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  Daily Briefing  

January 1, 2000

Results Rule

By Anne Laurent

Two things are clear about managing government in the new millennium: Return on investment will be the focus, and program managers will be expected to deliver it. All of the 1990s management reforms were in one way or another designed to make government's business leaders more accountable for getting a good return on taxpayers' investments. Laws seeking everything from improved financial management to easier information technology acquisitions to a keener focus on real-world program results added responsibilities for agency business managers. Executives are expected to lead the transformation of the creaky Industrial Age federal monolith into a lean, flexible and fast-moving Information Age enterprise. That enterprise, in turn, is expected to win back the public's trust in government by performing efficiently and effectively.

It's a tall order, especially since we Americans can't agree about much of anything concerning our government except that we want it to do more yet cost less. Through our representatives in Congress and in the White House, we consistently make contradictory demands on federal agencies. Government business managers are forever whipsawed between priorities. IRS managers are exhorted one year to collect every penny of taxes due; the next year they are punished for inducing fear and anguish among laggard taxpayers. Legislators tell Food and Nutrition Service executives to focus on fighting food stamp fraud, while the Clinton administration's top priority for the agency is feeding the hungry. The Immigration and Naturalization Service must keep out or send back huge numbers of immigrants, while welcoming and making citizens of a few. Conflicts like these afflict almost every agency, raising large barriers to efficient and businesslike management.

Nevertheless, those who run government's programs now are expected to deliver benefits as quickly and efficiently as Fed Ex, to coddle customers as well as Nordstrom, and to manage information as seamlessly as Visa. But this wave of expectations is spilling over a government separated by only handfuls of years from the days when stovepipe structures, rigid hierarchy and unresponsiveness found expression in the phrase, "good enough for government work." The transformation of structure and culture necessary to bring the U.S.S. Federal around has begun, but it will take all the time and resources the battleship analogy implies. Further complicating the task is the budget-balancing brake being applied just as the behemoth gets underway. Keeping Uncle Sam's checkbook in order without raising taxes requires capping appropriations so tight that the Congressional Budget Office estimated that agencies would run $45 billion short of the budget authority needed to keep programs operating in 2000 at even their 1999 spending levels. The budget may be in surplus for now, but no one is proposing to spend more money on government.

Bridging the Gap

The managers of government's core businesses must bridge the gap between growing demands and declining resources using their own wits and the limited management tools granted them over the past decade. The Clinton administration's National Performance Review (since renamed the National Partnership for Reinventing Government) set the tone for this perilous, penurious era by coupling its 1993 call for businesslike government with a recommendation for huge cuts in the federal workforce. Between 1993 and April 1999, the executive branch lost more than 350,000 jobs.

The staff cuts fell disproportionately on program managers' lieutenants. An August 1998 Office of Personnel Management study of downsizing between 1994 and 1996 showed supervisory ranks were thinned twice as much as the non-supervisory rolls. One of every three jobs eliminated during the period belonged to a first-level boss. With fewer supervisors, more responsibility for directing front-line employees has fallen on managers and executives. The loss of employees of all levels has brought reorganization. To match growing workloads with static or declining numbers of employees, program managers must get rid of non-value-added work, such as data entry, report filing, and unnecessary handoffs and sign-offs. Indeed, 53 percent of managers and employees surveyed by OPM reported that downsizing caused their organizations to adopt new ways of doing business.

The 1993 Government Performance and Results Act (GPRA) ratcheted up pressure on program managers another notch, putting in place a results-based management regime intended to tie funding decisions directly to program performance. It requires agencies to set outcome goals, measure their performance and report their accomplishments. Those reports, in turn, must be coupled with cost data to help legislators make funding decisions based on credible information about agency efficiency and effectiveness. Legislators' predilection for politics may prevent the law from attaining the goal of true performance-based funding. But it will push agencies to clarify which lines of business they're in and to collect performance and cost information. With it, they can build better business cases for maintaining current programs or moving to more effective methods for achieving results.

Clarifying Costs

To achieve GPRA's goals, program managers need a host of cost and performance data heretofore unavailable to them. The law is motivating government's financial managers to replace untimely and often irrelevant internal budget reports with useful, real-time cost data that program managers can massage to help them choose the most effective approaches to achieving output and outcome goals. At the same time, financial managers are facing their own improvement imperatives imposed by the 1990 Chief Financial Officers Act and subsequent measures.

