Linking Strategic Operational Planning and ResultBased Budgeting RBB

Linking Strategic, Operational Planning and Result-Based Budgeting (RBB) Prepared by: Artur Gomes ITU Geneva, 12 April, 2005 CE v 5. 5

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: THE REQUIREMENTS FOR PROFESSIONAL MANAGEMENT AND TRANSPARENCY • The planning systems used at ITU, do not provide a clear linkage between the Union’s Strategic, Operational and Budget Objectives. • ITU management, the Council and at the PP recognize the need to establish a clear linkage between the Strategic/Operational plans and the Budget in order to increase transparency, and facilitate the evaluation of performance and consistency between planning levels. • In the context of the implementation of a RBB and Cost Accounting System, we were asked to develop a proposal for an approach to establish the linkage between these three levels. This approach, if approved, would represent a significant improvement as it will: ü Provide the conditions for the Council an the PP to determine to what extent the strategic objectives for each planning period are being achieved (Strategic Framework); ü The Strategic Plan would be directly linked and serve as the basis for the preparation of the Operational Plans and their presentation to the Council on a timely basis, i. e. to have them submitted, reviewed and approved by Council before the period to which they relate; ü Provide the basis and the inputs for a timely discussion of the Budget Objectives and the preparation of Budget Guidelines, creating transparency in formulation and improving the quality of the RBB as a tool to improve the quality of management; ü Avail actual and forecast information concerning budget performance, as an input for the analysis of the Council and preparation of information to the PP, ensuring the integration of the planning and controlling processes at ITU. • This document presents our recommendation for the integration between strategic, CE v 5. 5 operational and financial planning at ITU. © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 2

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: BRIEF SUMMARY OF WORK DONE In order to understand the present systems we performed the following work: • Reviewed the procedures for the preparation of input for the definition of the strategic objectives and the establishment of the financial plan; • Reviewed the Operational Plans prepared by the Sectors, to try to understand to what extent they have a linkage with the ITU strategic plan and the consistency of the methodology followed in their preparation; • Reviewed the existing procedures and the RBB system recently implemented to determine to what extent it responds to the requirements for the linkage between these three levels of planning; • Had meetings with Sectors elected Officials and ITU staff and informally discussed this subject with representatives of member states, to understand their requirements and to take note of their recommendations concerning the changes required; • Reviewed the report of the high level Committee on Reform; • Discussed with the consultants (Capgemini) in order to have their opinion on the basic requirements for the development of a recommendation that is consistent with the consulting work underway; • Discussed informally our ideas with a number of ITU staff to understand their perception of this requirement. • The presentation that follows represents our recommendation of a solution that, after the necessary review and discussions and eventually modifications for improvement of its quality, should be adopted and submitted to the review and approval of the 2005 Council. CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 3

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: SHORTCOMINGS OF THE PRESENT SYSTEM (1/2) • Under the current regulations, the ITU strategy is defined in the PP, based on input from a Group appointed by the Council. The input of the ITU management to the work of this Group is very limited. The strategic document consists in a set of general statements of the goals and objectives to be achieved by ITU, and the establishment of a financial plan for the following four years, including fixed and variable revenues; • Based on the opinion of representatives of Member States with whom we talked, the Operating Plans do not take in consideration how the activities of Members’ Administrations contribute to the achievement of the ITU strategies. Due to the limited scope of this work, it was not possible to obtain the contribution of people interviewed on how this can be achieved. • The ITU strategic document does not establish the strategic objectives for the Sectors, nor does it show the linkage with the Sectors Plans. In preparing their Operational Plans, the Sectors, supported by the Advisory Groups, define their Strategic Objectives, based on their interpretation of how their activities will meet the Strategic Objectives of ITU, and determine the activities and resources necessary to support them; • The Sector Operational Plans are not prepared using a common structure. Because of the different structures, consolidation of the Sectors Operating Plans is not possible, as it is not possible to determine objectively how these Plans meet the Overall Strategic Objectives of ITU; CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 4

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: SHORTCOMINGS OF THE EXISTING SYSTEM (2/2) • Under the existing regulations, the timing of preparation and review of the Operational Plans by the Council is not appropriate. The Operational Plans for 2005 will be submitted for review and approval in the 2005 Council. Any remarks or recommendations of the Council concerning these documents will not have a practical effect on the operational activities of ITU during this period; • The current Operational Plans do not provide the information necessary for the preparation of the RBB. When the Draft Budget is prepared, it requires a high volume of redundant work that could be avoided if there was integration between Operational Plan and the RBB and a different process and timing for the preparation of the Budget; • The BR developed recently a new model of the Operational Plan, covering a four years period which is now in its final phase of preparation (See next slide). When completed, this will represent a significant improvement in Operational Planning. Similar work is being made in other Sectors, but no formal action was taken to use a common methodology. The Working Group on Financial Regulations on its January meeting, recommended that, with the appropriate customization, the BR approach should be used by all the Sectors, including the Secretary General and Telecom. CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 5

