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AGA CPAG Research SeriesReport No. 20March 2009

Performance-Based

Management


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2 AGA Corporate Partner Advisor Group Researc

About t e Researc ersPer ormance-Based Management is the product o a

multi-year collaboration o many organizations and indi-viduals. This report covers the second phase o that e ort,which was led by Cli ton A. Williams, CPA, CGFM, a part-ner at Grant Thornton LLP in Alexandria, Va. Principal par-ticipants in the research include Jon Lemon and John Stultz

o SAS, Steven Feller and Sunil Datt, CGFM, o IBM, and James St. Clair o Grant Thornton. James A. Brimson, MBA,author o the Handbook of Process-Based Accounting(AICPA,2002), advised and assisted in the second phase and wasthe principal researcher and author o the rst phase, whichwas reported in Process-Based Financial Reporting, CPAGReport No. 10, April 2007.

The Association o Government Accountants (AGA)would like to thank the members o the the researchprojects Advisory Group (see Appendix A o this report)and the seven ederal agencies that participated in the pilotproject (see page 4).

The views expressed in this report are those of the researchersand not necessarily those of AGA.

Acknowledgements

AGAs Corporate Partner Advisor Group Researc Program:Building t e Bridge Between Government and Industr

Corporate PartnerAdvisor GroupLeaders ip:

C airmanHank Steininger, CGFM,CPA

Managing Partner,Global Public Sector,Grant Thornton, LLP

Vice C airman John Cherbini, CGFM, CPAPartner KPMG LLP

AGA Pro essional StaRelmond Van Daniker,DBA, CPAExecutive Director

Anna D. Gowans Miller,MA, MBA, CPA

Director o Research

Susan FritzlenDirector o CorporatePartner Program

Marie S. Force, MADirector o Communication

Christina CamaraPublications Manager

Sponsor: AGA is Proud to Recognize t e Firms Supporting T is E ort

Grant Thornton LLP, ounded in Chicagoin 1924, is one o the largest accounting andmanagement consulting rms in the world.Grant Thorntons Global Public Sector, basedin Alexandria, Va., is a global management

consulting business with the mission o pro-viding responsive and innovative nancial,per ormance management, human capitalmanagement and systems solutions to gov-ernments and international organizations.

IBM Global Business Services is oneo the worlds largest consulting servicesorganizations, with expertise spanning aull range o key business issues in virtuallyevery country. With more than 4,100 nan-

cial management pro essionals around theglobe, IBM is a trusted adviser to industryand government CFOs and nance leaders,helping to manage complexity, balance riskand drive strategically aligned results.

SAS is the leader in business analyticsso tware and services, and the largest inde-pendent vendor in the business intelligencemarket. Through innovative solutions, SAShelps customers improve per ormance and

deliver value by making better decisionsaster.

AGAs Corporate Partner Advisory Group (CPAG),executive director and director o research arecreating research projects o value to governments,industry and the entire AGA membership. These studies are

expected to result in reports assessing current and/or bestpractices and make recommendations or uture improve-ments in ederal, state and local governmental accounting,auditing and nancial management. CPAG members sup-port AGA research through either cooperative or sponsoredresearch projects. By undertaking research, AGA is ul ll-ing its mission as a thought leader in advancing governmentaccountability, said AGA Executive Director Relmond VanDaniker, DBA, CPA. This is one o numerous researchinitiatives that will bene t government and bridge the gap between the public and private sectors.

The CPAG was organized in 2001 as a business elementwithin AGA. The mission o the CPAG is to bring industryand government executives together to exchange in orma-tion, support pro essional development, improve communi-

cations and understanding, solve issues and build partner-ship and trust, thereby enhancing AGAs ocus on advancinggovernment accountability. Corporate member involvementin the CPAG is limited to organizations that sign up or theAGA Corporate Partner membership program.

