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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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SECTION 2
- A Way Forward.
- Evolutionary Solutions
- Unlocking Latent Potential.
- Optimizing What There Is.
- Starting point.
- Small steps.
- There is no one best way.
- [Box: Getting good results when there is chaos]. Process.
- [Box: Water skiing ... skiing moguls].
- Planning.
- Organize.
- Implement.
- Measurement.
- Feedback.
- Adjustment.
- Who does all of this?
- How does this get coordinated?
- Do the most with the least.
- Do the most with what is available.
- [Box: Making the most of what you have].
- [Box: Performance].
- [Box: The thermodynamic idea of efficiency].
- [Box: Organizational differences].
- Organization: Management Information,
- Planning and Process Organization.
- Management Information.
- Information.
- Documenting success.
- Coherent framework of analysis.
- Balance Sheet.
- Resources.
- Constraints.
- Statistics.
- Measuring efficiency.
- Fund raising information.
- Walking, not just talking.
- [Box: ActionAid and my own experience].
- Managing information for effectiveness and security.
- Characteristics of good management information.
- Metrics for community progress.
- [Box: Okehamption, my home town].
- Keeping score. Cost accounting.
- [Box: Cost analysis as foundation for strategic decisions].
- Standard costing. Budget and cost control.
- [Box: Cost analysis and cost control]
- Management by Objective (MBO).
- Change.
- Explaining organizational performance.
- Ignorance had consequences.
- [Box: Bad costing in heavy engineering in the UK].
- [Box: Bad costing in a foundry in the USA].
- You don't know what you don't know.
- [Box: Doing the most with the least].
- Accounting and accountability.
- Value adding or value destruction.
- Value chain.
- Data architecture.
- Easily accessible from anywhere.
- Management reports.
- Transparency.
- Transparency and accountability.
- Oversight.
- Community based metrics.
- [Box: Community metrics].
- Planning and Process.
- Linkages.
- People, organization and money.
- [Box: Rebuilding Europe after World War II].
- Too much planning, not enough organization.
- Removing constraints.
- [Box: Removing constraints].
- Monitoring and evaluation.
- Resources.
- People.
- Organization.
- Infrastructure.
- Natural resources.
- Machinery and equipment.
- Working capital.
- Knowledge.
- Money.
- Constraints.
- Creating value from natural resources.
- Who makes decisions / Make knowledge a key driver.
- Make community the focus of development.
- Jobs.
- Ownership.
- Deploying best practices.
- Ethical standards.
- Standards for workplace safety.
- [Box: Workplace safety].
- Organizing in the face of poor infrastructure.
- [Box: The Challenge of Infrastructure].
- Creating trust.
- Oversight.
- Money
- Money, catalyst for performance.
- Money, the root of all evil.
- Building trust.
- Engaging the world's financial leaders.
- [Box: When New York was in financial trouble].
- World Bank for public finance.
- [Box: World Bank for public finance].
- Mutual funds for socio-economic investment.
- [Box: Investment Clubs].
- Mobilizing money.
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:
- (1) planning;
- (2) organizing;
- (3) implementing;
- (4) measurement;
- (5) feedback; and,
- (6) 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:
- (1) People;
- (2) Organization;
- (3) Infrastructure;
- (4) Natural Resources;
- (5) Machinery & Equipment;
- (6) Working Capital;
- (7) Money; and,
- (8) 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 ration 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 (1) money used; (2) where used; (3) activities funded
(money amounts and where); (3) 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: (1) What does it cost? (2) What is being done? and, (3)
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.
Standard costing
Standard costing is a widely used technique in the corporate world for
managing cost performance. It helps focus attention on what needs to
be fixed, rather than merely tabulating a lot of information that is
difficult to understand.
In a standing costing environment, everything that is made or done
has a “standard cost”, that is, what one might reasonable expect
something to cost under normal circumstances. When the item is
produced, the actual costs are computed and the difference reported
as a variance. Management can then focus on the items with a large
variance, and see what needs to be fixed. It might be that the standard
is wrong, or it might be something wrong, or right, in the
manufacturing process.
Standard costs can be validated by comparing the total activity cost,
that is the activities in the department or unit times the standard cost
for each activity with the total costs of the department or unit
recorded in the department accounts. If there is a big discrepancy,
then management can do some analysis to find out what is going on.
Standard costing can be used in many ways to get an understanding of
costs and performance. It is widely used in corporate accounting and
operational analysis, but is not present at all in the relief and
development sector (as far as I know).
Budget and cost control
In cost accounting there are two common questions:
(1) What is it costing? and
(2) What should it be costing?
Decisions are usually made based on what it should be costing, and results are a function of
what it actually is costing.
A budget is usually put together using information about what it
should be costing. The accuracy of a budget determines to a great
extent how effective management oversight can be. My standard is
that any world class organization should know with considerable
accuracy what things are going to cost in a variety of situations.
Cost analysis and cost control
At one time early in my career (around 1966) I was working for a well
respected Canadian consulting engineering firm who knew almost everything
there was to know about designing and building pulp and paper mills. My
firm knew how much every element of a pulp and paper mill should cost, and
we did project planning and project budgets based on a lot of knowledge of
what items should cost. I was working as a field accountant, with several
basic responsibilities including doing the cost accounting for the construction
works. The general contractor had a lot of experience and a cost plus
contract ... and we had a construction budget and considerable experience of
what things should cost.
When around 1% of the construction work had been completed, by my
calculations, our contractors had disbursed around 2% of the budget. This is a
100% cost overrun, and while only a small amount of the total money had
been spent ... a 100% cost overrun is a potential disaster. The actual cost
information was based on a combination of old fashioned cost accounting and
some field analysis ... the budget was based on a lot of industry experience.
The variance was simple arithmetic.
