STAFF REPORT May 3, 2006 To: From: Subject: Policy and Finance Committee Shirley Hoy, City Manager Joseph Pennachetti, Deputy City Manager and Chief Financial Officer Fareed Amin, Deputy City Manager Sue Corke, Deputy City Manager City of Toronto Program Review Framework Purpose: To propose a Program Review Framework to complement the City s current management control and accountability system. Financial Implications and Impact Statement: Approval of a City Program Review Framework will assist the City in positioning itself to be more cost-effective in addressing financial, public policy and customer service challenges. The Program Review process may require an initial investment from the City not currently budgeted for in program areas. Therefore, it is proposed that an Innovation Reserve Fund with an initial investment of $2.5 million drawn from the Clients Identification and Benefits Reserve Fund be established for the exclusive purpose of funding external resources and for backfilling key staff positions dedicated to undertake particular program review. The Clients Identification and Benefits Reserve Fund is not required for the purpose for which it was established, and has previously been recommended for closure. Recommendations: It is recommended that: (1) a Program Review Framework with the following elements be approved for immediate implementation:
- 2 - (i) (ii) (iii) (iv) all City Programs be reviewed over time, by staff independent of the program, to assess their continuing relevance to community needs and how well they achieve their intended results, based on established selection criteria; each program seek to achieve best value for the community, the right service, delivered to the right people, utilizing the right funding level, on a sustainable and accountable basis; for each service, the City s role be evaluated in the context of the new City of Toronto Act and services provided by other governments, non-profit sector and the private sector, as well as other emerging legislation or financial considerations; findings and recommendations of individual reviews be reported to Council through the Policy and Finance Committee and be used to inform decisions regarding priority-setting, long-term planning, budgeting and reporting; (2) Council establish a discretionary reserve fund called the Innovation Reserve Fund to fund the incremental cost of acquiring external resources, for backfilling key staff positions and other related costs required to undertake Program Reviews; (3) Council approve an initial contribution of $2.5 million to the Innovation Reserve Fund allocated from the Clients Identification and Benefits Reserve Fund; (4) The Municipal Code Chapter 227 be amended by adding the Innovation Reserve Fund to Schedule No. 3, Corporate Discretionary Reserve Fund; and (5) the appropriate City Officials be authorized and directed to take the necessary action to give effect thereto, and that leave be granted for the introduction of any necessary bills in Council to give effect thereto. Background: At its meeting of January 13, 2006 the Budget Advisory Committee requested the City Manager and the Chief Financial Officer to report on how zero-based budgeting could be utilized for the entire 2007 Budget. Further, at its meeting of March 28 and 29, 2006, Council requested the City Manager to report to the Policy and Finance Committee on opportunities for zero-based budgeting within the City and all of its divisions, agencies, boards and commissions being reviewed on a three-year, rolling basis. As its name implies, Zero-Based Budgeting (ZBB) starts at point-zero for all funding decisions. The ZBB budget process builds both existing and new service budgets from scratch. This approach re-examines every program, service and activity and makes funding decisions based on the results that will be generated. It mitigates the risks of inflated budgets which may result from over-reliance on historical precedents, and focuses more on ensuring that current needs are carefully determined. Zero-Based Budgeting requires that the existence of a program be justified
- 3 - in each fiscal year. City programs often need long-term commitment to be effective. Many of the programs are mandated by the province of Ontario; and, in any budget year, as a result of decisions made in prior years, a considerable number of services and service levels have City funding commitments that often are impossible to change in the short term. The time requirements in an organization the size of the City, particularly given the significant number of programs, services and activities that exist, do not permit an across the board application of zero-based budgeting, therefore, ZBB is not being recommended as an annual budget process, across all programs. Notwithstanding the above, the City recognizes ZBB as a budget approach that may be useful on a case by case basis, such as where a program is undergoing major operational change, or where new services or programs are being introduced. In such cases, the City would benefit from the advantages of ZBB without an extensive amount of work, and would encourage its use. In fact, during the past several years, the City has utilized ZBB for consulting costs and furniture expenditures. Purpose of Program Review In May 2005, Council approved a report entitled, City of Toronto 2006 Budget Process, Directions and Guidelines. The mature budget process requires Council to approve service plans that clearly detail service goals, objectives and priorities to guide and inform multi-year capital and operating budget targets, resource allocation decisions and evaluation of performance based on results. This report recommends a Program Review Framework that will bring together the various steps of the City s mature budget process and utilizes the principles of zero-based budgeting in the evaluation of programs, services and activities for City Programs. The proposed Program Review Framework strengthens the City s management control and accountability system. Program Review is a systematic and objective approach to collecting and analyzing data to assess a program the rationale for the program; its long-term objectives and how well it meets public demand for services; and its cost effectiveness as compared with other approaches to achieving the program s objectives. Program Review will complement the City s existing management and accountability framework and is being recommended to ensure that all City programs and services undergo a comprehensive review to assess their continuing relevance, and that they continue to achieve intended outcomes in an efficient and effective manner. Program Review is an important element of the corporate management function that interfaces with other management processes as illustrated in Chart 1. It complements other management control and review initiatives that are in place, including organizational reviews, continuous improvement and efficiency reviews.
