The chapter describes the management dimension of implementation. A
good plan helps, but the management of implementation is far more
important for success.
Activities ... Process
Systems approach
The chapter describes the essentials of the process ... a systems approach:
- Plan: Use available information and knowledge to determine priority needs and figure out the best way to satisfy these needs based on available people and resources.
- Organize: Get the resources lined up to do the work. Organize is not just in terms of human resources, but in terms of all resources including the mobilization of financial and other material resources.
- Implement: Do the work. Generate the benefits. Pay the bills. Do the accounting.
- Measure: Measure what was used and what was done and what was accomplished. Measure so that excellence can be seen and used to attract more resources.
- Feedback: Use the measurements. Figure out how to do better.
What went wrong? What went right? Get the information to decision makers that can change performance.
A systems approach built on top of a community centric mindset can deliver a
dynamic process with multiple parallel tracks all progressing to success in the
best possible way. It is not one single dumbing down of a process to one average
for the whole world that makes no practical sense for anyone. It is process built
on engineering and accounting rather than policy and economics. It is a process
that respects individuals and family and community, and tries to make
community better, one community at a time, but bringing to bear everything
that might be helpful.
About Implementation
The implementation model that is needed is not the usual one, but one where ALL the citizenry can be engaged, see results and GET durable benefits.
The American opportunity model
In most regards, the American economy is the most productive in all of
history mainly because it is built on the idea that ordinary people are
able to work productively and benefit from their own efforts and the
efforts of the whole of the society.
The American economy could be better ... but it has more great stories
about rags to riches than anywhere else.
The quality of life all over the world would be substantially better if the
opportunity model for economic development was universal, rather than
being limited to just a very small proportion of the world's population.
The challenge is to find a way to have all the population engaged in a process
that delivers socio-economic progress and development. It can be done, but it
requires a rather different mindset than is commonplace in the present national
and international leadership, and among the experts of the military and the
relief and development sector.
Problems with process
How the process for development over the past forty years has ended up
as development failure. How is it that economic value destruction has
become the prevailing development process. How is it that development
interventions and investment have removed wealth from developing
countries rather than creating wealth in these countries. Why did the
“project” form of organization come to dominate ORDA interventions.
What is wrong with the conventional ways for implementing relief and
development. Why is it that there has been more economic value
destruction than value adding? Why is so much of the poor world in
catastrophic shortage in a world that has potential for surplus in almost
everything? Relief and development has been anti-developmental. How
can the process process be made to work for people and be done by people
and deliver on sustainable development and improved quality of life.
How can process must make best use of available resources. How can
economic value adding help create development success out of
everything that is done.
Enabling environment
Iraq has potential to be a good business environment
The private sector needs to be the driving force behind success of the Iraq
economy and peace. This is probably a widely held belief in the business
community in Iraq.
Though the oil industry is big in Iraq, and generates huge fund flows for the
country and the government, the climate for business investment is not good
because of the government's instability and widespread insecurity.
The legal structure and the rules and regulations could be improved, and the
rule of law is subject to a constitution that is a long way from being finalized.
Foreign business people want clear and favorable rules and regulations, and
want to be sure about the way they are enforced.
And even though the law, policies, rules and regulations may be written to
encourage trade and investment, it is also important that the operating systems
and processes at the bureaucratic level also function to encourage trade and
investment.
Trade and investment promotion for the area should be initiated in neighboring
countries as well as in other key centers around the world.
Improve infrastructure and services
Sustained expansion of trade and investment requires that telephone, fax and
Internet communications are improved. They need to be efficient and available
at internationally acceptable prices.
In addition the transport services need to be efficient both in terms of frequency,
reliability and cost. Logistics today has become one of the most important
components of competitive advantage.
Institutional constraints
Often good people are beaten by bad systems and bad processes and
ineffective organizations. Institutional constraints are normal, but can
be resolved with new organizations and competitive pressure. Large
scale World Bank, UN and donor initiatives need to be scaled down and
replaced with a new organizational structures. Instead of approaching
development by reaching down from Washington of London or Paris,
start by working up from the community wherever it is. Instead of
putting more and more resources at the disposal of governments, put
more in the hands of people, and families and communities.
--------------------------- // ---------------------------
Economic Linkages and Surplus Production
I wrote the following section almost twenty years ago. It was written in South
Sudan at a time when I was working with drought and famine and civil war and
refugees mainly in Africa, and also working on industrial development in
several oil rich countries.
Economic linkages (from 1987)
The importance of economic linkages in the success of economic
development has received growing attention during the past several
years. The dynamic mechanism of economic development that was the
subject of intense study by economists during the Great Depression in
the industrialized countries of the world during the 1930's has
continuing relevance to the process of development in LDC's .
It became clear in the analysis of economic growth and study of the
business cycle that there was a very complex set of linkages between all
the different components of the economy. Keynes, among other eminent
economists, taught that the level of savings and investment in an
economy were critical in determining the rate of economic growth, and
indeed, that if the level of savings and investment was inadequate there
would be negative growth.
The aggregate level of savings and investment in most LDC's is very
low and it is not surprising from a macro-economic perspective that the
LDC's have failed to achieve a satisfactory level of self-sustaining
economic growth.
However, it is also clear that making broad generalizations about
economic behavior and economic linkages is not very helpful,
particularly when there are substantial differences in the economic
structures of the society.
Some of the features of the dynamic logic of development are
fundamental to economic analysis. The economic behavior and the
productive performance of the individual is the most important building
block for economic analysis. Economic planning which focuses on the
individual and programs on this basis has a greater potential for success
than any other planning process.
This human approach to development justifies social service investment
such as health and education as developmental priorities. Better health is
justified not only on humanistic grounds but also because healthy people
can be more productive people. Better education is justified because
educated students can grow up to be more productive adults.
But healthy educated adults can only realize their economic value if the
environment permits them to exploit their potential. Unless there are
suitable linkages from health and education into productive economic
activities, the economic value of the healthy educated adult cannot be
realized.
Productive economic activities are surplus producing activities. In most
LDC economies there are many work activities that take a lot of time
and effort, but produce output at a very low rate. For many people the
aggregate output from their time and effort is less than the basic
requirements for survival. With economic activity of this type, the
economy has no potential to create surplus and become a wealthier
economy. There are lots of examples:
- Collecting water (walking, headloads)
- Collecting firewood (walking, headloads)
- Urban commuting to work (many miles on foot)
- Going to school (many miles on foot)
- Taking goods to market (headload)
- Building wells (hand digging)
- Tilling the land (manual work)
- Cutting grass (manual work)
- etc.
