Let me be your guide to public financial management

I have written and produced a new online course. It’s called Introduction to Public Financial Management and is aimed at anyone working in government or public sector organisations.

Completing the course will enable you to:

• Understand the public finance management cycle.

• Manage a budget for a project, service or organisation.

• Understand the sources of funding available to governments and their relative strengths and weaknesses.

• Understand the importance of creating value for money and how to measure it.

• Know when it makes sense to involve a partner in the delivery of a project or service, and how to get the best from the partner.

• Know how to evaluate investments and projects.

I created the course in partnership with FreeBalance, the government software company. They have been developing a portal for online learning — the FreeBalance Academy — and invited me to contribute my own courses to it. I took the opportunity to make an online version of the course I teach at the University of Nottingham. 

The course has ten units, each aligned with a chapter of my book. Unlike a book, this course is interactive. There are more than 60 videos and a whole host of other resources including downloadable documents and quizzes to test your learning. And if you pass the final assessment at the end there is a certificate of completion.

Find out more, and register, by clicking the button below.

Book recommendation: Getting to Yes by Roger Fisher and William Ury

Last week I saw this story about how Northamptonshire County Council hopes to deal with the financial difficulty it is in by renegotiating its supplier contracts. Taken on face value, if 70 per cent of spending is through contracts with external suppliers it makes sense to seek to reduce expenditure by renegotiating some or all of those contracts. The expert cited in the article is, rightly in my view, concerned about how difficult this task will be, especially given that the suppliers know how perilous the Council’s financial position is.

There is a risk that some of the suppliers might not want to renegotiate, and that others might walk away from the negotiating table, but I think the Council’s team need to try. Step one might be to identify a priority order for dealing with the contracts, taking into account factors such as size, duration, the historical performance of the supplier, etc. But what next? How can the Council negotiate itself new deals it can afford?

This is where my book recommendation comes in. Over the years I’ve attended several courses on negotiation skills but none of them have been as helpful as reading Getting to Yes by Roger Fisher and William Ury. This is a relatively short book, written in a friendly, easy style and it can set you up for any kind of negotiation—in your home life as well as at work. The authors are part of the Program on Negotiation (PoN) at Harvard Business School so they know what they are writing about.

There’s no getting away from the fact that successful negotiations rely on preparation. The better you are prepared the better the outcome will be. And, if I boil it down, the preparations require two main things. First you need to understand your BATNA (the best alternative to a negotiated settlement you have) and the other party’s BATNA. Understanding both of these helps you to evaluate whether the offer on the table is acceptable or not to either or both of you.

The second key message in the book is to focus on each party’s interests and not to take fixed positions. The authors believe that if the parties focus on their interests and think creatively they can often find solutions that both are happy with. This is a way of thinking about negotiations in a way that is not so conflictual and more prone to result in win-win solutions than win-lose solutions.

Connecting this back to Northamptonshire Council’s predicament, they are clearly going to have to do a lot of work to understand the BATNAs relating to so many contracts but that will be an essential step. And although it may be a difficult situation, if the Council focuses on the interests of both parties it may work out agreeable solutions. Clearly the Council is desperately in need of reducing its financial commitments but there are choices. What I don’t think will work very well is the Council making an aggressive opening statement along the lines of “As one of our contractors we need you to reduce your prices by 50%.” The chances are that this will make the contractor defensive and likely to take a position of pushing back with an explanation of why that can’t and won’t happen.

To get the spending reductions it is after the Council needs to have a constructive dialogue focused on “getting to yes”. It has options that can help this dialogue such as reducing the volume of services, reducing performance standards, offering longer contract durations, offering exclusivity, changing the terms of the contract that the supplier feels are onerous or that oblige the supplier to incur higher costs. There could be many more. The important thing will be listening to the other party to each contract on an individual basis, working out what their interests are and then working together to agree a change or set of changes to the contract that give each party what they are looking for.

If this has whetted your appetite about Getting to Yes you can buy the book from Amazon using this link. Also, the PoN’s website is a useful resource and you can sign up for their daily newsletter on the site. Alternatively you can follow PoN on Twitter at @harvardnegoti8 and William Ury is @WilliamUryGTY.

Creating an online course about managing public money

For several years I have been thinking about doing less consulting work and making a living from selling products instead. The beauty of selling products is that it is unconstrained. When I work as a consultant, or as a teacher, I can generally only be paid for the time spent on the project. I have tried, and sometimes I succeed, in selling my service at a fixed fee, which gives me an incentive to work faster rather than slower, but many of my clients seem to see this approach as too risky. Essentially, that puts a limit on what I can earn because I can only sell my time once. Selling products, on the other hand, does not have that limit: the limit is the demand for the product at the price being charged.