On Thursday afternoon I alerted our engineers and managers about my cost
analysis and findings, and there were discussions on into the evening. On
Friday morning our project manager had an urgent meeting with the
contractors who were asked to explain themselves. That day, Friday, they had
1,400 workers on the site and on Monday morning there were only 700
workers and the same amount of work was being done. Two years later the
job was completed on time and just 2% over the budget.
The contractor was Brown and Root, now a subsidiary of Halliburton.
Management by Objective (MBO)
Years ago the corporate world embraced “Management by Objective”
or “MBO” as a valuable management tool, but almost as quickly gave
up on it. They gave up on it because it was difficult to articulate in a
simple way and by universally applicable. Something a lot more
nuanced was needed. The corporate world recognized that achieving
an objective had little value if the objective did not help the
organization achieve the ultimate corporate objective of better profit
performance.
However, almost 30 years later, objectives are still a big part of
project documents, and achieving objectives a measure of
accomplishment. The MBO style of management is still in vogue in
the organizations of the relief and development sector rather than
more powerful systems of management information and performance
analysis. This would not be an issue if the objectives related closely
to socio-economic progress, but usually they are merely completing
activities with or without any tangible results.
Change
Change is a result, and not an action. One does things and the result is change.
Explaining Organizational Performance
I had the opportunity to become involved with understanding
organizational performance in my first job which was in the heavy
engineering industry and the building of integrated iron and steel
mills. I was part of the first generation of university trained engineers,
and part of what I had learned was to see things, and be interested in
how they could be better. But I was also fortunate in that I had also
been taught economics, and had a tutor that was interested in analysis
and who encouraged me to get the data, do the analysis and draw my
own conclusions. His position was that good data and good analysis
might easily be better than much of what had gone before ... and he
encouraged thorough analysis rather than mere parroting of what was
in print and popular.
Ignorance has consequences
The history of corporate performance shows the tremendous
important of good information. With good information it is much
more likely that good decisions will be made. Data, and facts are a
much better basis for decision making than mere opinion ... and the
infamous “seat of the pants” decision making that prevails in
organizations where management information is missing.
Bad costing in heavy engineering in the UK
My first job after university was being a management trainee at Davy United
Engineering Company in Sheffield, England. The company made heavy
equipment for the nuclear, chemical and iron and steel industry: pressure
vessels, rolling mills, blast furnaces and the like.
One of the issues that struck me in this company, which had an excellent
reputation in the industry, was the complete isolation of the accountants from
the production managers and marketing managers. By excluding the
accountants, especially the cost accountants, the production managers and the
marketing managers were making decisions that would soon kill the
company.
What every good engineer knew was that technology was rapidly changing,
but the management failed to understand that a marketing strategy to sell
“tons” of equipment at a “price per ton” was very soon going to make
nonsense of profits. The control technology that was being integrated into the
new rolling mills did not weigh very much, but cost a lot to design, test and
manufacture ... and for several years this technology was quoted on a “per
ton” basis. For an educated “analyst” this was a no-brainer, even though I had
no experience, but for the traditionalists of the time, from the Chairman and
Managing Director down to the engineering apprentices, nobody got it. I saw
the problem in 1961. A couple of years later the company was seeking
bankruptcy protection. They had a huge backlog of work ... and they were
losing money with every ton they shipped.
This example of “management” and decision makers not having a basic
understanding of both the accounting and the operations has been evident
over and over again in my career.
What I have learned is that when operating people have management control
they rely on intuition to the exclusion of cost accounting, but it is just as bad
when accountants have management control and use an excessive amount of
analysis without really getting to grips with the operations. In high
performance organization BOTH are groups are working together ...
teamwork.
In another situation years later I was able to use basic cost accounting
techniques so that the company would be better informed and make
better decisions.
Bad costing in a foundry in the USA
At one point in my career I was responsible for a foundry that was essential to the operations of the company.
For years the performance measurement for the foundry had been based on a simple
formula ... total cost divided by the weight of castings produced to produce a
“cost per pound”. At the same time individual castings were costed by
multiplying the weight of the finished casting by the “cost per pound”.
For years and years engineers had “cost reduced” the product by designing lighter
and lighter castings ... and the foundry costs kept going up as the engineers
made it more and more difficult to produce the castings.
This was an absurd situation that had been in place for years. Engineers were not going to get
dirty by understanding how the foundry operated, and foundry people were
not going to be invited upstairs into the engineering offices.
I learned a lot about foundry operations in a hurry, because it was clear that something
pretty dumb was going on. Within days we started a “standard cost” system
that costed each casting based on some simple criteria of which weight was
just one. We added in parameters about complexity, the production
equipment used, the length of the production run.
We used this standard cost in our quoting procedures and we compared the actual production times
standard cost with the actual cost of running the foundry. In the first week we
were “off” by about 20%, but when we refined the standard cost elements we
were able to come within less than 5% variance week after week after week.
This improved cost system changed the profile of the company's profit for
each of its product lines. One part of the product line turned out to be much
more costly to produce using the new approach than it had been before, and
what was a low margin item before now looked like it was a loser.
Our company had more than 50% of the market, and we used to price aggressively
(low) to maintain and increase market share. Now it was a loss maker, and when we increased
price to make an acceptable profit margin, instead of losing market share, the
competitors matched our price increases. As it turned out we were not doing
our industry a favor by low-balling the prices, just helping everyone manufacturing this product to lose money!
Of course the moral of the story is to use cost information to
understand the way in which cost behave, and to make sure that all
the departments understand cost behavior and use this knowledge to
do their work.
You don’t know what you don’t know
Often people don’t know what information they are missing. It is
important to look at the knowledge base that exists within a
community. Then look to evaluate is everything known that needs to
be known to positively direct the community and stimulate local
business. This can include training or understanding about
participation in the global information community. Then the other
part of that equation is to make sure that the external partners know
what they need to know and are as up to date as possible, so that all
decisions are being made by informed parties.
