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Ebony Hughes

Local government budgeting: a complicated solution in a complex world

The public sector often applies a complicated response to a complex problem, typically through linear processes that (it is hoped) will go on to deliver predictable and repeatable improvements. The Medium Term Financial Strategy (MTFS) process and accompanying financial cycle is an example of the wrong response to complexity. I strongly believe that there is a need to give financial strategy, planning and management an EDGEWORK overhaul.

Our view is that public services are complex rather than complicated; EDGEWORK is IMPOWER’s approach to delivering sustainable change in complex systems.

The financial framework associated with the MTFS embodies the rigidity and linearity of strategic planning in local government. My observation is that it regularly stifles the opportunity to be more strategic; in the absence of an alternative outcomes-led framework, savings plans become the machinery to shape councils and their agendas.  Decisions are often driven by the need to fill a budget gap, rather than in pursuit of improving outcomes.

In other words, the annual MTFS cycle has a lot to answer for. Yes, councils must make effective and strategic use of resources, need to understand the return on the investment of taxpayers’ money and must have sound budgeting and financial management to enable services to deliver their outcomes. But the cycle creates a number of problematic organisational behaviours. So how might we EDGEWORK the MTFS?

  1. Reframing Ambition

 Client problems need to be reframed using a wider lens and by looking across boundaries, requiring different tools for analysis, governance and direction setting.

The MTFS repeatedly narrow-frames what an organisation needs to do to deliver financial sustainability. It focuses on savings against pre-defined cost centres, often prioritising those savings that are easiest to deliver and offer certainty, and usually looks at a short timeframe. The analysis needed to inform effective decision making is rarely undertaken.

Direction setting needs a focus on priority outcomes, but this narrative can often be drowned out by financial challenge. In some cases, the MTFS can become an accounting exercise, divorced from the reality of what is happening. By itself, the process of defining budgets does nothing to actually reduce spending. At worst, it can serve to let services off the hook for delivering savings or outcomes improvements, avoiding finding solutions whilst also compounding budget pressures and reducing the ownership of the budget holder.

  1. Delivering at the front line

Change in complex systems is delivered at the front line; staff and managers need help to embrace and sustain new ways of working and those providing support need resilience and grip.

Every year, councils endure a painful budget setting cycle, generating reams of paperwork, tight deadlines and stress. My observation is that this leads to an emphasis on the identification of savings that isn’t balanced with a grip on progressing delivery of those savings (and doing it well).

Too often, savings aren’t premised on the basis of what will be required on the front line to actually achieve the change. This then means that savings aren’t delivered at the pace they need to be – because they aren’t owned by the people who need to create the change.

The narrow framing and rigid process of MTFS development often leads councils to ignore the wider system within which they are operating.  What happens at the interfaces of that system will make or break a budget, whether that is how demand is flowing into the system, how partners are engaged with or how relationships with providers are handled. But the MTFS process allows little time or resource to get to grips with this complexity. In an ideal world this would be understood at all times as part of the effective management of the service.

  1. Applied Behavioural Science

Behavioural science is a vital tool for working in complex systems, which require new methods of intervention design.

Understanding behaviours is not only a tool to enable the delivery of savings but also gives an insight into how people approach an MTFS process itself.

Does the way a particular council approach their budget setting stifle the potential to actually deliver savings? If short term (and more certain) savings are prioritised, managers are less open to operating outside of their controllable space.

IMPOWER’s belief is that better outcomes cost less – but better outcomes can only be achieved through using tools such as applied behavioural science to influence both demand and partner actions.

  1. Managing Interfaces

The interfaces between organisation and between residents and public services are where the real challenges lie, where new methods are required in order to deliver sustainable change.

The savings that councils identify and the plans they develop are often rushed to meet deadlines and shaped so as to result in minimal challenge, be that from elected members or in consultations with the public. The interface with citizens is often seen as a hoop to jump through rather than a tool to shape; the opportunity for meaningful engagement and collaboration that could lead to improved success is often sidelined and potential innovation stifled.

  1. Managing Trajectory

 Motivating public sector organisation to both improve outcomes and save money requires new datasets, shorter feedback loops and one version of the truth.

Current financial management in local authorities often involves cost centres being monitored retrospectively, and budgets giving a false view as they are rarely based on valid projections. We see clients chasing overspends or celebrating false underspends as they haven’t been able to set budgets and allocate resources based on informed forecasts and trajectories.

We consistently see services that are categorised as ‘over-spending’ year on year, when what this really means is that they have failed to forecast and plan for reducing the demand that drives the overspend. This tends to create an approach that favours cashable savings over cost avoidance – but both are needed for financial sustainability. Linked to this, we invariably find that even over a three-year MTFS the focus is on the short term, with limited detail on year 2 to 3 and beyond.

My intention here is to constructively challenge the norm and identify how some long-accepted processes are real barriers to achieving outcomes-driven transformation.

The current financial cycle and governance systems in place for local government are constraining its ability to respond innovatively or with a true outcomes focus.  Complex strategic issues are being forced into complicated MTFS and business case processes which often break down the challenge into siloed responses. It is time to re-frame the challenge; my hope is that, going forward, sector influencers can be bolder and apply a different mindset that recognises the complexity of the systems public services are delivered in. Protecting outcomes, rather than services, will only be possible when a new approach is taken.

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