Management, Resources and Results Structure (MRRS) Policy: Its critical role in expenditure management Presentation to Financial Management Institute Rohit Samaroo, Acting Senior Director, Results Management Strategies Division November 25, 2008

Outline Historical Context Expenditure Management System (EMS) Renewal MRRS – Progress and Challenges Observations and next steps Permanent Reforms have been difficult to implement; As budgetary objectives changed, new reform initiatives were introduced; Incorporating reallocations and review into the EMS is politically and technically difficult: The budgetary process is to resolve conflicts for example between, Cabinet Ministers, different intererest groups, alternative policy options; Yet re-allocation based on program review requires elected government to continually re-open policy questions that were thought resolved = conflict, by reward; Program Review (1994-95) Review was implemented when economic conditions were worsening; IMF was criticizing Canada and Moddy’s rating was to be scaled down Cabinet was forced to consider a more comprehensive program review, one that delivered cuts sufficient to achieve the deficit target (deficit reduced to 3% of GDP by 1996-97, 2% gy 1997-98) It includes a re-examination of government programs that was intended to achieve a specific expenditure reduction targets: - It was done over 6 months (june-Nov. 1994) – 1995 Budget announced $16.9 B in savings over 3 years, further $2B in savings over 3-year announced in 1996 Budget – Overall spending fell by 10% from March 95 to March 99, capital spending fell by 35%; - Changes to programs and machinery were implemented over the four years to 1999; - Affected most governments; - Up to 45,000 jobs were lost; - It was a one-off exercise – impression was that the exercise got ‘the government right’ and there was not a need for a ‘machinery for ongoing review’ (actually, the cabinet structure supporting the exercise was disbanded even before the Minister of Finance announced the results of Program Review in the 1995 Budget) EMS (1995) President of the Treasury Board announced reforms designed to permanently incorporate the practices of review and reallocation through the EMS - 7 principles underpinning the EMS were established to set an environment conducive to ongoing expenditure review and reallocations at 3 levels - Asked Ministers to operate within existing resource levels (total spending level for each department would be decided during an annual budget cycle and fixed) - incurred elimination of the policy reserve = in-year source of funds - new policy or cost increase throughout the year to be funded by re-allocation of funds from lower priority - Departments delegated the responsibility for conducting review and identifying reallocation options and TBS responsible for government- wide program reviews, using departmental information to identify reallocation across departments - Introducing departmental Business Plans and increasing managerial flexibility to pursue internal reallocation as seen fit, without central control. Also allowed TB to track changes and to ensure that budget decisions were implemented, not deferred. These rules were meant to create the incentives and the means for reallocation, to identify source for new policies. However, without the binding effect of a fiscal crisis, commitment to annual integrated budget planning cycle underpinning EMS began to collapse and abandoned once Surplus was achieved (i.e. more money to fund new policies – ‘money from ‘prudent factor’ was made available’ as early as 98) – Ministers could come with ‘unfunded MC’ to propose new policies, i.e. without identifying a new sources of funds – therefore, a primary driver for program reviews was gone. Business Plans The primary intent was to ensure that departments implemented reallocation decisions taken in the 1995 Budget – BP were to be submitted to TBS BP were to form the basis of discussion between TB and departments first at level of officials, then btw TBS and TB ministers. BP were to shift discussion at a more strategic levels, to identify TB authorizations required by each department for the upcoming year, to reduce TB transactions – department were also to link it to planning cycle and to parliamentary reporting documents; Once approved, departmental managers could, in theory, implement without TBS interference; TB was to have performance information required to identify new reallocation options and areas; However, the operalisation of this practice failed as its full integration was not realized in an annual cycle – it could not support its original objective of facilitating ongoing reovew of programs and resource reallocation. Program Integrity and Dept. Assessments - Both assumed the continuity of the broader EMS, encouraged departments to review ongoing programs and to reallocated from their existing resource base. Were discrete initiatives to address specific problems of expenditure management, rather than to attempt at system-wide reform They were focused on public sector management vs. delivering expenditure cuts (as in period of budget surpluses) Program Integrity: series of reviews designed to resolve critical risks to the sustainability of government programs (e.g. capital and asset holdings that need repairs, funding shortfall in programs could represent a legal risk TBS identify an agenda for review items (could not be ignored of post-poned) Focused on specific departments Focused on horizontal issues – program management problems common to a number of departments, with TBS analysts acting as review co-ordinators and advisors; TBS and department analysts worked together to review and find solutions for the problem; TBS assessed departments’ capacity to fund the solution through re-allocation or recommended more new funding (new) The LT objective was to make access to new policy funds conditional on resolving program integrity, and therefore to force departments to reallocate from within their own funds. Finance criticized the Program Integrity exercise as generating additional pressures on the public purse Program Review did little to alter the practice around expenditure management in general, i.e. Most new governments use their early years in office to cut some programs established by their predecessors and then use the resultant cash to fund new programs and policies. EMS Renewal and Strategic Reviews (2007-08) is leading to on-going approach to manage the core funding of the spending budget (expenditure review and reallocation)

