Context for a Streamlined Programme of Work and Budget
Application of Results Based Management and Complementarity among Documents
Relationship to the Medium Term Plan (MTP) 2006-11
1. This shorter and more focused full Programme of Work and Budget (PWB) 2006-07 is intended to be an important step towards a streamlined programme budget process that is being guided by the governing bodies.
2. Following the substantial experience of planning under results-based principles, the content of the two principal planning documents, the MTP 2006-11 and this PWB 2006-07, now seeks to respond to the wishes of the governing bodies to eliminate overlap and sharpen the focus of the PWB.
3. In the first instance, to reduce overlap and duplication, the complementarity between the PWB and the MTP is more explicitly recognised. With the advent of the new Programme Planning Model endorsed by the Conference and the related suite of documents, the MTP is acknowledged as the main vehicle for programme formulation and prioritisation. Building on the contents of the MTP, the PWB sets out, in accordance with results-based principles, the biennial “business plan” of the Organization, including the main substantive thrusts and financial requirements. More detailed information can be found on FAO’s Internet Web site: www.fao.org/pbe (e.g. planned biennial outputs, scheduled sessions, information on posts).
Relationship to the Summary PWB
4. The full PWB expands on the analytical material provided in the Summary (which it is recalled has also been substantially redesigned and shortened). Hence, the corporate Risk Assessment has been updated and further elaborated below. Also, responding to requests from the Programme and Finance Committees, the internal mechanisms for priority-setting have been more fully described.
Features of the PWB planning process
5. Biennial outputs and programme entity resource allocations were defined based on a series of considerations. Firstly, managers were asked to review the strategic objectives that each entity was designed to address, along with the related rationale, objective, outcomes and major outputs. In addition, contributions identified during the MTP process to regional priorities, PAIAs and Gender Plan of Action were also taken into account. Finally, the guidance received from governing bodies (including Technical Committees, Programme and Finance Committees, and Regional Conferences) subsequent to MTP and SPWB preparation were reflected in planned activities. For ease of reference, a summary of the current planning model is provided under Adherence to FAO’s Strategic Framework.
6. In order to support this effort, further enhancements were made to the supportive planning system PIRES1
to provide units with more comprehensive and multi-dimensional background information (e.g. on regional priorities, PAIAs, MTP data, etc.) and new decision-support tools (e.g. user-defined reports). This was supported by training in results-based concepts as well as in using the system itself. Also, in line with the need to better support staff in decentralized locations as noted in the Independent Evaluation of FAO’s Decentralization, a particular effort was made to assist Regional, Subregional and Liaison Offices in their planning efforts.
7. The PWB 2006-07 represents a milestone in the treatment of non-technical and technical cooperation programmes, for which outputs and required resources have been defined against the new entities introduced in the MTP 2006-11, based on the application of similar results-based principles to these areas. This includes the identification of performance improvement measures, including potential efficiency savings. In addition to providing a platform for continuous improvements and further efficiencies in the non-technical programmes, the adoption of results-based principles will also facilitate coordinated management by respective lead units of the Strategies to Address Cross-organizational Issues in the Strategic Framework.
8. Another feature is the continued emphasis placed on evaluation of results. In this connection, it is recalled that an auto-evaluation regime was initiated in 2004-05, supported largely by voluntary contributions. The Programme Committee endorsed the institutionalisation of auto-evaluation, confirming its importance as an essential element in the FAO results based management system and a valuable complement to independent evaluation. As the aforementioned extra-budgetary funding will run out at the end of 2005, a new entity 122P4: Auto-evaluation, is introduced to permit the distribution of budgeted resources to units performing evaluations in 2006-07.
9. The extension of the planning model to non-technical and technical cooperation programmes will facilitate application of the same monitoring and assessment process undertaken in the technical programmes. Systematic monitoring and periodic review by programme managers of programme implementation results, including auto-evaluation will promote organizational learning and facilitate in-course correction where needed.
10. Members have previously welcomed information on major risks to the achievement of the Programme of Work. In its deliberations on the SPWB 2006-07, the Finance Committee considered the enhanced risk assessment framework as a sound basis for identifying internal and external factors that would affect financial, budgetary and operational performance and welcomed the manner in which this analysis was related to financial, budgetary and programmatic aspects of the biennial plan. It requested the Secretariat to pursue this methodology in the full PWB2
. Likewise, the Programme Committee appreciated the section on Risk Assessment
, while stressing that the considerations raised there covered both opportunities and risks3
11. This process has improved risk response decisions by management and governing bodies, for example in addressing exchange rate risks through the application of split assessment to the Organization’s assessed contributions. It has also contributed to a more open governance process, for example by anticipating the need for funding the After-service Medical Coverage liability and promoting the ensuing discussions in the governing bodies.