Chart1-4 - Management Cycle: plan, organize, deliver, review Annual Cycle: operating plan (short-term plans) budget continuous improvement in delivery, performance measures Multi-year cycle: service plan (strategic & long-term) funding strategies operating strategy (organization/governance, HR strategy, long-term delivery method) Program Review (assessment of relevance, effectiveness in meeting long-term objectives Program Review results are used as input to the strategic service planning cycle and the annual financial plan and management cycle. The multi-year cycle and the annual cycle are linked together at each stage. The review process will provide staff and Council with the information and feedback necessary to make choices and decisions about service priorities based on the results of reviews. A rotating cycle of Program Review will ensure that all of the City s programs continue to be relevant and are being carried out in the most efficient and effective manner possible. This is especially crucial at this time, given the enormous budget pressures on the City each year and the increased demand for services. Program Review Benefits As an integral component of an effective management and accountability model, Program Review will engender the following benefits: City Council will be provided with objective opinions on the continuing relevance of program mandates in the context of a changing environment and of services that are provided by other government, non-profit, and private organizations. Programs will be examined through a variety of lenses/perspectives, both internal and external; It will assess service performance against intended outcomes and report out performance results. It will provide the opportunity to anticipate problems and to take appropriate corrective action, thereby reducing the risk of crisis management. Senior managers and Council will be provided with an objective analysis on the impact and economy of City programs and recommendations for improvement.
- 5 - It offers independent and objective advice for improving operating efficiency and effectiveness The City of Toronto s Program Review process will examine the services being offered including the purpose, goals and objectives, processes, use of funding and the delivery mechanisms employed to ensure that programs reflect services that the City can deliver effectively and meet citizens needs. Process Elements The City of Toronto Program Review process is designed to ensure that decision makers have strategically-focused, objective and evidence-based information on the results/outcomes of City policies, programs and initiatives. The following principles will help to guide the process: All City program services and activities, functions and processes will be reviewed over time. The order of reviews will be based on established selection criteria. It will allow for a due diligence process to be built into the reviews; It will ensure objectivity and a consistent approach by utilizing a documented and agreed - upon methodology; Review findings and recommendations will be used to inform decisions regarding priority setting, long-term planning, budgeting and reporting. To ensure transparency and accountability of program reviews, results of the reviews will be communicated to Council and the public through the Policy and Finance Committee. Deputy City Managers will be held accountable for the implementation of program review findings and recommendations approved by Council. General Managers will be responsible for the day-to-day operations of the implemented changes. Depth and Scope of Program Review The Program Review Framework will encompass a range of evaluative processes that include the following review activities: Full-scale program review Organizational review Continuous improvement Efficiency reviews The review process will focus on services, activities, or particular functions or processes within a program. In all cases however, program review principles will be applied to determine relevance, results, cost-effectiveness and efficiency.
- 6 - A full-scale program review would include all the functional areas, components and processes of a program and consider mandate, policy objectives, organization structure, funding strategy, and operational assessment. In the interest of addressing priority issues in a timely manner, the depth of reviews could be altered to review individual services within a program or even activities within a service. There should also be flexibility in determining the scope of a review to focus on only the policy, organization, funding, or operations. However, all program reviews will answer the critical questions around relevance to the community/clients needs and the City s most appropriate role. Setting Program Review Priorities The underlying assumption of the City s Program Review Process is that all City Programs will be reviewed on a rotating cycle. The review of Agencies, Boards and Commissions will not be included in this initial cycle, but will form part of a second phase in implementing this process. The Executive Steering Committee will determine the priority order for program reviews based on established selection criteria and workload considerations. Consideration should be given to: including program review components in review projects already planned or underway balancing review initiatives across clusters initiating reviews of varying scope and depth, limiting the number of full-scale reviews Candidates identified by the following considerations: opportunities exist for significant impacts; issues that address Council priorities; high risk or high cost programs; change is imminent due to demographic shifts and social change; changes in technology, legislation, funding; emerging government, non-profit or private markets; to address issues already identified by Internal Audit, Auditor General, management, BAC, or media/public/special interest committees programs experiencing significant growth/expansion in service; Other factors to be considered when determining how to select programs for review: Size of the program and complexity of operations Recent changes in key personnel Inability to achieve planned outcomes Economic condition of the program Rapid growth or decline of the program s personnel Time since the last review
