2004-2005 Support Budget Strategy Overview & Proposals

1. 2004-2005 Support Budget Strategy & related proposals An Overview Informal Executive Board Discussions 29 August 2003

2. Session objectives • Developing the 2004-2005 support budget strategy • UNDP funding and related challenges • The rationale for a real growth budget and elements of the 2004-2005 budget strategy • The 2004-2005 support budget proposals

3. Developing the 2004-2005 support budget strategy

4. Corporate vision Critical path in Developing the Budget Strategy • Key influencing factors • UN reform & UNDP role • MDGs • Changing needs of programme countries • Growing role in crisis prevention & recovery • Funding environment for ODA • Business model • UN Coordination • Advisory Services • Development Services • Operational Services • Change requirements • UN development leadership: reform • Knowledge based values • Responsiveness • Results-orientation • People capacity Priorities Change levers Structure Strategic Funding Key recommendations UNDP’s limited base of total resources

5. UNDP 2004-2005 budget strategy: Key Principles • A multi-funded UNDP – revised cost recovery policies – addressing Partnership capacity & support to MDG outreach, & Resource Mobilization • Maximizing available resources – through efficiency & re-prioritization • Presenting a real growth budget – imperative for sustainability • Rationalizing UNDP costs between programme & overhead Funding • Preserving UNDP’s universality of presence – alternative approaches to country presence – recognizing UN-DP roles as intrinsic to one another • Determining a base structure for country offices and Headquarters (fixed vs. variable costs) – as well as cost effective and efficient processes (ERP) Structure • UNDP leadership in UN reform • Ongoing strengthening of UNDP’s “people capacity” as well as Knowledge Based capacities • UNDP’s ability to be more responsive to changing demands from programme countries, including the increasing UNDP role in the area of crisis prevention & recovery • Embedding results & performance measures as key factors for success Strategic

6. MYFF 2004-2007 The overall context Vision & priorities Management Results Framework Strategic Results Framework Resources: 2004/5 & 2006/7 Biennial support budgets (structure) & 2004/7 Programming arrangements (programmes)

7. UNDP funding and related challenges

8. A multi-funded UNDP: Biennia 1992-1993 to 2002-2003with estimates for 2004-2005 Local Resources: Govt. cost sharing Donor Resources: Trust Funds & 3rd Party cost sharing Donor Resources: Regular Voluntary Contr.

9. UN DEVELOPMENT COORDINATION: RC SUPPORT DEVELOPMENT SERVICES (PROGRAMME MANAGEMENT) KNOWLEDGE ADVISORY SERVICES Funding UNDP’s Business Model & its sustainability UNDP has moved from principally a “funding entity” to an “advisory and capacity development entity” A multi-funded UNDP: Regular versus Other resources Programme versus Overhead costs OPERATIONAL SERVICES Implications?

10. A Multi-funded Approach To Funding UNDP Operations • A base structure covering core functions for UNDP country offices and headquarters funded from regular resources – recognizing UNDP’s core mandates • Attain equity between regular and other resources in funding capacity over the base (fixed versus variable costs) • Rationalizing costs between the programme and support budgets based on UNDP’s Business: what are intrinsically programme or overhead costs?

11. Proposed Cost Recovery policy • Two categories of services: General management services (GMS) relates to the general oversight and management functions of UNDP HQ and CO units; and, Implementation support services( ISS) relates to direct or in-direct transactional services provided mostly by Country Offices in the implementation of programmes and projects. Overall approach is consistent with latest JIU recommendations on extra-budgetary activities; • Base structure approach for COs & HQ: Requires equity between the regular & other resource contributions to cover the variable support budget costs of COs & HQ based on programme volume; and, • All funding sources; to progressively contribute to UNDP’s variable cost (above base structure) proportionately – by levying a fee and charging all implementation costs to projects (guidelines to be provided to COs). Proposed rates are as follows: • Trust Funds and Third-Party Cost-Sharing: GMS fee would be usually fall in the 5-7% range. Based on estimated workload a higher percentage fee could be negotiated; and, • Programme Country Cost-Sharing: GMS fee would be usually in the range of 2.5-3% in addition to the related interest generated from programme balances. Based on estimated workload a higher percentage fee would be negotiated.