Mid-to late 1990’s: Canada achieved an enviable fiscal position (1-2) In 1993-94, Canada was dealing with a large fiscal deficit Program Review (1994-95) solved the fiscal crisis through major expenditure cuts 1995 Budget announced $16.9B in savings over 3 years, further $2B in savings announced in 1996 Budget Overall spending fell by 10% from 1995 to1999, capital spending fell by 35% By 1997-98 the surplus was $3.5B - and the budget has been in surplus since Permanent Reforms have been difficult to implement; As budgetary objectives changed, new reform initiatives were introduced; Incorporating reallocations and review into the EMS is politically and technically difficult: The budgetary process is to resolve conflicts for example between, Cabinet Ministers, different intererest groups, alternative policy options; Yet re-allocation based on program review requires elected government to continually re-open policy questions that were thought resolved = conflict, by reward; Program Review (1994-95) Review was implemented when economic conditions were worsening; IMF was criticizing Canada and Moddy’s rating was to be scaled down Cabinet was forced to consider a more comprehensive program review, one that delivered cuts sufficient to achieve the deficit target (deficit reduced to 3% of GDP by 1996-97, 2% gy 1997-98) It includes a re-examination of government programs that was intended to achieve a specific expenditure reduction targets: - It was done over 6 months (june-Nov. 1994) – 1995 Budget announced $16.9 B in savings over 3 years, further $2B in savings over 3-year announced in 1996 Budget – Overall spending fell by 10% from March 95 to March 99, capital spending fell by 35%; - Changes to programs and machinery were implemented over the four years to 1999; - Affected most governments; - Up to 45,000 jobs were lost; - It was a one-off exercise – impression was that the exercise got ‘the government right’ and there was not a need for a ‘machinery for ongoing review’ (actually, the cabinet structure supporting the exercise was disbanded even before the Minister of Finance announced the results of Program Review in the 1995 Budget) EMS (1995) President of the Treasury Board announced reforms designed to permanently incorporate the practices of review and reallocation through the EMS - 7 principles underpinning the EMS were established to set an environment conducive to ongoing expenditure review and reallocations at 3 levels - Asked Ministers to operate within existing resource levels (total spending level for each department would be decided during an annual budget cycle and fixed) - incurred elimination of the policy reserve = in-year source of funds - new policy or cost increase throughout the year to be funded by re-allocation of funds from lower priority - Departments delegated the responsibility for conducting review and identifying reallocation options and TBS responsible for government- wide program reviews, using departmental information to identify reallocation across departments - Introducing departmental Business Plans and increasing managerial flexibility to pursue internal reallocation as seen fit, without central control. Also allowed TB to track changes and to ensure that budget decisions were implemented, not deferred. These rules were meant to create the incentives