12. Furthermore, improvements continue to be made in the requisite financial management and accountability reporting to the governing bodies; for example, regular reports on financial highlights, budgetary performance, human resources matters and programme implementation reporting. Oversight, compliance and accountability processes include the work of the external auditors, local auditors, internal audit and inspection and the Joint Inspection Unit, as well as the auto-evaluation and independent evaluation process, which are themselves essentially based on a risk assessment of FAO’s operations. These mechanisms contribute to an effective internal and external monitoring of performance, including a critical examination of any departure from expected results.
13. Risk management is a pre-requisite for effective results based management. To ensure that results which meet organizational objectives are achieved, managers must be aware of risks and opportunities. The increasing application of risk assessment to management at all levels of the Organization will assist in maximising the benefit to stakeholders from the resources made available to implement the 2006-07 Programme of Work.
14. “Risks” to conducting the Organization’s work stem from both internal and external factors, including evolving demands, expectations and institutional relationships. They impact upon the effective and efficient achievement of the Programme of Work through their influence on budgetary, financial and operational performance. This section anticipates some of the risks and opportunities that the Organization faces in these areas and, where appropriate, the steps that are proposed to mitigate their impact through 2007. It also highlights areas where effective risk management may lead to new opportunities.
Evolving demands and institutional relationships
The Independent Evaluation of FAO’s Decentralization provided a number of recommendations aimed at better responding to the needs of Members without increasing costs. The Organization will progressively seize those opportunities that it can act upon (e.g. streamlining of administrative processes) within its approved budget.
16. Part of the answer also lies in enhancing FAO's relationship with partners as further outlined in the section on Partnerships. There is a parallel need to address the Organization’s support to the implementation of the Millennium Development Goals (MDGs) and strengthen participation in UN country level processes, which calls for careful scrutiny of FAO’s future positioning in conjunction with the reform effort under way in the UN system. The proposed operational framework for the Technical Cooperation Programme with, for example, greater emphasis on integration with national priority frameworks and the MDGs, also provides an opportunity for the governing bodies to support the Secretariat in improving the effectiveness of FAO’s work.
17. New opportunities for partnerships will also arise as donor countries and funding agencies are renewing their commitments to achieve the MDGs, as evidenced for example by the European Union’s recent commitment to double aid by 2010. The Report of the Commission for Africa also presents a compelling road map on how to support the changes needed to reduce poverty. Major financial institutions intend to enhance their support to the agricultural sector (e.g. the World Bank). The view that agriculture contributes in a significant way to economic growth and prosperity is achieving greater recognition, providing an opportunity for FAO to play a more prominent role at national and international levels. Funding for emergency operations through FAO has also been significant.
18. While this promising context could be conducive to the expansion of extra-budgetary programmes, as further examined in the section on Extra-budgetary Resources, it will be important to guard against excessive dependency on such resources. Members have consistently emphasised that the core activities of the Organization should be adequately funded under the Regular Budget and not exposed to the fluctuating levels and possible constraints linked to voluntary funding.
19. Therefore, flexibility in the methods for implementing the 2006-07 Programme of Work would be required, so that new thrusts, improvements and efficiencies can be incorporated as soon as practicable.
Budgetary risk management
FAO’s budgetary process encompasses a significant element of risk. The budgetary Appropriation for the biennium is not known until November or December of the preceding year, with no lead time for programme adjustments to be implemented if required due to an approved budget level different from that which is proposed. Unplanned or severe budget reductions in real terms, such as those for 2004-05, have to be largely managed through opportunistic savings. Such measures include, for example, a freeze on vacant posts or termination of contracts on agreed conditions - usually with insufficient resources available even for this purpose.
21. A recent Joint Inspection Unit (JIU) report on the implementation of results based management in UN organizations recommended that member states: “should focus on ... providing resources commensurate with the approved programmes, and/or giving clear guidance on programme and resource allocation priorities where sufficient resources cannot be provided
.” The proposals under various resource assumptions are presented with less focus on budgetary detail and more on programmatic results. The narratives in Annex I
, as well as the sections below entitled Approach to Priority Setting
and Definition and Import of Resource Scenarios
endeavour to link resource levels to programmatic priorities and results. The Secretariat will continue to give careful attention to such linkages in the future.