Doing the most with the least
For much of my corporate career I was an accountant, a planner, a CFO and
not that much responsible for operations, but for two years I was running a
manufacturing company as VP Manufacturing with a workforce of almost
3,000 in Georgia, USA.
We did not have a big budget for capital improvements so I was constrained
from any “big” spending. I had the advantage of not knowing a lot about the
factory and needing to listen to learn ... and I learned that there were all sorts
of ways that quite small investments would increase the throughput of the
factory with only minimal increase in costs. As an accountant I understood
the impact this would have on company performance, but some of our
company's management did not get it.
The factory included our own foundry which ran round the clock and
supplied 90% of the castings we needed for our production. It was the key
constraint on our production. A high end consulting firm was brought in to
study our capacity constraints, and to make recommendations. They
recommended an expensive investments and charged a big fee for making the
recommendation. I thought it was a bad recommendation and looked for a
second opinion. We got a second consulting company to come in, and after
their study they recommended another solution, that was rather less costly,
but still substantial. I then got the maintenance department manager and some
of the old timers to get together and tell me what they would do, and they
came up with something that was going to cost 1/10th of the cost of the big
consultant's recommendations and do rather more in terms of capacity
improvement and in much less time.
By using people who had real knowledge, and spending money carefully we
got 10 times the value from our money.
Accounting and Accountability
Accounting and accountability are not the same. Accounting is a
piece of management system and refers simply to activities
associated with keeping track of the financial information.
Accountability is holding a person or some unit responsible for
performance, frequently performance in relation to the use of funds,
and getting results.
There can be good accounting and still no accountability.
There is rarely good accountability where there is poor accounting.
There can be accountability, but still poor performance.
Value Adding or Value Destruction
The idea of value adding or value destruction is a powerful way of
analysis for the relief and development sector. It has not been
commonplace in the past, and nothing has been done to ensure that
relief and development activities are value adding. With little
oversight, and no value analysis, the relief and development sector is
dominated by value destruction activities
The rule of the game for development are:
- (1) Plan,
- (2) Organize,
- (3) Implement,
- (4) Measure,
- (5) Feedback and
- (6) Adjustments.
This systems approach built on a community centric mindset can deliver a
dynamic process with multiple parallel tracks all progressing to
success in the best way possible. It is a process built on engineering
and accounting rather than policy and economics. It is a process that
respects individuals, family, community. It works to make
community better, one community at a time, but brings to bear
everything that might be helpful.
Value chain
Using value analysis in a business value chain from original source to final consumer results in
Data architecture
Easily accessible from anywhere
Modern information and communications technology (ICT) can get
information instantly anywhere in the world where there is Internet
infrastructure. The next challenge then is how Internet infrastructure
can become universally accessible. Community centric development
and information about people and resources that can be
communicated and responded to in a timely fashion will aid
development progress a thousand-fold.
Management Reports
A key to success is that information be made useful, independent,
reliable, and universal. There are several strategies and tactics for
using this information to create enormous value. It can be used to
make good plans, to get well organized, to get funding, to implement
well, and to provide excellence in transparency and accountability.
However, as valuable as the information can be, it is also important to
handle the problems or errors, insecurity, hackers, fraud, and
incompetence.
Transparency
I have never been very comfortable with the idea of “transparency”. I
think if transparency as a quality that enables one to see through
things, without having the view diminished. Glass is “transparent”
and at its best, one cannot see the glass.
So I really do not like the idea of “transparency”.
I am engaging with transparency because others have taken the lead
and made “transparency” an issue, and a solution to many of the ills
of the relief and development sector, especially the problem of
corruption. I see transparency as something that serves as a wonderful
talking point, without actually having very much to see when it is
applied.
Transparency emerged as an “issue” in the 1980s. Transparency
International was founded in the late 1980s after Peter Eiger left the
World Bank and popularized the transparency issue.
The Transparency and Accountability Network (Tr-Ac-Net of which I
am a part) has been trying to develop a way for organizations to
engage in “transparency”, but it is not easy. We believe that a lot of
an organization's information should reasonably be “private”, but we
also believe that there is a public “right to know” where an
organization is using public funds, or is having a material impact on
socio-economic conditions.
Tr-Ac-Net has embraced the notion of “public accounting” which is
the idea that any individual or organization that has had, is having or
should have a material affect on socio-economic conditions should be
making information about costs, activities and results public.
At the present time there are hardly any individuals or organizations
that are making information about costs, activities and results public.
Many organizations in the not-for-profit sector are subject to
reporting requirements to maintain their tax-exempt status, but the
information contained in the financial filings they are obligated to
make does rather little to satisfy the Tr-Ac-Net goal of getting
information about costs, activities and results. Typically an
organization does its accounting so that it can report expenses
according to what is “program” and what is “marketing”, “fund
raising” and “overhead” but nothing that systemically analyzes
program so that there is cost, activities and results related clearly.
Transparency and Accountability
The phrase “transparency and accountability” is used a lot in
describing the way organizations run themselves. But the same
organizations rarely operate in a way that deserves this description.
Almost nothing of importance is available to the public and to all the
stakeholders, and getting information about performance and the
people who are accountable for performance is rarely easy.
Some organizations have taken steps to improve the flow of
information into the public space, but it is usually insufficient and not
easy to analyze to be of much value. Numbers, in particular seem to
be suppressed so that performance is difficult to measure, and in some
cases there are a lot of numbers but without a useful context.
The Global Fund is one organization that has tried to be “transparent”
and a lot of information is publicly available about the process to
approve funding and disbursement, including specifics of the
disbursements made by the fund to the primary recipients. But there is
very little information available about how the funds were actually
used and the results actually achieved. The transparency starts off
very well, but disappears well before it is translated into results.
