SHORT DESCRIPTION OF PERFORMANCE MANAGEMENT/RESULTS MANAGEMENT IN FINLAND

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1 SHORT DESCRIPTION OF PERFORMANCE MANAGEMENT/RESULTS MANAGEMENT IN FINLAND Contents 1.1 History of performance management in Finland State government s common principles for performance management The Finnish Performance management is an agreement based steering model The core instruments of the performance management Recent developments Contact information History of performance management in Finland The public services production came under heavy criticism in the 1980 s. Researchers were increasingly critical about the quality, quantity and accessibility of public services, and administrative studies showed that citizens were to an ever-greater extent dissatisfied with the quality of services and bureaucracy involved in their production. Another finding highlighted in the research was the inefficiency of service production. Preparations for the steering model known as performance management or results management were, consequently, started in Finland based on a Government Resolution in Performance management and performance budgeting were introduced over a period of several years by revising one part of the budget at a time. The transition took five years; the reform was started in the early 1990 s as pilot projects and by 1995 it was carried out. The target of the reform was to increase the freedom of action and accountability of government agencies and institutions in order to gain better services and more efficient use of resources. The core of this reform was, on the one hand, to combine the numerous agency-specific expenditure appropriations into one single lump sum for each agency and to give agencies much greater latitude in how to spend their appropriations, and, on the other hand, to require agencies to commit themselves to the agreed performance targets in return. The performance management system has been evaluated several times during the last twenty years and further developed according to the results of the evaluations. The latest development measures are being implemented during 2013 and 2014.

2 2(6) 1.2 State government s common principles for performance management Performance management is one part of the Finnish state administration s steering system. Societal effectiveness is a result from co-operation between different actors in the society. The performance management of the administrative field is based on common guidelines and practices as well as the administrative field s own steering practices. The performance management concentrates on the strategically most important issues and on those that need change. The intensity of the performance management can vary. There are clear roles and tasks and well functioning forums for performance management. Performance management is professional and coherent. The basis of performance management is clear targets, indicators that describe them and monitoring the achieving of targets. Performance management is based on a structured and genuine dialogue and partnership between leaders and experts. Joint information systems and tools support these principles. 1.3 The Finnish Performance management is an agreement based steering model. The Finnish performance management model s core is the agreement between the ministries and the agencies. The Ministries and agencies negotiate and then agree and sign a performance contract. Reporting and follow up are also important parts of the process. The performance prism has been created to describe the framework for target-setting and accountability.

3 3(6) Performance management s main purpose is to find balance between resources and targets. In Finland the ministries are responsible for the performance of their respective administrative fields. Ministries should ensure that proper performance targets are set, also for their own operations, and that the agencies present true and fair information on the outcomes of their operations in their annual accounts. Social impacts and outcome targets are emphasised for the ministries performance targets. Operational performance targets are emphasised for other agencies and institutions. The fact that the principal concept is always generating added value for the agency s customers and for the society as a whole has been equally emphasised. The targets set should be connected with the respective operations and resources as closely as possible. Alongside with the positive performance targets set, also the unintended or side effects of the set targets should be taken into consideration. Performance targets are primarily set as indicators and only secondarily as verbal targets. It is generally accepted that performance targets do not need to cover the entire range of operations; instead, the performance agreement can focus on the most important points and results. However, the guiding principle is that performance targets apply to both the agency s basic operations and its development measures. There are duties in agencies for which it is difficult to develop quantitative indicators, therefore the concept of systematic evaluation has been added as a replacement for the more technical indicators in such cases. Evaluation here means analysis of qualitative material collected with predetermined information collection and processing methods.

4 4(6) 1.4 The core instruments of the performance management. The annual state central government budget is both the principal fiscal policy document in the public sector and a key document in performance management. The budget combines fiscal control with the managerial foundation of central government service production. The performance targets are explained to Parliament that has the authority to decide on the budget, in the context of and explanation to the budget appropriations. The hierarchical nature of the target setting is shown in the traditional budget appropriation hierarchy as follows: General context describes the Government s fiscal policy and principal actions aiming at implementing the Government Programme and strategy document during the budget year. This also describes the horizontal cross-sectoral programmes as necessary as well as their outcome targets. The main title level describes the outcome targets set by each ministry for itself on the basis of the Government Programme and the strategy document and the targets aiming at these during the budget year. Chapter level describes the performance targets set by ministries within their policy sectors; these constitute a logical link to the performance targets agreed between ministries and

5 5(6) agencies. Budget line level describes the preliminarily agreed operational performance targets of agencies in efficiency and quality; the targets are confirmed after Parliament has approved the budget so that the performance targets and the appropriations granted are in balance to the satisfaction of both parties to the agreements (final performance agreement). In the annual State Budget the performance targets are presented to the Parliament in hierarchical manner 1. Main title societal impact targets for each ministerial domain (outcome level) 2. Chapter policy specific outcome targets 3. Budget line agency specific output targets The performance agreements/contracts between sector Ministries and their agencies on the respective administrative sector are the core of the system. They are not legally, but a morally binding; document of mutual understanding Performance agreements between ministries and operative actors, government agencies are drafted in early Spring together with both partners conducted and signed in early Autumn after the budget bill has been forwarded to the parliament Amended after budget decisions if needed Published in a common database to which there is free entry for everybody ( In the dialogue leading to the contract the parties of the negotiations are the Ministry, represented by highest permanent officials and the Agency, represented by Director General. Preliminary discussions take place during the fiscal year by budget and substance experts of both organisations. There are also yearly performance reports in connection with the final accounts of the fiscal year Different report from every agency (output level) Ministry report concerning it s whole domain (outcomes) Government report to the Parliament (outcomes from the political accountability point of view) The Finnish performance management system allows for the agencies to chose their management method. It does not stipulate any particular management methods - all available tools can be used e.g. BSC, EFQM, CAF, CobiT etc. Every ministry is obliged annually to issue a statement upon all of the performance reports in it s domain. In the statement the ministry gives it s opinion concerning actions needed because of the rate of the fulfilment of targets. All the statements are published in the same database where the agreements can be found as well.

6 6(6) In the Finnish performance management system each ministry can freely opt for the indicators it uses, in targeting the activities both for outcome and output levels and to be followed in reporting. Indicators are required to be based on measurement or in systematic evaluation. 1.5 Recent developments Currently the Finnish performance management system is under renewal. The basic principles of the system will stay, but the aim is to make the system more strategic, lighter, more horizontal and more joined-up. 1.6 Contact information For more information on the Finnish performance management system and its current reform you can contact the Ministry of Finance: katju.holkeri(at)vm.fi - financial councellor, head of governance policy unit jukka.erkkila(at)vm.fi - councellor markus.siltanen(at)vm.fi - legal councellor