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: NEW STRUCTURE OF THE OPERATIONAL PLAN FOR THE RADIOCOMMUNICATION BUREAU CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 6

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: WHY CHANGES IN THESE PROCESSES SHOULD BE MADE AT THIS STAGE? 1. Changes in Processes and Systems that may have drastic implications on financial management In recent years ITU has introduced a number of changes in its management procedures and, in 2004, following the recommendations of a Group of Specialists, the Council approved a project for the implementation of the recommendations of the GOS, with the following objectives: • Design and implementation of a new budgetary system and a cost accounting system, supported by a time tracking system; • Definition and implementation of an ICT strategy; • Development of a BPR review and preparation of an implementation plan of the opportunities identified. Due to the significant changes in processes at ITU, the Council already decided to establish a Working Group to review changes that may be necessary to the financial regulations and eventually with implications in the ITU Constitution and the Convention that will have to be approved by the Plenipotentiary Conference. Our recommendation, if adopted, may also have implications on the current financial regulations and should be reviewed by the Working Group on Financial Regulations. The recommendations contained herein will be provided for review and analysis to the Chairman of the Group on Financial Regulations. CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 7

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: PRELIMINARY STATEMENT WHY CHANGES IN THESE PROCESSES SHOULD BE MADE AT THIS STAGE? 2. Reasons supported by the assessment of the ITU management concerning the shortcomings of the current financial management system 1. In the interviews conducted with the elected Officials there is a common understanding that: • Due to the changes in the telecommunications environment, ITU activities are becoming increasingly dependent upon the Union’s ability to compete with other entities. The current system does not provide sufficient flexibility to accommodate the requirements of the new circumstances; • The current financial management system does not give the Directors of the Sectors the flexibility necessary to reallocate resources between projects or to use them in alternative projects justified by changes in circumstances; • The activities of the Sectors include a number of revenues of a variable nature that can change significantly in short periods of time. The Directors of the Sectors consider that in order to cope with changes in activities associated with variable revenues, when justified, the financial system should allow for changes to the financial plan; • The current regulations do not encourage the Sectors to increase their effectiveness. In fact when there are cost savings due to improvements in efficiency, the system does not allow the Directors to propose the use of all or part of the savings in alternative projects justified by changes in the telecommunications environment (technology, regulation, etc. . ); • The Directors believe that changes do decentralize management and increase flexibility in the use of resources are necessary to adapt ITU management practices to the current environment. Changes required, may have significant implications in financial regulations and as stated before CE v 5. 5 this is the right time to propose these changes, as otherwise ITU will loose another four years before © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 8

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: PRELIMINARY STATEMENT WHY THE CHANGES IN THESE PROCESSES SHOULD BE MADE AT THIS STAGE? 1. 2. Reasons supported by the assessment of the ITU management concerning the short-comings of the current financial management system (Cont. ) • Concerning Sector Member Contributions and contributions from other entities cooperating with ITU, there is an understanding that the present regulations do not assure sufficient involvement of Sector Members to participate in decisions concerning the use of resources with which they contribute to the Unions’ activities. At the same time Sector Member Contributions are treated as ITU assessed contributions. These rules do not encourage the Sectors in raising the levels of Sector Members Contributions; • There is the perception among the ITU management that, due to Governments’ budgetary constraints and the changes in telecommunications business (mainly privatization), assessed contributions will not increase in the future and that they are likely to decrease as happened after Marrakesh. This is already creating difficulties for ITU to finance its activities. There is agreement that if the Union wants to keep its role in the future, it has to become more effective in managing resources and to find alternative resources for its programs. There is agerement that changes to financial regula-tions may be required to encourage the Sectors to search for additional sources of revenue, at the same time giving them a more active role in the decisions concerning the use of these funds. • As a last point, there is agreement between the Directors that the necessary changes have to be identified now and prepared for analysis in the next PP conference. In practical terms this means that the time line to address most of these issues is the 2005 Council. Any postponement of these decisions will represent at least a loss of another four years, a time that ITU cannot afford to loose. CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 9