The World Bank has also moved to have more of its material
accessible to the public, and operates AIDA, a database
about development projects. A quick look at AIDA, and it appears
that this is a great example of transparency, but in fact the database is
a rather limited subset and quite incomplete. I only discovered this
when I downloaded the AIDA information using their spreadsheet
download routine and tried to put this information into the Tr-Ac-Net
database and use it for simple analysis. It seems that AIDA is, in fact,
quite incomplete and not very useful for analysis. Like the Global
Fund, the transparency is stronger in terms of amounts disbursed or to
be disbursed and weak on the post implementation analysis of
performance, and the idea of accountability is missing.
Oversight
This piece on oversight is about how oversight uses management
information and is part of the management process.
The key is to add transparency and accountability to the aid process
where donor and community are both responsible for how money is
spent and the value that is created by it. In terms of development
success, businesses need to look at their business model and what
support they need to generate positive cash flow. Economic
development success that is sustainable means local business success.
Nothing works right unless there is some form of oversight. The
oversight can be as simple as the work of a supervisor, or it can be the
responsibility of a government regulatory agency.
Oversight has to be effective and timely.
Oversight has to be systemic
Community based metrics
The community has a very different view of priorities than when they
are identified from the donor's home office or the local central
government.
And relief and development sector performance also has a very
different view when it is done from a community perspective rather
than that of an implementing organization or a donor.
Community Metrics
The basic metrics needed to understand socio-economic development
progress at the community level are best described as being:
- (1) information about the community at the beginning of the time period;
- (2) information about the normal activities of the community;
- (3) information about the incremental relief and development activities in the community; and
- (4) information about the community at the end of the time period.
This information is a true public accounting of community level socio-economic progress.
The information needed is what is important in the context of the community.
This is usually quite obvious in a small community, though it becomes a lot
more difficult in a bigger and more complex community. In a complex
situation the community analysis can be done in stages, breaking down the
community into several affinity groups with similar activities, and then
combining into a single spatial community.
The conceptual framework for community analysis is not very different from
the system of financial accounting and analysis used in the corporate world
with balance sheets and operating statements. In both cases resources are
being used to improve the values appearing in the balance sheet.
Starting in 2003, Tr-Ac-Net started to develop a data management system to
put public accounting of community level information into an easily
accessible database or data warehouse.
What is the point? These data will show rather graphically:
- (1) how little of the relief and development resource actually gets into a community; and,
- (2) how valuable a small amount of incremental resource can be when applied correctly.
When these data are used by financial analysts interested in global
socio-economic progress they will recommend change to improve
performance, just as they do with present day corporate and municipal equity
and bond financing.
Planning and Process
In the Relief and Development Sector there are huge opportunities
but limited resources. We need to know much more about both, and
get organized so that the resources are used most effectively. The
basic process that needs to be in place is one where there is:
- (1) planning;
- (2) organizing;
- (3) implementing;
- (4) measurement;
- (5) feedback; and,
- (6) adjustment.
Linkages
There are important linkages between people, communities, organizations, projects, sectors and functions
It is said that “All politics is local” and I like to say the “All life is
local”. Quality of life is something that is determined as much as
anything by what goes on in our own community. What goes on at
any distance from my community may be interesting, and may have
an indirect impact, but is nowhere as near as important as what goes
on in my community.
And within the community, my family is far and away the most
important. To the extent that people are interested in far away places,
it is often because a family member is there.
Organizations have a role in society, but it is an artificial role, or a
role that is needed for efficiency, rather than being something of
inherent importance to society.
Sectors also are a somewhat artificial construct. They serve to help
organize thinking and the specialized expertise needed in that area of
socio-economic activity.
Within a community, an organization and a sector there are a number
of common functions. Functions are the activities that are needed in a
community, organization or sector that have common characteristics.
Accounting for example is a function that exists in communities,
organizations and sectors. Marketing is a function. Transport is a
function, as well as being a sector. Thus, an ambulance is part of the
transport function in the health sector.
The success of relief and development and socio-economic progress
depends on how all of this comes together.
People, Organization and Money
Amazing things can happen when people and knowledge and money
are put together and there are common goals.
Rebuilding Europe after World War II
I am just old enough to remember the devastation in Europe in 1945 at the
end of the Second World War. European cities were devastated. Everything
was in short supply.
The United States launched the Marshall Plan to help with the rebuilding
effort in Europe and it is amazing how much was accomplished in a very
short period of time. The Marshal Plan delivered material resources, and local
people and local knowledge and a common goal made rapid rebuilding
possible.
External funding was a critical component of success, but there were many
other resources available in Europe, not least, people and knowledge.
Too much planning, not enough organization
But the funding of relief and development has never had the same
dynamic as the Marshal Plan. Rather the relief and development
strategy has been more like the failed Soviet Gosplan system where a
centralized bureaucratic planning team defined how the relief and
development resources would be used, no matter what the local
priorities might be.
The secrets are that there is a new way to think about development
that makes it practical and win-win. The mindset of money constraint
is changed to one where all resources are used to maximum potential.
The focus is on people and community and getting rid of
organizational and process restrictions.
The secrets to success in economic development is three fold:
- (1) to see people in developing countries as a resource not a liability,
- (2) to make sure that all efforts have a measurable goal that is achievable with a budget and a plan, a flow of communication to ensure success, and a true evaluation of the outcome
- (3) all assigned resources, including money, are tracked and accounted for cooperatively in a way that fosters transparency and accountability by all parties.
Removing constraints
So many things in developing countries do not work because some
critical thing is missing. Identify what the critical things are that are
constraining progress and put effort into getting them fixed.
Removing Constraints
Most people prefer to be working than waiting, but most
operational systems have people waiting a lot more than is
needed. Henry Ford and his production line attempted to solve
this problem and did it pretty well. Most factories cannot have
production lines of that sort, but even so, there should not be
excessive wait time.
