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BURGESS BOOKS
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Management Information
for
Relief and Development
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TABLE OF CONTENTS
SECTION 1
- The State of the Relief and Development Sector.
- Where We Are! How and Why?
- So Many Things Are Wrong
- A dialog about the dynamic of how and why many things are wrong
- Lack of decent accounting.
- [Box: Delayed accounting is no accounting].
- Abdication of the accountants.
- No space for measurement, analysis and review.
- There's a hole in the bucket.
- Very little of the funding gets to beneficiaries.
- Corruption.
- [Box: Corruption in Nigeria since the 1970s].
- [Box: Losing trust in Nigeria in 1975].
- [Box:Making corrupt money in fisheries in Burma].
- Debt.
- Debt cancellation, restructuring ... whatever.
- [Box: An experience in Namibia].
- Value destruction.
- Value destroying projects.
- [Box: Value destruction in South Sudan].
- Cost and value of workshops and conferences.
- Cost and value of research and studies.
- [Box: A study of studies in Lesotho. No oversight.
- [Box: Internal audit and Oversight].
- [Box: Oversight and control]. Performance oversight.
- [Box: Global Fund].
- Whistle blowers.
- A system without accountability.
- [Box: Management Accounting for UNDP].
- Economic hit men.
- Foreign direct investment.
- The value chain and value destruction.
- Complexity.
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TABLE OF CONTENTS
SECTION 1
The State of the Relief and Development Sector.
Where We Are! How and Why?
So Many Things Are Wrong
A dialog about the dynamic of how and why many things are wrong
Lack of decent accounting.
[Box: Delayed accounting is no accounting].
Abdication of the accountants.
No space for measurement, analysis and review.
There's a hole in the bucket.
Very little of the funding gets to beneficiaries.
Corruption.
[Box: Corruption in Nigeria since the 1970s].
[Box: Losing trust in Nigeria in 1975].
[Box:Making corrupt money in fisheries in Burma].
Debt.
Debt cancellation, restructuring ... whatever.
[Box: An experience in Namibia].
Value destruction.
Value destroying projects.
[Box: Value destruction in South Sudan].
Cost and value of workshops and conferences.
Cost and value of research and studies.
[Box: A study of studies in Lesotho. No oversight.
[Box: Internal audit and Oversight].
[Box: Oversight and control]. Performance oversight.
[Box: Global Fund].
Whistle blowers.
A system without accountability.
[Box: Management Accounting for UNDP].
Economic hit men.
Foreign direct investment.
The value chain and value destruction.
Complexity.
How and Why
Lack of decent accounting
Decent accounting is one of the key tools of management, but
accounting plays very little role in the management of the relief and
development process. Without good accounting, anything goes and
that essentially is what has happened.
Delayed accounting is no accounting
I remember trying to get some financial information within the UN system
some years ago, and being told that this information would not be available
for another 12 months or so. I was given some explanation about the
accounting information having to go from the field offices to the specialized
agency's head office and then it would come to New York.
As CFO for an international company a few years before, I had imposed a
requirement that every operation around the world submitted their complete
monthly accounts two business days after the end of the period closing. If our
head office did not have the information (sent by telex) at the end of 48 hours,
the next day we looked for telephone contact, and a day after that either the
company President or myself would be on a plane and arrive in the offending
office perhaps 24 hours later.
It took just six months for a company that had had almost no financial
controls to accept and embrace the value of analytical financial and
operational information. More important, the company's profits improved and
staff were highly motivated and quickly made the company's performance as
good as anywhere in the industry.
Abdication of the accountants
Whatever happened to the accountancy profession. I would have
thought that the accountancy profession would have been vocal about
the weak accounting and lack of systems and accountability in the
relief and development sector, but it has never happened.
The accountancy profession does most of its work in the private
sector being paid to “sign off” on the financial reports prepared by
management for the owners. They are paid for this by management.
While it has worked most of the time, it has not worked all of the
time, and there have been periodic professional scandals. The
integrity of financial reporting has been significantly weakened over
the past 25 years by the growing importance of consulting done by
professional accountancy firms, and the need to keep the client happy
and the assignments safe. It is difficult to assess the damage done by
conflict of interest before the accounting firms divested their
consultancy practices. We will never know.
Accounting in the relief and development sector is terrible. As
already notes, the accounting is mainly cash based rather than accrual
based, and there is very little of balance sheet analysis and the checks
and balances that are integral to best practice corporate accounting.
Accounting clerks in UN offices process vouchers and disburse cash,
pay salaries, and that's about it. They do not usually do cost
accounting related to projects, and certainly do not do project
performance analysis as a priority part of their work.
I have made the case that the only complete form of accounting is an
accrual based system with balance sheet, operating statement and
cash flow, but my efforts have fallen on deaf ears. There are very few
professionally qualified accountants in the employ of the relief and
development sector, including big government agencies ... and hardly
anybody, almost nobody, understands the basic concepts.
In the accountancy community it is often said: “Show me weak
accounting, and I will show you a weak organization, and weak
performance”. Using this concept the relief and development sector
has tremendous weakness.
No space for measurement, analysis and review
I spent my professional career doing financial and operations
analysis. When I was doing this in the corporate world my work
rapidly moved from study to review to decision ... and as a result my
work had a tremendous value to the companies where I was working.
The study and the review had costs, but the decision step resulted in
profit improvement many multiples of the cost of my work.
In the relief and development sector organizational setting it was
impossible to get similar results. Decision making had a very
different dynamic, with the idea of cost effectiveness almost totally
ignored. The use of good “management information” for decision
making is almost totally absent, and nobody in the system wants to
change.
There’s a hole in the bucket
Where has all the money gone. Over the past 40 years as much as $2
trillion has been disbursed through the relief and development sector,
and at the end of this time there is a lot of debt, but rather little
development. Many of the problems of development are blamed on
lack of money and financial resources, without being specific about
there the money flows are being measured. The fact of the matter is
that there a large amount of money has gone into the system, but
rather little of it has been getting to where it is needed. Some of the
fund flow loss is plain corruption and fraud, and some is poor
decision making.
Fund flow accounting is not done very well. There is little reporting
that makes tracking fund flows easy. Oversight breaks down as funds
move from organization to organization. Since in modern government
and the relief and development sector funds are commonly disbursed
into another organization, and often then disbursed further into other
organizations, oversight becomes totally non existent.
I believe that fund flow accounting in the relief and development
sector is one of the most obvious places to make substantial
improvement (see page nnn)
Very little of the funding gets to beneficiaries
Only a very modest amount of relief and development fund flows
reaches communities where ordinary people live and work. Most
communities are really “on their own” and rarely see any form of
support either from their own government or from NGOs supported
by relief and development sector donors. Without community level
initiatives there is not going to be much of visible and useful results.
Funding flowing into government and into parastatals and other
government controlled entities has been almost 100% ineffective as a
vehicle to deliver fund flows to community activities.
Corruption
Bribery and corruption are not new. People have always been “for
sale” but the scale of modern bribery and corruption is probably at
record levels.