Surplus production (from 1987)
This section was also written almost twenty years ago and reflects my
realization that the economics I had learned and experienced most of my life had
been in a “surplus” setting. And that most development was being done in a
“shortage” setting with rather different economic behaviors..
Economic results are the sum of all the activities in the economy. Even if
there are activities which produce surplus, the economy as a whole may
not be surplus producing if the unproductive activities of the economy
consume the surplus. A subsistence economy has very little surplus to
support the 'overhead' costs associated with a modern economy, and
the productive enterprises of the modern economy have difficulty being
profitable and surplus producing because demand in the economy is too
small. The generation of a net surplus, an important precondition for
self-sustaining economic growth, cannot take place in countries where
subsistence activities make up a large part of the economy.
There is a problem with migration from rural to urban communities.
Efforts to create better rural subsistence agriculture is doomed to
failure. This has been the thrust of World Bank and government in
many countries. The solution is to do something high profit in rural
areas and make the rural community more attractive economically.
If the dynamic mechanism of development is clearly understood, it is
possible to plan developmental investment in a way that helps to
increase the surplus generating capabilities of the people, and reduce the
overhead costs in the economy associated with making this surplus
generation possible. Investments that make a direct contribution to the
ability of people to be surplus producing are very important.
One of the reasons why UNHCR emergency funding for refugee
emergencies can have an important positive impact on an economy is
that the focus of the spending is directly on people, and the specific needs
of the people to survive. Because the objective is clearly defined and the
immediate needs are easy to identify, UNHCR is able to focus its efforts
on satisfying the needs in the most economic and efficient way.
The results of UNHCR's efforts vary widely from place to place, mainly
a result of the underlying economic realities of the place. If there are
viable economic opportunities, UNHCR can help refugees take
advantage of the opportunities in a realistic and timely manner. In due
course, the economic condition of the refugees improves and the cost of
UNHCR support is reduced. If the economic situation is technically
impossible, no amount of UNHCR assistance will enable the refugee
economy to become viable. Agriculture depends on fertile land, sunshine
and rain, and if these are not present, agriculture cannot be viable.
In some situations, the buying power of UNHCR's refugee related
programmes can be used as an important stimulant to economic activity
in the region as a whole. An influx of refugees creates an important
demand for, for example, building materials, when shelter is being
constructed. If UNHCR purchases these building materials for use by
the refugees, the local community can generate cash income, which in
turn can be used to stimulate demand for other products and services in
the rural economy.
The basic issues have not changed. The basic mechanisms for success in
development have not changed. But sadly the failure of development is also
continuing. The organizational issues that constrain development are still the
same, maybe worse.
The way forward starts with the basic position that socioeconomic progress in
Africa is a failure. This is not a question of an 80% grade versus a 90% grade. It is
bad failure with all that that means.
This is because the importance of the process of implementing change
has not been well understood or adequately addressed.
Development is about people.
In fact everything is about people, but other things get in the way.
People, as part of their nature tend to get “organized” in some form or another.
The family is the most primary of nature's organization of people. It works and
has been the center of human society for all of history.
And people organize a lot of other ways. There are organizations to transact
business, there are organizations related to religion and there are organizations
related to community. Organizations can be very formal, or work in an ad-hoc
fashion. The organization can be highly structured or just some sort of network
or be essentially a virtual entity. But organization is a part of the way people
function.
For development to be successful it has to be for the people. And it is likely to be
supported if development is also by the people.
Process
The process that works for relief and development where there are huge
opportunities and limited resources is one where there is: (1) getting facts; (2)
planning; (3) mobilizing resource; (4) activities; (5) measurement; (6) feedback;
and, (7) improved activities.
None of this can be done efficiently unless there is a management function ...
and management information for decision making.
Implementation is not ... or should not be ... limited or constrained by the
implementation structure, but is constrained by resources and by people, their
knowledge, their initiative and their culture.
Structure
Structure can be anything
There is no need to have structure ... at any rate not a formal structure. What is
needed is anything that can function to take resources and use them so that the
results are of value to the community. The activities are valuable and value
creating when the resources used have less value than the results being
achieved.
Structure can be informal. Formal organizations are not a requirement ... what is
needed is getting results and getting socio-economic value created. All sorts of
organizations can provide the structure, including private organizations, faith
based organizations and not-for-profit organizations.
Informal initiative and formal entities
The structure for implementation needs to take into consideration the enormous
value of informal initiatives and not focus only on formal entities. The structure
should make it possible for good informal activities to expand and replicate, and
not be a constraint on their success. Formal entities should be assisted, but only
to the extent that they are doing things of value.
Projects
Projects are widely used to implement relief and development activities ... and
there is no reason why the project framework should not be used to handle the
administration of resources including the approval, control and disbursement of
funds. But a project should not be used to “push” activities into the community,
but to help the community get activities it wants and needs into the community.
The project should get its priorities by listening to the community and learning
from the community about the priorities and what would really be helpful in the
community.
Oversight ... accountability to the public
There needs to be a well recognized structure, process or system to ensure that
there is oversight and accountability to the public. Many different groups should
be doing oversight including (1) the community itself; (2) the central governing
authorities; (3) the funding organizations; and, (4) representatives of the public.
Oversight should not be onerous and should not “get in the way” of success, but
it should be clear that oversight that turns up unsatisfactory performance will
attract consequences.
Oversight helps to make activities more effective ... people do better work when
there is someone paying attention. And oversight helps to get feedback about
help and improvement needed. Oversight also helps to get the information that
is needed so that the public can be informed.
Reaching the community
The community is the primary place for implementation. There are all sorts of
community organizations that make a community what it is. All of these
organizations should be assisted in appropriate ways to improve the socioeconomic condition of the community. Within a community there are some
organizations that benefit because, for example, something is built, and other
organizations that benefit because they are doing the building. The catalyst for
both of these benefits is money that is being deployed to facilitate the
development process.
A typical example of this might be a hospital that is being upgraded in some
way, and a local contractor that is being paid to do the work.