For more in ormation on the Research Program,please visit the Research Section o the AGA website atwww.agacgfm.org/research/default.aspx or contact Anna MilAGA Director o Research, at [email protected].

Cover Photo Courtesy of: Lockheed Martin/David Drais

IBM is a registered trademark of the International Business Machines Corporation


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Executive summar 4Introduction and overview 6

PBM answers complex questions 6Template or pilot project reporting 7PBMs multidimensional benefts 8

PBM demonstrated to be easible in t e ederal government 9PBM at t e Federal Transit Administration 9PBM at t e U S Coast Guard 12Lessons learned rom P ase II 16

Federal legal guidelines or PBM 17XML/XBRL 17

XBRL in government 18XBRL or PBM fnancial reporting: a suggested model 19

Outcomes o t e wor to date 19Next steps 19C o n c l u s i o n 1 9

Appendix A: Advisor group members 20Appendix B: Statutor requirements related to per ormance-based management 21Appendix C: XBRLPBMs Rosetta Stone 23Appendix D: PBM tec nolog guide 27

t Able of c ontents


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e xecutive s ummAryPublic o cials can speed up and enhance government

re orms and transparency through per ormance-based man-agement (PBM) right now with modest changes to existingin ormation systems. PBM integrates existing nancial, op-erations and other data into eye-opening and actionable actsor enlightened decisions. It is able to consistently track costand per ormance over time and improve predictive ability.

PBM is fexible, so that di erent entities can tailor it to theirneeds and still give top leaders consistent, cross-governmentviews o per ormance and the cost o creating societal value.

PBM pilot participants: U.S. Coast Guard, Department of Homeland Securit (DHS) Customs and Border Protection, DHS Federal Transit Administration,

Department of Transportation (DOT) Foreign Service Retirement and Disabilit Fund,

Department of State Department of the Interior Dr den Flight Research Center, National

Aeronautics and Space Administration Veterans Emplo ment and Training Service,

Department of Labor

Government leaders without PBM (or something verylike it) will miss opportunities to lower costs while improv-ing per ormance. Their decisions will be based more onmanagement experience and intuition than acts, instead othe right mix o all three. The chance o poor per ormancewill be higher. Should act-poor decisions continue todominate, it will be harder to achieve an adequate return oninvestment (ROI) and other measures o achievement.

W manage per ormance? It is at the core of results-oriented management (Is the

ship on course?). It fosters internal learning and improvement (Is the ship

running well?).adapted from Oregon Progress Board

PBM a success at ederal entities. In 2008, seven ederalgovernment entities started piloting the development o PBMreports to take a resh look at their nancial and managementdata. Because o their experience, pilot participants and theadvisory group (see Appendix A or a list o advisory groupmembers) said that PBM delivers the ollowing bene ts: Integrates nancial, internal control and performance

data to provide insight ul, multiple views o operations.

Provides a structured way of combining all managementand operations improvement initiatives.

Links performance to speci c line-item costs, not justoverall program costs.

Affords predictive and forward-looking support forper ormance-based budgeting.

Helps assess risk, cost and performance and enables an

agile response to changes in demand or environment. Enables elements in the enterprise architecture to be bet

ter understood and classi ed. Enhances transparency through multidimensional

reporting that lets o cials and citizens see cost, per or-mance and internal control in ormation in one snapshot.

Improvescommunication among entity leaders and managers, policy makers, oversight groups, elected o cialsand citizens.

Delivers what pilot participants call integrated awarenessthe big picture in ormation that decision-makersneed to keep their organizations steering in the rightstrategic directionand provides the data that managersneed to detect and solve per ormance problems.With new in ormation comes the opportunity to break

old paradigms, said one pilot participant. Others pointedout how PBM uses statistical analysis to red-fag areas inneed o low- or no-cost improvements that increase pro-ductivity. It acilitates rolling up or drilling down todi erent levels o cost and per ormance or root-causeanalysis leading to success ul change. PBMs resh insightswill inspire a creative approach to organizing and operat-ing programs, help implement them, and document theirprogress and success. It is the ideal tool or achieving higherlevels o per ormance, particularly in government.