I was introduced to the idea of fraud and bribery and corruption in a
book published in the 1930s called “Very Private Business”. This
book opened my eyes to the creativity of people when a lot of money
is involved. Later, when I had accounting responsibilities in the US
corporate arena I remembered lessons from the book, and tried to
build accounting and control systems that would make it difficult, if
not impossible for the creative crook to run off with the company's
assets.
When I found myself consulting in the relief and development sector
it was a real shock. Most of the controls are onerous, but totally
useless. They serve to stop good people from doing a good job, and
are virtually no deterrent to the rich and powerful crooks.
It was a shock to find that huge fund flows were not accounted for,
but not the subject of any oversight or corrective action of months
and years. In my corporate experience I would have wanted action
tomorrow, if not already today.
It was also a shock to find how little attention anyone in the relief and
development sector was paying to fund flows and their control.
Everyone seemed to have fallen into the trap that if the subject was
talked about and there was a plan, then that would be good enough.
For many things that may be so, but when it is the accounting for and
control of money it is totally inadequate.
When good people meet bad systems
Good people need to get paid, they need their salaries. They work
hard and would willingly put themselves on the line to get good
outcomes in an emergency. These people do get into the news from
time to time as they work against all odds to mitigate the impact of
disaster. But good people are also stuck with whatever system and
culture there is, and can do little to change them. Good people get
beaten by bad systems, bad processes, and ineffective organizations.
They work in institutions that make it very difficult for them to
perform well and get the best possible results. When it comes to day
to day work these institutions are huge bureaucracies with all the
problems associated with a big and clumsy bureaucracy.
Nigeria since the 1970s
I was working a lot in Nigeria during the 1970s when the first oil crisis
increased crude oil from $3.50 a barrel to $13.50 a barrel and made Nigeria
very, very wealthy.
I was staying at the Ikoyi Hotel in Lagos and watched the flood of foreigners,
mainly Europeans and Americans, who arrived in Nigeria intent on getting
profitable contracts no matter what. Most arrived with lots and lots of cash,
which they exchanged for contracts for everything under the sun. Most
contracts were not worth the paper they were written on, but the Nigerians
were happy, and the foreigners were happy until they got home and realized
how little they had for their money and effort. These were heady times, and
the world's greediest people were on a feeding frenzy.
The business community from the “north” expected to bribe the Nigerians
and profit mightily. In fact, quite often, the Nigerians conned their new
partners and the greedy lost their investment.
And there was also the close association between the leaders of the Nigerian
military, the government and the oil companies and oil industry contractors. It
is common knowledge that government and government leaders in Nigeria,
with a lot of their friends and associates became fabulously wealthy through
all sorts of schemes, and largely at the expense of the national treasury and
the Nigerian people. Though the oil companies can probably prove that they
did nothing illegal, there are few close to the Nigerian situation that are
comfortable with the oil industry's behavior.
The grand corruption practiced in Nigeria has distorted the economy so that
the country is almost insolvent while its elite are among the world's
wealthiest.
No accountability anywhere. A lot of the country's economic activity is now
in the control of the corrupt, and the mass of ordinary Nigerians get left out.
In general I see the problem of corruption as being as much an ethical
problem from the side of the payer as the payee. In other words, an oil
company executive paying out is as ethically compromised as the
government official receiving the bribe.
More from Nigeria in the 1970s
I was in Nigeria and friendly with some of the Central Bank staff in Nigeria at
the height of the cement scandal. Hundreds of shiploads of cement were sold
to Nigerian businessmen using irrevocable letters of credit. Because of a huge
overload situation in the Nigerian ports, there were very long waits to come in
to unload. International businessmen know their trade, and most of the ship
charters were “time charters” which means that payment for use of the vessel
depends on how long it is being used ... and with the port congestion this
became a very long time ... months instead of days to get into port. With
bribery it was easily possible never to get into the port. The situation was
totally out of hand, and a disaster for Nigerian businessmen.
The Central Bank decided that it would solve the problem by revoking
“irrevocable” letters of credit, something that was never ever done by serious
international financial institutions. I commented at the time that in 5 minutes
the Central Bank had done damage to Nigeria's reputation that would take
decades to rebuild. More than 30 years later, Nigeria's financial reputation is
still a shambles.
It one looks closely, it is fairly easy to figure out the various ways
that money or value is removed from the system for private benefit.
But it is much more difficult to do very much about it, especially
when the amounts are substantial. In many parts of the world it does
not cost very much for someone to be eliminated ... and if some of the
recent writing is to be believed, this is not limited to the “south”.
Making corrupt money in fisheries in Burma
The State fishing company, PPFC (Peoples Pearl and Fishing Company) was losing money operating fishing trawlers, which did not make any
sense based on the state of the fisheries resource and the characteristics of the
fishing vessels. As a former fisheries and seafood company CFO I knew
something about the industry and its operations. Something was going on.
As part of the World Bank mission we traveled by boat from Rangoon to the
mouth of the Irrawaddy River, the same route used by the PPFC trawlers.
Many hundreds of small motorized fishing vessels were active near the mouth
of the river, and it suddenly became clear what was happening. The large
trawlers were supplying fuel to these fishing vessels and making a fortune for
themselves. The official price for fuel was 3 and the black market price was
around 30 ... so a good profit. And bluntly put, private profit is much more
valuable than profit from fishing that would accrue to PPFC.
When I started looking more closely at the fuel storage facilities I noted that
almost every flange on the pipes were leaking ... not a lot, but something.
And under every leak there was a small can collecting the fuel. The official
economy of the country was not working, but there was an underlying
enterprise economy that was alive and well, albeit illegal.
Debt
If there is so little investment ... so little infrastructure ... how come
there is so much debt? There are some simple answers:
- money has been lent badly by the World Bank and other lenders; and,
- the money has been used badly by the borrowers, with the borrowing governments and their crony's the worst.
Back in the 1970s when the international financial system was in
turmoil after the oil shocks, Walter Wriston, the CEO of Citibank
from that era summed up the financial opportunity saying something
along the lines that developing countries “needed the money, paid
high interest, and could not go bankrupt” and the international
financial community was happy to oblige. Many commercial banks
eventually lost some in the eventual restructure and debt forgiveness
that subsequently has taken place, but overall they did very, very
well. The World Bank participated in the flurry of lending, but in the
case of the World Bank did not do much to forgive its debt when the
“projects” failed to deliver much “development”.
There were decades of dialog about debt forgiveness and
debt restructuring or rescheduling or whatever ... but much less
discussion of how and why the debt came into existence in the first
place, and specifically who are the responsible people involved.
The leadership of the relief and development sector has never taken
any meaningful action to get at the culpability of the various actors
and to hold them accountable.
Debt cancellation, restructuring ... whatever
There are many advocates for debt cancellation or some form of
radical restructuring. There have been “agreements” about this over
and over again, but also conditionality. There has been some debt
cancellation, but only after the beneficiary country has jumped
through hoops to satisfy the terms and conditions. The way the
process works is typical of the relief and development sector, a huge
amount of study and reports and meetings and negotiations before any
agreement and any useful action.
