Budget Execution Course Implementing Financial Management Information System Projects: The World Bank Experience Preliminary Results Bill Dorotinsky PRMPS Budget Execution Course November 5, 2003

Outline Definitions Review Scope Reform project nature and design Reform Project Emphasis Loan Objectives Project Components Summary Project Characteristics Success? Risks, successes, and failures General lessons Preconditions? Open Questions

What is an FMIS? Definitions Financial management system: Information system that tracks financial events and summarizes information supports adequate management reporting, policy decisions, fiduciary responsibilities, and preparation of auditable financial statements Should be designed with good relationships between software, hardware, personnel, procedures, controls and data Generally, FMIS refers to automating financial operations

What are core and non-core FMIS systems? Definitions What are core and non-core FMIS systems? Core systems General ledger, accounts payable and receivable. May include financial reporting, fund management and cost management. Non-core systems HR/payroll, budget formulation, revenue (tax & customs), procurement, inventory, property management, performance, management information

What is “integrated” FMIS? Definitions What is “integrated” FMIS? Can refer to core and non-core integration But, generally, four characteristics* Standard data classification for recording events Common processes for similar transactions Internal controls over data entry, transaction processing, and reporting applied consistently Design that eliminates unnecessary duplication of transaction entry *from Core Financial System Requirement. JFMIP-SR-02-01. Joint Financial Management Improvement Program. Washington, D.C., November 2001.

What constitutes a good system? Definitions What constitutes a good system? Ability to* Collect accurate, timely, complete, reliable, consistent information Provide adequate management reporting Support government-wide and agency policy decisions Support budget preparation and execution Facilitate financial statement preparation Provide information for central agency budgeting, analysis and government-wide reporting Provide complete audit trail to facilitate audits *from Core Financial System Requirement. JFMIP-SR-02-01. Joint Financial Management Improvement Program. Washington, D.C., November 2001.

Bank FMIS Project Review Scope The review covers 34 projects in 27 countries across 6 regions, involving $1 billion over 17 years.

Project Emphasis Most Bank projects are not FMIS-only, but embedded in broader financial management or public sector reforms.

FMIS Project Components Many of the projects paid attention to training and ‘soft systems’ surrounding the technology.

Project Characteristics An FMIS project, on average, took 7 years to be complete Ranging from 9.1 years for AFR to 5.8 years for LCR average Bank-financed cost was $12.3 million* component changes in 75 % of projects * Excluding $600 million for Russia

Success? If success is defined as… … then, only 21 % were successful delivered as-specified ex ante 43 % delivered as specified delivered on-budget 50 % delivered on budget delivered on-time 21 % delivered on-time … then, only 21 % were successful

Success? But, these indicators only looks at project, not impact on financial management, operations Improvements to reporting? Staffing changes? Generally, no or weak performance indicators in projects no baseline broader impact assessment difficult. However, in self-assessed sustainability 25 % unsustainable 6 % highly likely to be sustainable 69 % likely sustainable

Project Risks

Success Factors Lessons: Full-time project coordinator (36%) Champion at political level (14 %) Training (14 %)

Failure Factors Lessons: Full-time project coordinator (23%) Commitment (23%) Project design (20%) Resistance (10%) HR capacity (7%) Commitment: champion HR/training: IT AND FM capacity

General Lessons

Preconditions? Human Development Index* E-gov Readiness* HR Capacity, ICT Readiness, & Project Success Burkina Faso L 0.9 Argentina S Malawi L 0.8 0.7 Hungary S 0.6 Uganda L 0.5 0.4 0.3 Chile S 0.2 Bolivia L 0.1 Columbia S Indonesia L Ecuador (2) S Brazil L Honduras S Guatemala (1) S Nicaragua S Human Development Index* E-gov Readiness* (Human Development Index: UNDP Human Development 2001 Index, E-government Readiness: UNPAN Global E-Government Index)

Open questions Is it appropriate to use FMIS projects to drive other reforms? Cost-effective? Is FMIS an effective entry-point? What other preconditions for considering an FMIS investment should exist? What performance measures should be included to assess effectiveness?

Supplemental Slides

Guidance for Risk Reduction Procurement in self-contained modules, each of which add value, even if nothing else was purchased Stay with known technology, well-proven approaches and standard software where new technology is unavoidable, thorough pilot testing is warranted. End-user involvement up-front in system design, and developing communication strategies Build into the process independent, expert review at key stages in project to assess status Single official should be responsible for project execution, preferably someone senior enough to assure compliance Clear lines of responsibility and accountability in project management

Donor Coordination Aspects Overlapping initiatives in same business area at different levels of government Ensure that the processes and systems are compatible, support the same goal, and are correctly sequenced. Requires fine-tuning as the project progresses, and organizational goals shift Options: Multi-donor trust fund which can be used to support diagnostic work, capacity building, and allow for dialogue Each Donor covers a particular component, hardware, software, communications, change management, training, etc Each Donor covers a level of government, or group of states/regions or districts in the same development stage But: greater complexity in financing and administration, greater likelihood of failure Source: Adapted from Presentation, Deepak Bhatia, IFMIS Implementation: Aspects for Consideration