22. The Secretariat continues to pursue efficiencies and productivity improvements, and related measures are described in a section with the same title below. However, the Organization’s tendency to set over-ambitious efficiency targets, as was the case in the PWB 2002-03, is an area of concern. The ensuing over-optimistic projections of efficiency savings in the PWB result in an under-budgeting of programmes during the biennial implementation cycle, with adverse consequences on the achievement of planned objectives. This risk must be managed through achieving a better balance between the need for establishing challenging efficiency targets on the one hand, and a realistic assessment of the timing and degree of efficiency savings on the other. Tentative and speculative analysis on the benefits to be achieved from complex future process changes will be scrutinised with particular caution.
23. Much of the continuing budget reduction which the Organization has faced over the last 10 years, has been absorbed by the achievement of substantial efficiency savings. However, as it becomes increasingly difficult to find new ways of reducing costs while maintaining output, the need to reduce programmes in line with the priorities of the membership is heightened. The internal methodology, which exists and is applied, attempts to avoid fragmentation of programmes. There are, however, growing areas of the Programme of Work that are under-funded if the demand for services is to be fully taken into consideration. Both the Secretariat and the Programme Committee, therefore, continue to seek a priority-setting methodology which recognises the respective roles of the Secretariat and the governing bodies, responds to the collective programme needs of Members and takes account of the importance of maintaining a minimum critical mass of resources for approved programmes.
24. Capital Budgeting, which will be implemented in 2006-07, as approved by the Conference in 2003, allows more systematic planning for large expenditures on assets with a useful life of more than two years. It removes the need to absorb peaks in financial requirements for capital items within a single biennium, which in the past often led to delays and budgetary transfers from substantive programmes. However, its successful functioning in 2006-07 is dependent upon adequate resources in the Capital Expenditure Facility, particularly for institutional infrastructure and information technology. For the 2006-07 biennium, it is proposed to transfer the unspent balance of the arrears made available under Conference Resolution 6/2001 to the Capital Expenditure Account. Despite the existence of an enhanced approach to planning and managing capital expenditure, the danger is that without adequate funding, essential investments will continue to be delayed, and viable investments that have already been initiated will fail to reach their full potential.
25. The system of receiving the Organization’s assessed contributions partly in US dollars and the balance in euro safeguards the Programme of Work from exchange rate risk to the extent that forecast euro requirements are matched by actual payments and assessments are paid on time. The split assessments, introduced from 2004-05, protect programme implementation only from the impact of exchange rate fluctuations of the euro against the US dollar. The system does not provide protection for the approximately 20% of the Organization’s expenditures which is incurred in other currencies. The unfavourable impact on the budget of such fluctuations was significant in 2004, on account of a weakening dollar against some currencies in locations where the Organization has a substantial decentralized presence. A report on performance of the split assessment arrangement is to be considered by the governing bodies in the latter part of 2005.
Financial risk management
The Secretariat actively monitors the financial health of the Organization, including a review of its equity and reserve accounts, and forecasts of expenditure and cash flow:
- steps to reduce the accumulated deficit in the General Fund, as well as proposals for earmarked funding for the After-service Medical Coverage (ASMC) liability, are essential in this regard;
- in a worst-case scenario, eventual cash deficits in 2006-07 could lead to curtailment and forced under-delivery of programmes, despite the authority to spend granted through the budgetary Appropriation. The Secretariat will continue to encourage prompt payment of assessed contributions, although the timing of such payments is in the hands of Members.
27. To safeguard internal controls, especially during a period of further streamlining of procedures and increased delegation, a robust financial controls unit in the Finance Division (AFF) will mitigate the risk of non-compliance with internal administrative and operational procedures. Accordingly, as recommended by the Finance Committee, the proposed budget for 2006-07 at ZRG includes the reinstatement of five posts in AFF which were abolished to meet the reduced budget for 2004-05.