Getting past a compliance mindsetToo often, government entities view reporting on nancial,

performance and other related matters as burdensome com-pliance with outside rules. PBM overcomes this compliancemindset b making nancial reporting relevant to both theproviders and the users of the information.

Integrated awareness plus transparency. This Phase Ireport is being published as a seemingly endless worldwidenancial crisis a ects all sectors o the economy. Federal,state and local governments have already begun to scale back on services and programs because they are experienc-ing or anticipating revenue short alls. At least one localgovernment has declared bankruptcy, and some states areasking the ederal government or bailout loans similar tothose pro ered to major corporations.


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e xecutive s ummAry

PBM transparenc helps to make performanceself-correcting because managers know thatstakeholders will see and understand the sameperformance reports.

U.S. Coast Guard pilot participant

As with the ailures o WorldCom and Enron, part o theproblem is a lack o transparency. For governments, thisis embodied in the current model o nancial reporting,whichbased as it is on the private sector modelprovideslittle in ormation o use in making management decisions.Improved transparency will only become a reality when: Data are freely available and independent of applications. Financial reporting incorporates more use of statistical

tools to detect weaknesses and undamental changes inthe data. Universal intrinsic processes are recognized and man -

agement principles understood. Information is presented in an easy-to-understand format

or non nancial people. Processing complexity is hidden within computer sys -

tems. Data are analyzed and audited independently of the user. Financial information and performance information are

linked. A common logical framework is developed to use

statistics to anticipate uture per ormance i the currentprocesses are not changed.

Value to society and risk pro les are reported to taxpay -ers, legislative branches and watchdog groups.The data challenge. The data and technology are avail-

able today or the advanced management analysis advocat-ed in this report. Almost all the in ormation needed alreadyexists in myriad databases. However, nding and integrat -ing the data are expensive so the data o ten go unused. TheU.S. Coast Guard and the Federal Transit Administrationsaid that it was harder than expected to nd and align theinternal data needed or their pilot tests. This is symptom-atic o isolated, application-speci c in ormation systems, aproblem common to ar too many government entities.

XBRL (eXtensible Business Reporting Language; see Ap-pendix C) can solve the problem. XBRL is an internationalindustry standard or publishing, exchange and analysis onancial reports and data. Now required or standardizingthe private sector nancial reports to several ederal regula-tory entities, XBRL is a power ul way to achieve the samegoal within and across government entities themselves.

The return on investment will be excellent: PBM support-ed by XBRL provides the reason and an a ordable meansto take advantage o the 21st-century management toolsshown in Appendix D. These include dashboards, score-cards, strategy maps, statistical process controls, activity- based costing and sophisticated analytics. Such tools enableentities to:

Articulate and communicate agency goals and link theirinitiatives to societal value. Monitor performance of programs, tactics and activities

and their support o goals and mission. Provide context or relevance to programs, performance

and resource use. Anticipate problems and alert management to needed

action. Ascertain program effectiveness, using outcomes, out

puts and societal value measurements. Increase accountability, collaboration and transparency of

all program aspects.Governmentwide PBM? We asked pilot project partici-

pants what they thought about expanding PBM throughoutthe ederal government. Some o their responses: A governmentwide PBM model would provide a clearer

understanding or the agency and taxpayer alike o thisis how we spend our money, and here is the impact onsociety. In a rapidly changing world, you need to knowi your processes are succeeding in ultimately meetingyour stakeholders needs.

We believe that PBM has value for our agency, andthus it would likely have value or all ederal agencies.Further, there would be some opportunities or compar-ing the results o agencies across government, in that thereporting ormat would be similar. Finally, improvedtransparency would be o great value to the public, in asimilar manner to the citizen-centric reporting initiative.Many wanted to keep PBM voluntary until ederal lead-

ers start supporting this approach and deal with some othe obstacles to its adoption. Said one, PBM should be atthe entitys discretion unless top-level management buys inand takes a leadership role.