I have already mentioned my work as VP Manufacturing at
Southern States Inc. in Georgia. We reduced wait time in final
assembly by changing around how we handled our inventory and
picked components. With no more waiting for parts, production
almost doubled. Theoretically it should have improved more than
this, but other constraints emerged and then they had to be
addressed. But it was progress.
If there are systemic efforts to get constraints removed, then there will
be rapid progress. The amount of this rapid progress will depend on
the latent potential of the community referred to in Chapter 5.
Monitoring and Evaluation
Monitoring and evaluation has been used up to now as one of the
tools for “managing” in the relief and development sector. But
monitoring and evaluation (M&E) is a poor management tool since it
is usually too little and too late. The information that is obtained from
an M&E exercise should be part of a “management process” and be
routinely available not just when an M&E exercise is carried out, but
all the time.
In M&E work, an independent analyst will attempt to determine how
well an organization has done in meeting its objectives. This analysis
is usually done at the completion of a “project” and is frequently a
requirement of the organization that funded the project. But this form
of M&E is expensive, and the information has limited value
compared to getting similar information as a routine part of a
“management process” where the information is being used to
improve performance and get the optimal results.
Resources
Performance depends on both process and resources. It is possible to
get good results or bad results from available resources, but if there
are no resources, there can be no results. The critical challenge for the
relief and development sector is to understand what resources there
are, and to use them in the best possible way. The main resource
groups are described briefly below: (1) people; (2) organizations; (3)
infrastructure; (4) natural resources; (5) knowledge; and. (6) money.
Constraints must also be identified, understood and steps taken to
mitigate their impact.
People
In almost all economic activity, people are a critical resources. But
people are rather infrequently identified as an important resources,
and in most developing countries, many people is seen as a problem
rather than being an important abundant resource.
There is a challenge is to make it possible for people to be an asset
rather than a liability, both in their local community and for the larger
economy, because there are all sorts of shortages or constraints.
Organization
The organization of society is complex and important. It also varies a
lot from community to community. What seems to be the best way to
organize for a company like Wall-Mart or McDonalds may well be
absolutely the worst for an organization in the middle of Africa or
South Asia.
Organization and organizations in a community are very definitely
assets. Things get done because of organization and organizations.
Most substantial work requires a group of people, and groups have to
be organized in some way.
Infrastructure
Infrastructure helps to make a society productive, and helps to
improve quality of life. In the “south” the lack of infrastructure is a
serious constraint whether it is national scale infrastructure like trunk
roads, ports and railways, or the little feeder roads around the
community.
- What about roads, and railways, shipping and air transport.
- What about the vehicles and the services?
- What about electrical power, telecommunications and Internet?
- What about water and sewage?
- What about the education system, the schools and the knowhow?
- What about health system; the local clinics, the district hospitals, the trauma centers and teaching hospitals?
- What about the enabling environment of laws and rules and regulations..
Natural Resources
Natural resources ought to be a source of local wealth, but too often it
appears that natural resources merely serve to enrich others. Local
people give up very valuable rights for token payments simply
because they have absolutely no understanding of what is at stake.
- What natural resources are in the neighborhood?
- What are the prevailing laws, rules and regulations concerning natural resources?
- What are the property rights associated with natural resources. Who owns them?
When the facts about natural resources are available it becomes much
clearer about who is benefiting from natural resource exploitation.
Too often the local people are not seeing much value creation in their
communities.
Machinery & Equipment
Factories and their machinery and equipment are important assets,
and should be included in the understanding of community resources.
Business machinery and equipment is an essential for business
employment, and business growth is frequently constrained because
there is not enough machinery and equipment.
Working Capital
Working capital is another important asset, and one that frequently
constrains business growth. In order to grow a business needs
adequate inventory and it often needs the ability to finance accounts
receivable. If there are banking services, a business can cooperate
with the bank to finance working capital, otherwise this has to be
funded by the business owners.
Knowledge.
Without knowledge very little can get done. There is a huge pool of
knowledge that has accumulated over the years, and it new
knowledge is accumulating at a record pace. Relatively little of this
knowledge is about matters that affect relief and development
performance.
Accordingly, there needs to be a focus on getting together knowledge
that is of importance for success in socio-economic development, and
especially knowledge that is useful in the community setting,
whatever that is.
Money
Money is often identified as the constraint on socio-economic
progress. There is a lot of talk about “not enough money” but from all
I know about relief and development, the amount of money is not the
problem, it is much more a problem of getting the money to the right
place and doing the right things.
Lack of money is both a cause of business failure and also a reason
why business was never able to start. Money is a limiting factor in
business and almost all economic activity, but it is not the most
important determining factor for success. Money is needed to fund
things like infrastructure, or machinery and equipment, or working
capital, or payrolls ... all things that make it possible to carry on
economic activities and for value creation to take place.
But a lot more can be done with available money if there is a
complete optimization of the use of all available resources and there
is the best possible organization of all the resources.
Constraints
Constraints are the lack of any of these resources or anything else that
gets in the way of progress.
Creating value from natural resources
It is important to evaluate what the local resources are that can be
used as an economic driver for the area. Unfortunately, far too often
the natural resources are exploited in ways that make them a local
liability and only an asset to foreign stakeholders. They are usually
depleted without adequate thought to the future. The key is to find
resources that can help improve the local economy in a way that is
sustainable over the long-term.
Who makes decisions?
People make decisions, and the best decisions are usually those that
are made with the best information, and as near the action as possible.
It is essential to keep people informed so that they are able to
participate in priority setting and decision making and making
accountability a factor in development performance.
Make local knowledge a key driver
Local knowledge is a missing element from most of the relief and
development effort of the past 40 years. It is important to evaluate
what the local resources are that can be used as an
Make community the focus of development
The local community needs to be the center of development.
When the local community is made the center of development and activities
are integrated with the routines of the community, then development
can be successful and sustainable.