The CFO Act, the most significant federal financial management law in 40 years, created a financial management leadership structure, required agencies to produce audited financial statements and strengthened accountability reporting. The 1994 Government Management Reform Act (GMRA) expanded the CFO Act requirements, compelling the 24 agencies responsible for 99 percent of federal spending to prepare annual audited financial statements and mandating an annual governmentwide consolidated financial statement. The 1996 Federal Financial Management Improvement Act (FFMIA) brought further pressure on agencies to make sure their financial systems comply with federal standards. All these reforms emphasize that financial information must better serve agency business decision-makers. And under GPRA, the retooled financial data will be used to evaluate the business executives' decisions. To collect and present financial information useful to program managers, finance offices are turning to information technology.

Agencies are installing new financial management systems and beginning to purchase enterprise resource planning (ERP) software. ERP management systems are designed to ultimately knit together data from many functions, such as accounts receivable and payable, materials management, personnel benefits administration, and budgeting. The result should be a vast reduction in the need for employees to enter and correct data, greater availability of information across organizations, and a backbone to support executive information and decision support systems. Those systems should provide reports on revenue and spending, project management, staffing and training, and other information that business leaders need for performance-based management and budgeting.

Human resources and procurement offices are relying on IT, as well, as they attempt to improve service to business managers at the same time as they are losing staff and funding. Desktop delivery of and access to personnel information, electronic data interchange and electronic commerce are enabling HR and procurement employees to transform themselves from rule-enforcers to business consultants. Helping to speed this deeper use of technology is a set of new laws and policies aimed at making it easier for government to quickly obtain commercial products.

The 1994 Federal Acquisition Streamlining Act and the 1996 Clinger-Cohen IT management reform law helped spur a revolution in federal buying practices. The laws spawned a stunning increase in government purchase card use--transactions rose from just over 2,000 in 1989 to more than 20 million in 1999--the emergence of governmentwide, easy-to-use, multiple-award IT contracts; and renovations in the General Services Administration's supply schedules. But like GPRA, GMRA, the CFO Act and other reforms, acquisition changes also added to federal business managers' responsibilities.

For example, under the new IT buying regime, program managers no longer can simply drop their purchase requests off at the procurement office. Requests now must be accompanied by business cases demonstrating performance-based return on IT investments. Before applying IT to a process, managers must show they considered whether the process still needs to be done, whether it could be better performed by another agency or outsourced, and whether it has been reengineered to its most efficient state. And acquisition reforms require such performance considerations for all purchases--products or services, IT or not.

A growing movement toward performance-based contracting, especially for services, is pulling program managers more deeply into the process of crafting work statements that seek results rather than specifying how contractors are to do the work. Program and contracting staffers also are collaborating to monitor and report on how well service contractors are doing. This "past performance" focus provides more regular feedback and accountability for contractors and a performance record for future government buyers.

The Office of Management and Budget also is promulgating a new approach for big-ticket purchases--technology, buildings, equipment or almost anything with a useful life of more than two years. This capital programming approach requires agencies to request full funding for asset purchases, and it forces program managers to build solid, mission-based business cases for buying new assets. Program and contract managers and others across agencies must work in teams to identify performance gaps, choose assets to fill them, build cases for acquiring them and account for maintenance costs and disposal costs--the total cost of ownership--up front in the acquisition process.

The Bottom Line

Program managers' new focus on return on investment has brought with it a new bottom-line mentality. Those in charge of business lines are being forced to become more entrepreneurial. Short on money and staff and pressed by increasing demands from Congress, customers and the executive branch, they are becoming adept at husbanding their resources and finding new ones.

Program managers are using technology to multiply the efforts of smaller staffs and budgets. No longer are they buying computers and software simply to make the old processes run faster. Instead, they are considering a broad array of technology-aided solutions to their business problems. For example, business managers increasingly are turning to the Internet to deliver products, services and information. The U.S. Mint is saving $5 in processing costs every time someone orders coins via its new Web site rather than by phone or by mail. Orders submitted on the Web site, which opened in March 1999, feed directly into the Mint's computer system, so the agency avoids data entry and paperwork costs. The Mint's online store was getting $1.4 million worth of orders per week in late September, up from $2,000 a week in April. Internal operations benefit from online strategies as well. NASA avoids $2.2 million a year in operating costs by posting online all solicitations for contracts worth more than $25,000.

The proliferation of enterprise information systems is enabling program managers to more easily monitor and improve operations. For example, the Federal Emergency Management Agency has installed an enterprise system that knits emergency coordination, human services, infrastructure support, mitigation and emergency support. Among its many functions, the National Emergency Management Information System performs a wide range of financial operations, including ensuring faster and more accurate benefits payments to disaster victims. It supports a centralized mail room where applicants send supporting documents that are imaged, indexed to their cases online and then made electronically available to processors and help desk employees who can provide information about the status of cases any time applicants call a toll-free number.

