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 socioeconomic 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?”. There must be comparison. 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 meaning 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.
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
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.
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