Deloitte - Learning Tip of the Month

Keep up-to-date on issues of interest to public sector financial managers. New on the fmi*igf website are short articles written for you by Deloitte Canada, one of Canada’s leading accounting-consulting-audit firms.

Date	Author	Subject	Join the Blog!
March 16, 2010	Jonathan Hopkins, Sr. Manager, Consulting, Deloitte Canada	Living within our means – Pragmatic solutions for governments in deficit
April 21, 2010	Andy Potter, Sr. Manager, Deloitte Canada	Beyond Shared Services in Government

---

These are challenging times for governments at all levels.  While public sector leaders are always working within limited budgets, the current economic situation is placing extraordinary pressure on government finances.  Left with massive deficits due to stimulus spending and weakened tax revenue, governments require pragmatic solutions to improve their cost structure.

Consider the numbers. According to government estimates, the federal and provincial governments are projecting a combined $90.1 billion budget deficit for 2009-10, the equivalent of $2,690 for every Canadian.

Why do governments need to act? The budget problem facing many governments is structural in nature and won’t be fully addressed by an economic recovery.

Where should governments start? Governments have been in deficit before but the depth of the recession, the fragility of the recovery, and the need for continued infrastructure spending puts governments in a difficult position, and creates conditions unlike those of recent recessions.

Traditional tools such as public service hiring freezes and wage freezes are available, but true structural change requires a more thoughtful approach. Consider the following four opportunities to manage within a deficit:

1. Review lost revenues to determine the root cause for the loss.
2. Identify and eliminate programs that are no longer relevant.
3. Explore how resources are expended on activities within the organization.
4. Examine the strategic value of assets.

During these tough economic times, governments have a responsibility to recalibrate their spending and revenues – this is what it will take to live within our means.

Submitted by: Jonathan Hopkins, a senior manager with Deloitte’s strategy and operations practice.

	Join the Blog!		Living within our means

---

With large deficits and constrained budgets, public sector leaders are now being mandated to reduce costs while maintaining strategic investments in core services. Historically, back-office improvements across government have primarily centered on technology enablement and government-wide transactional shared services with limited focus on business services (e.g., Finance, Procurement, HR, etc.) at the department level.  Over time, the delivery of business services in departments has become extremely fragmented across program areas with duplication and/ or redundancy relative to centrally delivered department business services.

A recent Deloitte study identified that by enhancing and redesigning the business services function within departments can result in a 15% - 45% cost reduction.  An optimal model involves enhanced business partnering with program areas, increased centralization of transactional activities and standardization of common processes. Other more business specific and strategic activities can, and need to, remain within program areas. Up to 25% of cost reduction can be achieved by harmonizing processes and consolidating functions into Centers of Excellence (COE) at the departmental level.  In addition to the monetary benefits, major improvements in both quality and timeliness can be realized making the delivery of business services more value-add for program areas.

There are four steps to realizing these benefits:

1. Realignment – Reallocate business services, creating a CoE whereby common transactional and strategic enterprise functions are centralized.
   
2. Process Standardization and Harmonization – Standardize and better automate business service related processes to realize synergies and efficiencies.
   
3. Role and Resource Reassignment – Realign roles and resources around the new delivery model.
   
4. Capability Development – Shift from value preservation to value creation, whereby business services is focused on helping to drive decision making across the organization while still maintaining effective stewardship.

By focusing on these four elements government line departments will be able to streamline their cost base in a manner that is flexible and sustainable while simultaneously managing finances effectively, planning for the future and maintaining accountability and control.

Submitted by: Andy Potter, Senior Manager, Deloitte Canada.

	Join the Blog!		Beyond Shared Services in Government

---