‘Cost leadership is needed to cut government debt’
A representative from the World Bank recently described the mismanagement of public sector spending in one developing country as a form of corruption on a grand scale. Emotive words, but they are a timely reminder of the global need for prudence and accountability when it comes to public sector spending.
Few countries have avoided the shockwaves of the economic downturn and it is essential that governments ensure that the social impact is kept to a minimum. I had absorbing discussions about cost leadership with CIMA members in government positions in both Canberra and Wellington on my recent trip to Australia and New Zealand.
It was interesting to compare their views with the findings of a report published by CIMA last summer, which argued that a lack of strategic leadership and poor performance management practices had contributed to the current spending crisis in the UK. The report outlined how cost leadership and better management information could contribute to more informed decision-making and help to reduce government debt.
Some savings can be made by improving the efficiency of the finance function in government departments. But the bigger prize, billions rather than millions, is to ensure that ministers have accurate information (financial and non-financial) on which to base policy, make decisions and run public services effectively.
A high-quality performance management structure, supported by effective management accounting, is crucial for the effective measurement of outputs and outcomes, and to reduce the costs of delivery.
At present, the decision-making process is imprecise. Correct management information would aid the development of evidence-based policies. It would also complement the work of economists in framing objectives and forecasting the expected results, as well as making the machine of central government, "smarter".
In this respect, the UK is by no means unique. Governments around the world are grappling with similar problems. Whatever country you look at, the public sector is a uniquely challenging arena because of the complexity of its delivery systems and the difficulty in managing how information flows up and down these channels.
Chartered management accountants are ideally positioned to tackle the key issues of value for money and accountability. In particular, our members' training in performance management can improve accountability by building in target incentives for civil servants. These should be focused on specific outcomes, personal responsibility and ownership.
If economies are to become sustainable, governments must focus on this issue and tap into the value that management accounting can bring. Empowered CIMA members are in an ideal position to foster a culture of cost consciousness throughout public organisations. But they must be brought in at the beginning of the decision-making process.
Furthermore, it's not enough for finance professionals to produce good quality information; they must also use their insights to improve performance. We know that when finance functions demonstrate their value they become trusted and more influential.
I have met many CIMA members working at senior levels in various government administrations around the world and I'm constantly impressed by their passion, vision and enthusiasm for developing their respective country's economic and social potential.
There are many challenges ahead, but with such energetic role models leading the way, I am confident that we can develop public sector strategies that will be leaner and better value for money.
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