Jobs
Jobs are a key to prosperity. Many people who are poor are engaged
in subsistence activities. People work hard and at the end of it are just
surviving. Their productivity is as low as it can be. With lower
productivity they would be dead. Jobs that help people move from
subsistence to paid work is progress, even if the job is menial and not
very inspiring.
Ownership
The idea of ownership is very powerful, and is one of the underlying
drivers of the capitalist enterprise economy. But there are many
different “things” that need to have ownership including not only
physical goods and real property, but also intellectual property and on
to ownership in common property, ownership in government,
ownership of society and ownership of the environment.
The last types of “ownership” are being increasingly recognized, but
the understanding is incomplete, and the practice somewhat
incoherent.
Nevertheless the idea has importance, because it helps to design an
organizational framework that can be sustainable. As we have noted
elsewhere (see page ) successful sustainable socio-economic
progress requires both a public and private sector that is stable and
capable stogether of socio-economic value creation.
Deploying best practices
Best practices are not universal. There can be a universal standard of
quality for an “output”, whether it is a product or service, but not for
the best way to achieve the output. There are many variables, and
some of them are very important.
Ethical standards
There are a lot of ethical standards that need to be supported.
Standards for workplace safety.
I like to think that safety has a considerable level of universality, but,
in fact, safety has a local face. In almost everything there are tradeoffs. Work-place safety costs money, and a job that pays even with
some level of risk is likely to be a better situation than a job that is
perfectly safe and does not exist.
Workplace safety
Early in my career I saw the problem of workplace safety. I was working in
heavy engineering and the iron and steel industry and when things went
wrong, somebody was frequently killed. It was a very unpleasant reality.
Some years later I was working in large scale pulp and paper mill
construction, and again, the unpleasant reality that accidents do happen and
people do get killed.
A constant effort to improve workplace safety has been very successful, and
today safety is many times better than it was 30 or 40 years ago ... but
accidents still do happen, and without constant vigilance the workplace could
easily become much more dangerous again.
In the “south” workplace safety is an issue. Improvement is needed, and there
should be pressure for improvement, but pressure that reflects not only
universal standards but also local community priorities and preferences.
Organizing in the face of poor infrastructure
In the “south” the problems of infrastructure are widespread, and the
pace of infrastructure improvement has been pathetic. Society has to
organize around the reality. Business must operate with what
infrastructure there is rather than what it would be nice to have.
The Challenge of Infrastructure
I was involved in the building of a fish and shrimp processing plant in Nigeria
at one point in my career. In the initial planning circa 1972 our company was
going to be a tenant at the Koko port where the port infrastructure was
excellent, and we merely had to install some refrigeration and processing
equipment in existing buildings. Koko port needed out business and it was a
good plan for everyone. But all this changed in 1973 with the oil crisis and a
new world order. Koko port was taken back and we had to plan around a
greenfield site with absolutely no infrastructure.
I will not going into detail about getting title to a suitable site, but merely say
it was interesting. After that we had to put in docking facilities ... a quay in
deep enough water for our trawlers to dock at all states of the tide, and build a
building suitable for our cold stores and the processing plant, and build water
treatment and effluent treatment facilities, and build an electric generating
plant. In other words, absolutely everything we needed, we had to build for
ourselves.
And at that time, everything had to be imported from half way round the
world, which in itself is not too difficult if there are accessible ports, and the
banking system works for letters of credit, and the customs authorities
function effectively.
Bottom line ... in the “south”, what should be easy is very challenging.
But it can be done, and it is worth it.
Creating trust
In order for relief and development to be successful, and in particular
for resources to flow smoothly to where they are needed, there has to
be “end to end” organizational trust.
A single integrated organization is one way to have this trust, but
such organizations usually are “top down” and very rigid, and rarely
actually reach the community level and grass roots activities.
Another way is to have independent organizations linked together in a
network that makes it possible to validate the credentials of any
organization. The network role is something like the “accrediting”
that a professional organization does for its members so that there is
some protection to the public. Members of the network have to be
operating at a sufficient level of performance to be accredited
members.
Some organizations have already started to provide services to help
philanthropic donors connect with reliable charities, and some to do a
rating exercise on charities. At the moment these organizations are
working well but on a small scale relative to the vastness of the relief
and development sector as a whole.
Oversight
This section on oversight needs to be quite detailed and practical
The key is to add transparency and accountability to the aid process
where donor and community are both responsible for how money is
spent and the value that is created by it. In terms of development
success, businesses need to look at their business model and what
support they need to generate positive cash flow. Economic
development success that is sustainable means local business success.
Nothing works right unless there is some form of oversight. The
oversight can be as simple as the work of a supervisor, or it can be the
responsibility of a government regulatory agency.
Oversight has to be effective and timely.
Oversight has to be systemic
The FAO Project in Shenge, Sierra Leone
I had the good fortune to do the evaluation of a wonderful FAO project in
Shenge, Sierre Leone some years ago (around 1989 I think). This project used
its rather limited resources and created community benefit that was perhaps
as much as 100 times more than was anticipated for the project. How was this
achieved? Two very competent Chief Technical Officers (CTOs) controlled
the money and used it to do what would deliver a lot of value in the
community ... and people paid for it. Economics 101 says, if I remember well,
that price is determined by supply and demand. If you offer something that
has a good value, people will pay for it, if they possibly can. So everything
done by the project had a price, and to the extent that it was valuable, people
paid for it.
The project had a valuable inventory of spare parts for fishing boats and
outboard motors, and fishing gear. These were not given away, but sold at the
local market prices with the money flowing back into the project. The project
bought more inventory, and expanded to have a fuel store with a substantial
inventory. The fisherfolk went fishing much more rather than having to spend
valuable time hunting for fuel, gear and spare parts. The project trained a
mechanic to fix outboard motors, and in turn this mechanic started to train
other young men to be mechanics. His salary was paid for by small fees paid
by the students, and all of them (both teachers and students) made money by
being paid a small fee to service the outboard motors in the community.
