Defra Portfolio Management and the New Coalition

Transcription

1 Defra Portfolio Management and the New Coalition Achilleas Mavrellis Performance, Panel and Portfolio Management Lead, Defra with acknowledgements to Tom Taylor Director of Finance and Performance, Defra and the APM Portfolio Management Special Interest Group and countless others...

2

3 Risk and Portfolio Management How do these relate as management disciplines? Part of the answer: they both bring value Value to the Public Value to Public Service workers

4 The Benefits of Portfolio Risk Management Value story: Benefits & Impacts Portfolio Management Risk? Approval Panels Portfolio Modelling Spending Review

5 Principles? Definitions? APM defines Portfolio Management as: The selection and management of all of an organisation s projects, programmes and related business-as-usual activities taking into account resource constraints. The OGC adopts a more process perspective: PPM is a corporate, strategic level process for co-ordinating successful delivery across and organisation s entire set of programmes and projects. OGC Management of Portfolios (MoPf) states Portfolios represent the totality of an organisation s investment (or segment thereof) in the changes required to achieve its strategic objectives. Whereas the National Audit Office emphasizes the key aspects of prioritisation and strategic alignment: Prioritisation of all an organisation s projects and programmes in line with business objectives and matched to its capacity to deliver them. Cranfield MS and Open University define it as Managing a diverse range of projects and programmes to achieve the maximum organisational value within resource and funding constraints. Yours truly humbly adds the following:... so that the benefits translate into impacts of positive value to the public.

6 PfM Biggest problem areas Vision Consensus? Not what expected Mission Current State Strategy Business Drivers Priorities not agreed? Poor control processes Not what expected Bad Resource Management Pipeline Programmes and Projects Work Outcomes / Benefits

7 Why is PfM the tool for strategy implementation? Agreed list of all the strategic projects required to deliver the strategy for current and future years => accountability & responsibility Each project or programme is mapped against the strategic themes so everyone know what activity delivers which goals => strategic alignment The portfolio can be managed at Board level and by investment committees and is a key governance tool => empowers decision-making A tool for monitoring performance against outcomes => performance management The question remains: How does this tie in to Risk Management?

8 Defra Governance Management Committee / Supervisory Board (Ministers) Central Panel Local Panels Heads of Profession Panels Programme Managers SROs + CEOs Heads of Ongoing Function (DGs) Project A Project B Project C Project D Project E Project F

9 Defra deals with some major global challenges with far-reaching consequences Global drivers Economic growth (3-6 fold increase in global GDP by 2050) Increasing population (9 bn by 2050) Climate change (currently on track for a 3 C rise) Impact on the interlinked systems of natural resources, food, and climate change Natural resources Many are undervalued or not valued at all Competing pressures on use (e.g. land used for food, housing, biodiversity) Demand increasing (e.g % increase in water demand by 2050) Used wastefully (e.g. businesses could save 6.4bn a year through efficient use) Food UK food supply is part of a global system Food production needs to increase (40% globally by 2030) in an environmentally sustainable way Agriculture impacts on natural resources (e.g. 70% of water use is for agriculture) Fisheries need managing (50% are at capacity; 25% are over exploited) Climate Change Impacts on farming, food supply and natural resources Building a society and economy resilient to climate change (e.g. increased flood protection) Carbon sinks under threat and need managing (e.g. forests, marine environment, soils) Key sectors need to reduce carbon emissions (e.g. farming, waste) And these will have to be tackled with significantly less money 9

10 Defra manages and supports public goods that are essential for the economy and quality of life, as set out in our Business Plan Business plan priorities 1. Support and develop British farming and encourage sustainable food production 2. Help to enhance the environment and biodiversity to improve quality of life 3. Support a strong and sustainable green economy, resilient to climate change Prepare for and manage risk from animal and plant disease Prepare for and manage risk from flood and other environmental emergencies Economy We sponsor the farming, food and drink (UK s largest manufacturing sector), waste and water sectors We promote a green economy, ensuring that growth is environmentally sustainable, accounting for the value of nature Environmental and animal health risks can result in very significant costs to the economy if not well managed Quality of life The environment and food are essential for healthy life Environmental risks and animal diseases can cause deaths and reduce quality of life A well-maintained environment and access to green spaces is important for wellbeing 10

