Service Based Budgeting Prepared by Alan Mitchell, Executive Director, Cities Center of Excellence April 2017

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1 Service Based Budgeting Prepared by Alan Mitchell, Executive Director, Cities Center of Excellence April 2017 entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 1

2 Why is Service Based Financial Planning and Budgeting Valuable? AGENDA Two Questions Challenges Facing Cities Page Current Budgeting Process 8 Organizationally Based Budgeting Fails to Inform Why not produce a Budget that allows both Organizational and Service Based Approaches to co-exist? Service Based Budgeting Increases Public Accountability Service Based Budgeting A Balance between Cutting Costs and Increasing Accountability City of Toronto submits the Budget by Programs and Services Consider for a Moment entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 2

3 Two Questions Within Cities throughout North America, the Budget is the only business plan that is annually scrutinized by management, senior management and elected officials. In other words, the Budget is the Annual Plan for a City s Operations. Given this statement is true: Question 1: How do you budget in your City? Question 2: Why do you separate the Capital Budgeting from the Operating Budget? entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 3

Challenges Facing Cities One City came to the following conclusion: the City s finances are good only because property tax revenues increased sufficiently

If this pattern continues while tax revenues increase at a slower pace or stall (a strong possibility in the present economic downturn), the City may soon

4 Challenges Facing Cities One City came to the following conclusion: the City s finances are good only because property tax revenues increased sufficiently over the past five years to cover the increased expenditures. The problem is the City s current spending pattern is not sustainable. If this pattern continues while tax revenues increase at a slower pace or stall (a strong possibility in the present economic downturn), the City may soon face serious challenges. City of Moncton September 21, 2009 entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 4

5 Challenges Facing Cities Challenges facing Cities Today: Changes in strategic directions brought on by new leadership Cities are challenged to change their transformation agenda when commitments and progress under the old leadership come to a halt! Budget shortfalls due to increased service costs Cities are seeking ways of circumventing unilateral budget cuts across all departments! Increasing demands for improved service delivery improved efficiency, effectiveness and quality! Increasing labour costs as a result of collective agreements that continue to support increasing costs not just in terms of labour rates but also benefits and pensions! Changes in legislation that tend to increase service costs new accounting requirements, greening environment, reducing carbon footprint! Increasing demands for greater public accountability improved performance reporting Growing demands to pay for the unfunded liability associated with our aging infrastructure Increasing demands for new, innovative technology solutions web sites, social networking solutions, e-government, mobile computing! entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 5

6 Challenges Facing Cities Common threads in almost every study: Improving our Services can we improve efficiency, effectiveness and quality? Back to Service Basics what Services do we provide, are they core to our business, what value are they offering, do we offer the right Services? Clearly stating our Service Levels who decided what Service Level we currently offer, how much would it cost to improve the Service Level, is the public prepared to pay for the current Level of Service or should it be reduced? Clarifying Service Accountability who is accountable for what Services, is the allocation correct or does it need to be adjusted? Exploring Alternate Service Delivery can we outsource, in-source, privatize, contract out all or a portion of our Services? Collaborating with Other Levels of Government can we share the cost, provide added value and serve our customers better? Investigating Service delivery options how do we deliver a service, are there better ways, can we learn from others? entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 6

7 Current Budgeting Process is too Complicated Planning & Budgeting in most Cities is a Spreadsheet Driven, Labor Intensive, Prone to Risk, Non-Integrated Function: Process management Excel, VBA macros, Word, InfoPath, Adobe and manual lists Process communication & Workflow and telephone Data integration and Excel, SharePoint Financial Planning Office For All s: Typically up to 150 impacted FTEs 1000 s of manual tasks entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 7

Organizational Based Budget Fails to Inform Council / Public Current Method of Financial Planning and Budgeting is Problematic: Budget (Above) from the City of Ottawa, Canada Emergency & Protective

