PGPA forum: link budgets to corporate plans, learn to live with risk

By Stephen Easton

June 24, 2015

Some federal bureaucrats see the relatively new Public Governance, Performance and Accountability Act as pretty much an update on the financial management legislation that preceded it. Department of Defence chief operating officer Brendan Sargeant would disagree.

“I’ve heard it said that the PGPA is just the FMA Act with a few tweaks, but I don’t think anything can be further from the truth,” Sargeant said last week at a forum hosted by the IPAA ACT branch, where he spoke of his department’s experience implementing the changes over the past year. “It takes us into a very different world.”

Brendan Sargeant
Brendan Sargeant

The march of the public management reforms ushered in by the new act is slow and steady. At its destination awaits a new performance framework which enhances accountability by strongly linking budgets to organisational goals.

“Like all reform, it can be embraced or marginalised in the implementation,” warned Sargeant. “At it’s heart is a very simple idea: performance is the extent to which resources have been or are being used effectively to support an entity’s fulfilment of its purpose. The PGPA asks us to understand and account for performance by focusing on the relationship between goal-setting and resource usage.”

“It’s no longer sufficient to say: ‘I’ve achieved; I’ve spent my budget.’ The standard is higher.”

Defence’s COO says the PGPA could also be seen as the latest phase in the financial devolution reforms that began in the public service of the 1980s, giving more financial decision-making to line managers, like himself at the time. He recalls it as a “very liberating process” that intended to improve decision-making, in terms of innovative resource use and responsiveness to local conditions or the ability to deal with “real problems not necessarily visible to the centre”.

“The problem with devolution lay in its implementation,” said Sargeant. “It did not integrate budget development and management with the normal day-to-day planning and implementation of activities in organisations. And in those days, planning was pretty ad-hoc and not many places actually had corporate plans.”

The “default settings of Commonwealth budgeting culture” prevailed, with budgeting and resource allocation separate to the patchy corporate planning that was done.

“There has, of course, always been a relationship between goal-setting and budget, but it’s not been tightly coupled enough to support strong judgements about the effectiveness of resource decisions or policy goals, except at relatively high levels of generality. The consequence has been low levels of real accountability to decisions made by managers,” Sargeant continued.

“In this sense, devolution weakened the centre’s financial control, but did not necessarily result in better financial decision making or increased accountability. Nor did it necessarily give team managers a better sense of the strategic impact of resource decisions.”

“The thing that is fundamentally different about this one is this one says you do not have a choice. This one says you will pay attention to performance, you will pay attention to risk, and you will put that at the centre of how you go about your work.”

The performance framework created by the PGPA would change that, he explained.

“It’s no longer sufficient to say: ‘I’ve achieved; I’ve spent my budget.’ The standard is higher. The question has become: ‘Have I achieved my budget in a way that optimally supports the goals and objectives I’ve set myself through my planning process?'”

As time goes on, the questions that Defence higher-ups ask of line managers would become “more searching and more complex” as standards of accountability become tighter, Sargeant suggested.

“Were they the right goals, pursued in the most effective way? Were there other choices that might have been explored in establishing both those goals, and the means by which they might be realised?

“So, we’re asking people to think more deeply about what they do, and to think more innovatively about the choices before them in how they do that.

“These questions are hard to ask in the current management environment. In many ways, in many areas, the relationship between resource allocation and goal setting is either imprecise, tenuous, or operates at a level of generality that makes such questioning difficult or meaningless as a guide to a judgement about performance.”

“Indeed, the strategic lesson from our experience of corporate and annual planning, since the Black review, has been the complexity of developing meaningful goals and useful performance measures — let along linking them meaningfully to resource input.”

Risk and the new government paradigm

Stein Helgeby, the Department of Finance’s deputy secretary with responsibility for governance and resource management, opened the forum by reiterating that the PGPA reforms broadly support the shift towards “smaller government”, increased contestability, standardised systems and consolidated service delivery — in many cases enabled by increasing use of digital platforms.

Stein Helgeby
Stein Helgeby

Helgeby said the Commonwealth bureaucracy was currently too complex to take advantage of its massive scale. The only way to do so — and achieve greater impact, efficiency and innovation — was to “standardise” but for too long, he argued, the public sector had accepted this inefficient complexity as a fact of life. It was simply another way the public service was different to the private sector.

The PGPA Act also aims to put risk management front and centre in all areas of public sector management. According to a chart that Helgeby showed the forum, Comcover rates the “risk maturity” of most federal agencies towards the upper end of a spectrum ranging from “fundamental” to “optimal”, but there is still work to be done.

One agency was rated at the lowest end, 13 have a “developed” risk management framework, 45 were at the “systematic” level and 64 have “integrated” risk management. The chart rated 32 agencies as “advanced” and just one at the “optimal” level.

In his presentation, Sargeant said the PGPA reforms had brought risk management into “sharp relief”.