As I said, I’ve had that on my mind for a few years and this year I decided to do something about it. The products I want to sell are online courses, books, e-books and coaching that are focused on various aspects of managing public money. Earlier this year I wrote a blog post about my online school and the free mini-course I created (Five Questions To Ask About Your Budget).

This week I made a start on creating my first paid-for course. It is a course aimed at anyone working in the public sector who wants to know more about the big picture of financial management. It is concerned with explaining the differences in financial management between the public and private sector, how public bodies are funded, and the governance arrangements that tend to apply to public workers. It also explains the concept of value for money, something which is vitally important to organisations that do not sell their products and services in a free market.

I thought it might be interesting to write a series of blog posts over the next few weeks that show how the course was created. Step 1 has been sketching out the content in the form of a mind map.

I created the mind map in an application called Mindnode. One of its nice features is the ability to switch from a map view to an outline view. Another feature is the ability to export the mind map into OPML format, which can then be opened by an outliner app or in rich text format (RTF) to be opened in a word processor like Word or Pages. 

The next stage of the process is to expand the headings and notes in the mind map into a set of steps. Each of the main branches in the mind map will be a topic within the course. Each topic will be broken into a set of lessons that will take less than 10 minutes each to complete. The plan also has to set out how each lesson will be taught (whether the lesson will be text, video, slide presentation, etc) and what downloadable material is needed to support it.

If you are interested in the course then sign up to my list so that you don’t miss its launch. 

Free online training from the IMF about public financial management

The IMF (International Monetary Fund) have created an 8-weeks long course about public financial management. It is free, and available to you whether you work in a government agency, an NGO or are just interested in public money and budget transparency.

They have produced a 2-minute introductory video.

And you can sign up for the course here if you are a government official or work for a development agency and here if you are a member of the public. I think I will sign up because we can all learn something new however much of an expert we think we are. 

5 things I learned from writing a MOOC

Last year I authored a MOOC (massive open online course) about managing public money for the Open University. It was an interesting and enjoyable project to work on, and I learned an awful lot the production of online courses. Here are five of the lessons I learned.

1. Stay focused

I’m an expert in managing public money and can write about it at length. I know this is true because I wrote a book about it with over 120,000 words. It is tempting, therefore, to write as much as you can in each step of each lesson in order to give the learner as much value as possible (even though the course is free). It is better, though, to keep the lessons focused in order to give the learners only what they need to know. As Antoine de Saint Exupéry put it:

Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.

2. Variety is important

The MOOC I was writing was destined for the FutureLearn platform. This platform has many different types of webpage that can be used. These include video and audio steps, quizzes and tests, and discussion pages as well as a basic template for formatted text and inline images (much the same as a standard blog template).

I know from my own teaching that learners will soon switch off if I just stand at the front a lecture for 90 minutes straight. Classes need changes to happen every ten minutes or so. The same is true for a MOOC. Each step in the lesson needs to be kept short enough to be completed in under 10 minutes and there should be a variety of steps making up the lesson. This means mixing up text with other media and incorporating activities and discussions along the way. If you don’t do that you are basically writing a book and one of the attractions of an online course is that it is more alive than a book.

3. Stick to the budget

When I first fleshed out my plan for all the steps in each of the four weekly lessons I went crazy with all the options for different kinds of steps. I thought I’d put together a really interesting, exciting lesson for each week. In fact, I had done exactly that. The problem came when it was presented to the producer of the MOOC and she had to tell me that the budget for the course meant I could have no more than two video steps in a lesson and depending on the fees paid for videos from third parties, I would have to limit the amount of images, etc.

I’m an accountant and I know that the budget rules. It was frustrating though. It was also frustrating to discover that the fee for authoring the MOOC was about 5% of the budget. I’d like to think that creating the content is valued more highly than that given that there would be no course without it. I should not have been surprised, really, since it’s much the same with books in terms of author royalties. 

4. Clearance takes a long time

The overall production process was about 20 weeks but only 8 weeks was planned for the writing and editing of the content. The rest of the time was needed for all the other activities like uploading the content to the draft site, building and checking hyperlinks, etc. One thing I had not expected was how long it takes to get permission from third parties to use their material. I had not referenced very many things like this but it still took weeks to get permission. 

I had also specified what I wanted as images to illustrate various steps and there was a fairly long process of findings suitable images, sending them to me to select my favourite, and then acquiring the rights to use the selected images.

There are two particular things I learned. One was that permission is not needed if you are simply putting a hyperlink into your course. This is a useful workaround if you cannot wait any longer for a response to your request for permission (as we did for one step of my course) but the downside is that it takes the learner off to a different website and we all know that runs the risk that they will be distracted by something and not come back to the course immediately.