The media and the advocates for debt reduction have periodic press
bonanzas, but for the poor people in poor countries it is all invisible.
The 2005 G8 Summit hosted by Prime Minister Tony Blair
highlighted commitments about debt reduction, but for all practical
purposes not very much can be seen from the perspective of the poor
communities. It gets headlines in the “north” and does practically
nothing in the “south”.
The whole debt discussion is a cruel hoax on the world's poor and
vulnerable. Without other interventions these people remain poor and
vulnerable.
An Experience in Namibia
When I was working in Namibia I was at a meeting of with donors chaired by
the Minister of Finance of Namibia. The purpose of the meeting was to move
forward the country's strategy for development and how it would be funded.
As is the custom in these meetings all the donors had an opportunity to say
their piece.
When it came to the turn of the Commonwealth Secretariat, represented as I
recall by a Canadian, Namibia was encouraged to gain membership of the
Breton Woods organizations (World Bank, IMF et al) so that they could
borrow for development.
The Minister asked some pertinent questions including about rates or interest
and the currencies of the loans, and was told that the interest rates would be
low, and that the currency would be a basket of currencies like the US dollar,
the Canadian dollar, the Swiss franc, and so on.
The Minister then asked about project performance from such financing, and
specifically what rate of return and what cash flow would be projected. The
donor representatives present started to get uncomfortable, and no real
answer was provided.
The Minister went on saying more or less the following: “I think you know,
our currency is the South African Rand. This is a currency that is being
rapidly devalued because of the economic sanctions against South Africa ...
which we support ... but it does mean that our currency is devaluing at a rate
of more than 20% per annum. If we borrow, we have a real interest cost of
20% plus whatever the low interest that is being charged by the lenders. And
up to now, I have not seen any development project that is going to be able to
support debt financed development in Namibia”.
This was one of the best summaries of a critical development dilemma. The
Minister was absolutely on target with his analysis. Sadly, I am not sure the
donor representatives really understood. Most were not as well educated and
experienced as the Namibian Minister.
Value destruction
Development ought to be about building value. In fact development
expenditure does more of value destruction. In the course of the last
three decades as much as $2 trillion has flowed into the relief and
development sector, but the results are minimal. What is apparent is
that much of what goes on in the relief and development sector ends
up being value destruction. Money is consumed, but the results are
not achieved.
It is actually worse. Additionally the value destruction has created an
enormous third world debt. The only thing “for sure” in a World Bank
project is that the disbursements will result in debt, nothing is for sure
about the benefits that will arise.
While it is apparent that a lot of relief and development expenditure
ends up being “value destruction” ... there is very little or no analysis
of this going in the major relief and development sector organizations
Value destroying projects
The relief and development sector operates largely through projects.
Not many of them are value adding, rather they a value destroying. At
one point in my career I was retained by UNDP to evaluate (desk
review) their project portfolio. I was not asked to repeat the exercise,
and my work was probably totally ignored. But the overriding theme
was disbursement of money for work that sounded worth doing, but
beyond that could not and would not do very much.
The feedback of performance information to the head office showed
that money had been spent, and some things had been done, but rarely
that anything of substance had been achieved.
It is this lack of substance in things being done that is one of the
many issues in the performance of the relief and development sector.
Value Destruction in South Sudan
For years and years UNDP funded a small capacity building project in South
Sudan. The project consisted of a single CTA working in an advisory capacity
with the local government. The expenditures were a generous UN rate salary
together with normal living and transport allowances ... perhaps 50 times
what he would have earned in a government job in his home country. The
CTA had an office in the government administration building and by all
accounts was “on seat” around 10 hours per week. The project goals were
never achieved, but every year someone in the local government wrote
glowing letters asking that the project be continued, and it was, over and over
again, despite considerable staff objections. Nobody knows who was paying
who, but it is almost certain that this was the underlying problem.
Cost and value of workshops and conferences
All workshops and conferences have a cost, but not all of them have
value. It takes a substantial expenditure to run a workshop or
conference both on the part of the organizers and the participants.
Some workshops and conferences are popular because the
participants are paid to attend, and receive travel and per diem
allowances as well. These payments can be substantial relative to the
pitifully low salaries paid to civil servants in most of the countries in
the “south”, including quite high positions in the civil service system.
For these people there is a money value that is quite tangible, but is
an inappropriate justification for the workshop or conference.
Workshops and conferences may have a high professional value in
facilitating networking and sharing professional experience. Some
professionals may get significant value from this, and where this is
going on, the costs may well be justified.
But more often than not, workshops and conferences do little more
than cost money and do not very much. Even so, donors seem to be
willing to support them because they are a quite visible way of
showing that there is some activity actually going on that is tangible
and can be used in support of public relations efforts to feed the
media and other stakeholders.
Using metrics that measure relief and development progress, the
majority of workshops and conferences do rather little in relation to
their cost and the effort expended.
Cost and value of research and studies
All research and studies have a cost, bit not all of them have value.
They represents a very substantial investment that is almost total
value destruction. There is a huge archive of research and studies
which is very difficult to access and use.
A study of studies in Lesotho
I was part of a team doing research on the rural sector in Lesotho
in 1987. The TOR called for us to review the studies that had
already been completed and not carry out any “new” work. When
we arrived in Maseru to start the work, UNDP had collected for
us most of the reports that we should review. The collection was
stacked against a wall of the conference room and measured some
3 feet high and some 12 feet long.
The cost of preparing these reports was probably upwards of $20
million, a substantial amount in the context of Lesotho. The
practical “on the ground” investment in rural sector development
was tiny. Much less than the cost of all the studies. A prefect example of value
destruction.
Research and study have no value in themselves. Their value is only
realized when the results of the research and study are incorporated
into some practical activity that improves socio-economic conditions
in some tangible and durable way.
Valueless political rhetoric and press releases
There is a lot of political posturing and press releases, mainly about
plans, or reports that have been prepared, but never about moneys
disbursed, activities undertaken and results achieved.
This is not surprising because many activities do not achieve much in
the way of result. In order to have relief and development success,
resources have to reach the intended beneficiaries, and be funding
activities that are useful for the beneficiaries.
The project and the project cycle
The project form of organization and the project cycle are key reasons
why relief and development has failed.
The “project” form of organization dominates the relief and
development sector, but it is not an organizational form that well
suited to relief and development interventions. The “project” form of
organization is arguably the best way to organize for a “one-off”
project such as the construction of a dam, bridge or power station, but
this form of organization is unsuited to providing financial support
for routine activities of public institutions like education and health.
The project cycle the following elements:
- Identification;
- Preparation;
- Appraisal;
- Negotiation;
- Implementation; and,
- Evaluation.
In the course of my career I have been involved with all the different
parts of the project cycle, and it is really no surprise that the projects
end up costing a lot, creating debt, and not accomplishing very much.
Too much money is spent on identification, preparation, appraisal and
negotiation, and the management and oversight dimension of
implementation is almost totally absent. The ex-post evaluation stage
is too little and far too late.
The project rarely has any life after the funding. This makes anything
that a project does almost certain not to be sustained. The project
form of organization adds another constraint to an already difficult
situation.