and the means for reallocation, to identify source for new policies. However, without the binding effect of a fiscal crisis, commitment to annual integrated budget planning cycle underpinning EMS began to collapse and abandoned once Surplus was achieved (i.e. more money to fund new policies – ‘money from ‘prudent factor’ was made available’ as early as 98) – Ministers could come with ‘unfunded MC’ to propose new policies, i.e. without identifying a new sources of funds – therefore, a primary driver for program reviews was gone. Business Plans The primary intent was to ensure that departments implemented reallocation decisions taken in the 1995 Budget – BP were to be submitted to TBS BP were to form the basis of discussion between TB and departments first at level of officials, then btw TBS and TB ministers. BP were to shift discussion at a more strategic levels, to identify TB authorizations required by each department for the upcoming year, to reduce TB transactions – department were also to link it to planning cycle and to parliamentary reporting documents; Once approved, departmental managers could, in theory, implement without TBS interference; TB was to have performance information required to identify new reallocation options and areas; However, the operalisation of this practice failed as its full integration was not realized in an annual cycle – it could not support its original objective of facilitating ongoing reovew of programs and resource reallocation. Program Integrity and Dept. Assessments - Both assumed the continuity of the broader EMS, encouraged departments to review ongoing programs and to reallocated from their existing resource base. Were discrete initiatives to address specific problems of expenditure management, rather than to attempt at system-wide reform They were focused on public sector management vs. delivering expenditure cuts (as in period of budget surpluses) Program Integrity: series of reviews designed to resolve critical risks to the sustainability of government programs (e.g. capital and asset holdings that need repairs, funding shortfall in programs could represent a legal risk TBS identify an agenda for review items (could not be ignored of post-poned) Focused on specific departments Focused on horizontal issues – program management problems common to a number of departments, with TBS analysts acting as review co-ordinators and advisors; TBS and department analysts worked together to review and find solutions for the problem; TBS assessed departments’ capacity to fund the solution through re-allocation or recommended more new funding (new) The LT objective was to make access to new policy funds conditional on resolving program integrity, and therefore to force departments to reallocate from within their own funds. Finance criticized the Program Integrity exercise as generating additional pressures on the public purse Program Review did little to alter the practice around expenditure management in general, i.e. Most new governments use their early years in office to cut some programs established by their predecessors and then use the resultant cash to fund new programs and policies. EMS Renewal and Strategic Reviews (2007-08) is leading to on-going approach to manage the core funding of the spending budget (expenditure review and reallocation)

