Danish experiences with Performance and Results Rikke Ginnerup, Ministry of Finance

1
Danish experiences with Performance and Results
Rikke Ginnerup, Ministry of Finance Niels
Refslund, Agency for Governmental Management

• Presentation to SBO Network on Performance and
  Results
• 2-3 May 2006

2
Agenda

• Brief background
• Outline of the Danish performance system
• Efficiency Strategies and Performance Contracts
• Reporting on performance information (Annual
  Reports)
• Accrual Accounting and Budgeting Reform
• Performance information in the budget
• Key challenges

3
Background

• 1980s Budget reform and introduction of
  framework budgeting
• 1990s Introduction of performance contracts
• After a 10-year period a number of weaknesses
  were identified
• Too many targets and objectives, few measurable
• Targets directed internally at the organization
• Targets and objectives were not prioritized
• Lack of linkage between directors contracts and
  performance contracts

4
Introduction of Efficiency Strategies in 2003

• Mandatory policies in the efficiency strategies
• Performance management
• Clear targets for citizens oriented services
• Contracting out
• Procurement
• Voluntary
• Mission and vision
• Organisation and structure
• Key areas of action

5
New outline of performance contracts

• Focus on outputs and outcomes (external targets
  and objectives)
• Merging performance contracts with director
  contracts
• A limited number of output targets (5-10) but
  many measures
• Analysis of the hierarchy of tasks and
  activities as a condition
• Focus on distribution of costs (ABC)
• Review of targets and objectives in yearly
  reports

6
Hierarchy of tasks and activities
Outcomes
Results
Outputs
Tasks
Activities
Resources
Processes
Funds
7
Performance contractsAn example of a hierarchy
of tasks and activities
Sustainable agriculture
Outcome
Research
Payment of grants
Advise
Output
Task
Financial support to ecological agriculture
-
Administration
Management
Activity
Cleaning
Personel
Material
Resources
Money
Appropriations
Fees
8
Review of performance contracts in the Danish
central government (2004)Table showing
aggregate measures of the performance
contracts percentage of all targets
9
Examples of output and outcome targets

• The Danish Medical Agency
• It is satisfactory if time of case processing
  for new composite drugs and vaccinations is 210
  days in 95 of the cases.
• The Danish Competition Authority
• For 2004 the target is that the agency's
  productivity for running services rises with at
  least 2 compared to 2003
• Danish Commerce and Companies Agency
• In 2004 it is expected that the company portal
  gets 600 users on average per month. This should
  give 7.200 new registered users in 2004 adding up
  to a total of 11.200 users by the end of 2004.
  
• Statistics Denmark
• The level of user satisfaction is 4,3 (on a
  scale from 1 to 5).

10
Reporting on results in Annual Reports

• Introduction to mission and organisation
• Performance report
• Statement of output performance
• Statement of general financial performance
• Financial account
• Profit and loss account and balance sheet
• Cash flow statement
• Various financial key figures
• Approval and attachments

11
Accrual Accounting and Budgetting Reform

• Applying private sector accounting principles to
  the public sector
• From cash to accruals focus on the use of
  resources (depreciation) rather than payments
• All departments and agencies must prepare
  financial statements with balance sheet, income
  statement etc.
• More focus on cost distribution
• A better basis for substitution of factors of
  production
• A precondition for performance based budgeting

12
Performance information in the budget

• The performance information is only to a limited
  extent linked to the budget
• However, taximeter-budgeting links the
  allocated budget to the output (productivity) of
  the institution
• Primarily used on the education sector eg. 30-50
  pct. of the university budgets depend on the
  amount of students passing the exam
• Is presently considered in new areas as a
  follow-up on the accrual accounting and budgeting
  reform

13
Management of expenditure frames
Performance management
Tools to compare costs, activities results
MoF Budgetary framework Budget proposals
Planning Budgetting
Performance objectives Performance contracts

• long-range budgets
• investment planning
• consolidated budgets
• guidance for corporate governance

Quarterly approval of accounts Framework
statement
Periodic control follow-up
Day-to-day management using various information
systems

• speedy procedures
• key figures (MIS)
• cash management
• activity based costing
• task hierarchy

Annual report National annual account
Annual report Performance reporting

• approval of accounts
• surplus reserves
• performance reporting

Accounting
14
Key challenges performance contracts

• Measurement of targets
• Risk of goal distortion
• Cross-cutting targets
• Fragmented performance information
• Resistance against a very centralized and
  systematic program approach
• Transparency can create pressure for more
  resources
• No direct integration between the performance
  information and the budgets

15
Key challenges Taximeter-budgetting

• Perverse effects
• Expenditure control
• Need to fine-tune the grants and simplify the
  model