Getting the Facts
Getting the facts ... getting reliable facts
Facts ought to be easy to access, but in general there is very little baseline fact
that can be used without considerable effort. Effort is needed to compile data so
that that can be used for analysis and planning ... and care has to be taken that
the data are not compromised because of misinformation and spin.
Some facts ... not all the facts
Some facts are needed in order to start anything, but all the facts are not needed.
At the outset, enough facts are needed so that a strong strategic plan can be
formulated ... something being done in part in the writing of this book. There are
some facts known that have enabled this book to be written, and perhaps serve
as part of a strategic blueprint.
More information would enable a strategic plan to be improved ... and corrected
where it has major flaws. But the value of more information is to start to get
action plans formulated where activities can be implemented that will deliver
value to people and communities around the country.
More information about more things
Information has costs, and more information should be about more things rather
than being merely more information about something where there is already
adequate information.
I consider I have enough information to write this book at this level of strategic
abstraction ... but I do not have enough information to do a good plan for any
community in Iraq ... or any specific organization in Iraq. Getting this
information in a systematic manner is something that will facilitate success ...
trying to operate with inadequate information makes socio-economic progress
much more difficult.
Planning a Strategy
Planning with a lighter touch
Planning is needed, but it needs to be something that facilitates and improves
rather than being a part of a process that ends up being simply authoritarian.
Planning needs to have a strategic component so that the overall concept for
progress is articulated. Arguably this should be done at a national level, but it
should be done with a light touch, and not have a strong hierarchical element.
Rather it should serve more to guide than anything else, and be a framework to
help move things in a progressive direction.
More than anything else ... the American way
The purpose of planning at a strategic level is simply to get implementation on
the right track ... and to get something moving that might be successful.
The American Way
Soon after I first crossed the Atlantic from the UK to the USA in the
1960s I realized that Americans optimized their business and economic
activities far more rapidly than was the norm in Europe. The Americans
did the least amount of planning before they built something and made
money with it. Of course, in the 1960s Europe had embraced planning
almost as much as the Soviets, and was moving rapidly towards
economic stagnation and inflation (stagflation) and was losing wealth
rapidly.
But for me the lesson was clear. It was doing something that mattered ...
you plan simply so that you can do something, and do it now. If it works
the plan was good, and you do more of it. If not ... fix it and try again.
For decades this strategy worked very well for Americans and gave the
Americans a dominant position in a lot of industries.
Eventually some other countries understood, and for some years now
others are now doing this better than the Americans.
In the context of Iraq, the aim of the exercise is to get people in Iraq to do things
that are going to be of value to them as individuals, as families and as
communities. The goal is to help this to happen as quickly as possible and with
the minimum of death and disruption.
Planning ... how this is to be done
The planning that is needed more than anything else is actually how to enable
others to do it all ... without too many false starts and failures.
How does one structure something so that the structure does not get in the way
but simply facilitates someone making a success?
And at the same time, how does one use money as a catalyst, as a major
resource, and concurrently maintain a high level of accountability?
None of these questions are easy to answer, but in practice they have been
answered many times over by successful corporate executives over the years.
High performance corporations have figured out how to get people throughout
the organization to make good decisions with rather little interference from the
top, and they have a system of management information so that when things are
going well, the top has no need to interfere and get in the way.
This is not a result of democratic process ... but it is how management has
evolved so as to use economic resources efficiently. More management
information flows in this management environment in one day than flows in a
typical government setup in years. Something like this needs to guide the use of
resources in the context of rebuilding Iraq and moving Iraq forward to a
prosperous and peaceful future.
Planning Activities
Distributed planning
The aim is to have socio-economic development initiatives that are the main
priorities of each community. Part of planning process at the community level is
to encourage leaders of the community to articulate what they would like if
there were no constraints. This can be pulled together into some form of
community master plan. It does not have to be perfect, but it should give a
strong sense of the direction the community wants to go.
After local authorities and traditional leaders have determined priorities, rapid
plans need to be made about how this can be done and what resources are
needed. This should be done as fast as possible, but no faster than a pace that
suits the community. Getting local community consensus about development
investment priority might well have a bigger impact on peace and security than
any number of tanks and soldiers with guns.
How is something going to be done should be answered locally, and constraints
identified. It is easy if everything is available except money, but usually there
will be any number of other constraints that need to be addressed. Mainly these
constraints need to be solved at the local level with local people ... and as needed
with interaction with people in the Iraq system of governance and control.
The process is important as well as the outcome ...
And the plans must ensure that there is an adequate level of transparency and
accountability so that the results of the socio-economic development
interventions are on the record and accessible to the public stakeholders.
Mobilizing Resources
Getting funds for priority activities
In most circumstances, getting funds for priority activities is not at all easy. All
the donors have their own processes for project planning, appraisal, approval,
implementation, reporting and evaluation. From the beneficiary country's
perspective each donor has a very different procedure. A single beneficiary
country has to follow the procedures of each and every one of the donors in
order to get assistance, and the result is very unsatisfactory.
My Experience as Acting Aid Coordinator
I was called in to help with aid coordination in Namibia soon after its
Independence. A UN pledging conference attracted more than $700
million in pledges, but converting pledges into useful development
assistance was a big challenge. Every single donor had a unique set of
procedures ... and priorities ... and understanding of what they had
pledged. The process was totally determined by the donors and totally
ignored all of the beneficiary country's priorities, planning and its
financial control processes.
To add insult to injury, the issues of currency and language had to be
taken into consideration ... and when it came time to report on project
performance ... each country had its own way of requiring the reports.
Looked at from the point of view of the beneficiary country ... a chaotic
mess.
In addition to the problem or procedure there are people problems and politics. Most
funding is controlled in ways that rarely have much to do with using the funds
in the best possible way for the public and society at large, but more to do with a
narrow agenda that gives benefit to decision makers and their cronies.
The public knows a lot about where they would like resources to go, but the
process of getting available resources in the right place is much more based on
politics and personal power than equity and performance. While there are a lot of fund
flows that ought to be going to the best possible activities for socio-economic
progress, virtually nobody knows what these might be ... a lack good of
information and a preponderance of misinformation, some of it approaching the
level of fraud.
The unusual situation in Iraq
Far more than usual there is the opportunity now to get available resources in
the right place in Iraq. At high levels, resources are available ... the challenge is
simply to make it possible for these resources to get to places where the
resources can be used in a valuable manner.