Mid-to late 1990’s: Canada achieved an enviable fiscal position (2-2) Program Review left a few issues: Reduced capacity in important oversight areas: audit, evaluation, financial management Cabinet time focused almost exclusively on new spending By late 1990s, budget surpluses led to new spending without any systematic assessment of direct program spending and whether reallocation was needed Continued use of ad hoc restraint exercises to control spending as need arises, eg: Expenditure Review Committee Expenditure and Management Reviews Permanent Reforms have been difficult to implement; As budgetary objectives changed, new reform initiatives were introduced; Incorporating reallocations and review into the EMS is politically and technically difficult: The budgetary process is to resolve conflicts for example between, Cabinet Ministers, different intererest groups, alternative policy options; Yet re-allocation based on program review requires elected government to continually re-open policy questions that were thought resolved = conflict, by reward; Program Review (1994-95) Review was implemented when economic conditions were worsening; IMF was criticizing Canada and Moddy’s rating was to be scaled down Cabinet was forced to consider a more comprehensive program review, one that delivered cuts sufficient to achieve the deficit target (deficit reduced to 3% of GDP by 1996-97, 2% gy 1997-98) It includes a re-examination of government programs that was intended to achieve a specific expenditure reduction targets: - It was done over 6 months (june-Nov. 1994) – 1995 Budget announced $16.9 B in savings over 3 years, further $2B in savings over 3-year announced in 1996 Budget – Overall spending fell by 10% from March 95 to March 99, capital spending fell by 35%; - Changes to programs and machinery were implemented over the four years to 1999; - Affected most governments; - Up to 45,000 jobs were lost; - It was a one-off exercise – impression was that the exercise got ‘the government right’ and there was not a need for a ‘machinery for ongoing review’ (actually, the cabinet structure supporting the exercise was disbanded even before the Minister of Finance announced the results of Program Review in the 1995 Budget) EMS (1995) President of the Treasury Board announced reforms designed to permanently incorporate the practices of review and reallocation through the EMS - 7 principles underpinning the EMS were established to set an environment conducive to ongoing expenditure review and reallocations at 3 levels - Asked Ministers to operate within existing resource levels (total spending level for each department would be decided during an annual budget cycle and fixed) - incurred elimination of the policy reserve = in-year source of funds - new policy or cost increase throughout the year to be funded by re-allocation of funds from lower priority - Departments delegated the responsibility for conducting review and identifying reallocation options and TBS responsible for government- wide program reviews, using departmental information to identify reallocation across departments - Introducing departmental Business Plans and increasing managerial flexibility to pursue internal reallocation as seen fit, without central control. Also allowed TB to track changes and to ensure that budget decisions were implemented, not deferred. These rules were meant to create the incentives and the means for reallocation, to identify source for new policies. However, without the binding effect of a fiscal crisis, commitment to annual integrated budget planning cycle underpinning EMS began to collapse and abandoned once Surplus was achieved (i.e. more money to fund new policies – ‘money from ‘prudent factor’ was made available’ as early as 98) – Ministers could come with ‘unfunded MC’ to propose new policies, i.e. without identifying a new sources of funds – therefore, a primary driver for program reviews was gone. Business Plans The primary intent was to ensure that departments implemented reallocation decisions taken in the 1995 Budget – BP were to be submitted to TBS BP were to form the basis of discussion between TB and departments first at level of officials, then btw TBS and TB ministers. BP were to shift discussion at a more strategic levels, to identify TB authorizations required by each department for the upcoming year, to reduce TB transactions – department were also to link it to planning cycle and to parliamentary reporting documents; Once approved, departmental managers could, in theory, implement without TBS interference; TB was to have performance information required to identify new reallocation options and areas; However, the operalisation of this practice failed as its full integration was not realized in an annual cycle – it could not support its original objective of facilitating ongoing reovew of programs and resource reallocation. Program Integrity and Dept. Assessments - Both assumed the continuity of the broader EMS, encouraged departments to review ongoing programs and to reallocated from their existing resource base. Were discrete initiatives to address specific problems of expenditure management, rather than to attempt at system-wide reform They were focused on public sector management vs. delivering expenditure cuts (as in period of budget surpluses) Program Integrity: series of reviews designed to resolve critical risks to the sustainability of government programs (e.g. capital and asset holdings that need repairs, funding shortfall in programs could represent a legal risk TBS identify an agenda for review items (could not be ignored of post-poned) Focused on specific departments Focused on horizontal issues – program management problems common to a number of departments, with TBS analysts acting as review co-ordinators and advisors; TBS and department analysts worked together to review and find solutions for the problem; TBS assessed departments’ capacity to fund the solution through re-allocation or recommended more new funding (new) The LT objective was to make access to new policy funds conditional on resolving program integrity, and therefore to force departments to reallocate from within their own funds. Finance criticized the Program Integrity exercise as generating additional pressures on the public purse Program Review did little to alter the practice around expenditure management in general, i.e. Most new governments use their early years in office to cut some programs established by their predecessors and then use the resultant cash to fund new programs and policies. EMS Renewal and Strategic Reviews (2007-08) is leading to on-going approach to manage the core funding of the spending budget (expenditure review and reallocation)