The same dynamic took place in the fish smoking area. The project was
meant to teach six local women about fish smoking, but an initial six had
expanded into a group of 60 who were learning new skills and applying them
in the market, and prospering. More fish were being caught. More fish were
being processed for the market. The community was on its way.
But the community needed to expand its horizon. The road was impassable in
the wet season, and the government was not maintaining the road. The
government had a road crew in the area, but not paid all the time and never
with any material for repairs. Courtesy of the project resources, some modest
amount of gravel and cement was obtained, culverts were built and the road
was made functional. The fisherfolk and traders later paid back the project.
What else could the project do? The IDA school (that is a school built with
World Bank money) built some years before and idle for years because of
government budget constraints had great facilities, but no operating funds and
no teachers. The project started to run evening courses at the school using the
facilities including electric generators, carpentry and metal working shops,
sewing equipment, etc. with people in the village learning and earning at the
same time, and the project being paid so that the project could pay ... and
never have to stop.
Tr-Ac-Net for Public Accounting
A transparency and accountability network for public accounting is
another intermediary that is required. This answers the question
“Accountable to whom?”. Any fund flow that has impact on the
public or the society at large should be accounted for in the public
space so that it can be seen to be doing public good, or at any rate, not
doing public harm.
There is very little technical challenge in putting together the sort of
information that is needed. The accounting principles were developed
several centuries ago, and the technology to manage data in huge
volumes and in world wide organizations is well established.
The challenge is much more to do with the human dimension, the
organizational changes that are required and some very legitimate
concerns about public access to private information, and potential
abuse of this information in ways that are seriously anti-social.
Community Finance Units
There is a need for locally well respected intermediaries to be
responsible for community finance. This is going to be an entity that
is most trusted in the community, and understands the role of “trust”
both with respect to the community and to the funding stakeholders.
In the “north” it is possible to bring investment funds into a
community in many different ways. For example:
- (1) a municipality can float municipal bonds;
- (2) it can attract developers to build in the community;
- (3) it can attract a company to open a business in the community, maybe a factory, maybe a store; and,
- (4) it can attract a bank to open in the community
Something similar should be possible in the “south”. The scale may be different, but the financial and
economic concepts are the same.
For the socio-economic progress of the community, it does not really
matter whether the funds flow through public or private entities, but it
matters very much what they do. There needs to be enough accessible
public accounting information so that it is absolutely clear how
money is being spend and what is being accomplished.
Chapter 14
Money
Money, catalyst for performance
I have left money to the end. Performance in the relief and
development sector and progress in socio-economic development is
not going to be solved by money, at any rate, money on its own. But
without some money, the potential for progress will be constrained.
Money, the root of all evil
Money is often identified as the root of all evil, but I hope that money
as a component of bad behavior can be controlled. This is one of the
roles of accounting and accountancy profession, though not very
much in evidence in the relief and development sector.
Building trust
The world's financial community depends to a large extent on trust.
The “south” has not built a good feeling of trust within the world's
financial community.
Nor has the “north” built much goodwill in the “south” either.
But with trust and goodwill it is difficult to make progress. There is a
critical need for appropriate intermediaries and workable structures.
Engaging the world's financial leaders
If the financial crisis and latent opportunities in the communities
referred to above were in major US cities or big corporate entities
located in the “north” or in a fashionable “emerging market”, the Wall
Street community would very quickly find a way to release the latent
potential and turn it into value, together with an exit strategy to turn
this value into cash.
When it was New York City that was in a financial crisis in the early
1970s, Wall Street was able to create a workable solution (See Box).
It is possible to do a similar thing for the world's small communities
so that nobody loses and everyone is a potential winner.
When New York was in financial trouble
But the communities referred to are not large, nor are they corporate entities.
But they do have something in common with New York City back in the
1970s. New York was out of cash, its tax revenues had diminished
dramatically as the “Go-Go” years of the late 1960s were replace by Wall
Street cut backs, and New York was in dire financial straights. Felix Rohatyn,
a senior partner at Lazard Freres, was seconded to the city to help put the
fiscal house in order. In a matter of weeks and new structure was created that
made it possible to New York City not to go bankrupt, not to disburse money
it did not have to its bond holders, and to get a substantial infusion of new
cash using a new type of financing through the Municipal Assistance
Corporation (MAC). Bottom line, New York City probably did have a future,
there was cash in the overall economic system, and what was needed was a
way to bridge the gulf without anyone losing and everyone a potential winner.
World Bank for Public Finance
The World Bank should be one of the key intermediaries, but it
should be a builder of financial stability for the “south” rather than
being a huge and amorphous programming monster that does
thousands of things, and hardly any of them well.
(See Box) World Bank for Public Finance
The World Bank was meant to be one of these key intermediaries, but it has
really failed. The World Bank can be, once again, an important and effective
part of a high performance relief and development sector.
Wall Street is already comfortable financing the World Bank, but the World
Bank has disbursed the monies raised in ways that have resulted in value
destruction in the beneficiary countries, and too much debt that is highly
onerous for the beneficiary societies. The reasons for this have been already
discussed at some length in earlier chapters.
But the World Bank is an ideal intermediary for the rebuilding of the “Public
Finance” sector of the “south”. This is one of the areas where World Bank
scale is appropriate.
In some ways this is what Structural Adjustment should have been able to do,
but never did. But a World Bank program that funds the “Public Finance”
sector and insists on just three basic things:
- (1) excellence in accounting and financial reporting;
- (2) management information about socio-economic progress; and,
- (3) a high standard of fiscal responsibility.
Mutual Funds for Socio-Economic Investment
The financing of socio-economic progress in the “south” should be as
broad and diverse as the mutual fund industry. This industry was very
small 50 years ago, but now is a big part of the securities industry.