The second aspect of this is that you can avoid the need to seek permission if you create the content yourself. This can be practical for things like diagrams and even some video material but it also brings back lesson 3 and the budget for the course. For some of the content you can’t create yourself, such as stock photos and videos, you can still look for royalty-free versions. There are lots of sites for these. For photos, I like Unsplash.

5. Leave room for the learners’ voices

It's easy to focus on delivering content to the learners but if you do that the course will be didactic. In a classroom it's always possible to stop talking if you sense someone has a question to ask. A MOOC can't be interactive in that way but it is possible to include a comments feature at the bottom of any of the steps where learners can ask questions, of the author or other learners, as well as make comments. As the author you can go a bit further and include requests in the text for learners to make comments, perhaps sharing their own experience. It is also possible to think of activities that learners can do which require them to report their answers/findings in the comments section. All of these things bring the learners' voices into the MOOC and make it a richer experience for everyone.

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I’ve learned these lessons, and more, and I am using them to create  courses at my own online school. I have lots of ideas for courses and some of them are in various stages of production. I have finished one course: 5 questions to ask about your budget. It’s a short course (less than an hour to complete) and it’s completely free. Not only is it free, you also get a copy of my glossary of financial terms as a bonus. You can find the course here.

Benchmarking: an incentive to improve, a distraction or a red herring?

In the question and answer session of the presentation I gave a couple of weeks ago I was asked how I thought a process of benchmarking should fit into the annual budgeting process. I gave an answer at the time but I don't think I expressed my view as well as I could have so I thought I would have a go in writing.

The question was posed to me in terms of unit costs: if we are preparing our budget for a service how should we take into account the fact that our neighbours or peers deliver the service for a lower (or higher) unit cost? On the face of it this seems like a good idea and I'm sure there must be some sound theories to support it. My answer to the group, though, was sceptical, borne from experience rather than theory.

I think that the "information" a public sector organisation gets from such benchmarking is unhelpful. I think carrying out a benchmarking exercise is "busy work"; it feels like you're doing something positive but in practice you're using up a lot of resources and getting very little in return. They say you don't fatten a pig by measuring it. Well, benchmarking is the equivalent of trying to fatten your pig by measuring someone else's.

I've been involved in numerous benchmarking activities over the years (it was a key feature of the Audit Commission's work in the 90s and 00s) and the first problem is agreeing common definitions so that the information is at all comparable. The development of accounting standards and financial reporting standards has no doubt improved the consistency of treatment by public bodies, but that does nothing for the second, and bigger, problem: that public managers will cling to favourable comparisons and find reasons to criticise unfavourable ones. (I once has a manager who was very quick to claim successes were the result of his management but failures were the result of external factors beyond his control. Sound familiar?) If you want an academic reference for this, Demeere et al (2009), writing about the use of activity-based costing in healthcare, said:

"... healthcare managers might argue about the accuracy of the models estimated costs and pro"tability rather than address how to improve the inef"cient processes, unpro"table products, and considerable excess capacity that the model has revealed."

Demeere et al actually touch on the potential negative consequence of benchmarking: complacency. If a public manager's unit costs (or whatever) are good they do not need to try harder; if they are poor, they might try hard to make a defence but they can avoid the need to improve their service.

Many aspects of public management these days are informed by or developed from private sector practice. Do private sector organisations benchmark with each other? Perhaps, but it seems unlikely that an organisation could benchmark with competitors directly so they are more likely to use competitors' prices as the benchmark. They may ask themselves, Can we sell our product for the same price as the competition and still make an adequate return? If the answer is no then they either have to find a way to make their product more cheaply, charge a higher price and compete on the basis of quality/design or cease to produce the product. If the answer is yes then that's great, but it would not stop them from seeking efficiency improvements in order to improve their gross profit margin.

How does that compare with a public service? Well, there are some services where charges are made but generally there is not a market because public bodies usually have a monopoly on the service in some geographic area. But there are some areas where there are comparable private sector providers whose prices could be used as a signal. Except, how many local authorities would compare the unit costs of their schools with fee-paying private schools, or compare their access-for-all leisure centres with members-only private gyms? "They're not offering the same things as us," would be the cry so of course our unit costs are different from theirs.

So, based on my experience, what would I recommend? In my view the answer is much easier to find than carrying out benchmarking exercises because the organisation already has it. The answer is to compare our own unit costs over time. This avoids all the problems of alternative accounting treatments, geogrpahical differences in prices, etc. and it builds on the idea that however good a service is the managers should strive to improve it. I'm sure that if all the time and energy spent carrying out benchmarking work and then defending or criticising the results was spent on improving services the benefit for the public would be significantly improved.

Reference

Demeere, N., Stouthuysen, K., & Roodhooft, F. (2009). Time-driven activity-based costing in an outpatient clinic environment: Development, relevance and managerial impact. Health Policy, 92(2-3), 296–304. doi:10.1016/j.healthpol.2009.05.003