Over the years I have worked with many World Bank projects.
Almost all of them are designed in such a way as to be almost
impossible to manage. They are too complex. They are often too big.
They are often too constraining. They are too rigid. They do not go on
long enough. They are just plain unmanageable.
The project approach to development has been the dominant mode for
development since the very early days. The project form was adopted
as a means to accelerate development, but has probably had the
reverse effect. Rather than addressing the fundamental causes of
development delay, the project approach avoids problems, rather than
solving them. After multiple generations of 'projects' the problems
still remain, and may well have been aggravated.
The project form of organization suffers from: (1) a short life; (2) an
impermanent artificial structure; (3) issues of starting up; (4) issues of
closing down; and, (5) all sorts of economic distortions, not least of
which pay scales.
The damage done to government and civil services cadres by
“projects” recruiting good people out of the permanent government
system into the project is a serious and a huge cost to the “south”.
Worse, good people have also had their local careers disrupted,
though some have been able to move from local “project” to being
part of the international elite in the relief and development sector.
Fish Meal in Malachal, Yemen (PDRY)
I was part of a World Bank mission to Yemen (PDRY) in the late 1980s to evaluate the performance of the investments program of the country. One of the investments was a fish meal complex in Malachal in the North of the country. A small fish meal plant had been built to prove the viability of the fishery, but very little fish were caught to supply the plant. Apparently some “experts” then recommended that 'economies of scale' and an even bigger fish meal plant would solve the problem of the failed smaller plant of the pilot project.
Of course, the problem was not the fish meal plant, but the fish resource. Two seiners
had been operating and were catching much less than anticipated ... and with
the resource in question it was totally irresponsible to invest a lot of money in a
bigger fish meal processing operation.
In the original planning for the fish meal plant investment it was clearly set
out that validation of the resource was a critical first step to be done before
there was a major investment in fish meal processing. Subsequent
consultants ignored this, as did the World Bank experts and the government.
No oversight
The relief and development sector which includes government units
and parastatal organizations have very little meaningful oversight. In
a broad manner, the legislative branch of government may have an
oversight function over the operations of government, but the tool is
clumsy, at best and is usually invoked a long time after the problem
has done damage.
Such oversight as there is seems to be too little and too late. There
seems to be a lot of audit when a problem surfaces, rather than good
accounting so that the problem never arises in the first place. There
seems to be all sorts of transparency when the problem has hit the
media, and then only in ways that do not expose much of the
organizations functioning.
Internal Audit and Oversight
I always smile when the US Government Accountability Office
(GAO) is in the news. Quite often the press is reporting on a
GAO report that has just been released and shows some
substantial abuse of government resources. I smile because these
reports usually come after the money has gone missing or been
spent badly, and one has to ask who on earth is running the store.
How can these vast amounts of money get spent badly or go
missing unless the system is absolutely broken or the people are
seriously corrupt or incompetent. And why is it that an internal
oversight function did not pick up on these things during its
routine work.
It would be interesting to have the internal audit reports of UN
agencies as part of the public record. It is my understanding that
there is an active internal audit function, but I am fairly confident
that unfavorable material is suppressed and never become widely
known even inside the organization, let alone outside.
In my experience oversight works very well when it is flexible and
unpredictable, and is pretty much a waste of time when oversight can
be anticipated. But the relief and development sector has hardly
anything that I would consider to be effective oversight.
Oversight and Control
In my corporate career we changed our oversight and control
techniques frequently so that the staff would never know exactly
how oversight was going to be carried out.
Very early on in my career I was faced with a “mafia” run scam
where people in our organization and people in a big client's
organization were collaborating to have truckloads of product
shipped to their own warehouses rather than the client's
warehouses. I found the scam simply by doing some rather basic
reconciliation work with client accounts ... and learned all the
aspects of the scam by having FBI agents work undercover in our
shipping department.
Performance oversight
And oversight has little meaning when it merely looks at costs and
activities and avoids the question of what is being achieved.
Global Fund
The Global Fund for AIDS, Tuberculosis and Malaria (Global Fund) has a
strong procedure to analyze and approve programs for funding (arguably too
strong and rigid because it excludes interventions which might be
substantially more cost effective) and it provides easily accessible
information about all the disbursements it makes to the primary recipients.
But after that it is difficult (or near impossible) to find out what happened to
the funds, and certainly not easy to find out what the funds were used for. No
matter how hard one tries to find it, there is no public information about what
was achieved using Global Fund resources.
Whistle blowers
Whistle blowers have been an important source of transparency in
government and the relief and development sector, but it is not the
right way to get information about performance and behavior.
Protecting whistle blowers is almost impossible, but making an
organization responsive to the issues ought to be a “norm”, though
presently it is the exception. There ought to be a strong system of
oversight so that issue routinely come to light and can be addressed.
A system without accountability
The relief and development sector as a general rule avoids clear
responsibility and accountability. There is very little systemic analysis
that shows what results have been and calls to account the people that
made the decisions and used the money.
“Projects” funded by the World Bank could be a clear focal point for
responsibility and accountability, but rarely is. It would be possible to
keep track of decision making, and call to account the decision
makers later on, but I have seen little evidence that this is part of the
Bank's management culture. Rather my personal experience is that
staff move on an their decisions stay in the old place.
Management Accounting for UNDP
Some years ago (around 1992) I made a presentation to the UNDP
Administrator's Office about “Management Reporting and Responsibility
Accounting” and afterwards was given the basic feedback that none of the
senior staff present had any understanding of the key words or ideas that I
used in my presentation:
- accounts and accounting;
- responsibility; and,
- management.
Clearly this was a problem, but if you are operating without
these things, why would you ever want to install them.
Around that time others were making efforts to improve this situation, and a
very strong professional accountant was brought into UNDP on secondment
from one of the most prestigious accounting firms in the USA. After just a
few weeks his role as Chief Financial Officer was completely eviscerated by
making his work purely advisory, and effectively worthless.
Who wants good accounting? Almost nobody. One would expect the
corrupt and inefficient people in an organization not to want good
strong accounting but it is even opposed by good and efficient people.
Presumably they just do not want the hassle or they do not want to
have to face any level of possible criticism. In the relief and
development sector, the end result is decades of operation without
very much management accounting.
Economic hit men
The business of business is “hard ball”, and the same goes for
international affairs. It should come as no surprise that all sorts of
inappropriate behavior is the norm rather than the exception.
The publication of information about “Economic Hit Men” is not
really surprising. I did similar work to John Perkins, but without the
“connections” that he had, and without the need to satisfy clients.
Rather I spent a lot of effort trying to get the relief and development
agencies to change their project design so that it would actually do
some good for the intended beneficiaries.
1 John Perkins. Confessions of an Economic Hit Man
Eventually I was deemed a non-conforming consultant and did very
little work after that. A few bank staff who wanted objective
assessment, no matter what the outcome, continued to give me
assignments, but that is a small group.
Overall it is sad to say, the experts who advised inappropriate projects
were able to get more funds and failure ... and therefore debt, than
people like myself who did not want to do a project unless it was
designed to do some good, and be repayable.