The history of the investment clubs that expanded and morphed into
the Unit Trust and Mutual Funds with professional management
might soon be repeated, but this time the focus of investment or
philanthropy being socio-economic performance rather than stock
prices and profits. (See Box)
Investment Clubs
I was introduced to investment clubs in the early 1960s in the UK. They were
an interesting idea imported from the USA and a way for ordinary people to
learn about the stock market. I ran a small investment club, and also did the
accounting for one of the largest investment clubs in the country. This
subsequently became one of the first Unit Trusts in the UK, a financial
vehicle somewhat similar to a Mutual Fund in the USA.
The Unit Trust and the Mutual Fund industry has had its fair share of scandals
and inappropriate behavior over the years and has become quite highly
regulated. But the underlying idea of the institutional structure is interesting
and valuable.
The same sort of idea is emerging around the USA today, where people are
having small group meetings to choose ways to do “philanthropy” and to
make a real difference.
Mobilizing Money
Investment clubs in the 1950s and 1960s expanded to be the Unit
Trust and Mutual Fund movements. The clubs that are organizing
today to talk about and support philanthropic causes should be
encouraged to grow and perhaps morph into Social Investment Funds
to support high performance community level activities. In order for
this to happen, there needs to be not only the ability to transact an
investment, but also the ability to get good reliable information easily.
There also needs to be a growing range of alternative social
investment funds so that people have choice and can also diversify
their activities and their risks.
There are a lot of things that need to be done in the “social” sectors of
the “south”. Most social sector funding should come from the local
economy, but this is not practical at the present time. Accordingly
there needs to be fundable programs that address social needs. One
such program is being developed to address the malaria crisis in the
“south”, mainly in Africa. This program will make it possible to
provide all the support needed to implement an integrated mosquito
and malaria control (IMMC) program in Africa. The program is being
organized by The IMMC Consortium which brings together world
class experienced malariologists. The program can be paid for either
by local communities, the local government, funding organizations
like the Global Fund for AIDS, Malaria and Tuberculosis (GFATM)
or philanthropic foundations, or by corporate investors. The IMMC
program has two main dimensions:
- (1) information and analysis; and
- (2) multiple area programs.
Funding Raising
Funding raising is a critical component of the modern relief and
development sector, but it really needs reform. Developing countries
have a huge need for capital investment for development, but they
have no access to capital markets, other than through ineffective
intermediaries that includes the World Bank and the IMF.
The availability of capital in the world's capital markets, and in
various philanthropic funds has recently reached record levels. But
these funds are not available for relief and development investment
where it is most needed. What is needed is a new class of
intermediary organizations that make it possible for low cost funds to
be mobilized at low risk for the lending institution and be available
for investment in community projects at a higher risk and at a higher
price. The selection of community projects should be done not using
“north” type MBA analysis based on number crunching spreadsheets,
but using analysis that links the investment to community needs and
the value to the community of making the investment. This is the
same value logic to be found in an MBA's spreadsheet except that the
entity is the community and its people, rather than a simple legally
constituted corporate organization.
////////////////////////////////////////////////////////////////
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.
SECTION 2
A Way Forward.
Evolutionary Solutions
Unlocking Latent Potential. Optimizing What
There Is.
Starting point. Small steps. There is no one best way. [Box: Getting
good results when there is chaos]. Process. [Box: Water skiing ...
Book-Management-Information-for-Relief-and-Development-060906a.odt Page 85
Printed on 11/29/15 at 11:34:26 PM
skiing moguls]. Planning. Organize. Implement. Measurement.
Feedback. Adjustment. Who does all of this? How does this get
coordinated? Do the most with the least. Do the most with what is
available. [Box: Making the most of what you have]. [Box:
Performance]. [Box: The thermodynamic idea of efficiency].[Box:
Organizational differences].
Organization: Management Information,
Planning and Process
Organization. Management Information. Information. Documenting
success. Coherent framework of analysis. Balance Sheet. Resources.
Constraints. Statistics. Measuring efficiency. Fund raising
information. Walking, not just talking. [Box: ActionAid and my own
experience]. Managing information for effectiveness and security.
Characteristics of good management information. Metrics for
community progress. [Box: Okehamption, my home town]. Keeping
score. Cost accounting. [Box: Cost analysis as foundation for
strategic decisions]. Standard costing. Budget and cost control. [Box:
Cost analysis and cost control] Management by Objective (MBO).
Change. Explaining organizational performance. Ignorance had
consequences. [Box: Bad costing in heavy engineering in the UK].
[Box: Bad costing in a foundry in the USA]. You don't know what
you don't know. [Box: Doing the most with the least]. Accounting
and accountability. Value adding or value destruction. Value chain.
Data architecture. Easily accessible from anywhere. Management
reports. Transparency. Transparency and accountability. Oversight.
Community based metrics. [Box: Community metrics]. Planning and
Process. Linkages. People, organization and money. [Box: Rebuilding
Europe after World War II]. Too much planning, not enough
organization. Removing constraints. [Box: Removing constraints].
Monitoring and evaluation. Resources. People. Organization.
Infrastructure. Natural resources. Machinery and equipment. Working
capital. Knowledge. Money. Constraints. Creating value from natural
resources. Who makes decisions/ Make knowledge a key driver.
Make community the focus of development. Jobs. Ownership.
Deploying best practices. Ethical standards. Standards for workplace
safety. [Box: Workplace safety]. Organizing in the face of poor
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infrastructure. [Box: The Challenge of Infrastructure]. Creating trust.
Oversight.
Money
Money, catalyst for performance. Money, the root of all evil. Building
trust. Engaging the world's financial leaders. [Box: When New York
was in financial trouble]. World Bank for public finance. [Box: World
Bank for public finance]. Mutual funds for socio-economic
investment. [Box: Investment Clubs]. Mobilizing money.
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