- 7 - Roles and Responsibilities for Program Review Successful implementation of the City s Program Review process is the shared responsibility of Council and staff. The City Manager will lead an Executive Steering Committee that will be responsible for coordination and oversight of the Program Review process across the Corporation and for ensuring that all programs and services are effectively reviewed on an ongoing basis (see Chart 2 below). The results of all program reviews will be reported to Council through the Policy and Finance Committee. Executive Steering Committee This committee will be chaired by the City Manager (CM) and will include Deputy City Managers (DCMs). The Executive Steering Committee is responsible for the effective delivery of the Program Review process across the City. Corporate Oversight Team This team will serve as the corporate due diligence function and will provide support to the Executive Steering Committee, as well as Program Review Working Groups. The Corporate Oversight Team will be co-chaired by the Director of Strategic and Corporate Policy and the Director of the Financial Planning Division, supported by Internal Audit and Human Resources, and one General Manager from each cluster, on a rotational basis, from a Program not being reviewed. Chart 2 Program Review Structure Executive Steering Committee Develop Policy, Strategy & Scope Provide Project Sponsorship & Approve Reviews Approve Funding Implement Results Corporate Oversight Team Develop Evaluation Plan & Methodology Define Project Structure Oversee, Coordinate, Advise, Inform & support the Executive Steering Committee Perform Due Diligence Review Program Review Working Group External Cluster Staff Reviewers, if required Perform Review and Evaluation Formulate Delivery Scenarios, Opportunities and Impact Analysis. Report Evaluation Results & Recommendations
- 8 - Program Review Working Group This team is responsible for conducting individual program reviews. A Program Review Working Group will be established for each review to be undertaken. The DCM accountable for specific Programs being reviewed, will be the Project Sponsor and will be responsible for securing adequate resources and expertise to ensure that these reviews are conducted effectively and according to corporate methodology. Team members will be assigned from cluster staff for the program being reviewed and Financial Planning Division staff. Other staff such as Internal Audit, Strategic and Corporate Policy, and Human Resources will participate as required. Where the required skills are not available internally, external resources will be utilized. Reporting the Results of the Review Once the due diligence reviews are complete, final recommendations will be presented to the Executive Steering Committee jointly by the Corporate Oversight Team and the Program Review Working Group. The Executive Steering Committee will report to Council through the Policy and Finance Committee. Recommendations have a two-fold purpose to inform Council and management of how the objectives of a program could best be met and to lay the ground work for implementing those changes. The report will include, among other things, the background of the program, the approach used by the review team, the methodologies used to review the data, and the rationale for using them, as well as the issues, and results of the review and the recommendations for change. Funding of the City s Program Review Process The City s proposed Program Review process is designed to support continuous improvement and efficient program delivery. Successful implementation of these reviews will result in incremental costs. This could impede program management from effectively conducting program reviews, should they be required to fund all the associated costs to undertake the review from their Program budgets. For the most part, internal resources will be utilized to conduct program reviews. Nevertheless, external resources will be required where the specific skills needed are not available internally. Creation of an Innovation Reserve Fund (IRF) is proposed to encourage Programs to effectively conduct Program Review. The Innovation Reserve Fund will be used exclusively to fund external resources such as consultants and for backfilling key staff positions dedicated to particular reviews. The Fund is not to be used to cover implementation costs of Program Review findings and recommendations. Incremental resources needed to perform program reviews will be identified/estimated by the Program Review Working Group as part of the annual Program Review work-planning exercise. Requests for funding from the Innovation Reserve Fund must be supported by business cases, which will be evaluated by the Corporate Oversight Team and approved by the Executive Steering Committee. With support from the Corporate Oversight Team, the Executive Steering
- 9 - Committee will manage the Innovation Reserve Fund and will ensure that it is used only for the intended purpose. It is recommended that an Innovation Reserve Fund be established with an initial contribution of $2.5 million, drawn from the Clients Identification and Benefits Reserve Fund which is no longer required for the purpose for which it was established, and has previously been recommended for closure. Conclusions: The Program Review Framework recommended in this report will complement the City s current management control and accountability system. It emphasizes relevance, efficiency, effectiveness and sustainability for all City programs as a way of ensuring that the City continues to provide quality services and that programs are achieving their intended results. Contacts: Josie La Vita, Director, Financial Planning Division Tel: (416) 397-4229; Fax: (416) 397-4465, E-mail: jlavita@toronto.ca Rosanna Scotti, Director, Strategic and Corporate Policy Tel: (416) 392-8637; Fax: (416) 696-3645; E-mail: rscotti@toronto.ca Shirley Hoy City Manager Joseph P. Pennachetti Deputy City Manager and Chief Financial Officer Sue Corke Deputy City Manager Fareed Amin Deputy City Manager