Foreign direct investment
Foreign direct investment (FDI) is a two edged sword when it comes
to socio-economic development. It should be a winner for the
beneficiary country, the communities hosting the investment activity
and the people. But more often than not, FDI is a disaster for people,
the host communities and even the country ... though there is usually
an elite group that is able to profit mightily from foreign direct
investment.
The value chain and value destruction
Value analysis will show a lot about the impact of corruption on the
economy, and especially on the economy in the host community. The
value chain from mine to consumer is not usually published and
easily accessible, but it seems that there are huge value problems in
many host communities and great value additions where the mining
companies and oil companies have their tax shelters and home
offices.
Value analysis shows that, more often than not, FDI extracts value
from the host country rather than putting value into the local economy
... and combining this with the pattern of bribery and corruption, there
are big value distortions when corruption is out of control.
Complexity
Anything involving people is going to have some level of complexity,
but the actual activities associated with relief and development should
not be complex. In almost all cases, however, they are complex, and
the World Bank especially, but also other organizations in the relief
and development sector, seem to believe that complexity is not only
acceptable, but desirable.
In my private corporate career the idea “Keep It Short and Simple” -
the KISS principle was always being invoked.
Globalization
Globalization ought to be a good thing, but there is not a global
market with a flat playing field, but one that is controlled in all sorts
of ways. The global economy and the relief and development sector
have two parts:
- there is the international monetized economy; and,
- there is the informal and largely un-monetized economy.
The international monetized economy reaches the elites in capital cities,
and wherever there are pools of foreign direct investment, but that is
only 20% of the people of the “south”. The informal sector and the
un-monetized sector ... also often remote and rural has no part in the
globalization discussion.
In fact, more than 50% of the world's population has little knowledge
of anything beyond what they can see and have personally
experienced ... some 3 billion people. Included in this huge number
are a high proportion of children, and a large proportion of these
children will die prematurely, and of those that survive, many will
never get an education.
Globalization ought to be helping, but it seems more than helping, it
is polarizing and facilitating value flows from poor places in the
“south” to the already rich countries of the “north”.
Market economics
The idea of a free market is academically appealing, but the free
competitive market can be a very rough. A decent modern society is
unlikely to be achieved merely by letting free markets to operate
without any form of ethical intervention whatsoever.
There are very different market behaviors in surplus economies and in
shortage economies ... and market behavior changes dramatically
when there are cartels, oligopolies or monopolies. In most market
situations there is some intervention, usually by groups that benefit
from the system.
Though markets are difficult and sometimes produce results that are
not the socio-economic best, they are often very much better than
prices set by some political or administrative process. The economy
of the Soviet Union was ruined by a system that made little use of
market driven enterprise ... but though
Subsidies and unfair trade practices
Subsidies dramatically distort economic activity. The “north” has a
big system of subsidies, mainly, but not exclusively in the agriculture
sector. The scale of subsidy is substantial, typically larger than the
fund flows into international relief and development. Subsidy is
difficult to end in a democratic system because beneficiaries of
subsidies wield considerable political power, and ending subsidy is
fraught with political risk.
Distortion arising from subsidies
At one time I tried to export some powdered milk from the USA to West
Africa. It took me a while to figure out all the possible combinations of
buying prices in the USA and Europe that we might be faced with, as well as
the likely selling prices in Africa. If we bought at a price that made a US or
European farmer a modest profit the cost would be around $2,500, but if we
were able to buy within the quota of available subsidized product in the USA
the cost would be around $1,200. At this cost, with transport, insurance and
duties we would have a landed cost of (say) $1,450. But if a competing trader
was able to buy in Europe at a subsidized price of $1,000, then his landed
cost would be around $1,200.
It was not clear whether or not the subsidized product would be available
from Europe, but African buyers were not in a position to commit to
transaction based on the US higher costs, because they knew that they also
would be stuck if lower cost product were to come through from Europe.
And they were also careful because from time to time the market would get
flooded with “free” product that was originating somehow through the World
Food Program (WFP).
Because the market was all over the place because of the subsidy regimes of
the USA, Europe and WFP, traders had to protect themselves with absurdly
high margins ... to the detriment of the African consumer. It was also
apparent that some of the subsidy “decisions” were also influenced by
political and more inappropriate relationships.
Not a pretty situation.
Chapter 5
Unlocking Latent Potential ... Optimizing What There Is
Starting point
In the relief and development sector there are huge opportunities but
limited resources and ineffective organization.
We need to know much more about both opportunities and available
resources, and get organized so that the resources are used most
effectively.
Small steps
A strategy of major structural reform is unlikely to work. It has been
“on the agenda” for as long as I have been associated with the relief
and development sector, more than 30 years, and nothing much has
happened. There are too many other competing interests and reform is
too risky and potentially problematic. But evolutionary and
incremental change with a focus on performance ... results, what is
accomplished rather than how it is done ... might, just might be the
answer.
There is no one best way
Where there are hundreds of things to do, and all sorts of people and
organizations engaged in doing things, there is chaos. I do not pretend
to understand chaos theory, but have some appreciation of the
problems of organizing for good results in complex and chaotic
conditions.
Getting good results when there is chaos
I was a participant in a Organization and Management Conference
in the early 1990s run by OSI. One of the sessions was about
managing in chaos. I forget exactly how the game was played, but
I think we all had numbers, and a number of balls circulating in
the group. If a ball was sent to a person number 10, the ball then
had to be sent to number 11 ... but where was number 11?
When the game started it was absolute chaos, and balls were all
over the place. In a few minutes people figured out where to stand
so that they were next to the person with a number different by 1
from ones own.
And then the rules were changed ... for example 10 had to send to
20, 11 to 21 and so on ... another period of chaos, but fairly
quickly everyone figured out where best to stand.
There is a powerful capacity for human beings to problem solve.
In complex chaotic conditions many small decisions can get a
workable answer far more quickly than the academic planners , no
matter how big their computers.
Getting the best results our of chaos is not something academic
planners do very well ... in fact the record shows that they do it very
badly. The “gosplan” type economy of the Soviet Union is one
example, and I will argue that the “project” planning of the World
Bank is another example.
Small activities can easily be done with very little organization and
management and be very efficient. Other things needs to be done at a
larger scale and with more planning and oversight. Some things are
best organized on an even bigger scale at the national level.
Everything should be done in the manner that is best for the particular
effort.
It is not only scale that varies. The mix of resources also changes
from one situation to another. In order to get the best possible results,
available resources should be used in the most efficient way.
Human resources and natural resources are two key resources that
should be used as effectively as possible for success in development.
They are more abundant in the “south” than money and machinery,
and should therefore be used in preference to money and machinery
wherever possible. Money and machinery should be used to the
minimum and to compliment locally available resources to achieve
maximum value adding.
What this suggests is that we should organize to empower a lot of
people and organizations to make decisions, and then encourage
people and organizations that seem to be getting it right and getting
good results. This presupposes, of course, that there are metrics to
identify good performance.
