Lending - IBRD Lending - IDA Other Financial Products Portfolio Quality IBRD lending reached $13.5bn during FY08, up slightly since FY07. Regions indicated changes in IBRD pricing, along with simplification of processes, extension of maturities, and improved access to risk management tools are making IBRD. Regions project IBRD lending to increase in FY09, in the range of $to $billion, with expected strong DPL lending partly due to increased flexibility of DDO. Conversely, there are potential factors that may adversely affect the lending program in FY09 and beyond, such as challenging political and security concerns; economic slow down; and rising food & fuel costs. IDA commitments were $bn in FY08 down by % compared to FY07; this excludes projects approved during the July grace period to utilize IDA14 resources (about $bn). IDA lending to fragile and conflict affected situations continues to increase, reaching $bn in FY08. IDA lending will continue to grow under IDA15. FY09 IDA commitments are projected to be in the range of $bn to $bn. Regions are working on firming up their IDA pipeline consistent with these allocations. During Q4, the Bank added the new weather derivatives product to its growing toolkit of catastrophe risk financing products and services. Xxxx is likely to be the first country to use this new product. Other innovative financial instruments of FY08 include GEMLOC, the IBRD bond to xxxx, the World Bank Cool Bond, and World Bank Eco Note. The share of FY07 exits with satisfactory Development Outcome (DO) ratings is around %, below the FY06 result (%) and the Bank target of %. In xxx ratings have fallen to %. (IEG have evaluated about 70% of the projects that exited the portfolio in FY07). Among the Networks, only xxx exceeded the Bank target. At the request of xxx and the xxx Sector Boards, QAG conducted quality enhancement reviews to analyze selected portfolio performance problems and identify possible remedial actions; QAG s final reports will be available by end Q1 FY09. 11

12 Key Elements of the New Budget System The Strategy and Performance Contracts were intended to provide the systems support to the new strategy and performance cycle 6 ACTION PLANS What Actions Do We Need to Take to Stay On Track? What Is the Strategic Context Within Which We Are Operating? Operating Environment Results Agenda Are We on Track? How Well Are We Performing? Strategy & Performance Monitoring SPC Part I Are We Focusing On the Right Things? 2 Strategic Direction Action Plans 5 SPC Part IV 1 4 How Does Risk Impact Our Work Programs? Risk Management 3 Are We Deploying Resources Effectively to Meet Our Objectives? Strategic Choices SPC Part II Expenses Capital SPC Part III 12

13 Key Elements of the New Budget System The productivity tax (1.5% -4%): Rate applied to each unit depends on efficiency relative to other members of its peer group the use of relative performance injects an element of competition into the process. Many factor are used including: Selected line items Unit costs Management and support staff ratios Staff utilization 13

14 Ongoing Challenges There are many issues that remain work in progress: Setting budgets remains an art and is influenced by many factors, for example, results, strategic priority, cost effectiveness, and politics -there is no clear definition of good performance measuring results, determining strategic priorities, and assessing cost effectiveness/efficiency all remain challenges in the public sector context attempting to hard-wire the budget to 1 or more factors can cause unwanted behavioral shifts we now talk about results/performance informed budgets rather than results based budgets Given high fixed cost base, long-term work programs, and the need to focus on results in the medium-term multi-year planning perspectives are essential: Governance arrangements and management s focus on current delivery mean outer-year plans are not taken seriously 14

15 Ongoing Challenges continued: External best practice is interesting, but what matters most is a good fit with the organizations business model, governance framework, and unique culture SPCs were helpful for many units in thinking through their business lines, but have not been effective in supporting the dialogue between VPs and senior management and within VPUs Within a constrained budget environment its all about tradeoffs and choices: We use the level of trade-offs as a key indicator of budget health but they remain difficult to report on, and many managers would rather ask for additional funding than reprioritize within existing work programs. 15

16 The End