Management by objectives and results (MbOR)

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Management by objectives and results (MbOR)

• Swedish experiences 1988-2006 and some issues in
  transport policy
• Lars Hultkrantz, VTI Örebro University

2
MbOR objectives

• Improve efficiency and reduce organisation
  inertia
• Clarify delegation structure (principal-agent
  relationships within the state)
• Parliament and Govt/ministries set targets
• Sectoral agencies do report
• Strengthen political power - shift policy-makers
  attention to important matters
• Reduce discretionary control, give agencies more
  liberty in choosing means to meet targets

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Control problems before 1988

• 1. Sense of loosing control
• Magnitude and complexity of public sector
• Information gaps between sectoral
  agencies/companies and ministries
• Control exercised through earmarked grants. Lack
  of targets and follow-ups
• Program budgeting did not solve this

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Pre-1988 issues, cont

• 2. Funding lacking
• Deficits gt 10 of GDP (80s, early 90s)
• Marginal cost of public funds very high (beyond
  the Laffer curve peak?)
• Focus shifting from growth to efficiency
• New tools needed

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Principles of the 1988 reform

• Agencies instructed annually on expected results
• Detailed regulation of agencies reduced
• Agencies report results
• Planning should be long-term, giving budget
  frames for more than one year
• Productivity and efficiency measures to be
  developed
• Service targets to be developed

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MbOR-based economic control

• Output control Targets Report/follow-up
• Financial control Budgeting Accounting

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MbOR-based economic control

• Output control Targets Report/follow-up
• Financial control Budgeting Accounting

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Problem areas 1

• Setting targets

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Targets set by Parliament

• Relate to broad policy areas
• More power to technocrats not much so to MPs
• Often vague and/or inconsistent

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Example Transport policy objectives

• General Socioeconomic efficient and sustainable
  transport system for citizens and industry all
  over the country
• Compliance cannot be evaluated (SIKA 2006)

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Specific objectives

• Objective Target, full Target, part
• Accessibility No Disabled 2010
• Positive reg. development No
• Gender equality No
• High transport quality 2010
• Safety 2007
• Environment No CO2 (2010)
• Air (2005)
• Noice (2005)

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Targets overruled

• MbOR for routine operations, but...
• large decisions (big projects) made on other,
  often conflicting, grounds...

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Example Road and rail infrastructure investments
2004-15

• CBA-based planning
• Total budget frames
• Roads 40 BSEK
• Rail 100 BSEK
• Set by Parliament, not based on CBA
• Marginal road projects B/Cgt2
• Large projects decided by Parliament

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Projects decided by Parliament

• Cost (BSEK) Benefit (BSEK)
• Norrbotnia railroad 19 12
• Hallandsås, rail tunnel 7 1.2
• Malmö, rail tunnel 9.5 7
• Stockholm North Link,
• car tunnel 7 6.5
• Total 44 27

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Targets set by Govt/ministries

• For policy areas and sectors
• Agencies are instructed annually in regulation
  letters
• Agencies are given lump-sum grants and report
  annually on results
• But
• SMART-criteria seldom met
• Specific, Meausarable, Attainable, Realistic,
  Timely
• Special tasks and special grants used
  increasingly

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Problem area 2

• Reporting and follow-up

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Reports from agencies

• Long delay before agencies started to report
  results
• Today Excessive information has become a major
  problem
• Slow development of performance indicators and
  key figures
• Indicators lack relevancy
• Emphasis on output, not outcome

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Problem area 3

• Coordination between output control and financial
  control systems

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Output vs. Financial control

• Financial control well developed in recent years
• Tight budget control to overcome the 1991-1994
  crisis with exploding national public debt
• Long-term expenditure limits
• But financial and output controls are exercised
  in separate systems, only weakly related

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Example1 Track use charges

• MC based. I.e., related to transport policy
  targets
• Set by the National Rail Administration
• But the charges are earmarked for funding of
  track investments and maintenance, i.e., changes
  have budget consequences
• Not clear how this is to be handled

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Example 2 Corporatization of SJ

• European rail reform strategies
• Wait and see (continent)
• Big reform (UK)
• Trial and errror (Sweden)
• Reforms 1988, 1992, 1995, 1998, 2000, 2001, 2004

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Problem

• Declining market share
• Low profitability
• Lousy balance sheet

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Possible interpretations

• Rail cannot compete with road
• Transport policy remedies, if any
• Bad management of a state-owned monopoly
• Prepare for competition and sell out

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Chosen interpretation and remedy

• Unclear financial management and control
• Solution Rapid corporatisation, with full state
  ownership (in force from Jan 1, 2001)
• No capitalisation (because of state expenditure
  limits)

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Results

• Unregulated monopoly remaining
• No one responsible for universal service
  obligations (e.g., stations, booking tickets)
• Impossible financial conditions of SJ
• Company close to going broke already in December
  2002

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Who was responsible for this failure?

• Transport ministers in the 90s?
• Management of the parastatal SJ?
• Transport minister 2000?
• State-ownership adminstration 2000?
• Management of the SJ AB company 2001-2?

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Some recent reviews of MbOR experiences in Sweden
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Public administration committee (1997)

• MPs participation in MbOR weak
• Focus on control of agencies, not policy areas
• Better adaptation to circumstances of different
  policy areas needed
• Annual reports from agencies not much used for
  planning and decision-making

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SNS (Who controls), 2002

• Management of public administration is not given
  political priority. Governance is not guided by
  strategic analyses.
• The PMs office lacks strategic capacity for
  controlling the increasingly complex activities
• Lack of accountability

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ESV (2003)

• Financial control is state-of-the-art
• Economic control is still weak
• Result control is weak
• Financial and economic control systems are not
  coordinated
• Weknesses in target setting, follow-up on
  results, weak connection to real decision making
• Prime ministers office to small capacity

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Parliamentary perspectives

• Tarschys (2003) First priority of parliament
  remains ex-ante budgeting, not ex-post monitoring
  and control. Major reforms needed of organisation
  and schedules
• Sweden got a national audit under Parliament from
  2004
• Tsunami Commission Accountability in focus

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General evaluation

• Much more focus on results
• Several shortcomings, but system has developed
  gradually
• As of today, MbOR has not been challenged by any
  alternative paradigm