Process
The basic process that needs to be in place is one where there is:
- planning;
- organizing;
- implementing;
- measurement;
- feedback; and,
- adjustment.
In most management literature, the “process” is depicted as a circle. I
think of the process as a wave on top of a time line. In relief and
development the process needs to be moving forward and
progressing over time, and different elements need to get added into
the plan from time to time as needed, and all the other stages as
everything progresses ... and results need to be continuously
measured and efficiency assessed.
This process is not the project cycle created 30 or more years ago by
the World Bank and now widely used almost everywhere in the relief
and development sector. The project cycle is static, while the process
needed for success is dynamic and continuous.
I like to think of the process which has measurement and decision
making and operations tightly linked as being not much different
from skiing.
Water skiing ... skiing moguls
The process dynamic that is needed has to have some of the characteristics of
water skiing ... or skiing moguls. During these activities (implementation)
there is rapid assessment of the situation (measurement) and almost
instantaneous feedback and adjustment to stay stable and moving forward.
Before setting out, some planning and getting organized. With a static project
cycle like process, the skier would wipe out pretty quickly, and it seems that
many World Bank projects have, in fact, done just that.
In other words, the process needs to be iterative and it needs to be fast
response.
Before you can plan ... measure
Before there is any planning, there needs to be information. This is
obtained by measuring. Broadly speaking the more measurements the
better. Some of the key information that is always needed: (1) How
much do things cost? (2) What do they do? and (3) What results will
be achieved?
This same set of questions need to be answered for almost everything
that is done. It is the foundation of results based planning. There can
be more information, but without these three elements of data,
everything else is practically useless.
Planning
Good planning is an iterative activity where different options are
considered and the best is selected. I see planning as being heavily
influenced by data ... by the facts ... by realities. I see planning as
being heavily influenced by results and performance ... that is the
relationship between costs incurred and the value of the results
achieved.
It is usually better to plan than not to plan. But I will always choose a
good implementer over a good planner if I want to have real success.
Plans are never right. Good plans are just less wrong than bad plans.
Plans should be sufficient to get started and finalized as late as
possible with the best available information.
A lot of the best information is not going to be available until
implementation is in process, so do not waste too much time and
resource on attempting to prepare the perfect plan. It will still need to
be modified when the plan lands in the real world. More than
anything else the plan should define what we are trying to
accomplish.
Organize
The organize step is the first reality check. We know what we want to
accomplish, but in a real world, how can we do it and how to
organize to do it. What resources are needed to do what needs to be
done, and are they available? What needs to be done to make
resources available. Are people available? Are they trained and
experienced and how best to organize so that they will work
effectively. Are we allowed to do what needs to be done? How to
organize in order to satisfy laws, rules and regulations.
Implement
Action!
Nothing is accomplished until there is action. Plans and designs are
interesting, but not very valuable on their own. Someone has to pour
concrete and do practical things so that value is created and progress
made. People who are ill need to get treated to make them better.
Students need to be in school and being taught. People need to go to
work, get paid and do productive work.
This is the real reality check. Start doing the work and see what
happens. In my experience more gets learned about everything we
really need to know in the early days of implementation, and often
things that would never come up in planning, almost no matter how
well done. Good implementation managers know a lot of what needs
to be known ... it is called experience.
Implementation is where all the resources come together in a way that
produces results. People, organization, infrastructure, natural
resources; machinery & equipment; working capital; money; and,
knowledge all come together to make progress. Getting all of these
things optimized to get the best results is not a simple matter, and
trying to make progress when some of the important elements are
missing or in very short supply is a big challenge.
Measurement
Measure results. Start talking about what is accomplished and at what
cost. Measure costs and results over the most suitable time period, but
tend to the shortest time period that yields meaningful results. With a
rapid iteration of information and related feedback it is possible to
optimize performance more rapidly and get the best possible results at
least cost.
Even the best of implementation managers will do better when there
is a good system of measurement. Measurement should happen every
day or at whatever time interval makes the most practical sense.
Usually the shorter the time interval the better. Measurement should
be done in ways that are easy, practical and reliable.
Measurement should result in information about costs, what was done
and the results arising from the activities. In a mature measurement
environment it should be possible to compare costs and results in a
coherent way over activities in various different places and at
different times.
Feedback
But measuring results and talking about them is not sufficient. The
information about results needs to be part of a feedback loop so that
there is more and better action. The process is a continuing iteration.
There is no point in measurement if it is not used. There must be
feedback, that is, ways to get the measurement and its analysis into
the system so that people learn and better decisions can be made.
Adjustment
Action!
And there must be use of the feedback in the implementation so that
performance is made to be as good as it can be.
Who does planning?
Everyone does planning. Planning is part of a public local dialog.
Planning is no longer dominated by either the Soviet style Gosplan or
the World Bank and IMF equivalents. Instead planning is done in a
“distributed mode” where people close to the activities and the needs
plan to optimize and get the most result for the least use of resources.
The best planning will be done in communities, and then the plans
will filter into sector and organizational plans and be visible as a
basis for funding decisions and the optimal allocation of resources.
How does this get coordinated?
Coordination is accomplished using data about performance that is
practical and public. The data are made coherent by having a focus on
people and community, and how all the other interactions result in
making progress for people and for community.
When there is good information about a community, it becomes
reasonably clear what mix of activities are likely to be priority, and it
is then possible to help a community based on priorities that are
meaningful for the community, and then other communities and then
more and more communities.
This can be systematized so that it is low cost and results in a
meaningful coordinated response.
Do the most with the least
If there are limited resources it is irresponsible to do anything other
than to work at doing things the very best possible way, and in the
most efficient manner. A relief and development sector culture that
spends the minimum and gets the most value for money is going to
get more socio-economic progress than one that spends without
regard to the results being achieved.
Do the most with what is available
An even better result is going to be achieved by a relief and
development culture that uses the available resources to get the best
possible results.
Making the most of what you have
When I go to the cupboard or refrigerator to find something to
cook, I blank out unless there are some simple things like eggs
and sausages. When my wife goes into the same raw food
collection, she finds all sorts of things to cook, and a five-star
meal results. I am not a good cook. My wife is.
There is a similar situation with relief and development planning.
To get the best results, there need to be people that understand
haw to combine the various resources available to get some good
results.
Performance
I have been interested in performance and its measurement for most of my
life ... in athletics ... in motor sports ... in corporate profit performance ... and
in relief and development performance.
Nearly everyone seems to know how to measure performance in sport, and
understand the statistics, but when it comes to the more serious areas for
measurement, people suddenly do not understand anything.
In order to make progress, there has to be a way to get better performance,
and the starting point is to start measuring it.
We should start by measuring easy things, and then logically progress to
things that are more difficult.
The thermodynamic idea of efficiency
I got a jump start on how to measure performance as a student engineer doing
thermodynamics ... measuring the efficiency of various ways of converting
energy to work ... and learned the practical and simple idea that we measure
inputs and we measure outputs and compare the relationship. We can easily
measure efficiency or performance without having to know all the details of
what happens in between. The measurement of performance that works for a
steam boiler or an internal combustion engine can be applied in the analysis
of business and economic performance.