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: RECOMMENDATIONS CONCERNING THE PREPARATION OF THE STRATEGIC PLAN RECOMMENDATIONS FOR IMPROVEMENT OF THE CURRENT SYSTEMS • The review and approval of the ITU Strategy shall be left to the PP based on the recommendations of the Council as is done presently. • The Group appointed by the Council to prepare the document regarding strategy has a very limited or no active participation of the ITU management. In order to improve an integrated planning process at ITU and the quality of the document submitted to the Council, the new planning process should provide for the active participation of the ITU management in the formulation of the strategy from the beginning. In order to provide continuity and feasibility, the strategic proposal of the Council Group should be based on the performance for the current period and in practice would be a joint proposal of the ITU management and the Council to be used in the PP for review and approval covering the overall ITU and the Sectors’ Strategic Objectives. • The strategic input for the PP discussions, should be supported by a list of the aggregated outputs for the current period and the proposal of the Council for the subsequent period. Using the tools developed to prepare the RBB with the necessary adaptations, this proposal should represent the basis for the analysis by the delegates to the Conference and to the establishment of the Strategy for the following period and the preparation of the Financial Plan. • With the modifications proposed, the Strategic Plan approved by the PP would be a more comprehensive document and serve as a direct input to the Sectors Operational Plans. If this recommendation is accepted, integration between Strategic and Operational Planning would be assured as well as the linkage between these two levels without any requirement for reconciliation. CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 10

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: RECOMMENDATIONS CONCERNING THE PREPARATION OF OPERATIONAL PLANS • Concerning the structure and contents of the operational plans, we recommend that ITU adopts the document prepared by the Radio Sector with the necessary improvements and adaptations to the other Sectors. In summary, the Operating plans should at least be composed by the following information: • Presentation of the strategic objectives approved in the PP and the Sectors priorities; • List of the aggregated outputs through which the Sectors will materialize the strategies. If there are significant changes in circumstances, the Sectors, supported by the Advisory Groups should be allowed to propose to the Council alternatives properly supported for analysis and approval; • Definition of the detailed programs/projects (outputs) and related objectives, plans for their execution, and how these will meet the aggregated objectives approved for the period; • Definition of the KPI’s for the measurement of effectiveness of the activities and for the organization as a whole; • Quantification and consolidation of the resources required for each program/project (man days, documentation, outside resources, etc. ); • Preliminary validation of the financial feasibility of the plans. • As confirmed by some representatives of the shared services, this would represent the ideal solution for the preparation of their budget assumptions and the level of services required. CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 11

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: RECOMMENDATIONS CONCERNING THE PREPARATION OF OPERATIONAL PLANS • The Operational Plans prepared according to these principles would provide visibility, transparency and consistency between the strategic, operational and financial planning and, among others they would: • Demonstrate how ITU globally, and the Sectors propose to materialize the strategic objectives approved by the PP; • Perform a first validation of how ITU proposes to its members, to allocate resources to the budget; • Provide an opportunity for the Council to review the Operational Plans on a timely basis and to be involved in definition of the budget assumptions and guidelines, before ITU starts the preparation of the budget, and • Serve as the main input for the preparation of the Budget and the Budget Guidelines. • The following slides present a proposal for the implementation of an integrated planning process at ITU, including the preparation of forecasts. CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 12

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: INTEGRATED PLANNING PROCESS: STRATEGY DEFINITION Year 0 - Plenipotentiary Conference ITU PROPOSED STRATEGY, INCL. ITU OBJECTIVES Council Group Year 0 With the cooperation of the management of ITU, prepares a proposal for review and approval by the Council Year 0 Review and approves proposal and adopts It to present to the plenipotentiary SECTORS OBJECTIVES AGGREGATED OUTPUTS FINANCIAL PLAN ITU MANAGEMENT REVIEW AND ADOPTION ITUITU APPROVED STRATEGY, INCLUDING INCL. Approved Strategy ITU OBJECTIVES Plenipotentiary Conference Year 0 Approves Strategy for the following four years SECTORS OBJECTIVES AGGREGATED OUTPUTS FINANCIAL PLAN CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 13