11 We are reshaping the Defra network to increase efficiency, accountability, and transparency, reduce costs, focus on what only Govt can do, and enhance our contribution to the Big Society. We are going from 92 Network Bodies to 39. Executive Agencies Core Department Rural Payments Agency Animal Health Veterinary Laboratories Agency Merged Fera - Food & Environment Research Agency Non-Departmental Public Bodies Advisory NDPBs Other Executive NDPBs 1 Public Corporations To be replaced with new Waterways Charity Others (larger ones named) Waste and Resources Action Programme Kew Veterinary Medicines Directorate Natural England Cefas - Centre for Environment Fisheries and Aquaculture Science Marine Management Organisation Environment Agency In 2010/11 there were around 30,000 staff across the Network Levy Boards 2 British Waterways Covent Garden Market Authority National Park Authorities Forestry Commission (Non ministerial Department) Others 3 Network Bodies include executive agencies, NDPBs, public corporations and others 1 Agricultural Wages Board Agricultural Wages Committee Commission for Rural Communities Consumer Council for Water Gangmasters Licensing Authority Joint Nature Conservation Committee National Forest Company Sustainable Development Commission 2 Agriculture & Horticulture Development Board Sea Fish Industry Authority 11 3 Conservation Boards for the Cotswolds and Chilterns Areas of Outstanding Natural Beauty,

12 12 The Department s budget in 2010/11 was 3.0bn ( 0.3bn admin, 2.2bn programme, 0.5bn capital) aiming for an overall 30% reduction by 2015 Departmental spending has declined since 2007/08 The Department s spend is dominated by major programmes 4,000 3,500 3,000 Creation of DECC Other (small programmes) Floods and Water 2,500 2,000 1,500 1, Capital Prog Admin People and Landscapes Corporate Services Animal Disease and Welfare Other Farming (not CAP) Rural (inc. Rural Development Programme for England) Environment Agency (excluding Floods) and Natural England

13 The Defra Portfolio ALL the work done in the Department is managed as a portfolio and falls into one of three categories: Programmes policy Change work, run by SROs (usually Director level) and monitored by the Board and Directors General On-going functions policy BAU work, run by SROs (usually Director or Deputy Directory level) monitored by the Board, Directors General and Directors Stand-alone projects monitored by Directors General

14 Delegated Authority Delegated Authority to SROs & CEOs SROs (not and DGs) CEOs are responsible to their Local Panels and Management Committee for delivery of their objectives and for maintaining a robust forecast position within DEL limits. They can apply to Local or Heads of Profession Panels for funding based upon a business case. If an SRO or CEO requires an increase in funding to pursue a new line of work they must write a business case, demonstrating good Value for Money and submit these to the Panels in order to obtain funding, ensuring that they proceed through the Assurance process including Gateway reviews. NOT Directors General!

15 Portfolio Optimisation: The mandarin approach The natural state of affairs is that the spending departments... draw up deliberately unrealistic options, showing that even tiny cuts will involve huge job losses in the Secretary of State s own constituency, famine and a plague of locusts. Financial Times 22/09/2009: Sir Howard Davies (Director, LSE)

16 Portfolio Optimization: The melodramatic approach Dilbert

17 Portfolio Modelling is all about providing Reduction Options Total Budget 175,000,000 Limit % Portfolio Cost % Portfolio Benefits Retained Total Cost of new portfolio Remaining unused budget % use of new limited budget Full Portfolio 166,250,000 95% 93% 165,700, , % Option 1 157,500,000 90% 87% 100,700,000 56,800, % Option 2 140,000,000 80% 87% 100,700,000 39,300, % Option 3 131,250,000 75% 87% 100,700,000 30,550, % Option 4 87,500,000 50% 73% 87,500, %

18 Efficient Frontier Analysis How this Works: Activities are first ranked and then stacked up one at a time by value and cost, moving from left to right. As one moves further right, one reaches a point of diminishing returns.

19 What-if analysis Our selected portfolio has almost 50 projects This portfolio has a total budgeted cost of 144m Scenario 1: Model a 50% reduction in the portfolio budget 50% = 72m Scenario 2: Model a 50% reduction in the portfolio budget 50% = 72m Force in all HIGH commitment projects High = Commitment Score > 75 19

20 Scenario 1: The solution re-calculates the portfolio to meet the new limit ( 72m), this forces out projects to meet this condition forced out or flagged projects

21 Despite a 50% reduction, the portfolio retains 93% of the benefits Modelled Portfolio (%) Limited condition 50% ( ) Limited condition 72,000,000 (%) Total Portfolio Benefit 93% (%) Use of limited budget 97% ( ) Use of limited budget 70,078,000 ( ) Spare Budget 1,922,000 21

22 The relative position of forced out compared to the portfolio, show these are relatively big spend, low benefit. 22

23 Scenario 2 Scenario 2: Model a 50% reduction in the portfolio budget 50% = 72m Force in all HIGH commitment projects High = Commitment Score > 75 23