Organizational differences
Performance shows up in a lot of places. For example: why is it that one
company gets better results than another company in the same industry? How
did General Electric in the USA flourish and Blaw-Knox, Westinghouse and
others in the same industry essentially disappear? The answer appears to be
that General Electric deployed its resources better, and over time, of course
had more resources to deploy and then drew further and further ahead.
General Electric seems to have organized better, adopting a better strategy
and executing its implementation better.
Looking at business performance, it becomes clear that performance
has a lot to do with how the company is organized, how the various
pieces fit together and work in harmony, and how it runs itself. The
absolute amount of resources is not as important as having the right
amount of a variety of resources, and using them together in the best
possible way.
Do the most with the least
If there are limited resources it is irresponsible to do anything other than to
work at doing things the very best possible way, and in the most efficient
manner. An organizational culture that spends the minimum and gets value
for money is going to get far more results than one that spends without regard
to the results being achieved.
Chapter 6
Organization:
Management Information,
Planning and Process
Management information, planning and process
The relief and development sector has a lot of data, but very little of it
is “management information”. Without management information is it
not easy to make good decisions. One of the priorities has got to be to
improve management information in the relief and development
sector.
The relief and development sector has a lot of planning, but it is not
the sort of planning that results in very much getting done. Another
priority is to get planning so that it does help to get things done.
The relief and development sector has little “process” that “connects
the dots” ... that helps to convert resources into the values that are the
most needed by people and the society at large. An effective process
needs to be put in place so that sustainable socio-economic progress
can be made.
Management information and planning do not have much value in a
free standing state, but need to be integrated into a process. Together
they are very valuable.
Management Information
Information.
A public program for management information about the relief and
development can be set up with a rather modest financial investment.
The cost of the technology is rather low compared with the cost of the
information. In terms of Tr-Ac-Net value analysis, we consider
management information for the relief and development sector to be
of enormous value.
Documenting Success
The relief and development sector has been responsible for around
$50 billion annually of fund flow for relief and development.
Recently the number is bigger, and if fund flows associated with
reconstruction in places like Afghanistan, Iraq and Lebanon are
included the numbers are “off the charts”.
At the present time there is little believable and verifiable reporting
of the use of funds and the value of the various interventions. At the
end of the day nobody seems to have any idea what the money was
used for and what results have been achieved. It certainly is not “a
click away” and easily accessible on the Internet.
This absolutely has to change.
There needs to be systematic, verifiable documenting of the
disbursement of funds, the use of the funds and the results being
achieved, short and long term. This is very basic accounting, and
without it, there will never be an accountable relief and development
sector. It is totally reasonable for people with funds to be unwilling to
fund any situation with inadequate accounting, but conversely, a good
system and good information should facilitate the mobilization of
resources.
Nobody knows what proportion of the relief and development sector
fund flows are used responsibly and what is totally ineffective. With
management information, it should be possible for resources that are
being used inefficiently in the existing relief and development sector
programs and organizations to be diverted to more efficient use, and
for incremental private fund flows to be added into the activities that
are demonstrated to be effective.
Coherent Framework of Analysis
I have three perspectives on measuring performance from
engineering, economics and accountancy. They all have their place,
and together they are very powerful. Any one technique can give
some information, but together they serve to give a fairly good
comprehensive picture.
Balance Sheet
One of the most powerful ideas from accountancy is the idea of a
balance sheet. It is central to corporate accounting but also works as
well in the field of relief and development There are assets and there
are liabilities ... resources and constraints. Net assets is assets less
liabilities. Net resources is resources less constraints.
Progress is when a community increases its net resources over a time
period. This is very similar to the idea in corporate accountancy that a
profit is the difference between two balance sheets.
Resources
In the relief and development sector, there is a critical need to deploy
resources in the best possible way. There are at least eight critical
resources. These are:
- People;
- Organization;
- Infrastructure;
- Natural Resources;
- Machinery & Equipment;
- Working Capital;
- Money; and,
- Knowledge.
The first step is to have a very good understanding of the resources
that are available, and in what ways they can be used.
Constraints
A lot of the time constraints are the lack of a specific resource, as
defined above.
But constraints can also be active intervention from outside. For
example: regulations imposed on imports from the “south” into
markets in the “north” can make it impossible for a local business to
maximize success.
Statistics
Economists use statistics a lot more than accountants (who rarely
have any use for statistics). This can help expand information beyond
where an accountant would be comfortable to go. But statistics
should never be used to manage and control fun flows and the
management of valuable assets.
Measuring efficiency
Engineering thermodynamics pays a lot of attention to the concept of
process efficiency, and its ideas are very relevant to the analysis of
relief and development performance. Efficiency is the ratio of what
comes out to what goes in expressed in the same units ...
thermodynamics is usually concerned with engineering matters like
how much gas is used to drive a car so many miles, while socioeconomic performance is concerned with matters like how much
money to achieve an improvement in health. In both case there are
measurements of inputs and measurements of outputs ... and
performance is obtained by comparing the two.
Fund raising information
Fund raising outside of the existing relief and development sector
framework needs to be established and the right sort of information
made available so that it can be scaled up to millions and billions.
This is entirely possible with the effective use of information.
Walking, not just talking
The reason for a public program is that up to now transparency and
accountability are on the relief and development sector agenda only
as discussion points. This program moves the issue of transparency
and accountability into action ... essentially asking for old fashioned
accounting, but in the public space. It responds to the question
“Accountable to whom?” with the answer simply “The public”.
The meta data, or the data about the data needed for management
information for the relief and development sector has been developed
based on past experience (but is not adequately tested yet, and not
ready to be included in a publication).
A MySQL database has been set up using third party hosting and
some preliminary information has been uploaded into the database. In
a pre-Beta test, it appears that this will work for a first phase.
The network of contributors is needed that will compile information
about their communities, and put into a form that can be uploaded
into the database. Local spreadsheet computing can be used to help
organize data locally and be the basis for uploading information into
the database.
Another network of contributors is needed to supply information
about the activities of organizations, including projects. Any
organization that professes a commitment to “transparency” should be
willing to supply the key management information needed. The basic
elements are
- money used;
- where used;
- activities funded (money amounts and where);
- resultant durable value realized as a result of the activities and where.
In addition the total of money used should be related to total of money received, with an analysis of where money came from.
None of the organization information should be difficult to report.
The challenge is relating the money information with the where. This
information exists at the detail level in almost all organizations, but I
am not sure to what extent it has been organized into a reportable
form.
A key validation is going to be the reconciliation of what
organizations think and say they are doing with what communities see
they are doing. This is a key issues, and should be put into the public
debate as fast as possible.
Phantom Aid
In 2005 ActionAid described aid flows as “Phantom Aid” with more than
perhaps 30% not reaching beneficiaries. My own experience suggests that the
problem is far worse, with many situations where no money reaches the
beneficiaries that need assistance.
This is not the place to go into detail, but I did an assignment in aid
coordination with the Government of Mozambique in the early 1990s and
similar work in Namibia just after its independence.