In addition to using technology to redesign and streamline their operations, savvy agency business managers are replacing lost funding by using newly available cost data to make the case for new user fees or increases in existing charges. The Clinton administration began encouraging agencies to replace appropriations with fees during the fiscal 1999 budget process and agencies responded with proposals for $22.9 billion in new fees from 1999 to 2003. Increased user charges granted in 1993 brought the Federal Trade Commission's fee income from 18 percent of its budget in 1991 to 69 percent in 1996. The Customs Service's reliance on fees increased from 41 percent of budget authority in 1991 to 71 percent in 1996.

Program managers also are figuring out ways to provide services to other agencies or organizations within their departments for a fee. Federal franchises, consolidated administrative services centers, traditional cross-servicing organizations and new businesses organized under employee stock-ownership plans are competing with one another and with private firms to serve the federal market.

An April 1999 PricewaterhouseCoopers survey conducted for the Treasury Department's Chief Financial Officers Council found more than 300 cross-servicing agreements throughout government. The National Archives and Records Administration, one of the most recent entrants into the fee-for-service market, stopped providing records management services for free in October and now requires agencies to pay the costs of storing, retrieving and disposing of their information. David Weinberg, program manager for NARA's records center program, says he expects to collect $92 million in fiscal 2000 from other agencies. Starting in fiscal 2002, agencies will be able to choose to stay with NARA or give their business to private companies. Federal programs are proving to be tough competitors. For example, in 1997, Agriculture's National Information Technology Center beat IBM and Computer Services Corp. to win a $250 million contract to process Federal Aviation Administration data.

Proliferating Partnerships

To gain staffing flexibility in order to handle fluctuations in workload, build private-sector support and gain access to cutting-edge technology, managers of fee-for-service operations are hiring and partnering with contractors. The acquisition business line of the Transportation Department's Administrative Services Center employs contractors to administer the governmentwide, multiple-award IT contracts it negotiates and charges other agencies to use. HRLINK$, a fee-for-service human resources business under the Veterans Affairs Department franchise fund, has paired with ERP software firm PeopleSoft and Andersen Consulting to offer other agencies full installation and support for PeopleSoft's HR management system, as well as payroll processing and other HR services.

Program managers' partnerships with private industry will proliferate in the coming years. Already they are relying more on contractors to do work directly or to provide the tools and technology to enable dwindling federal staffs to do more. By fiscal 1997, the government was spending nearly as much on service contracts, $110 billion, as on the federal payroll, $113 billion. In his 1999 book, The True Size of Government, Paul Light, director of the Brookings Institution's Center for the Public Service, estimates there are some 5.6 million contractor employees doing government work. As of October 1999, 95 agencies had listed 155,000 jobs as commercial and therefore eligible for contracting under the 1998 Federal Activities Inventory Reform Act. The Defense Department has committed to putting more than 200,000 jobs up for competition with the private sector through 2005.

The increasingly business-permeable government of the 2000s will challenge federal business managers where they are weakest. The agencies with the most experience administering large service contracts tend to have the worst records. For example, the Energy Department, which relies on private firms to perform 90 percent of its work, spent the past decade on the General Accounting Office list of programs at high risk of waste, fraud and abuse largely because of contracting problems. The fact that Energy, with its long-term experience running large-scale contracts,
hasn't been able to get its business managers up to speed augurs ill for those running programs at agencies newer to outsourcing and privatization.

Agency programs and the managers who run them still are stricken by contradictory and competing demands. Resources remain limited with no promise of replenishment, let alone increase. Management reforms intended to expand program managers' authority, improve their support and increase their accountability are incomplete at best. Finance, human resources, IT and procurement offices have only begun retooling to become executives' business consultants and partners instead of regulators and enforcers. And business managers themselves may be poorly equipped for deepening encroachment by private industry into federal operations.

But ready or not, government's business executives should be prepared to shoulder expectations as never before. The imperatives of budget balancing, combined with the mandates of law, have agencies focused as never before on program performance and its cost. As politicians and the public rate the return on our national investment in government, it is program managers who'll be receiving the report cards.

Anne Laurent, associate editor of Government Executive, has spent 15 years covering federal management. She specializes in stories about entrepreneurial organizations, acquisition reform, results-based management and culture change and manages the Government Performance Project

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