One has to expect a lot of powerful organizations to try to maintain a
dysfunctional status quo so that the “leaks” in the fund flows can be exploited to
their advantage ... that is, business as usual. This is not what should be allowed
to happen.
Structure for Managing
Management structure
Management cannot happen in a vacuum and it needs people. Management is a
key component of success ... it helps turn resources and energy, that is people
energy, into valuable results.
My View of Management
I think of management like being the driver of a fast car ... perhaps a
Ferrari. All the performance is built into the car, but it still needs the
driver to get that power and performance going in the right direction
and doing it safely.
The activities that deliver socio-economic progress do not happen in a vacuum
either ... they deliver in a community. The role of management is to help,
through oversight to ensure that everything stays on track and through
accounting to ensure that resources are used in appropriate ways.
Caveat
Management is not merely getting studies made and having meetings and
workshops. Management is an integral component of the implementation
process that helps get implementation to be cost effective and valuable.
Local experts and consultants
Local experts and consultants are the best people to be involved in the
management functions. The cost of international experts and consultants is not
at all justified unless there are very difficult situations that need experience over
and beyond what is available locally.
Information should be easy and drive decisions
Getting information ought to be easy, but it is not. The management information
needed is just not easily accessible, even if it exists at all. There needs to be an
information structure so that information is easily accessible. There are many
problems that need to be addressed, including: (1) the academic practice of
being secretive about the data; (2) the basic lack of relevant data collection,
especially simple, basic accounting information; (3) the practice of doing very
small samples and using statistical method for analysis; (4) the lack of any
systemic framework for logical storage of data in the public domain and easy
access to this information.
Nothing here is new
There is nothing being suggested here that is new. The need for better
management of the relief and development process has been on the agenda for a
long time. What might be new is that in this strategy there is an integrated
process from the bottom of the pyramid to the top ... comprising activities that
are value producing in the community with a management structure and
information that helps ensure resources are used to the best effect, and be
supplemented with additional resources as needed.
Mobilizing Data ... Getting Started
Getting data should be easy
Getting data should be easy, but it usually is not. Most of the data that are
compiled are not easily accessible, and to the extent that they are accessible are
not in a form that is easy to use and suited to rapid management analysis.
Data for management information
The best data for management information are easy, quick and cheap ... and of
course relevant to the activities. If the data are not easy to obtain, they are
unlikely to be quick and cheap. Data that are not quick are often of little value
when they become available. And if data are too costly, then the advantage of
the data is diminished. But when there are data that are easy, quick, cheap and
relevant ... management can function, and performance can be optimized.
Getting the Easy Data
My work in the international relief and development sector has always
been driven by data, and I have always been working with very limited
time. The way I was able to operate more effectively than many was by
making the most possible use of what I referred to as “easy data”. Rather
than me developing an optimum dataset to be requested from
respondents, I collected such data that were already available in the area
of interest.
Frequently there was no data available in the format of the optimum
dataset, but there were huge amounts of data in some other format ...
sometimes already containing a lot of additional data that would be of
additional interest, though not directly needed for the initial data
analysis.
Working with a focus on the “easy data” cut data collection time down
significantly and improved respondent willingness to be involved at the
same time. Win ... win.
Organizing the data
Organizing the data and cleaning the data are always required, and not easy to
do unless people have some understanding of the analysis that is to be done.
The use of simple software like a spreadsheet or a simple database table can be
of enormous value ... but it requires an understanding of the data and an
understanding of how the software can handle the data in a logical manner.
With data understanding a lot of data can be organized and cleaned rapidly, and
then it can be used for analysis.
Validating the data
Using invalid data is going to make any analysis useless. Data that are not
validated in an appropriate way should be avoided ... but the validation used
throughout the relief and development arena is almost universally very weak.
If data that are used one time are validated well, it is very costly ... but data that
are used many times can be validated and the cost spread over many uses. In
addition multiple use of data results in bad data starting to surface as sources of
inexplicable results. These data can then be corrected ... or the system that
produced the bad data can be corrected.
Use of data tends to result in improved data ... and multiple use of data gives
ongoing improvement of data until the data are very reliable.
Unwillingness to share data
Unwillingness to share data is very common ... in fact just about universal. The
good news is that there is enough information already in the public domain that
a lot of analysis can be done that suggests a result ... without being able to show
the results are conclusively reliable. The analysis can be shown to be without
foundation IF A FULL dataset is used for the analysis ... but without the full
dataset the results are the best available. Now the onus is on the organization
that possesses the data to make a determination about whether to be cooperative
or not.
Analysis does not have to be all logic ... some of it can reasonably be common
sense. Common sense is still a good way of “connecting the dots”.
Planning ... As a Management Function
Not Gosplan ... something different
Planning in the context of a community focus on development and socioeconomic progress is not as much about planning, but setting the stage so that
the appropriate planning is done.
This is an interesting challenge since leadership in a lot of communities does not
have academic training in planning ... though they may well have a lot of
knowledge and local respect.
Above all else, the aim is to have positive socio-economic progress with the least
of collateral tension.
Planning with a community focus
Planning at the community level can be very effective. The phrase “the devil is
in the detail” is the truth, and planning that is done without a good
understanding of the implementing location has a lot of the critical detail
missing.
A community focus results in a very different dynamic for development than
what has prevailed in the past. When planning is community centric, the
priorities are much more likely to be of socio-economic value to the community.
Plans that originate in the community have the possibility of “ownership” by the
community, and there is a strong correlation between what is priority and what
is done. Plans with community focus can be simple and understandable, and at
the same time can be totally suitable for the community. Small is efficient and
allows for the optimization of plans within a community without the
compromise inherent in super-scale projects intended to satisfy everyone, and
ending up satisfying no-one.
Components of planning
The components of planning are the same wherever they are used: (1) Get facts;
(2) Analyze and optimize; (3) Organize; (4) Implement; (5) Measure; (6)
Feedback; and, (7) Analyze and adjust.
But in the context of distributed responsibility for the performance of the
economy and socio-economic progress, then the role of management is more to
ensure that appropriate planning is being done than actually doing it.
Coordination, optimization, assistance
Coordination may be a good way to think of the management role with respect
to distributed planning. In other cases it might be optimization that needs to be
improved ... in my experience people in remote communities know what they
want to do, but wider experience would suggest that there are actually much
better ways to do things. Maybe some assistance would be helpful in order to
achieve some reasonable progress in the community.