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: INTEGRATED PLANNING PROCESS: OPERATIONAL PLANNING Year 0 - Plenipotentiary Conference Year 0 SG and the Sectors ITU APPROVED STRATEGY, INCLUDING Sectors’ Advisory Groups ITU OBJECTIVES With the cooperation of the Sectors Advisory Groups and based on the ITU approved Strategy define priorities and prepare their four years Operational Plans, including: 0 SECTORS OBJECTIVES AGGREGATED OUTPUTS FINANCIAL PLAN SUBMITTED TO THE COUNCIL FOR APPROVAL, TOGETHER WITH • Four years Operating Plans • Forecast (First year of current budget biennium) • Proposed Budget Guidelines for next biennium SG and the Sectors Operating Plans • Plan for the preparation of next budget period • Preliminary estimates of fixed and variable revenues • Preliminary analysis of financial feasibility • Proposed solutions for budget issues CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 14

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: INTEGRATED PLANNING PROCESS: RESULTS BASED BUDGET Year 1 - Last year of current Budget Period SG and the Sectors ITU APPROVED STRATEGY Year 1 FOUR YEARS OPERATING PLANS Sectors’ Advisory Groups CURRENT PERIOD FORECAST BUDGET GUIDELINES With the cooperation of the Sectors Advisory Groups prepares the Draft Results Based Budget: FEASIBILITY ANALYSIS PROP. SOLUTIONS FOR ISSUES 0 SUBMITTED TO THE COUNCIL FOR APPROVAL Result-based Budget composed of: ITU Result-based Budget CE v 5. 5 • • Executive Summary Analysis of Evolution of Financial situation Analysis of Risks and Opportunities Analysis of Results by Sectors Financial Budget Forecast (Second year of current budget biennium) Approval of Accounts for first year of current budget period © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 15

NKING STRATEGIC, OPERATIONAL PLANNING AND RBB: BUDGET PREPARATION TIMELINE (Assumption: Council in October) Input of Advisory groups to Budget Guidelines 2006/07 Council approval Budget Guidelines 2006/07 STEP A: Planning Sector, SG and Telecom to Complete their operating plans STEP B, C, D: Financial Budget STEP E: Preliminary RBB STEP F: RBB Fcast Preliminary RBB budget Draft budget for Council review and approval Council approval Budget Input of Advisory groups to Budget Guidelines Council approval Budget guidelines STEP A: Planning Preliminary Plan of personnel Budget Guidelines Investment Plan Preliminary (high level) Operating plans ? Other budget assumptions Preliminary estimate of revenues Forecast for the second year of current budget period Financial Budget Forecast for the Current budget Period 2006 Finance to prepare preliminary budget Review of Organization Structure Definition of Priorities with the Advisory Groups CE v 5. 5 Co. Co review redefinition of priorities Introduction of changes Decision of final proposal Deliver to Council Sector operating plans and activities Preparation plan July / October Finance do develop basic information and Financial budget Labor, overhead rates, etc. Nov / Dec January / February March / May 2007 June July / October Nov / Dec Budget execution © 2005 Capgemini - All rights reserved 2008/2009 ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 16

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: OPEN ISSUES FOR DISCUSSION • OPEN ISSUES FOR DISCUSSION WITH POTENTIAL IMPLICATIONS ON FINANCIAL AND OTHER REGULATIONS: • Definition of fixed and variable revenues • Responsibilities for fund raising concerning donations, variable and or temporary contributions • Allocation of variable revenues to the Sectors • Definition of the levels of cost recovery by Sector • Definition of the percentage of Sector activity to be financed by assessed contributions • Mechanisms to finance programs/activities depending from variable revenues when these are below budgeted levels • Allocation of non budgeted revenues to the Sectors • Appropriation of budget savings by the Sectors to finance activities not covered by the budget CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 17

LINKING STRATEGIC, OPERATIONAL PLANNING AND RBB: NEXT STEPS DESCRIPTION OF ACTIONS DATES • NCOG review of present proposal April 14, 2005 • Discussion of proposal in FINREGS April 2 x, 2005 • Preparation of document for review of 2005 Council May 2 x, 2005 • Review and approval by 2005 Council June xx, 2005 • Appointment of Council Group to design and implement solution Council June xx, 2005 • Improvements in quality and uniformization of format of Operational Plans April 30, 2006 • Definition of changes required to ITU governing documents April 30, 2006 • Proposal to 2006 Council for review and approval April 30, 2006 • Integration of required changes in FINREGS report April 30, 2006 • Preparation of strategic proposal for 2006 Council review Council June xx, 2006 • Council approval of strategic proposal to to the 2006 PP July 31, 2006 • Preparation of the proposal to the PP PP, October 2006 • Presentation, discussion and approval of proposal CE v 5. 5 © 2005 Capgemini - All rights reserved ITU LINKINGSTRATPLANBUDGETFINAL (V 1. 3. 0). PPT 18