I reviewed hundreds of project proposals prepared by potential donors. Very
few addressed the priority needs of the beneficiary country, even though these
needs had been studied and documented over and over again.
Neither donors nor NGOs are particularly interested in seeing hard analysis of
their work ... but until this is done the relief and development sector will
perpetuate “Phantom Aid”.
Managing information for effectiveness and security
This problem has already been faced in a lot of corporate information
systems including the banking industry and health institutions. In
these cases there is a legitimate interest in keeping some information
private and confidential and at the same time easily accessible to
those who have a need to know and are allowed to know.
An individual wants to be able to get access to information about
his/her bank account, and wants the bank officer to be able to see it
when it is going to be helpful to facilitate an banking transaction. But
the information should not be accessible to others. This is a
reasonable privacy framework, and has been implemented by the
banking industry.
An individual wants a doctor to be able to access his/her medical
history so that the doctor can do a good job, especially in an
emergency, but does not want the world at large to have access to this
information. It has taken the health sector longer than the banks to
implement effective systems to handle this and a lot of information
still cannot be accessed easily and electronically when it is needed,
but it is improving.
So the idea that a system of “public accounting” can be private and
secure, as well as being easily accessible to authorized users, is not
too difficult to envision.
The issue of security of the information is being addressed. The intent
is to have local community information fully accessible to the data
collection team in the community. Only a limited number of database
administrators and authorized researchers will have access to this
information in its totality.
The community information will be available in an “accounting” form
to build up a matrix of fund flow information, and a related matrix of
value adding.
A similar security framework will be used for information about
organizations. The contributors that provide information about
organizations will have access to that information, as will database
administrators and authorized researchers. Otherwise this information
will only be accessible within the accounting framework and the
management information derived from this.
Characteristics of good management information
I think of management information as being the least amount of
information that will enable good decisions to be made reliably.
There is a dynamic to management information that is different from
the data that is used, for example, in scientific research where one is
trying to confirm a theoretical hypothesis.
Management information is not complex. In fact, good management
information is simple and clear. Management information can be
described as “the least amount of information that enables the best
possible decisions to be made reliably”.
Management information is best when it is timely. Getting
information late when the damage is done, has little or no value.
Management information is built on lessons learned well before a
crisis has developed.
In the relief and development sector, there is virtually no
“management information”. The data are voluminous, but seem to
merely exist to support an organizational set-up that has become
powerful but ineffective, and with no plans to change in the ways
needed. Simply getting systematic information in response to the questions:
- What does it cost?
- What is being done? and,
- What is the value being generated?
would result in a major new subset of data that addresses performance.
Mere measurement improves performance
In my experience, people do much better work when it is not taken
for granted. Making measurements shows interest and demonstrates
that the work has some importance. Not surprisingly the
measurements often document performance improvement, which can
be rewarded and also stimulate self-starting improvement initiatives.
Mere measurement improves performance
My experience as an accountant working with management information has
convinced me that mere measurement makes a huge difference to
performance. All sports measure performance, and have done for a very long
time. The corporate world did a big upgrade in their approach to
measurement and management information with computerization in the
1960s and 1970s ... and productivity improved (based on what I observed in
my work).
When I explored this more, I found that it was possible to get better
performance with very simple measures that were not necessarily part of a big
system.
One accounting supervisor I worked with (she had more than 50 years with
the company) had a “beat yesterday” book that had daily sales for the
company tabulated for decades. Her goal was simply that the company
shipped out more today than yesterday ... and she had been pushing for this
for decades ... and it worked. It was the first accounting information that
came out of the department every day, and everyone took notice from most
junior worker to the CEO!
Metrics for community progress
Tr-Ac-Net has pioneered some of the ideas of socio-economic
performance reporting. Specifically Tr-Ac-Net has been an advocate
for using the community as the key focus for socio-economic
performance metrics. An organization may be here today and gone
tomorrow, so also a project, but the community stays in the same
location for ever.
Okehampton, my home town
Okehampton is a small town in Devon, England. My family moved to
Okehampton when I was five, at the end of the Second World War. At that
time it had a population of about 4,000 people, slightly up from a pre-war AA
book listing that reported around (as I recall) 3,800 people.
It was a small farming town. Nothing really special. In fact it was rather less
important in 1945 than it has been almost 900 years before. William the
Conqueror came to England in the UK, and almost immediately documented
what was in England in the Doomsday Book. Information about Okehampton
is in the Doomsday Book, and to consolidate the western frontier a Norman
castle was built to fortify the village.
I learn from this that a geographic community has a near perpetual existence
that is very valuable when developing management information. People,
organizations, projects, and governments come and go, but the place is for
ever.
Keeping Score
One of the components that has been missing in development is an
accurate score card of wins and losses. A winning team is always
going to look at a defeat and learn from it. A winning mindset takes a
setback and knows that they will come back stronger next time. The
relief and development sector has not embraced such a mindset, and
thus there has been little analysis of and accountability for failure.
There has been a substantial fund flow for relief and development for
around 50 years. After this length of time, it is still difficult to get any
sort of answers to the simple questions of how much things have cost,
what was done with the money and what results were achieved.
These are not difficult questions, but the leadership and the majority
of the staff in the relief and development sector organizations are
uncomfortable when they are asked.
Cost Accounting
Cost accounting or cost and management accounting is a subset of
accounting that provides the basic information needed for
management decision making.
One of the most basic management needs is to know how much
things cost. If managers do not know how much things cost, then
decisions cannot be based on reality but on something else. What that
“something else” is may well be anti-social and inappropriate.
Cost accounting does not have much value when it is a purely clerical
effort. It needs to be an integral part of the organization's thinking,
and part of decision making. This is now almost taken for granted in
good for profit organizations, but not at all common in the public
sector and the NGO not-for-profit sector.
An organization needs to have information about what things cost,
not in a single simple and historic way, but in a dynamic manner so
that cost “behavior” is understood. Almost every cost has a behavior
that makes it possible to make good decisions and reduce cost, while
at the same time optimizing the activity and the value being
generated.
And lowest cost is not necessarily the best cost. So cost needs to be
related to other aspects of the organization. A cheap low quality
component in a complex expensive assembly can end up being very
costly ... this is not a simple issue, but it is very much a cost
accounting issue.
Cost analysis as foundation for strategic decisions
At one point in my career (in the early 1970s) I worked for a technology
company. One of its product lines were rechargeable batteries ... at the time
mainly used in the aerospace industry, and increasingly for the IT industry.
We were trying to make inroads into the consumer market, but our battery
technology and manufacturing process had costs that made us uncompetitive
compared to our major competitors in this market segment.
I learned everything I could about the engineering technology and the
manufacturing process ... and the cost of everything. With the cost facts our
company was able to think through what to do, and how to address this
problem and make profit. What might be thought of as “grunt” work is not.
Because we knew a lot about the costs of this segment of the business, we
were able to create a strategy that stopped our losses, and to refocus our
future with a leap-frog of technology so that our next generation products
would be low cost and competitive.
The cost accounting done at the time was very detailed ... but the results of
this analysis are visible 25 years later in the structure of the global battery
business.
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