Danish Performance and Results System: Achieving Efficiency and Accountability

1. Presentation to SBO Network on Performance and Results 2-3 May 2006 Danish experiences with Performance and Results Rikke Ginnerup, Ministry of Finance &Niels Refslund, Agency for Governmental Management

2. Agenda • Brief background • Outline of the Danish performance system • Efficiency Strategies and Performance Contracts • Reporting on performance information (Annual Reports) • Accrual Accounting and Budgeting Reform • Performance information in the budget • Key challenges

3. Background • 1980’s: Budget reform and introduction of framework budgeting • 1990’s: Introduction of performance contracts • After a 10-year period a number of weaknesses were identified: • Too many targets and objectives, few measurable • Targets directed internally at the organization • Targets and objectives were not prioritized • Lack of linkage between directors contracts and performance contracts

4. Introduction of Efficiency Strategies in 2003 • Mandatory policies in the efficiency strategies: • Performance management • Clear targets for citizens oriented services • Contracting out • Procurement • Voluntary: • Mission and vision • Organisation and structure • Key areas of action

5. New outline of performance contracts • Focus on outputs and outcomes (external targets and objectives) • Merging performance contracts with director contracts • A limited number of output targets (5-10) but many measures • Analysis of the ”hierarchy of tasks and activities” as a condition • Focus on distribution of costs (ABC) • Review of targets and objectives in yearly reports

6. Hierarchy of tasks and activities Outcomes ”Results” Outputs Tasks Activities Resources ”Processes” Funds

7. Performance contractsAn example of a hierarchy of tasks and activities Sustainable agriculture Outcome Research Payment of grants Advise Output Task Financial support to ecological agriculture - Management Administration Activity Cleaning Personel Material Resources Money Appropriations Fees

8. Review of performance contracts in the Danish central government (2004)Table showing aggregate measures of the performance contracts* percentage of all targets

9. Examples of output and outcome targets • The Danish Medical Agency • ”It is satisfactory if time of case processing for new composite drugs and vaccinations is 210 days in 95 % of the cases.” • The Danish Competition Authority • ”For 2004 the target is that the agency's productivity for running services rises with at least 2 % compared to 2003” • Danish Commerce and Companies Agency • ”In 2004 it is expected that the company portal gets 600 users on average per month. This should give 7.200 new registered users in 2004 adding up to a total of 11.200 users by the end of 2004.” • Statistics Denmark • ”The level of user satisfaction is 4,3 (on a scale from 1 to 5).”

10. Reporting on results in Annual Reports • Introduction to mission and organisation • Performance report • Statement of output performance • Statement of general financial performance • Financial account • Profit and loss account and balance sheet • Cash flow statement • Various financial key figures • Approval and attachments

11. Accrual Accounting and Budgetting Reform • Applying private sector accounting principles to the public sector • From cash to accruals: focus on the use of resources (depreciation) rather than payments • All departments and agencies must prepare financial statements with balance sheet, income statement etc. • More focus on cost distribution • A better basis for substitution of factors of production • A precondition for performance based budgeting

12. Performance information in the budget • The performance information is only to a limited extent linked to the budget • However, ”taximeter-budgeting” links the allocated budget to the output (productivity) of the institution • Primarily used on the education sector: eg. 30-50 pct. of the university budgets depend on the amount of students passing the exam • Is presently considered in new areas as a follow-up on the accrual accounting and budgeting reform

13. Management of expenditure frames Tools to compare costs, activities & results Performance management MoF: Budgetary framework Budget proposals Planning & Budgetting • long-range budgets • investment planning • consolidated budgets • guidance for corporate governance Performance objectives Performance contracts Quarterly approval of accounts Framework statement Periodic control & follow-up • speedy procedures • key figures (MIS) • cash management • activity based costing • task hierarchy Day-to-day management using various information systems Annual report National annual account Annual report Performance reporting • approval of accounts • surplus reserves • performance reporting Accounting

14. Measurement of targets Risk of goal distortion Cross-cutting targets Fragmented performance information Resistance against a very centralized and systematic program approach Transparency can create pressure for more resources No direct integration between the performance information and the budgets Key challenges: performance contracts

15. Key challenges: Taximeter-budgetting • Perverse effects • Expenditure control • Need to fine-tune the grants and simplify the model