Maybe the assistance, more than anything else is helping to get the funding and
the resources needed in a timely way.
Accounts ... Accounting
Good accounts ... strong accounting
Basic good accounts based on old fashioned bookkeeping can make a huge
difference to the way in which fund flows are accounted for, and the ability of
society to have an improved level of accountability.
Accounts ... old fashioned bookkeeping ... is not a highly intellectual activity.
Rather it is basic and boring, and puts absolutely every financial transaction on
the record, and in a way that is logical and easy to understand. The basic system
of double entry bookkeeping helps to make accounts 100% accurate. When the
books are balanced and all the transactions are recorded, the accuracy of the
accounting is likely to be good. When this is coupled with other fairly simple
controls and reconciliations, then the accuracy can be even better than just
good ... very good.
Accounting for implementation activities
Accounting is part of implementation. It should be an integral part of the
implementation process, and not an add-on or after-thought. Accounting is the
most basic management tool and one of the most powerful. All the
implementation activities are expected to keep a record of expenditures and
progress and implement quality bookkeeping procedures. They are expected to
provide clear, complete and timely financial reports in an appropriate format.
Control of money
One of the primary jobs that accounting should be doing is to keep control of the
money. All the money that is received should be put on the record and included
in the accounts. All the money that is disbursed should be put on the record and
included in the accounts. The difference between what is received and what is
paid out is the increment or decrement in the cash balance ... and the cash
balance can be counted and verified at any point in time. No money transaction
should be missing from the accounts ... NONE.
Control of inventory
A similar mindset is needed for inventory. Inventory can be stolen and sold for
money, and the money can be used for whatever. Good control of inventory is
required to stop this behavior. Inventory accounting requires a lot of discipline,
but is a critical part of any system of resource control, and is missing in many
large governmental systems.
Inventory accounting has the same basic “in-out-balance” logic that is
everywhere in accounting. And the balance can be checked by a physical count
at any time.
All receipts of items should be recorded (ins) ... all use or shipment of items
should be recorded (outs) ... and the balance calculated. This is a lot of detail
work because it has to be done for each inventory item, and there may be many
thousands of them. This used to be done successfully in big companies in the
days when all accounting was done manually in pen and ink on paper in the
“books of account” ... and there is no reason that it cannot be done today either
manually or using computer electronic data processing (EDP).
There is also no reason why computerized accounts should not be very
accurate ... with errors and sloppiness not tolerated.
Control of all the other assets ... and liabilities
Accounting provides ways to put on the record all the assets of an organization,
and to account for them in the reports, and to provide ways to keep track of
assets over time. This is very easy to do using the tools of accountancy, but sadly
is not done very well most of the time by public entities and government
accountants, in part because the government accountants are trained in
government accounting that is a cash based system, rather than an accrual
system.
Under cash based systems there is no integral control of assets ... either
inventory or fixed assets ... and it is easy to ignore them and lose control.
Oftentimes this is politically convenient ... though an outrageous tactic.
Under cash based systems there is also no integrated control of liabilities. Under
a cash based government accounting system the receipt of moneys is a good
event, and it is not required that there is a corresponding addition to liabilities
when the receipt is associated with borrowing and the creation of a debt. In part
this made the build up of global government debt easy ... and ignored until it
reached crisis levels.
There is considerable confusion in Iraq today about the state of the government
accounts and the assets and liabilities of government. With a cash based system
of accounting it is likely that the amount of debt will be determined more based
on politics than on accounting ... which is highly undesirable, but very common.
Internal control ... internal check
Good accounting always has an adequate amount of internal control and
internal check. I think of the former as a systemic way of making sure that the
data are being handled correctly, and the latter as a specific check to see that a
statistically significant number of random checks shows that the transactions are
being handled correctly. There is room for slight difference in the way these
definitions are phrased ... but there is no room for having accounting
information that is anything but absolutely correct.
Budget ... Budgeting
Good management tool
The budget is a powerful management tool when it is used by good people with
operational understanding.
In its essence, a budget is a financial representation of an operational reality. It is
used to show how much something is going to cost, and the way the money is
going to be spent. In a corporate budget, a link is made between costs and
revenues so that profit performance, cash flow and a balance sheet can be
projected. In a government budget the amount of money to be spent is usually
linked rather weakly with the activities that are expected and the value of
results anticipated.
In my version of good budgeting there is a projection of costs, a projection of
activities and how each of these will cost, and information about the results to be
achieved and what value these have. These are the data needed for good
decision making, and for holding people responsible for decisions and
implementation performance.
Authority to spend
Much too often a budget is considered nothing more than a license to spend.
This has its origins in the government concept that the budget law and budget
resolutions are the authority for government departments to disburse
government funds ... something that is very important, but it does not, in my
view, give the departments license to waste money.
Budget more of a benchmark
In most cases where there is no statutory requirement for the budget process, I
see the budget as a management tool, where it is a financial representation of
what is expected and a framework for the limit for expenditure. The budget then
serves as a benchmark against which performance can be measured. I look to see
performance that is better than in the budget, in other words, I look for more
output from the expenditure of the funds than was anticipated in the budget
planning exercise.
Measurement of Performance
Basics
Performance can be measured in many ways. In anything involving economic
activities money is usually part of the performance metric.
Cost, price and value is one key set of data. With this information is easy to
identify whether or not something is value adding and worth doing or not.
Performance should be measured “relative to what?”. Some of the possibilities
are: (1) compared to a prior period or previous performance; (2) compared to a
different place or a different organization; (3) compared to the best ever; (4)
compared to the plan or to the budget; and so on. Comparison gives perspective
to the measurement.
Some measurements are useful without any reference to a money unit. Fuel
consumption can be measured in miles per gallon, and this gives a better
measure of engine performance than when the measure is converted to cents per
miles which will vary whenever the price of fuel changes.
The idea of profit in a corporate business organization is common. Its equivalent
in the not for profit organization should be value adding associated with any
activity and the organization as a whole, but this is rarely computed. Most not
for profit accounting systems are not set up with this sort of analysis in mind.
Early rapid measurement of progress
Early and rapid measurement of progress results in early rectification of
problems. Problems fall into different classes, those resulting from bad plans,
those that reflect a need for some technical support intervention, and those that
reflect bad implementation performance and bad implementation management.
Early measurement of progress permits intervention in a timely manner to
eliminate problems that have been identified.