28. An area of expenditure that is difficult to predict and can have a significant impact on the Programme of Work is staff costs. FAO’s methodology for establishing standard rates, which are used for budgetary purposes, is sophisticated and results in unique budget rates for each grade level and location. However, even with refined projection methodologies, actual costs are difficult to predict with total accuracy. A mere 1% variance between actual unit staff cost rates and the standard staff cost rates that are planned up to two-and-a-half years before the costs are incurred, amounts to a forecasting error of US$ 5.5 million. When actual staff costs are higher than the budgeted standard rates, as is the case in 2004-05, the Organization is required to reduce its programmes, products and services, to remain within the approved Appropriation. Although the Special Reserve Account (SRA) can protect the Organization’s Programme of Work against the risk of unbudgeted extra costs that may arise during a biennium, the possibility of having to replenish the SRA through special assessments effectively limits its application in practice.
Operational risk management
29. The Organization must ensure that the working environment and processes in 2006-07 will be conducive to the achievement of its desired results.
30. The staff and assets of the Organization are under greater threat than ever before, and a safe working environment cannot be taken for granted. Improving safety requires increased security at headquarters and the field. To mitigate the security risk, FAO has introduced a number of additional measures at headquarters during 2004-05, including the application of shatter-proof film to windows, installation of road blocks at the main entrances, and hiring additional guards. In the field offices, FAO is taking measures to comply with the UN field security standards. However, the Organization perceives a need for a strengthened financial management framework for this increasingly visible and unpredictable area of expenditure. In 2006-07, the introduction of a separate chapter of the budget, dedicated to security and safety of staff and assets is proposed to facilitate planning and management. This proposal is further outlined in the section below dealing with the Security Expenditure Facility.
31. Another risk comes in the form of threats facing information resources and systems. With the active participation of FAO, the UN system High-Level Committee on Management (HLCM) has recommended that every UN agency adopt a four-stage “road map” for managing information security. To initiate this process, FAO is undertaking an information risk assessment to review both the technical and non-technical aspects of information security.
32. To improve its operational processes, the Organization carefully reviews recommendations arising from other reports or studies. For example, bearing in mind the interim report of the Independent Inquiry Committee which investigated the allegations against the Oil-for-Food programme, FAO is reviewing operational modalities related to national execution.
33. The risks arising from a significant increase in FAO’s emergency work, coupled with the distinctive response needs of such operations, necessitate critical review of the related internal controls, procedural constraints, coordination and management mechanism, budgetary, financial and administrative processes and operational support. Salient policy matters, including a revision of the support cost rates for emergency operations, are to be considered by the governing bodies.
34. A modern-day knowledge institution, with a mandate to maintain itself as a centre of technical excellence, needs to continually examine and update the skill profiles of its staff. The development of the new Oracle-based Human Resources Management System (HRMS), funded from arrears, is a recognition of this challenge. The HRMS will contribute to ensuring excellence by facilitating assessment and development of skills and competencies of FAO staff. Furthermore, in developing the biennial budgets, managers are required to set aside at least 1.35% of staff costs for staff development activities. The Human Resources Action Plan endorsed by the Finance Committee is covered further below.
35. The assessment of risks and opportunities impacting upon FAO in 2006-07, summarised above, seeks to strike an optimal balance between the achievement of goals and related risks. Further information on management’s planned actions in response to the decentralization evaluation is provided below and in separate documents submitted to the governing bodies.
Overview of Resource Scenarios
36. This main PWB document describes the three scenarios of: zero real growth (ZRG), zero nominal growth (ZNG) and real growth (RG).
37. The following table provides an overview of the net Appropriation levels by chapter for these three scenarios, including the totals after cost increases. The scenarios are described in more detail in the section Definition and Import of Resource Scenarios. Annex I: Programme Narratives, Annex II: Regional Dimensions, and Annex III: Detailed Programme Budget Tables provide additional descriptive and financial information on the programme budget. The section on the Proposal for an FAO Security Facility further describes the proposal of the Director-General under the new Chapter 9: Security Expenditure, where US$ 8.8 million is drawn from various provisions for security budgeted in the PWB 2002-03 and the remaining US$ 10.6 million is funded as an exceptional security cost escalation that has been forced upon the Organization.
Overview of Resource Scenarios (US$ 000)
||ZRG 2006-07 Appropriation
||ZNG 2006-07 Appropriation
||RG 2006-07 Appropriation
||General Policy and Direction
||Technical and Economic Programmes
||Cooperation and Partnerships
||Technical Cooperation Programme
|Total before Cost Increases
|Total with Cost Increases