“Every decision to establish a goal and allocate resources is a decision to approve risk,” he told the forum. “The PGPA brings risk into view because it makes visible the reality that all goal-setting and resource allocation is choice-making. And choice-making is concerned with understanding and managing degrees of actual or potential risk.”

Defence is in the planning phase of sweeping changes recommended by the recent First Principles Review. Among other things, the generational reforms include development of a single planning framework, and Sargeant says the department is “embracing [the PGPA Act] as a tremendous opportunity to drive reform”.

Another “biggish organisation with a significant presence around the place” that is also undergoing a major restructure offers a good example of how to implement the reforms, according to Helgeby. Instead of asking how the PGPA Act would force the organisation to change, it was looking at how it could take advantage of the PGPA Act to support the changes it wanted to make, he said.

As Defence moves to the simpler structure recommended by the First Principles Review, the PGPA Act empowers it to establish the new system of accountability that is needed, with clear expectations for managers at all levels.

“The art of PGPA implementation in Defence lies in adapting this architecture to defence processes and systems in a way that strengthens accountability and performance,” said Sargeant.

“It will be a very big cultural as well as administrative change, but for me, the cultural dimensions are much bigger than the administrative changes that will flow.

“At present, this implementation is primarily through the development of the new corporate plan but should not be simply seen or treated as a corporate-level initiative. I believe that there’s an opportunity for SES managers to review and renovate their management practice in their work areas against this broader framework.”

The biggest challenge for Defence has been actually figuring out meaningful, organisation-wide performance measures that link planning to resource allocation, he added.

“And it gets very challenging when you reach into the higher levels of the organisation and you have a goal which spans right across and which many different parts of the organisation contribute to, and develop a performance measures that are meaningful and allow people both to position their work and to make judgements about the effectiveness and relevance of their contribution.”

Sargeant said Defence still had a way to go on this challenging journey, but told the keen public servants in the IPAA audience it was work that was very much worth doing.

“My view is that really understanding [that] performance is built out of [all] the different parts of our management process, is where implementation of the PGPA is going to either live or die.”

Helgeby also tried to set the PGPA reforms apart from those of the past, pointing to the much stronger mandatory corporate planning requirements that take effect from next year.

“You might ask, why would you put a lot of [new] planning in place when all it does is become another bundle of paper? I think we’re doing something different here,” he said. “I think what we are actually doing is we’re trying to make a system that works better because you can see through it from the beginning to the end.”

As opposed to the last “30 or 40 years” of Commonwealth performance frameworks, the new one turned guidelines into mandatory duties, he explained. Rather than defining a high standard and saying it would be nice if everyone could meet it, the new system had “some steel behind it”.

“The thing that is fundamentally different about this one is this one says you do not have a choice. This one says you will pay attention to performance, you will pay attention to risk, and you will put that at the centre of how you go about your work.”

Breaking down boundaries

While the changes are difficult to implement for some of the organisations formerly known as FMA agencies, the benefits are starting to emerge from the increasingly large holes being punched in the walls between silos.

“Anecdotally, there’s a lot of sharing of information going on, there are a lot of ideas being spread around the place,” said Helgeby. “People are doing innovative things they would never have thought of. So people who are neighbour organisations, not in a portfolio, but physically, are sharing audit committee meetings, or thinking about doing that.

“People are sharing information about their planning arrangements and how they’re going about doing that. There’s a lot of sharing going on and the communities of practice, I think, will be a big part of how the change continues.”

“I believe that there’s an opportunity for SES managers to review and renovate their management practice in their work areas against this broader framework.”

For government to be as effective as possible, its public service organs must also look beyond their own patch for opportunities to collaborate, and the PGPA Act explicitly demands they do so in a more open-minded way. The APS will be expected to play nicer with companies and not-for-profits as well as their state and territory counterparts.

“From a policy perspective, the thinking here is that we don’t have a monolithic public sector and a monolithic private sector, or even a monolithic non-government sector,” Helgeby explained in response to a question from the audience. “What we have is a continual series of relationships between these things.”

Just about any of the really big problems confronting governments cross these sectoral boundaries, and all participants in solving those problems should feel they are playing by the same rules.

“I think the experience so far has been typically the side which has got the money ends up imposing a whole series of constraints through contractual or other means that go to undercut, if you like, some of the more productive or cooperative relationships that could exist in these kinds of arrangements,” Helgeby added.

“The intention here is to work through these problems of joining up, in such a way that we allow a little less of the pure contractual kind of stuff, and a lot more of the joining together around a common purpose and applying resources in a way that’s flexible against that purpose.

“We can’t just run government in such a way that we create boundaries that are really unproductive.”

And parliament is watching, he reminded the audience, with the Joint Committee of Public Accounts and Audits running an inquiry into the new performance framework. Helgeby, who has spent considerable time in the committee’s hearings, expects a lot more attention on the public management changes in the months ahead.

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