| CL 119/INF/12
|
| CL 119/INF/12
|
Hundred and Nineteenth Session |
Rome, 20 - 25 November 2000 |
REPORT ON EFFICIENCY SAVINGS
|
1. At its September 2000 session, the Joint Meeting of the Programme and Finance Committees noted, in the context of the discussion on the Medium Term Plan, that efficiency considerations were germane to a discussion of resource requirements, and requested that a document on efficiency gains be prepared for the November Council meeting. The Committees also noted that, in the circumstances, the normal distribution rules for documentation were unlikely to be met. In response to the request, this document provides a summary of the process which has been underway in FAO since the Director-General took office in January 1994 to improve the Organization's efficiency.
2. Efficiency savings have been defined by FAO Council as "reductions in the costs of inputs without material negative impact on the outputs". In accordance with this definition, during this period, the Organization has approached achieving efficiency savings in three ways:
3. As staff positions account for the vast majority of FAO budget (over 70%), contractions and shifts in the staffing establishment provide an effective overview of the Organization's progress in downsizing. The table below shows that the Regular Programme post establishment (all sources of funds) has been reduced by 677 posts since 1994, due to a combination of efficiency savings and refocusing of programmes.
| 1996-97 PWB Base (C 95/3) (1994-95 Proposal) |
2000-01 PWB (C 99/3) | Total Change: 1996-97 Base to 2000-01 | |
| Professional | |||
| Headquarters | 1 186 | 972 | -214 |
| RO/SO/LO/JD | 146 | 286 | 140 |
| FAORs | 155 | 157 | 2 |
| Grand Total Professional | 1 487 | 1 415 | -72 |
| General Service | |||
| Headquarters | 1 765 | 1 134 | -631 |
| RO/SO/LO/JD | 246 | 353 | 107 |
| FAORs | 687 | 606 | -81 |
| Grand Total General Service | 2 698 | 2 093 | -605 |
| Total (Professional and General Service) | |||
| Headquarters | 2 951 | 2 106 | -845 |
| RO/SO/LO/JD | 392 | 639 | 247 |
| FAORs | 842 | 763 | -79 |
| Grand Total | 4 185 | 3 508 | -677 |
4. Attention is drawn in particular to the extent of downsizing at FAO Headquarters, especially in the case of General Service posts where a reduction of 631 posts or 36% has been implemented. Thus, although not all of these post reductions can be attributed to efficiency savings, some of the main organizational trends are visible, including the decentralization of both Professional and General Service posts, and reductions in Headquarters General Service posts due to the influences of office automation and outsourcing (explained further below).
5. The following is a summary of the main actions taken which are considered input-oriented efficiency measures aimed at taking advantage of favourable cost differentials.
6. New Partnership Agreements - the acquisition of professional expertise now encompasses a variety of innovative partnership arrangements, including agreements for the use of experts for technical cooperation between developing countries and between countries-in-transition, for visiting experts from academic and research institutions, and for retired experts and young professionals. While the main objective of the FAO partnership programme is to enhance the spirit of cooperation and partnership based on mutual benefits, there is also a clear economic dimension. The favourable financial impact arises because the average cost per work-month under these schemes is approximately US$ 6 000, while the average cost for an international consultant is approximately US$ 15 000. Assuming that each work-month of expertise employed under these new agreements (excluding young professionals) substituted the same number of work-months of international expertise, savings of US$ 11 million were generated in 1999. While this assumption may be appropriate in many cases, there is no means to actually determine the degree of substitution.
7. Replacement of Country Office International Programme Officers with
National Professional Officers - cost savings associated with eliminating the
positions of internationally-recruited Programme Officers in the FAO Representations and
replacing them with 65 National Professional Officers amounted to US$ 5 million
per annum.
