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

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 Outputs Tasks Activities Resources Funds ”Results” ”Processes”

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

8. Review of performance contracts in the Danish central government (2004) Table showing aggregate measures of the performance contracts * percentage of all targets Total number of contracts Total number of objectives Total number of targets Total number of measurable targets Total number of quantitative targets No. of external and internal targets Internal targets External targets 1198533701 3508147210602641 94,8 %*39,8 %*28,6 %*71,4 %*

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

14. Key challenges: performance contracts 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

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