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Weekly UpdatesBudgeting has been traditionally one of the most difficult of government business processes for technology to support. Each government's budget process is distinct, making it a challenge for vendors to develop one software solution that will work across many environments. Further, the government budgeting process has an indispensable political element to it. By its nature, this political side to budgeting is difficult to encapsulate within a software package. The purpose of this article is to explore briefly the public sector's experience with technology for budgeting and, primarily, to examine the applicability to the public sector of a technology commonly used in the private sector for budgeting and planning called "corporate performance management" (CPM).
PUBLIC SECTOR EXPERIENCES WITH BUDGETING TECHNOLOGY
The most common technological solution applied to public sector budgeting has been the ubiquitous spreadsheet program, Microsoft Excel. The familiarity of most users with Excel, its low cost, and its adaptability to many data entry and calculation requirements makes it a natural initial choice for a solution. However, Excel has a number of limitations as a government-wide budgeting solution. Foremost is that Excel was designed as an individual productivity tool, not a collaborative budgeting and planning application. Hence, it is difficult for users to share work, often necessitating a series of complex (and fragile) linkages between different spreadsheet files. A related point is security Again, because Excel was not designed for collaborative work, the features for securing elements on sheets to which users share access are limited. Additionally, Excel does not contain certain technological features that are very useful for budgeting. For example, Excel lacks powerful reporting and drill-down (1) features that would be useful for budgetary analysis, it cannot easily provide powerful statistical calculations for long-term forecasting, and it is does not provide the ability to monitor and manage submittal processes.
The limitations of Excel have prompted governments to look for other solutions. For some governments, a common place to turn is the vendor that provides the government's financial management and accounting system. In many cases, the budgeting modules of financial management systems have proven to be a significant improvement over Excel and have satisfied the government's needs. However, sometimes these solutions have been found wanting. Perhaps the most important problem has been that the budget systems offered by some financial system vendors not surprisingly are developed similar to accounting systems: they are designed to emphasize transaction processing efficiency This efficiency comes at the expense of process flexibility and data accessibility.
A mantra of financial management system implementations is to "change your process to fit the software"--in other words it is better to conform the government's business process to that supported by the software than to customize the software. While this may be acceptable for administrative support processes like accounting or purchasing, it may not be acceptable for budgeting where a government's distinct process features may exist for reasons of legal or political necessity or due to financial management preferences. For example, park acreage might be a key variable in how a city budgets for park operating costs. If park acreage is not supported as a budgeting variable by the budgeting module, then the module would have to be customized (possibly leading to complications with technical support) or the budget staff would have to develop a series of complementary spreadsheets outside of the module to track this variable, thereby fragmenting the information used for decision making.
To take another common example, budgeting modules often are tightly coupled to the accounting module and the chart-of-accounts string. This requires budget submitters to formulate their requests by accounting entity. However, the organization may prefer to budget by program, goal, or other entities that are not part of the chart-of-account string. Hence, a government may find that the budgeting process supported by a financial management system module is simply not compatible with its requirements.
Some of the technical features of transactional-oriented budget modules also limit their utility for budgeting. They often lack a spreadsheet-like user interface that allows manipulation of multiple cells of data simultaneously Also, transactional systems are not typically designed to maximize accessibility to data, which can complicate reporting and analysis during the budget season. Finally, because these budgeting solutions are designed as modules of larger financial systems, they sometimes are not suitable as stand-alone solutions. Thus, it may not be practical to procure the budget module without also procuring the other components of the financial management system. For many governments, it may not be reasonable for its budgeting requirements to drive its selection of financial management systems or vice-versa.
The level of dissatisfaction with budgeting technology has been borne out by GFOA survey research. GFOA polled winners of its Distinguished Budget Presentation Award with operating budgets between $250 million and $500 million in order to determine their satisfaction with their existing technology for budgeting. (2) GFOA found that 64 percent of the respondents were satisfied or very satisfied with their current solutions for operating budgeting. This number rose slightly when considering just those who were using a module of their financial management system (68 percent) and dropped dramatically for those using a spreadsheet-based system (50 percent). While 64 percent is not an impressive level of satisfaction (the equivalent of a "D" in most schools), for capital budgeting systems and performance measurement technology, the satisfaction levels were much worse. Only 39 percent were satisfied or better with their solutions for capital budgeting and only 24 percent for performance measurement technology Further, the proportion of respondents using their financial management system vendor's solution for capital budgeting and/or performance measurement decreased dramatically compared to operating budgeting, suggesting that these vendors' solutions are not satisfactory for these purposes.
As a result of dissatisfaction with the traditionally available solutions for budgeting, some governments are now considering the use of a technology that has gained in popularity for planning and budgeting in the private sector (3)--corporate performance management or CPM.
WHAT IS CORPORATE PERFORMANCE MANAGEMENT?
Corporate performance management (CPM) is a type of decision-support or analytical software that is designed to be integrated with transactional systems (e.g., accounting, payroll systems) in order to provide superior analytical capabilities. This is accomplished through best-in-class analytical technologies (e.g., reporting tools), by providing a repository in which to consolidate data from multiple transactional systems for analytical purposes, and by storing that data in a format designed to maximize accessibility instead of transaction processing speed. More specifically, the Gartner Group, an IT analyst firm, defines a CPM product as having the following application components: (4)
* Budgeting, planning, forecasting. This includes the capacity to create planning models for both long- and short-term plans, to manage submittals to those plans (e.g., budget requests and approvals), and to link planning information with important systems for budget execution, such as the general ledger. Planning models are central to the CPM system because they describe what data will be contained within the system and how data elements will be organized and related to each other within the system.
* Activity-based costing and management. CPM products provide the ability to analyze costs and performance at a detailed level by storing and providing access to detailed cost and service information.
* Scorecards & reporting. In addition to more conventional reporting functionalities, CPM includes advanced reporting functionality such as performance dashboards, performance measures linked into cause-and-effect hierarchies, and automated monitoring and notification of measurement results. Exhibit 1 shows a scorecard device used by the District of Columbia for available budget for personnel services (PS) costs and non-personnel services (NPS) costs. The district's system divides remaining available budget authority (calculated by subtracting total annual expenditures, total obligations, and total interagency advances from the total annual budget) by the total annual budget to arrive at the results shown by the gauges.
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Consolidation. CPM provides for consolidation of planning information from across the organization (e.g., consolidating budget requests from across the organization) as a fundamental feature. CPM can be used to create a single version of the plan upon which the entire organization can agree. The organization can then measure performance against the agreed-upon plan. Consolidation functionality also allows the budget department to monitor the status of budget development (i.e., who is still working, who has not started) and to maintain control over different versions of the budget.
Through the above features, (5) CPM provides a solid basis for organization-wide budgeting. The budgeting/planning component can be used to create a budgeting model that conforms to the organization's requirements. The modeling capabilities of CPM products allow for an almost infinite number of configuration choices, such that CPM products are flexible enough to meet the requirements of almost any planning process. Budgeting/planning and consolidation functionalities allow the budget department to manage participation from departments and consolidate requests into a final budget. The ability to store, analyze, and report on detailed cost elements enables requesters to consider a broad spectrum of information when formulating requests and for managers and analysts to do the same when reviewing requests. The next section describes in more detail how CPM can support public sector budgeting. However, CPM is not a perfect solution so the next section also addresses the limitations of this technology.
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