Benchmarks
Benchmarks can be used as part of the management process to measure progress
towards visions that have been identified. The goals of a plan can be expressed
in terms of socio-economic benchmarks that can be measured in some way. The
corporate world uses a variety of benchmarks to control performance and get
improved results. Again, the benchmark process does not substitute for hard
decisions and the reality of costs and values.
Monitoring and Evaluation
Beyond traditional monitoring and evaluation
The traditional process of monitoring and evaluation is very labor intensive and
expensive. Rather than having a good management system with information
that covers 100% of all activities, traditional monitoring and evaluation is a
process that usually only covers a very small proportion of all the activities, in
many situations under 5% of the fund flows, and is done usually at the end of
activities.
Rather, there should be management information that covers 100% of all
activities, and based on desk review of this material, a sample of these activities
will be the subject of further analysis and assessment. This might be considered
to be monitoring and evaluation, but it is fundamentally different since it is
triggered by a mechanism that is designed by management to get the most cost
effective incremental value into the oversight function.
Oversight
A critical way of maintaining performance
Oversight is an essential part of the management structure. When oversight is
missing, anything goes. With oversight, the organization is motivated to
maintain an acceptable level of performance.
Oversight need not be expensive in order to be effective. People in the
organization need to be paying attention and seeing enough so that if something
is going wrong, then there can be action to fix the problem.
Enough Rope
When I have been designing organizational structures the idea of
oversight has always been a part of the structure. The goal has been to
do oversight in a way that enables people who know what they are doing
to do what they have to do in the best possible way, and at the same time
to have enough control so that in the event that something bad happens,
the unit does not hang itself and drag down the rest of the organization
as well. In other words, enough rope to give reasonable freedom, but not enough to hang yourself.
Oversight does not need to be formal, but it does need to exist. It is part of the
feedback that any system needs in order to be stable and efficient.
In part, it is possible to exercise oversight through the management information
system and the reports that are flowing through the structure ... but reports that
are never checked are worthless, so some physical oversight is a needed
supplement to just desk review.
Good oversight is also timely ... and it can also be really valuable.
The Horse Has Gone
There is no point in doing oversight and reporting back that the horse
has gone ... it is better to do the work in time so that the feedback is to fix
the barn before the horse gets out.
A stitch in time saves nine.
Transparency
The prevalence of secrecy
There are some things that should, arguably, be private and be secret. But most
of the things that have an impact on society should be open and be available to
an interested public.
When there is secrecy, the natural oversight that the public provides is missing.
This should not be a problem, but, in fact, it usually is. When there is no chance
that others will see “behavior”, it is a fact of the human condition that anything
goes. Greed and self-gratification are powerful drivers of decision making ... and
possible without limit when there is secrecy.
Transparency ... accounting to society
In much of global society, a culture of secrecy that has emerged allows a lot of
economic and political power to become highly concentrated without being very
much accountable to anyone. This is absolutely wrong, especially when
economic power has an impact on the public. There should be enough openness
or transparency to ensure that the abuse of the public by the activities of the
powerful is kept in check.
I argue that when any individual or organization is rich enough or powerful
enough to have an impact on society as a whole, then it should be obligatory for
that person or organization to do accounting to the society. I argue that where an
organization is using public funds, then there should be accounting to society as
well as to the source of funds and the intended beneficiaries.
The privacy of accounting
In the United States, a CPA is a Certified Public Accountant, but the accounting
and audit that is done by CPAs is essentially the private accounting and audit
within an organization rather than something for the “public”. The accounting
in the corporate world is to inform the owners, the primary stakeholder is the
stockholder. In the relief and development arena the accounting is primarily
fund accounting that does little more than keep track of the way the funds are
accounted for inside the organization, and do next to nothing to inform the
public about anything, and especially about performance and the efficient use of
resources.
Accountability
Accountability to whom?
Accountability is normal in any well running organization. It is an imperative
for good performance.
The concept of accountability is very basic. If the results are not good ... then the
reason should be understood, and the organizations and individuals concerned
should be held to account. What this also means is that there should be
consequences.
If there is failure to achieve something of value, and the reason for failure is
reasonable, that is OK ... once, maybe twice. But after that failure is
incompetence or worse and changes should be made.
Internal accountability
Most organizations have internal accountability. It may not be very rigorous, but
in general there is measurement, there is feedback and analysis, and there are
consequences.
External accountability
In the for profit corporate world there is external accountability to the
stockholders, or the owners, but rather little accountability to the public at large
and to society. Whether or not there is any public good from corporate profit is
of little consequence, unless there are legal issues that arise.
In most cases the law is not strong in respect of the public good ... probably
wisely, but it still leaves an important open question about the accountability of
an organization with respect to public good. One way forward is for an
organization to be sufficiently transparent and reporting in a complete manner
so that judgments can be made by the public about the performance of the
organization with respect to public good. This is an accelerating trend for major
corporations, though the value of this is still not proven, in part because there is
only relatively small interest in getting analysis done that serves the needs of the
public for this information.
In the case of organizations and activities that use public funds, there is a
legitimate need for the public to be able to understand the performance of the
organization with respect to the use of these resources. This ought to be a
requirement that goes far beyond the periodic and rather infrequent inquiry of
an Inspector General's department in the government or legislative oversight
and committee hearings.
Human Resources
People are central to everything
People make the difference between things that work and things that don't.
People need a reasonable organizational and societal framework, and can
achieve all sorts of amazing things if they want to.
Management is, in part, making sure that everyone has the right incentives and
therefore wants to do things of value. Sadly, a lot of the biggest incentives are
fundamentally wrong, and a great temptation for anyone ... this is the root cause
of corruption. The incentive and the reward are huge, and in our modern global
system, it is rather rare for the rich and powerful to be held to account.
People can be of tremendous value in getting peace to win out over violence. I
know of no good people who would prefer a violent solution when a peaceful
solution is possible. But I fully understand good people being violent when
there is little or no hope for a reasonable solution to a problem and the rich and
powerful refuse to pay any attention.
I am also aware of how many good ordinary people are prepared to take risks
and put themselves in harms way because it will do some good, and some
people will be helped. Many of the UN staff are like this, and many of the staff
of the NGOs that are working in different parts of the world.
People need opportunity ... and people need to be able to satisfy the needs of
their families. Good work, and being able to pay the family bills needs to be
combined, because there is a need in a lot of places for good work to be done,
and for bad works to be ended.