8 Organizational Based Budget Fails to Inform Council / Public Current Method of Financial Planning and Budgeting is Problematic: Budget (Above) from the City of Ottawa, Canada Emergency & Protective Services Fire Services Branch Sub-divided into Sub-units (they call them Programs but they are not!) Question: How much does it cost to put out a fire? Organizational View of Spending (Vertical View by ) Focus on who spends the money, rather than why we spend that much money! Nobody cares about how much a Costs! What good does it know that the Fire Services Branch spends $156 Million? Council and the Public can relate to the City through the Services it provides! Wouldn t you rather know that it costs $1,250 to respond to a false alarm and $23,000 to respond to a structure fire (2 alarm)? So how much does it cost to deliver the Fire Rescue Service? entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 8

Why not produce a Budget by both Organization & Service?

Committee of Council SERVICE City Manager / CAO ORGANIZATIONAL BUDGET CLIENT SET PUBLIC

1 Division 2 Division 3 SERVICE MODEL RESOURCE Authority Section 1 Section 2

9 Why not produce a Budget by both Organization & Service? PROGRAM & SERVICE BUDGET VISION / MISSION PROGRAM (GOAL) ROLES Governance City Council Committee of Council SERVICE City Manager / CAO ORGANIZATIONAL BUDGET CLIENT SET PUBLIC SERVICE INTERNAL SERVICE Accountability PROCESS / ACTIVITY Responsibility Division 1 Division 2 Division 3 SERVICE MODEL RESOURCE Authority Section 1 Section 2 ORGANIZATIONAL MODEL entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 9

Service Based Budget Increases Public Accountability Service Based Budgeting provides a Cost of Service view of the Budget where Elected Officials / Public can now asked some really valuable

10 Service Based Budget Increases Public Accountability Service Based Budgeting provides a Cost of Service view of the Budget where Elected Officials / Public can now asked some really valuable questions: What is the Fire Rescue Service Cost (Budget)? Fire Rescue = $9.6 Million How many requests did the Fire Rescue Service respond to? Structure Fires = 52 False Alarms = 112 Vehicle Rescues = 48 Hazardous Material Responses = 2 Paramedic Responses = 61 How would you recommend you can improve the Fire Rescue Service? Improve response time by 30 seconds on average from 4 minutes to 3.5 minutes entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 10

A Balance between Cutting Costs and Increasing Value entity. All rights reserved.

Imagine for a Moment How much does it cost to provide Snow Clearing? What is the current service level for clearing snow? Class of Highway Depth Time 1 2.

13 Imagine for a Moment How much does it cost to provide Snow Clearing? What is the current service level for clearing snow? Class of Highway Depth Time cm 4 hours 2 5 cm 6 hours 3 8 cm 12 hours 4 8 cm 16 hours Snow Clearing Service 5 10 cm 24 hours Source: Municipal Act 2001 Ontario Regulation 239/02 Is your municipality meeting this standard? How much does it cost to meet this standard? entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 13

14 Imagine for a Moment Now the question is: Is your municipality delivering the service to a regulated service level or better? What if I reduced the service level, what would be the cost reduction? Who set the service level that we are currently delivering our services at? What service level do our clients want? Are they prepared to pay for their desired service level? Imagine having this conversation at Budget time! entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 14

15 Thank you 2016 KPMG LLP, a Canadian 2016 KPMG limited LLP, liability a Canadian partnership limited and liability a member partnership firm of the and KPMG a member network firm of of independent the KPMG network member of firms independent affiliated with member KPMG firms International affiliated with Cooperative KPMG International ( KPMG International ), Cooperative a Swiss entity. All rights reserved. ( KPMG The KPMG International ), name and a logo Swiss are entity. registered All rights trademarks reserved. or The trademarks KPMG name of KPMG and International. logo are registered trademarks or trademarks of KPMG International. 15

16 Detail Heading Detail Heading Detail Heading Detail Heading kpmg.ca 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Service Based Budgeting

Service Based Budgeting Prepared by Alan Mitchell, Executive Director, Cities Center of Excellence April 2017 International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered