3 wishes for more efficient financial management in the public sector

Beginning of September, the Swedish Government initiated an assignment for more efficient financial management which I shared on social media. After a couple of days, I had almost 5,000 views on my share. From me, that's alot of views. My conclusion is that there are quite a few people who shares my frustration about the ineffecient financial management, caused by factually legal, and locally invented obstacles.

After having peeked under a stone, one should take a moment to reflect on what you saw. My analysis ended up in a top 3-list of wishes for the initiated inquiry. They are mostly related to Chapter 11 of the Swedish Local Governance Act:

Wish #1: Define what a budget is!

The concept budget is somewhat problematic and can actually be seen as a Kinderegg with three layers:

  • Business goals
  • Resources to achieve the goals
  • Forecast of whether the goals will be reached and if resources will be consumed at the right pace

If you try to swallow a Kinderegg in a single bite, the tin foil will destroy the chocolate and then it hurts the teeth when you hit the plastic container in the middle. Worst case, the surprise is spoiled and becomes a painful experience. Unfortunately, this is what it tends to look like every budget year among many public businesses (as well as in lots of private companies) - The Kinderegg is swallowed in one piece and the value of each part is lost.
My whish is therefore, that the governmental inquiry initiated will clarify that the budget infact consists of three elements, and three processes. These should be managed and developed individually based on local conditions and real needs. Ultimately, though arguably daring, the term budget should be deleted altogether in the Local Governance Act budget and replace it with the already existing concepts The business ambitions and goals, Resources to achieve the goals and Business performance follow-up. Then the control would be based on three separate element and each of them could be enjoyed/utilized without them destroying each other.

Request #2: Define the minimum requirements of the business plan

The law states the following about the business plan:

"The plan shall state the tax rate and planned revenues, how the activities are to be financed and what the financial position is expected to be at the end of the fiscal year. "

So, it does incact not say that you need to break down the business in into thousands of lines every year. Still, this is what is done, to high costs alot of working hours. This creates sub-optimization and pits managers and employees in a bargaining game against each other, competing for available resources.
Strictly based on the writing in the law, it is actually sufficient to state how much tax money you are expected to receive, describe in general how these are distributed per area, and if you are expected to stay within the limits of good financial management. A desirable situation is probably in the middle between what it usually looks like in practice and what the law actually says.

I hope that the inquiry will produce a definition of the lowest acceptable level for designing the business plan. This should criple the arguments for maintaining today's dysfunctional planning processes. An overly detailed business plan counteracts the need for innovation and trust in the business.

Wish #3: Increase requirements for forecasts and follow-up that is fit-to-purpose

Municipalities and Regions have about 80% fixed costs, mainly staff and real estates. It should therefore be relatively easy to meet the requirement to conduct effective follow-up and forecasting work. Despite this, there are several municipalities and regions that repeatedly generate large deficits. This indicates that there are three general problems:

  • In some cases the goals are too ambitious, and need to be adjusted
  • The business and / or politicians have very poor control over what they get for the actually relocateable 20% of the total turnover in the business plan
  • It may also be the case that the business is under-financed in order to meet the actual demand

A third wish is therefore that the inquiry sets requirements for follow-up and forecasting work based on real needs, as well as real performance and operations.

By dividing up Kinderegg (ie the budget), simplifying the level of detail in the planning work and clarifying the requirements of follow-up and forecasting, I believe that financial management will be much more efficient and more effective.

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