Marshes and bogs… Stepping through the challenges of Financial Planning in the Public Sector
10 June 2016
Leading practice – high and dry
Leading finance functions in the Private Sector, as seen in PwC’s 2015 finance benchmark report, use efficient forecasting, planning and budgeting processes to free finance professionals to focus on bringing insights and value to the rest of the business. This approach is just as important in the Public Sector, now more than ever. In recent years Public Sector organisations have seen unprecedented funding pressures, a rapidly changing population to serve, and opportunities for efficiency through the use of new technologies.
A marshland of stakeholders
Public Sector organisations serve the public on behalf of the government and they must cater for stakeholders with a wide range of needs and demands, from budget holders, to regulators and pressure groups, and service users. Alongside the differing and competing demands these groups bring, these organisations often have no direct control over the majority of income they receive. Yet they must provide a mandated set of services, usually for increasing populations. For example local government has seen funding from central government cut by around 40% since 2010. Whilst this has forced councils to address inefficiencies and make savings, these measures will only go so far. Raising additional revenue is difficult, therefore many councils have taken the difficult decision to cut non-essential services to their residents.
In addition, accurate predictions of the future are often limited to the tenure of the current government. A change of party at the next election has the potential to bring about a reversal of policies and priorities. This makes the future particularly difficult to predict for planners.
Bogged down processes
External pressures are often compounded by cumbersome and clunky internal processes. Silo’d budgeting, complex processes, and several layers of management approvals limit the ability of planning to be agile and react to changes. The legal constraints in the Public Sector on budget control also mean that making changes is a lengthy, detailed and bureaucratic process. For example, one such infrastructure sector organisation was found to be re-planning in detail every period in order to manage planned spending changes – at a huge cost to the organisation!
How to avoid sinking in the mud and enable better decisions
Top finance functions have decreased the time taken to report and invested in relevant skills for their staff. These changes are hugely applicable for the Public Sector and their challenges. Quick and efficient reports would allow the impact of changes to be quickly assessed and skilled analysis would highlight where value for money is being delivered. The role of a finance business partner would help others in the organisation understand and analyse the financial impact of delivering services in their area.
Changes can be made without the need for a large overhaul of systems. Cloud-based planning and budgeting tools are now available that can drastically improve reporting and collaboration. Finance functions should honestly assess their current practices and processes to determine how close they are to achieving the right level of detail, high accuracy, and rapid production of insightful information for decision-making. Upskilling Finance resources and using the right planning tools enable better conversations with the business and add value. Such changes would see Public Sector organisations move out of the swamp and back on to dry land.
Senior Manager, Finance Performance Management
Senior Associate, Finance Consulting