IT architecture Develop information architecture to rationalize information needs and flows Develop data architecture to enable sharing, access, management, security and integrity of data Develop system architecture to computerize and support business processes Develop technology architecture to support computerized processes, information flows, and data management Develop networking architecture to enable information flows across space and institutional boundaries Develop security architecture to ensure protection, integrity and confidentiality of data Put in place management structure and systems to manage operation of all the above architectures Source: Presentation, Deepak Bhatia, IFMIS Implementation: Aspects for Consideration

Financial Records Management Creation and management of authentic, reliable, and secure financial records are critical actions (paper/electronic) Meet the financial management needs of the government, including: Development and implementation of economic and fiscal policy to: Provide the audit trail and support the audit function Enable government meet its legal obligations for financial management Protect the integrity of key records and the information they contain Ensure the timely disposal of obsolete records Without effective and efficient records management in place, the desired impact of financial and governance reforms is often minimal at best Source: IRMT discussion on evidence-based governance, as inclued in Presentation by Deepak Bhatia, IFMIS Implementation: Aspects for Consideration

Critical Issues for Financial Records Management The need to recognize the importance of protecting the authenticity and integrity of financial records The need for effective legislative and organizational frameworks for financial management and financial records care The importance of developing standards for financial records management and financial records care The central role of education and training for successful records care The need to raise awareness across government of the value of all records, including financial records Source: IRMT discussion on evidence-based governance, as inclued in Presentation by Deepak Bhatia, IFMIS Implementation: Aspects for Consideration

Change Management Objectives Redesign budget, revenue and expenditure processes Redefine organizational, job and skill requirements Minimize resource requirements to implement IFMS Institutionalize service, efficiency mindset Gain staff commitment and feedback on redesigned processes. Help line ministries implement process improvements Create the foundation for a Government-wide communications strategy Source: Presentation, Deepak Bhatia, IFMIS Implementation: Aspects for Consideration

Eight Key Steps To a Successful Transformation Establish a sense of urgency Form a powerful guiding coalition Create a vision Communicate the vision Empower others to act on the vision Plan for and create short-term wins Consolidate improvements and produce still more change Institutionalize new approaches Adopted from Harvard Business Review March-April 1995

What Is a Business case? ROI Financial Technical Strategic Operational A business case outlines the overall business benefits that justify the initial and commitment of time, resources and funding for technology projects Financial Costs, benefits and impact on business performance measures Technical Benefits to IT infrastructure and support for technology strategy ROI Strategic New capabilities and improved competitive position Operational Process improvements (Tangible and Intangible) Source: SAP

Business Case for IT Initiatives What problem exists that must be solved? What people/stakeholders (how many constituents) does this problem affect? What solutions are available to solve this problem? What are the benefits of each solution? What is the relative cost of each solution? What stakeholders are affected by the intended solution? Are stakeholders willing to pay for this solution or must government fund it? Can other fund sources be used? How can these stakeholders affect my political future? If we pay to solve this problem, what other problem goes unsolved? Source: Gartner

ICT Procurement Aspects Find adequate and sustainable solution for project management and implementation (appropriate blend of own staffing, use of TA, and purchase of technical capacity) Organise procurement in manageable pieces Single responsibility (turnkey) contracts Separate application software development Phasing implementation Splitting procurement and managing several suppliers Source: Presentation, Deepak Bhatia, IFMIS Implementation: Aspects for Consideration

Typical Mistakes in ICT Procurement Reliance on inadequate IT expertise Mindset fixed on obtaining specific brands Eager to receive hardware, with little regard to use it productively any time soon Underestimation of effort and complexity in preparing bidding documents Overestimation of internal technical capacity Source: Presentation, Deepak Bhatia, IFMIS Implementation: Aspects for Consideration

Useful References Margaret Bartel, Integrated Financial Management Systems: A Guide to Implementation Based on The Experience in Latin America, (Washington, DC, Institute For Democratic Strategies, LATPS Occasional Paper Series, 1996)   Central Computer and Telecommunications Agency, Good Practice in Developing Sustainable Information Systems: Supporting Guides, (London: Department for International Development (DFID), 1998) Christopher Pollitt & Geert Bouckaert, Public Management Reform: A Comparative Analysis, (Oxford, Oxford University Press, 2000) Joint Financial Management Improvement Program. Core Financial System Requirement. JFMIP-SR-02-01. (JFMIP, Washington, D.C., November 2001) The Hidden Threat to E-government, Avoiding large government IT failure, OECD Public Management Policy Brief, PUMA Policy Brief No. 8, (London, March 2001) United Nations Division for Public Economics and Public Administration, Benchmarking E-government: A Global Perspective, 2002