8. Downgrading of Professional Posts - as FAO's grade distribution has been higher than the United Nations average for professional and higher-graded staff, a concerted effort has been undertaken to improve the average grade level by reducing the number of Director and P-5 posts and increasing the number of lower-graded posts. Thus, since 1 January 1994 the Organization has seen the elimination of 36 or 18% of Director level posts and 45 or 12% of P-5 posts, whereas P-3 and P-2 posts have increased by 35 posts or 14%, even though there were reductions overall. Estimated savings, at constant prices and using average cost per post, amount to approximately US$ 4 million per annum.
9. In trying to meet the approved reductions in budget levels, the policy of the Organization has been to protect, to the extent possible, the professional capacity of the Organization and therefore to concentrate staff reductions in the General Service category where declines in workload justified such reductions. This has been achieved through two major efforts:
10. Office Automation - FAO has engaged in Organization-wide implementation of information technology along three fronts:
11. Outsourcing - outsourcing has been applied where it was deemed economically advantageous, taking due account of the human and social aspects of such decisions. One example of successful outsourcing concerned provision of maintenance services by the building trades, where staffing was reduced and replaced by more economical contracts with local companies.
12. It is estimated that a reduction of 250 General Service posts can be attributed to these improvements and that the net savings from reductions in support staff are in the region of US$ 12 million per annum.
13. Regional Offices, which are among the primary sources of support to country offices, have been significantly expanded in recent biennia by the establishment of technical department groups, policy assistance branches, and operations branches. The decentralization of over 100 General Service posts has created approximately US$ 2 million per year in savings due to the differential in salary rates for local staff in Rome versus other locations.
14. Change in Contracts for Purchase of Airline Tickets - in 1996, the Organization undertook a change in its approach for the purchase of airline tickets, by switching from contracts which assumed the use of endorsable tickets, to contracts wherever practicable based on non-endorsable tickets. In 1998-99, approximately 57% of tickets were issued on a non-endorsable basis, at an average saving per ticket of 32%. This resulted in net savings of 18% from all ticket costs in 1998-99, producing annual cost savings of approximately US$ 2 million.
15. Moreover, in May 1999, the "80 percent" option1, which was originally offered only in the case of home leave travel, was extended to include all forms of entitlement travel. An analysis of savings resulting from this change is currently being undertaken.
16. Communication Costs - the Organization switched communications service providers under competitive international bidding. As has been the case with other agencies, very significant savings were achieved through reduced unit costs, and improvements in business process and quality of service to Member Nations were possible from the resulting increase in the volume of all forms of communication. Although exact savings are difficult to quantify in absolute terms because of the offsetting increase in communications volume, they are estimated in the range of US$ 2 million per year.
17. Process-oriented savings have focused on changing policies, procedures and ways of working, with the aim of streamlining operational and administrative functions. They have included modifications to the delegation of authority conferred on officials of the Organization, whilst ensuring that an acceptable level of internal control and stewardship of resources are retained. Thus, process-oriented efficiency savings have been achieved through restructuring initiatives and related streamlining measures, which have required extensive internal discussion and evaluation, and generally a longer time span to implement.
18. The number of layers of management can be a constraint to efficient decision making. In FAO, an extra layer had grown up over the years in the form of assistants to Assistant Directors-General or even to Division Directors. These senior level staff, who were usually in the Director grade category, tended to review and make recommendations on all matters coming before their superior officer, with the effect of introducing an unofficial but very real additional layer. All such posts were removed from the structure at a saving of approximately US$ 3 million per annum.
19. The financial policies underlying publications production were restructured to increase the use of external suppliers for editing, translation and printing. In effect, the internal subsidies inherent in previous arrangements were removed and client divisions were allowed to go outside for all except selected outputs. Furthermore, the use of remote translation for the Regional Conferences has increased substantially, resulting in significant savings for travel and daily subsistence allowance (DSA). Total savings under this category amount to approximately US$ 6 million per year.
20. With the full support of the Governing Bodies, considerable reductions in the cost of running meetings have been achieved by reducing the length of meetings (e.g. the Conference which used to run for three full weeks was reduced to nine working days in 1999) and the length of meeting documentation. Estimated savings are approximately US$ 2 million per annum.