Audit
Overview
There are many variants of audit. Audit is very valuable when used in the right
place and for the right reason. There are, inter alia: (1) internal audits; (2)
external audits; and, (3) audit investigations.
An audit is absolutely no substitute for good accounting and any of the other
components of a management system. Too often, non-financial executives seem
to think that by having an audit on top of bad accounting, that an accounting
problem will be solved and an issue will go away. It rarely happens that way.
An audit, more than anything else is to confirm that reports generated from an
accounting system reflect the accounts, and that the accounts have been
completed correctly. An audit corrects nothing.
If there is an accounting problem, there needs to be some analysis of the
problem and solutions applied in the accounting area. This is accounting, and it
might also be systems work ... but it is not audit work.
Internal audit
Internal audit helps internally to ensure that the accounting system is working
right. An internal audit can result in the external audit being a lot less costly, as
well as having value in the organization in its own right.
Independent certification
An audit that provides an independent certification has important value in the
corporate world. Not only is the independent professional audit certification
required by law, but it confers reliability on the financial reports and makes
analysis of these reports credible as well. This has big implications in the capital
markets.
There is no equivalent analysis function in the not-for-profit area, though some
small steps have been made. There are some organizations that do analysis
using the financial reporting required by the Internal Revenue Service (IRS) in
the USA but this is very limited in scope and quite inadequate to get an
understanding of the underlying performance of the organization and the
organization's activities.
Process
It is process that makes progress possible. It is process that takes assesses
needs and opportunities, mobilizes resources, allocates them to value
adding development activities, uses them effectively and provides an
accounting and feedback of performance. The elements all fit together as
a coherent whole, and build on the success in economic and social
progress that countries in the NORTH now take for granted.
The reform of process is nothing earth shattering. Everything that needs to be
done has already been done, though not with the same goals
The process is a simple five step process:
- Plan
- Organize
- Implement
- Measure
- Feedback
This is a very different process from the process in general use at the present
time. Even though the steps may have the same label, the work being done at
each step is different. In this process, maybe as much as 90% of the effort and the
resources are at the “implement” stage with just 10% of the effort and the
resources for planning, organizing, measuring and feedback.
Plan
I get the impression that there have been several generations of students of
development who have been taught that it is better to plan than not to plan.
Planning is not easy, and planning is not useful unless it is done well. And
planning is a complete waste of resources when there is no follow up and no
implementation. Planning without implementation is a fraud in development,
and far too prevalent.
But good planning, that is based on practical feedback is valuable. Planning to
improve performance is worth while Planning to avoid problems is valuable.
There is a big role for planning, but only within a complete process.
Planning is needed so that good priorities can be identified and steps taken so
that resources are accessible
And planning is needed so that all projects have an economic value adding
characteristic. This is absolutely vital for success in development. Economic
value adding is not a complex idea. All it means is that the value realized is
higher than the efforts and the resources that were used.
In this context it is useful to understand the difference between cost and
price and value. Cost is the effort and the resources used to make the
product or provide the service. Price is the amount paid to transfer the
product or service from the provider to the client. And value is the
amount the client considers the value to be. An economy works when
value is higher than price and price is higher than cost.
Planning should also focus on finding ways for an economy to be “surplus
producing”. What this means is that the economy is productive enough so that
the effort and the resources used generate enough production so that after what
is needed for current use still leaves a surplus for the future or for current trade.
Organize
Planning is analytical and to some extent academic. Organizing takes an
intellectual exercise and converts it into people and resources and structure.
When plans have been subject to organization they are ready to implement.
Implement
This is the key. Almost all the resources should be used in implementation. As a
goal, about 90% of all effort and resources should be used in the implementation
phase. 90% may well be more than twice or even three times more than is the
norm in modern development projects.
Good implementation usually has its own inbuilt process to manage performance.
I learned about this initially in control engineering. I worked on
“automatic gage control” for high speed hot strip mills. The aim was a
uniform thickness of steel coming out of the mill. Yet all the input
parameters were continuously changing, and the mill had to be adjusted
on the fly very quickly to produce the uniform output. To do this. there
was an almost instantaneous feedback of gage error so that production
parameters could be changed.
So later, when I learned something about management accounting and started to
work in the corporate world, the idea that there would be feedback once a
month was not an earth shattering idea. I thought it was OK for oversight, but I
never thought it was good enough for operational performance.
Clearly in “development” the management issues and the processes to manage
performance leave a lot to be desired.
Measure
Measurement can be anything that is useful. I am an accountant and I like to
express measurement information in terms of financial numbers. But in almost
all the work I have done in corporate management there was always key
operating information that was relevant to the activities going on. The best
measurements are usually developed when financial numbers are combined
with key operating numbers. Usually high performance is when big results are
associated with low costs. It is usually not rocket science to do the accounting
and the operating measurements.
Feedback
Feedback is the first stage of planning. The purpose of feedback is to improve
planning, and improve performance. Analysis is a waste of time unless there is a
mechanism that allows the results of the analysis to get used in a useful way.
Measurement, feedback, planning and organization are all support elements to
efficient implementation performance. Measurement has no value unless there
is some way to use it to improve planning and organizing to affect performance.
Project Management
Early in my career I worked for H. A. Simons, a Canadian firm of consulting
engineers that designed and managed the construction of pulp and paper mills. I recall doing some cost analysis work on a project in Texas where the general contractors were Brown and Root . It was early on in the project. Only about 2% of the money had been spent. But my analysis work showed that only about 1% of the work had been done. The planning had been done well.
We were well organized, and our team was good at its job. But my work showed that our contractors were overspending by around 100%. Not a bad strategy in a cost plus contract if you can get away with it. discussed my analysis with my boss who in turn shared the analysis with his counterpart at Brown and Root. These discussions took place on a Friday, and by Monday the labor force had been reduced by 50% from what it had been the week before. When the project was completed, the cost was within 2% of the original budget ... and excellent outcome during a period when annual inflation was around 7%.
This little example shows the power of feedback, and the importance of
feedback design. Feedback needs to be early enough to take effective corrective
action. Feedback needs to get to people who make decisions.
>>>>>>>>>>>>>>>
More resources are needed to make development successful, but more
important is that resources should be used to best effect. This is why information
is critical and needs to be an integral part of success in development.