24 Scenario 2: forced in projects are spread across the portfolio, in spite of cost & benefits... All the green bubbles indicate projects which have been forced in to the new portfolio 24

25 Scenario 2 Commitment scores > 75 are forced into the new portfolio 25

26 Scenario 2 26

27 Despite this, the scenario 2 solution still retains 88% of benefits Scenario 1 Scenario 2 (%) Limited condition 50% 50% ( ) Limited condition 72,000,000 72,000,000 (%) Total Portfolio Benefit 93% 88% (%) Use of limited budget 97% 99% Forcing in projects, yields fewer optimal solutions so less total benefits ( ) Use of limited budget 70,078,000 71,814,560 ( ) Spare Budget 1,922, ,400 27

28 Capital Prioritization methodology Capital Prioritisation Approach Priority 1 ( Irreducible core ) cases normally approved (subject to affordability) if there is clear evidence of vfm as well as at least one of: risk of breach of statutory legislation; significant Health & Safety issues; impacts on business continuity; building new business opportunities; contributing to investto-save Priority 2 ( discretionary ) cases approved (subject to affordability): prioritised on clear evidence of vfm occasionally requiring further assurance or contract confirmation Reserve pots are held for speedy response to issues Strategic goal: minimize under spend while maximising delivery of benefits

29 2011/12 Capital Portfolio Highlights March 2011 C-AP agreed allocations for Core Defra and Network Bodies based on prioritisation of bids C-AP delegated management of non-ministerial Capital to Heads of Profession/Function (HoP/F) Panel HoP/F Panel met every six-eight weeks throughout year to review overall position, prioritise new bids, look ahead to requirements for future years Calls were issued for new bids as position became clearer and under spends emerged New allocations approved by HoP/F Panel from under spend Budget switches approved in late December Final position for 11/12 capital showed under-spend of 0.1% well within HMT control limits of 2%!

30 12/13 Capital Processes Summary Existing Allocations New Bids Annual initial budget allocations, quarterly review, cross-cutting cases 6 weekly review of overall position / in-year reallocations C-AP HoP/F Panel Legend: C-AP - Central Approval Panel Network Bodies - all Agencies, NDPBs and other Delivery Bodies; HoP/F = Heads of Profession/Function Capital Assurance (PPM, NADB, Estates, Equipment, ad hoc) NEW FOR 2012/13: MI Capital Project reporting on Oracle, and via Network Body MI Packs Heads of Profession for Estates IT Scientific Equipment: Challenge Carry out Prioritisation within separate envelopes: Estates, IT, Scientific Equipment and Challenge SROs & CEOs of Network Bodies

31 Defra Approach to full Portfolio Optimisation (incl. lessons learned!) Engage SROs earlier in how to quantifying value and agreeing the level of granularity: Value = Net contribution to Business Plan priorities weighted by 0-1 score for legislative driver, public { } concern, political imperative weighted by 0-1 score for likelihood of success Engage SROs continuously in validation of the data Engage Finance from the start should be a part of PfM from the beginning Separate out the Irreducible Core from Discretionary Risk of nondelivery

32 Policy Portfolio View part 1

33 Emerging Policy Portfolio View part 2 picture SEG LAP 20 January

34 VALUE!!! 4. Highly Successful Life cycle approach to benefit management. Demand led with business ownership of benefit delivery plans and a comprehensive review process. Characteristics of the 4 levels of maturity Benefit delivery: Delivery Planning - organizational change & benefits. Sound business cases based on achievable benefits but ineffective benefit delivery and change planning, with insufficient business ownership & involvement. 3. Successful Key practices to be improved to increase maturity level and success 2. Moderately Successful Project selection: Risk-adjusted Portfolio management Business cases identification of benefits. Benefit and change reviews Project delivery: Business casesidentification of costs. Technology and process change planning. TCQ reviews. Sound methodologies, but ineffective portfolio management and business cases are cost rather than benefit based. 1. Unsuccessful Methodologies dominate with insufficient business involvement in business cases, implementation Inadequate and inconsistent use of proven and review. methodologies. Unrealistic business cases, limited business involvement in all practices. Very weak review processes.

35 To recap... Value story: Benefits & Impacts Portfolio Management Approval Panels Portfolio Modelling Spending Review

36 The original conundrum... How do PfM and Risk Management interact? But more generally: Risk-adjusted value At the strategic level by ensuring the whole portfolio of projects and programmes is aligned with strategic goals => strategic risk assurance In a financial context senior review of portfolio outcomes alongside financial review => financial risk assurance At the programme and project level: benefits and delivery risk management => operational risk assurance