The Expenditure Management System became the focus of an OAG audit Auditor General Report pointed out a number of significant areas for improvements: Spending on existing and new programs were being approved on two separate tracks making comparisons between existing and new spending difficult EMS was not fully integrated with program results. The current EMS does not require that departments submit data to demonstrate that they have used their funding effectively And recommended… regular expenditure reviews of reference levels to ensure that existing programs are relevant and represent value-for-money, access to and use of performance information in the spending decision process, adequate systems and procedures for central agencies to assess new spending proposals and relate them to existing programs

Budget 2006 set framework for the implementation of EMS renewal The budget articulated a set of criteria for management and oversight of federal programs: Government programs need to focus on results and value for money Government programs must be consistent with federal responsibilities Government programs that no longer serve the purpose for which they were created need to be eliminated

Expenditure Management System Renewal

EMS Renewal – Overarching Objectives Approved by the government in June 2007 Management Excellence – Allocation and Operational Efficiency Meet government priorities Ensure value for money in government spending Deliver high-performing programs and services to Canadians Fiscal Credibility – Aggregate Fiscal Discipline Control of overall growth of program spending

Three Pillars Supporting EMS Renewal 1. Up-front Discipline Critical information for Cabinet decisions New Spending 2. Strategic Reviews Ongoing advice to Cabinet to align spending to government priorities and ensure performance and value for money Existing Spending 3. Managing for Results Measuring and benchmarking our programs to demonstrate results for Canadians All Spending

1. Up-Front Discipline (new spending) Refers to how new spending proposals are approved Emphasizes a more disciplined approach to managing new spending by ensuring all new proposals have: Clear measures of success Solid information about how a proposal fits with existing spending What results are being achieved in related areas? How does the new proposal relate to existing spending? Are there opportunities for realignment? Provide reallocation options for funding More upfront discipline on spending means more up-front work by analysts at the Memorandum to Cabinet (MC) stage

2. Strategic Reviews – Review of the effectiveness of all existing program spending Comprehensive review of each department’s programs Ensure all programs are: Aligned to government priorities Are clearly within federal responsibilities Relevant Effective and efficient Managed well Are considered by Cabinet as part of Budget preparation Identify the lowest-performing 5 per cent of programs and reallocate that funding to higher priorities Involve external expert advice on each Review to ensure consistency and objectivity TBS: renewed focus on program performance and advice to TB on integrated budget decision-making on new and existing spending

3. Managing for Results (all spending) All departments must strive for excellence in the management of all of their programs and spending in order to concrete results for Canadians This means all programs must: Have clear expected results and measures of success Have full program costs Be formally assessed and evaluated on a regular basis Report on results expected and achieved Use performance measures and evaluations to adjust resources and strategies based on insights gained Develop a culture of focussing on results Requires focus on program performance, relevance and efficiency, not just dollars spent

Management, Resources and Results Structure (MRRS)

MRRS is the foundation of the renewed EMS Represents a common approach to the collection, management, and reporting of performance information Establishes an inventory of all federal programs Links resources to results for each program - planned and actual Establishes the same structure for both internal decision-making and external reporting and accountability Demonstration of how programs align to each other (relationships); Full program costing; and eventually,…permits efficient communication between departments, central agencies & Parliament through the use of the common systems and evidence

All information is based on similar program structures – the PAA Program Activity Architecture + Financial and non-financial information Program Activity Architecture Parliamentary Vote Control Level – unchanged Department Planned and Actual Results-all programs Planned & Actual Financial information Governance Structure-decision making around program results info Strategic Outcome(s) Accountable Level to TB & Parliament – unchanged Required for all elements and all levels of the PAA Program Activity(ies) Sub – Program Activity(ies) Program Information levels – much more detail Sub - Sub – Program Activity(ies) IT Support: Expenditure Management Information System