My background as a student engineer who had to study engineering
thermodynamics has been very helpful in understanding process. I also
did work early in my career on engineering control theory. I have never
been able to understand how people expect any process to function
successfully without measurement and feedback.
With information and management it is possible for development resources to
be mobilized and deployed in new ways. Banking and financial institutions
MUST be risk averse and without information there can be no financial
mobilization from commercial sources, except essentially on terms that preclude
success in development. On the other hand, with information all the financial
resources of the world become available for good development initiatives.
Banks, financial institutions and capital markets lend to the World Bank (WB)
and to other Regional Development Banks (RDBs) who on-lend into
development. And these institutions also lend into “sovereign” entities. But this
lending is only “good” because it transfers risk from the lender to the borrower.
In terms of development performance, the WB and the RDBs may or may not
on-lend to “good” development, but from the original lender's perspective it
does not matter. After decades of using this resource flow paradigm, the global
debt crisis is out of hand. It is a systemic problem. But it can be changed with
better information.
With information, the financial resources of the NORTH can be mobilized for
the benefit of all. Better returns for the NORTH investor and better quality of life
for the communities of the SOUTH. A lot is possible. With information, a whole
range of investment vehicles can be developed to suit the investors, to suit the
SOUTH and the build sustainable socio-economic progress. With information
international investment in the SOUTH and risk free return can be substantially
higher than this investment can earn with the limited opportunities in the well
developed NORTH.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
This is because the importance of the process of implementing change has not
been well understood or adequately addressed.
Economic value adding
The SOUTH will succeed when its resources are committed to economic value
adding activities.
In the corporate world economic value adding results in a more valuable
company. Corporate stakeholders want the company to operate to increase
economic value within the corporate entity. Value adding is something more
than profit, but profit is a big part of value adding in the corporate setting.
In development, economic value adding has some of the same elements.
The concept of economic value adding is not new. Some of the technical jargon
may be a little different today than in the past, but there is essentially the same
dynamic. Economic value adding is a simple way to express development
progress. Just as profit is a basic concept in the corporate world that reflects
corporate performance
What is a profit?
Back in the early 1960s when I was training to be a Chartered Accountant, Sir Henry Benson (later Lord Benson), the Senior Partner at Coopers and Lybrand in London was asked in a British Court of Law to define profit. His short and brilliant reply was “My Lord, the profit is the difference between two balance sheets”
This is a beautifully elegant definition that seems sadly out of place in the
modern accounting world where profit really does not have very much meaning
any more because balance sheets no longer have much meaning. But the
concept is absolutely right.
An Example of ValueAdd
Value adding takes place when a company like Sony takes $7 of corporate costs (labor, material and overhead) to make a product that sells for $25 at wholesale ($50 retail) and the end consumer or user thinks that they have $100 of value. This is what happened at the start of the Walkman craze several years ago.
And in development “economic value adding” takes place where one set of
resources get converted into resources of a higher value. And “economic value
destruction” takes place when the value of the output is lower than the value of
the resources put in.
These concepts are articulated very well in engineering
thermodynamics. Development economics has a lot of the same
characteristics
Economic value adding is taking place in a community when the people and the
resources available to the community generate a surplus over and beyond what
the community consumes and what is needed to replenish the local resources.
The concept is very simple.
But economic value destruction is more common in development. Economic
value destruction comes in many forms.
And while there is a need for the flow of resources to be from the NORTH to the
SOUTH (as we shall see later) development is going to work when this flow of
resources produces “value” for the people of both the SOUTH and the NORTH.
Up to now, most development has been done on the basis that someone gets and
someone gives. The thinking is zero-sum thinking. And it is entirely reasonable
to ask why one should give and get nothing in return. And it is demeaning to
have to be given and have nothing to repay the generosity.
As far as I am concerned, the idea of creating resource flows as a form of
“reparations” for ancient wrongs, or even quite recent wrongs is not helpful.
While it is very valuable to have an understanding of the wrongs of history and
to learn from them, anything that strengthens old rivalries and past tensions
should be avoided. The focus should be on doing what is best for today and the
future.
In terms of “economic value adding” we know that $50 in the right place in a
developing country in the SOUTH is very valuable and will serve to improve
the quality of life of a family enormously. We also know that $50 deducted from
the wealth of many, if not most families in the NORTH, will be hardly
noticeable. The simple process of moving $50 from the NORTH to the SOUTH
increases global economic value. This is a value adding event and the process is
a first step away from zero-sum thinking.
But go a little further. The benefit in the family in the SOUTH is very obvious.
For a family that works from dawn to dusk seven days a week for a full year and
earns less than a $1 a day is going to be much better off with the extra $50. But
maybe there is some real benefit that the NORTH family can derive from the $50
they are sending SOUTH. If the process of sending $50 SOUTH is part of some
organized effort that has a community and social dimension, then the $50 not
only does some good in the SOUTH but also has a “social value” in the ones
own circle of friends. Getting to feel good has “value” and it makes a lot of sense
to feel good when doing good.
But can we go further with the idea of economic value adding, and go beyond a
value chain where the SOUTH has real tangible economic value added and the
NORTH has exchanged its tangible economic value for just “feel good” value.
And we can.
Instead of $50, we will work with $1,000. Someone or some organization in the
NORTH puts up $1000. So instead of the money going to a family that will have
an incremental $50, the money is loaned to a business that now has an
incremental $1,000. This money can be of enormous value to a small business in
the SOUTH. Small business is terribly constrained by a shortage of working
capital and by very expensive local financial services, or effectively non-existent
financial services. Small business stays small because it usually does not have
the financial and material resources to grow. This is not unique to the SOUTH.
But it is worse for small business in the SOUTH than it is in the NORTH. A lot
worse. So a $1,000 loan to a small business can be expected to create economic
value adding of maybe as much as $1,000 in maybe as little as six months, or
even 3 months, but certainly not more than 12 months.
This is serious economic value adding. This is a return on incremental capital
employed of 100%, or 200% or even 400%. So now the loan can be repaid, and
interest or profit sharing can be done.
So the person or organization that put up the money is now able to get paid
back, and get some return on the money. In value adding terms this is a win for
everyone. For the SOUTH business there is high economic value adding, and an
ability to use the money to create money and then pay the money back with a
good return to the lender. For the NORTH lender there is added value in terms
of the return that is earned. And in addition the “feel good” aspect of socially
responsible investment. This is win win. This is truly sustainable development.
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