21. The Administration and Finance Department (AF) undertook a major review of all administrative and financial procedures with a view to reducing the number of steps in each procedure and to eliminating any steps which were duplicative or did not add value. This resulted in the revision of a large number of procedures, many of which were possible to implement under the new financial and administrative system which is based upon the Oracle package. While it is difficult to attribute specific savings to some of the streamlining actions (such as those aimed at reducing the number of bank accounts that the Organization operates), such actions have contributed to the Organization's capacity to reduce the level of support staff as described in the sections entitled Creation of Centralized Management Support Service (below) and Reduction in Support Staff (above).
22. During 2000-01, the existing Headquarters Management Support Units (MSUs) were replaced by a centralized management support structure, reporting to the Assistant Director-General, AF, providing personnel servicing and financial transaction processing support to all Headquarters departments and divisions. The new system, and with it, some immediate changes in procedures, has promoted a process of delegated responsibility for resource management within departments and divisions. Furthermore, it has allowed the processing of administrative actions to be initiated directly in the originating unit and under the approval of the Budget Holder, with the document passing electronically to the appropriate Business Unit within the Finance Division (AFF). The result is reduced handling costs and less duplication of effort throughout the process. Total net savings attributable to the creation of the MSS structure, taking into account certain offsetting costs incurred under AFF, amount to approximately US$ 3 million per annum.
23. The decentralization of field operations has been part of the overall strategy to improve the delivery and efficiency of operational services. This has followed a number of phases:
24. As all of these changes occurred simultaneously with a significant decline in the level of field programme delivery, it is difficult to attribute a specific part of the cost reductions to "efficiency savings". However, the initial analysis of decentralization reflected savings of close to US$ 5 million per annum beyond those already attributed to cost differentials for General Service staff as per paragraph 13 above. This does not include the additional savings from the last of the three phases as this part of the process is still under way. Analysis of likely levels of savings lead us to conclude that a further net cost reduction of at least US$ 1 million per annum is feasible.
25. As indicated above, this total of approximately US$ 6 million per annum cannot be entirely attributed to efficiency as the level of operations and the related support cost income has declined during the same period. For example, non-emergency delivery and related support cost income has fallen by over 20% from 1996 to 1999.
26. On the other hand, the improvement in efficiency of delivering field programmes, is clearly evidenced by the fall in the level of administrative and operational support cost (AOS) when stated as a percent of the related delivery. As reported in the Programme Implementation Report (C 2001/8), this percentage has fallen from 14.1% to 10.7% between 1996 and 1999.
27. Budgetary restrictions in recent biennia have necessitated finding every possible means to reduce the burden on Regular Programme budget, prompting the FAO Council to include increased recovery of the technical support services provided by the Organization in its definition of "efficiency savings".
28. There has been a concerted effort to improve the level of reimbursement of technical support services to field projects. This has included all field activities, whether funded from Trust Funds, the UN system (e.g. UNDP), or from the Regular Programme. Total recoveries for technical support services from external funding sources is estimated to be US$ 4 million per annum.
29. The information provided above attempts to categorize the efficiency savings that have been achieved since 1994 under a number of main headings. The search for efficiency savings is an ongoing management process and it is not practical to list and quantify all actions taken, particularly secondary effects. For example, reduced inventory levels for publications have resulted in lower external storage costs, and decentralization of professional staff will have resulted in lower travel costs for officers travelling to countries within their region of work.
30. Based on the information provided above, however, it can be concluded that between US$ 50 million and US$ 60 million per year in identifiable savings have resulted from streamlining and other efficiency measures initiated in the last three biennia.
31. Finally, although these efficiencies and improved streamlining measures have an on-going financial impact, care must be taken not to assume that further savings of such magnitude can be achieved, as there is a limit to efficiency which is seen in an eventual decline in effectiveness.
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1 The possibility for staff undertaking entitlement travel to opt for 80 percent in cash of the full purchase price of the ticket.
