The SCM – main issues, advantages and challenges of quantification of administrative costs Daniel Trnka Regulatory Policy Division, Directorate for Public Governance and Territorial Development OECD 28 June 2011, Jerusalem

What is the Standard Cost Model? Invented by the Dutch Ministry of Economic Affairs in the mid 90 s A tool to measure administrative costs and express them in monetary terms Advantages: –SCM makes costs ‘visible’ –Easy to measure, monitor & communicate –Uniformity, transparency, reliability and comparability –Commitment & awareness of policymakers –Enables to distribute the target across adminsitration Disadvantages: –May be too costly –Focus only on one part of costs, not benefits

Different costs of regulations The costs of regulation to businesses Direct financial costs Compliance costs Long-term structural costs Indirect financial costs (substantive compliance costs) Administrative costs

What are administrative costs? Administrative costs/burdens (AB) are the costs imposed on businesses, when complying with information obligations stemming from government regulation Costs of paperwork – e.g. filling in forms, submitting them to the administrative authorities But also – gathering, processing and updating data, inspections

The methodology for AC measurement The Standard Cost Model Possible to differentiate between particular regulations, ministries, sectors of regulation

Methodological questions Business As Usual (BAU) costs Costs of material, equipment Statistical relevance Costs of informing third parties (customers, trade unions…)

A zero based measurement Starting point and source of information for a reduction programme 4 stages: –Inventory of legislation –Desk research – sources of regulation, type of IO, identification of regulated entities –Measurement (interviews, expert meetings, testing) –Reporting Should all regulations be included? –Beyond Pareto principle - 10% of the IO’s accounts for 90% of AC –Prioritisation – risk of omitting important areas

Statistical relevance SCM based on assumptions, not on precise numbers 3 to 5 measurements per IO (and consultations of stakeholders) - a sophisticated rule of thumb If results converge, 3 to 5 is enough, if not, need a bigger sample

Simplification proposals Possible measures: –Abolishing regulations / information obligations –Streamlining procedures –Harmonizing definitions (e.g. Wages) –Data sharing inside adminsitration –Reducing frequency of information obligations (Monthly becomes Quarterly ; Quarterly becomes Annual) –Altering target groups (e.g. SMEs exemption) –Using ICT (e.g. e-filling, pre-filled forms)

Inter-agency co-ordination One ministry/special agency/centre of government Inter-agency co-ordination structures Political support, necessary teeth Distributed targets? Same for everyone?

Institutional setup Example of Viet Nam

Involvement of Stakeholders Extremely important throughout the whole project: –Defining priorities –Measuring and testing –Looking for simplification proposals Website for submitting ideas Steering committee, working groups Advisory committee

Main success factors Political support, top-level, across administration Comprehensive strategies, integration with other policies Communication and co-operation with stakeholders Targeting, prioritisation Institutional set up, capacity building Continuous evaluation, benchmarking

Main challenges Sustained momentum Cutting dead wood Last mile issue Communication – with stakeholders, of results, managing expectations Possible discrepancy between the most burdensome and the most irritating regulations Integration with e-government efforts Evaluation Potential squeezing-out effect Integration with other policies Integration into ex ante impact assessment

For more information see: OECD Cutting Red Tape series: –National Strategies for Administrative Simplification –Businesses' Views on Red Tape –Comparing Administrative Burdens across Countries –Progress in Public Management in the Middle East and North Africa –Why Is Administrative Simplification So Complicated? –Country reviews: the Netherlands, Portugal. Poland, Viet Nam Overcoming Barriers to Administrative Simplification Strategies: Guidance for Policy Makers SCM Network:

New OECD Recommendation 2.6 Eliminate unnecessary regulatory costs imposed on users of regulation 2.4 Co-operate with stakeholders on developing new and reviewing existing regulations by … Structuring reviews of regulations around users’ needs, co-operating with them through the whole process … 5.2 Reviews should be scheduled to assess all regulation systematically over time, and reduce regulatory burdens. Priority should be given to regulation with significant economic impacts and/or causing highest irritation among users and/or impact on risk management. 5.5 Programmes of administrative simplification should include measurements of the aggregate burdens of regulation and consider the use of explicit targets as a means to lessen administrative costs for citizens and businesses. Qualitative methods should complement the quantitative methods to better target the efforts. 5.6 Administrative simplification programmes should be evaluated for their “value-for-money”. Evaluation should not only focus on the quantification of administrative burdens reduced but also on other outcomes and effects for society.

Thank you!