Performance Budgeting in the Government of Canada

1. Performance Budgeting in the Government of Canada Presented to: The Asian Regional Seminar: Promoting Fiscal Sustainability Date: February 28th – March 2nd, 2011, Kuala Lumpur, Malaysia Presented By: Bruce Stacey, Associate Chief of Defence Transformation Department of National Defence

2. Outline • Canadian Context • Foundation • New Expenditure Management System • Strategic Review Process • National Defence an Example • Lessons Learned

3. Federal Expenditures Overview 2009-2010 Total Expenditures $235.8 B (Fiscal Year 2009-2010) Major and Other Transfer Payments $104.3 B Direct Program Spending $99.6B Source: Main Estimates – Part I 2009-2010

4. A common approach to the collection, management, and reporting of performance information is key … • Management, Resources and Results Structure Policy (2005) • Provides detailed information on all government programs • Establishes the same structure for both internal decision-making and external accountability • Helps to link resources and results -- planned and actual • Is being implemented across government

5. The Program Activity Architecture Policy requirements for Strategic Outcomes incl: Performance Measures Strategic Outcome* Accountability levels to Parliament (Estimates & Public Accounts) *require TB approval, incl. major & minor changes Policy requirements for each program activity element include: Program title & description Expected results Performance measures Planned & actual spending Target & actual results Governance Program Activities* Departmental PAA: reflect the inventory of all the programs of a department depicted in their logical relationship to each other and to the SO(s) to which they contribute **require TBS approval Sub-Activity Level** Sub-Sub Activity Level** Lowest Level programs

6. The New Expenditure Management System • All spending must be managed to transparent results/outcomes • Clear measures • Assessed and evaluated systematically and regularly • Demonstrating value for money • Up-front discipline is applied to new spending proposals to manage spending growth • Include clear measures of success • Demonstrate how the proposal fits with existing spending and results • Provide reallocation options for funding • Strategic Reviewsassess existing spending over a four-year cycle to ensure alignment with priorities, and effectiveness, efficiency and economy • Programs expected to demonstrate results in support of priorities • Decision-making to use objective, evidence-based information

7. Strategic Reviews – Key Elements Objective of Strategic Reviews: Assess all direct program spending and performance over a 4 year period to ensure value for money for existing spending Comprehensive Review of Programs Strategic Reviews assess whether programs are aligned with government priorities, are effective and efficient and provide value for money Reallocation and Reinvestment Proposals Through the comprehensive review of programs, organizations identify the lowest priority and lowest-performing 5 per cent of programs (reallocations) and propose higher-priority, higher performing programs for reinvestment: High-Priority Low-Priority Low-Performing High-Performing Potential for Improvements/ reinvestments Potential for Reinvestment 100% Organizational Review Base Primary Candidate for Reallocation Secondary Candidate for Reallocation

8. The Bottom Line Re-invested in other higher Dept / CF priority activities or initiatives (internal) ? Re-allocated to other Govt priorities activities or initiatives (external) Invest $ Capital 5 % Govt decision will be based almost entirely on the scope / scale of the review we conduct and the storyline we tell needs to be isolated and removed from our baseline and “parked” to be either… O & M Personnel Grants Baseline 2010

9. Strategic Reviews – Scope and Key Elements Departmental Strategic Reviews to answer specific questions in key areas: • Government Priority, Federal Role, Relevance (i.e. continued prog. need) • Performance (effectiveness, efficiency, value for money) • Management Performance Departmental Strategic Reviews to be conducted using the following key elements • Analytical Framework: The department’s Program Activity Architecture • Information Sources: Evaluations, Audits, Management Accountability Framework assessments, Auditor General Reports, and other reports • Reporting Requirements: Outlined in the Terms of Reference • Steering Committee: A departmental steering committee to be established with ex officio membership from TBS • External Advice: Expert outside advice to be involved on each Review to ensure neutrality and credibility

10. National Defence’s Component Definition ITEMS TO BE OUTPUT OUTCOME THROUGHPUTS DEFINED & JUSTIFIED TARGETS TARGETS INPUT OUTPUT OUTCOME 1 . Outcome Targets Activity 2 . Output Targets Component INPUT 3 . Outcomes Achieved OUTPUT OUTCOME 4 . Outputs Achieved OUTCOME 5 . Enabling Inputs 6 . Throughputs OUTCOME 7 . Role / Requirements Role or Requirement Specifications T T U U P P N N I I Enabling Inputs ENABLING ( Role filling Resources ) INPUTS

