People
At present in many government departments financial management skills are under-represented in the leadership cadre and the contribution of finance teams is not given the prominence that it would in businesses of comparable scale and complexity.
This is to the detriment of government, as it leads to low levels of awareness of issues that may have a significant impact on resource consumption, unrealistic planning and sub-standard decision making. All of which result in a less than optimal consumption of resources for the outcomes sought.
What is needed in government are more people at senior levels in executive management roles with a strong awareness of strategic financial management. Not only with good knowledge of financial management techniques that can be used and the standards that should be met, but also who know the right questions that need to be asked, how financial management systems should be organised and constructed to deliver the answers and the information requirements. Experienced senior people will know the issues that need to be considered and how to derive useful insight. They are focused on the future, not the past or present and skilled in asking the right questions to be able to plan resources to best position the organisation to deliver its plans.
Strategic financial management skills
The ideal is leaders within the organisation who use financial management techniques as a set of strategic tools to ensure that resources are best deployed to meet priorities, taking into account risk and the need to maintain a margin for error. This needs people who can commission and utilise the necessary information on position, cause and effect relationships, risk and predictive analysis. These skills enable financial leaders to understand how to maximise the use of capital invested by the organisation to deliver outputs, ensure that the organisation is sustainable and can meet the full range of liabilities as they fall due.
The difficulty in government is that while many of the people trained in the finance function disciplines, may have some of the technical know-how, insufficient numbers are coming through the system equipped with the wider interpersonal skills and experience needed to be effective at board level. Strategic financial management is a skill that requires many years of experience with a broad exposure to business operations to acquire. This experience is critical to allow senior finance managers to fully understand the wider operating environment, be credible at executive management levels and understand the realities of delivering organisational priorities. Effective financial managers at the strategic level not only know how to create and maintain the systems and processes that can provide them with the information they need, they are skilled at contextualising it to support effective decision making.
Obtaining strategic financial management skills
It is necessary to ensure these senior financial management skills are either created or brought into the organisation at a level where they can have a beneficial impact on decision making processes and the individuals discharging such roles have the presence, communication and influencing skills to be credible and authoritative. All are a product of training and experience that is to some extent generic. Because the discipline is not necessarily tied to the specifics of a particular organisation, such skills are transferrable between organisations and equally effective in the public sector, given remit and resources.
All organisations tend to follow a mixture of either making or buying the skills required to raise standards of strategic financial management. There are advantages and disadvantages of both.
Make the skills in-house:
- Pro - this approach can grow talent and financial skills within the organisation and ensures that skilled finance people understand public sector values and ethos.
- Pro - less likely to cause cultural conflict than external hires
- Con - can be captive to prevailing "group-think"
- Con - people who acquire market recognised skills with commercial value are more inclined to depart for higher value opportunities.
Buy-in senior financial management talent:
- Pro - brings ready-made strategic level financial management skills into the organisation
- Pro - offers the benefit of commercial disciplines and knowledge of what success looks like from the perspective of other organisations
- Pro - can inject pace and have a disproportionate impact if given sufficient mandate with the potential to act as a powerful change agent.
- Con - usually an expensive option to hire high quality senior talent
- Con - there can sometimes be cultural issues for business people in coming to terms with civil service and political priorities that can lead to conflict and a failure to integrate into management structures.
- Con - many senior external hires do not stay long enough for departments to capitalise fully on their experience due to frustration with the system.
Despite the draw-backs, used judiciously, hiring externally at senior level can bring powerful “change agents” into government. While they might spend a relatively short part of their careers in public service, this often means they can challenge current assumptions and have the moral courage to make lasting changes without being constrained by the fear of long term career consequences. They can also be used to give home-grown talent a sense of what “good” looks like and of the standards and level of rigour necessary to deliver reliable insight and outcomes.
While accelerated development schemes for finance people can provide a good long-term solution, governments really need to capitalise on the large pool of external financial management talent to improve their financial management performance in the short to medium term. At times government has really benefited from an injection of externally trained senior talent, however pay and recruitment-freezes can lead to a diminishing in the numbers of people with these skills. Both as a consequence of government roles being less attractive and the exodus of people to better paid jobs back in the private sector. What is needed is a more pragmatic approach to bringing in senior talent, if necessary on short term contracts (2-5 years would be a good range) taking into account remuneration and empowerment.
Care needs to be taken however to select people who are a good-fit for the role they are expected to play and there is a role for the head of the government finance profession in ensuring that senior financial appointments not only have the requisite financial skills, but also will fit in.
It is of course not sufficient to simply acquire the skills, they have to be supported with the authority and ability to deploy resources to build reliable systems and processes to discharge their roles effectively.