12. Rationalizing costs between the programme and support budgets The strategy is to consult with ACABQ and the Executive Board in an overall review of UNDP costs and related funding modalities, with the objective that the next support budget for 2006-2007 reflects the new approach. This review will encompass the following: • Clarifying what are activities directed towards clients (Programme costs) versus activities directed towards the organization (administrative or overhead costs); • Ensuring that the overall budgeting methodology reflects the current business model; and, • Reaching an agreement with the ACABQ & EB on costs definitions and classification, including relevant funding sources.

13. The rationale for a real growth budget and elements of the 2004-2005 budget strategy

14. Regular Support Budget Post reductions - Biennia 1990/1991 through 2002/2003: International & National Professionals, & Support staff HEADQUARTERS COUNTRY OFFICES

15. Cost increases will enable UNDP sustain its current structure (level of cost increases attributed to currency, inflation, salary increases, etc.) Volume increases relate to specific strategic investments that are crucial for UNDP under its current reform process UNDP needs a period of consolidation so as not to jeopardize its reform process Needs to be viewed in context of consecutive budget reductions since 1992-1993 amounting to $203 million Further reductions will have considerable implications on country office & headquarters capacities – which are already stretched Ongoing operational reforms will continue to ensure UNDP viability & sustainability (ERP will play a key role) RATIONALE FOR A REAL GROWTH BUDGET

16. Elements of the 2004-2005 budget strategy Improving efficiency, performance & results • Improving client service & productivity through ERP and business re-engineering • Establishing regional support facilities to enhance country office capacities, while further decentralizing headquarters support functions • Improving people management • Enhancing oversight, accountability & results based management/budgeting Deepening partnerships within the UN system and beyond • Strengthening the Resident Coordinator role in building partnerships around the MDGs • Implementing the simplification and harmonization agenda & other UN reform initiatives to enhance the collective impact of the UN system at the country level • Strengthening the core capacity of UNDP’s crisis prevention and recovery function Strengthening knowledge and learning • Enhancing participation of staff in practices • Increasing training & learning • Upgrading ICT for knowledge management

17. Introduction of a Base structure: Country Office sustainability • Towards preserving UN-DP’s universality (fixed element): • A common “base structure” to cover core functions in all LICs/MICs where UNDP has an office – funded from the Regular Resources support budget; • Regular Resources only pays for the RC/RR when UNDP has a presence in an NCC based on a viable programme. • Augmenting the basic structure (variable element): • Methodology for augmenting the base capacity from the Regular support budget: TRAC size, multi-country office, complexity, etc; • Relevant services related to Other Resources activities are funded through cost recovery – fee basis or as direct project inputs – depending on the specific activities; • Addressing the funding of UNDP substantive capacities from the programme. • Other implications for UNDP’s structure at the field level: • Piloting Regional Service Center Initiatives along the lines of the SURFs.

18. Typologies of Country Offices and Base Structure Four Typologies of Country Offices • RR offices (6 countries): 1 IP + 2 NOs + 3 GS • RR/RC offices (100 countries): I P + 3 NOs + 4 GS • RR/RC/HC (21 countries): 2 IP+ 3 NOs+ 4 GS • NCCs (9 countries): 1 IP + 0 NO + 0 GS

19. Introduction of a Base structure: Headquarters sustainability • A basic structure for Headquarters Units (fixed element): • A “base structure” for covering the core corporate responsibilities of each headquarters unit – funded from the Regular Resources support budget • With considerable downsizing of headquarters over 5 biennia, the current structure under the regular support budget, will constitute the base structure • Augmenting the basic structure (variable element for supporting other resource activities): • Relevant services related to Other Resources activities are funded through cost recovery • Addressing the funding of UNDP substantive capacities from the programme • Other implications for UNDP’s structure at headquarters: • Specific activities requiring sustained funding or strengthening: Crisis Prevention & Recovery, Resource Mobilization & Partnerships capacity and support to MDG outreach activities

20. 2004-2005 support budget proposals

21. Summary of Net Adjustments in determining the 2004-2005 biennial support budget level (in millions of US dollars)

22. ESTIMATED TOTAL 2004-2005 UNDP RESOURCES (net $5 896.3) (Millions of US$, Percentages) Programme Support & Management & Administration 11% Programmes & Support to the Operational activities of the UN 89%

23. ESTIMATED TOTAL 2004-2005 DONOR RESOURCES (net $3 945.9m)(Percentages) Programme Support & Management & Administration 15% Programmes & Support to the Operational activities of the UN 85%

24. Discussions