11. The Assessment

12. Initial Analysis Analysis A : Sub - Sub - Activity Partitioning & Assessment Define Take assignedPAA activities Identify 1 2 3 Components Components Primary International INPUT INPUT INPUT INPUT Req Req Req Req P P P P OUTPUT OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME OUTCOME Req Req Req Req Component 1 Activity Activity Activity Activity INPUT F F F F Req P OUTPUT OUTCOME Req Secondary International Activity Component Component Component Component F INPUT INPUT INPUT Req Req Req INPUT INPUT INPUT INPUT P P P Req Req Req Req OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME P P P P Req Req Req Activity Activity Activity Component OUTPUT OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME OUTCOME INPUT INPUT INPUT INPUT F F F Req Req Req Req Req Req Req Req INPUT P P P P Req F F F F OUTPUT OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME OUTCOME P Req Req Req Req Land Activity Activity Activity Activity OUTPUT OUTCOME Component 2 Component Component Component Req Domestic & Standing F F F F INPUT INPUT INPUT INPUT INPUT INPUT INPUT F Req Req Req Req Req Req Req P P P P P P P OUTPUT OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME OUTCOME P P P P OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME Req Req Req Req Component Component Component Component Activity Activity Activity Activity Req Req Req q q q q q q q q OUTCOME OUTCOME OUTCOME OUTCOME Req Req Req Req F F F F INPUT INPUT INPUT INPUT Req Req Req Req e e e e e e e e F F F F F F F P P P P R R R R R R R R P OUTPUT OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME OUTCOME Req Req Req Req q q OUTCOME Component Component Component Component Req e e F F F F F INPUT INPUT INPUT INPUT Req Req Req Req R R Readiness Component 3 P P P Land Training P P P P P P P P OUTPUT OUTPUT OUTPUT OUTPUT OUTCOME OUTCOME OUTCOME OUTCOME q q q q q q OUTCOME OUTCOME OUTCOME OUTCOME OUTCOME OUTCOME OUTCOME Req Req Req Req Req Req Req Req Req Req Req e e e e e e F F F F F F F F F F F R R R R R R P P P P P T T T T T T T T q q q q q q q q OUTCOME OUTCOME OUTCOME OUTCOME OUTCOME Req Req Req Req Req e e e e e e e e U U U U U U U U F F F F F R R R R R R R R T T P P P P P P P P P P P P P P P Role Role Role Role / / / / Req Req Req Req OUTCOME OUTCOME OUTCOME OUTCOME OUTCOME OUTCOME OUTCOME q q q q q q q q Req Req Req U Land Inf & Base Spt U Req Req Req Req N N N N N N N N e e e e e e e e F F F F F F F Component 4 P P R R R R P P P P T T T T T T R R R R Role / Req I I I I Spec Spec Spec Spec s s s s I I I I OUTCOME OUTCOME OUTCOME OUTCOME Req Req Req Req U U U U U U N N F F F F Sustain Land Forces I T T T T I T T T T P P P P P P P P P P Spec Role Role Role s / / / Req Req Req OUTCOME OUTCOME OUTCOME OUTCOME U U U U U U U U Req Req Req Req N N N N N N ENABLING ENABLING ENABLING ENABLING F F F F Land Eqt Maintenance P P P P T T T T P P P P T T T T I I I I I I Spec Spec Spec s s s Role Role Role Role / / / / Req Req Req Req N N N N N N N N U U U U ENABLING U U U U Component 5 INPUTS INPUTS INPUTS INPUTS P P P P I I I I I I I I P P P P Spec Spec Spec Spec s s s s Role Role Role Role / / / / Req Req Req Req ENABLING ENABLING ENABLING N N N N INPUTS N N N N I I I I Land C2 I I I I Spec Spec Spec Spec s s s s INPUTS INPUTS INPUTS ENABLING ENABLING ENABLING ENABLING ENABLING ENABLING ENABLING ENABLING INPUTS INPUTS INPUTS INPUTS INPUTS INPUTS INPUTS INPUTS Comprehensive Evaluation Prioritize Components 5 Analyse Components 4 Recommended Prioritization & Q & A Text Template $ to Component Recommendation of bottom 10 % Component X Attributions

13. Program Activity Component X (compared to all DND/CF)

14. What lessons have we learned (#1)? Need persistent effort to build capacity - will take time Political leadership Have a plan but experiment and adapt: • Central agency leadership • Know program base • Identify measures and collect the data • Evaluation capacity means investment • Use the information for decision-making in the department • Use the same information to improve reporting Linking performance information to reporting was helpful – but linking it to decision-making in the budget process has been critical Don’t wait for perfection

15. What are the lessons learned (#2)? This is cultural change: expect resistance - go for small wins - communicate - acknowledge risks - adapt - build trust Rewards and sanctions are important - gaming Put elected and non-elected officials on the same information base: Make it relevant for decision-making Better management and fiscal results Sound understanding of the business Ministerial engagement important Have realistic expectations - under promise, over deliver 21

16. Questions