Well structured information helps communication and decision-making … DEPARTMENTS Management Tool Reflects full mapping of programs Better alignment of resources & priorities More evidence-based reporting Improve program performance More logical and consistent basis for interaction PARLIAMENT Reporting Tool Stronger accountability for spending and results Common basis for planning and reporting inside and outside Finance PCO Budget Plan TBS Informed decisions on investment choices based on priorities and value for money MRRS Policy Objective: Development of a common, government-wide approach to the collection, management, and reporting of financial and non-financial performance information - to provide an integrated and modern expenditures management framework

Implementation of MRRS consists of five steps Departments develop fully articulated structures for their Program Activity Architectures (PAA) (December 2006 to May 2007) Departments identify/define Performance Measurement Frameworks & Governance Structures for their entire PAAs (June 2007 - Fall 2007) Departments create, capture and use MRRS information systematically (Jan. 2008 and onwards) TBS develops and rolls out a system to capture the standardized departmental performance information ( 2009 and onwards) Embed MRRS information in all expenditure management processes

Step 1: Launched December 06 – Fully articulated PAAs 98 departments and agencies modified their PAAs as part of Step 1 Step 1 has generated an inventory of the majority of government programs (approximately 2500 programs) TBS continues to work with departments to further refine their Strategic Outcomes and PAAs Stability is an issue: For 2009-10 change process: 46 departments and agencies came forward with proposed changes to their Strategic Outcomes and/or PAAs

All departments now have PMFs, however quality varies substantially Step 2: Launched June 07 – Development of Performance Measurement Frameworks (PMF) PMFs set out the Strategic Outcome(s) and expected results and outputs associated with PAA programs, including: Performance indicators Data sources Frequency of data collection Target(s) Planned program spending All departments now have PMFs, however quality varies substantially Currently in Step 3

PMF Quality to date shows the need to improve PMF Four Point Scale: 1= Poor ( major adjustment required), 2= Weak ( needs substantial improvement), 3 = Satisfactory, (requires some improvement), 4= Very Good (may require some refinement)

MRRS has become the the foundation of the renewed EMS

Internal Services We need to be able to capture the true cost for internal services The Profile of GC Internal Services established standard categories for internal services within PAAs Developed with a Senior Financial Officer working group Consists of 1 Program Activity, 3 Sub-Activity and 11 Sub-Sub-A categories for Internal Services Different reporting requirements established for different size organizations Micro, small and large

Revised Profile of GC Internal Services and associated PAA levels Program Activity Sub-Activity Sub-Sub Activity Internal Services Governance & Management Support Management & Oversight Communications Legal Resource Management Services Human Resource Management Financial Management Information Management Information Technology Travel and Other Administrative Services Asset Management Services Real Property Materiel Acquisition

MRRS: Status and some key observations MRRS has become critical to departmental management The federal government has the best inventory of programs it has ever had MRRS is increasingly enabling the operationalisation of EMS renewal in: Upfront discipline – review of MCs Strategic Reviews and Managing for results, however… Challenges still exist Substantial level of effort and capacity is still required to improve PMF quality Aligning financial systems to capture relevant planned and actual expenditures for each program still to be done in all departments Fundamental cultural change requiring persistence, patience and commitment Ultimately, an iterative process In general, however, significant progress has been made

Moving Forward… Step up the implementation of Step 3: Departments create,capture and use MRRS information systematically Strengthen the review of MCs in context of on-going spending Significantly strengthen the quality of departmental PMFs Ensure data collection and use of performance information in departments Embed performance information in all EMS processes (e.g. Memorandums to Cabinet, Treasury Board Submissions, Strategic Reviews, program renewals)

Contact us For more information or assistance on MRRS, do not hesitate to contact: Rohit Samaroo, A/Senior Director, Results Management Strategies at (613) 957-7053, or By sending an e-mail to Rohit.Samaroo@tbs-sct.gc.ca MRRS website at: http://publiservice.tbs-sct.gc.ca/pubs_pol/dcgpubs/mrrsp-psgrr/siglist_e.asp