Until now, the call for government to do more with lesshas been more o a slogan than an actual managementpolicy. Most governments in the world are going to haveto do exactly that because or the next ew years, there isgoing to be less: Revenues will be down while demand inmany areas will go up. Seriously managing governmentper ormance, along with other leadership actions, will helpmitigate the scal crisis while building a oundation ora new, more e ective and more respected public service.Leaders need PBM or something very much like it, and thetime to start is now.


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Introduction and overviewCalls or better transparency in government are on the

rise, and citizens want more than in ormation about raud,waste and abuse. The more important questions: Areprograms well managed and achieving results at a reason-able costand i not, why? Responding to those questionschallenges many governments and their component enti-

ties, even though most o the data needed or the answersalready exist. The reason: It is an arduous and costly taskor most entities and their stakeholders to integrate andanalyze the data to produce use ul in ormation.

In Phase I of this research project, done in 20062007, theAssociation of Government Accountants (AGA) sponsored the development of a PBM model for use in government. Themodel produced (in asingle-pagereport) the total cost of agovernment entit s major processes, the cost per unit ofoutput delivered, performance measures of the output andindicators of theaccurac of all this information. In PhaseII, done in 2008, AGA worked with seven federal entities toappl the model using actual data.

Per ormance-based management (PBM) can meet the chal-lenge. It is designed to compile and deliver the data easily androutinely. Decision-makers can then use the data to manageand improve government and create the transparency thattaxpayers want to ensure that needed change happens.

PBM answers complex questionsPBMs oundation is multidimensional reporting. This

is important because questions about government per or-mance are best answered with integrated in ormation onnances, per ormance, budget, strategy, demand, work pro-cesses, internal controls, workload and other actors. Mucho the current reporting on these actors is one-dimensional,

such as nancial reports that do not show the results ospending and that o er no easy way to drill down severallevels o an organization to look or more detail.

Multidimensional reporting. Figure 1 shows an important bene t o PBM: data integration that enables multidi-mensional reporting.

In Figure 1, each o the six sides o the cube representsa di erent dimension and in ormation set o an entitysoperations: strategic planning goals; orecasts o utureworkload and budget; budget, nancial and per ormancemanagement; and processes. Right now, most reportsderived rom this collection o data are one-dimensional

(like the nancial statement assessment shown in the bot-tom right corner o Figure 1) or, at best, two-dimensional.However, the other three reports shown at the right of thegureon strategic planning, technology strategy andworkload orecastsrequire combining di erent types onancial and non nancial in ormation. Such reports shouldorm the nervous system o sound management decision-making, and in PBM they do.

Another important multidimensional analysis eatureo PBM is its ability to allow users to drill down deep intooperations to understand cost, program per ormance andother actors in a government entitys major processes and

WORKLOADFORECAST

ITSTRATEGy

STRATEGICPLAN

FINANCIALSTATEMENT

ASSESSMENT

Figure 1: PBM: Integrated data produce multidimensional reports


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their component subprocesses. Drilling down is essentialor making decisions about individual programs and ordetecting per ormance problems (both activities will beimportant during an initiative to review all programs inan entity). The data needed or this drill-down are alreadypresent in existing in ormation systems, but relationships between data and processes must be created.

Figure 2 is a portion of a PBM report produced by the U.S.Coast Guard during Phase II o this PBM research project;Figure 5 shows more dimensions o the same processes.Template or pilot project reporting

We used Figure 3, which is based on notional data roma hypothetical entity, in the Phase I report o our PBM re-search, completed in 2007. Figure 3 is also the basic templateused during the Phase II pilot projects. In the next sectiono this report, we will show variations o this same templatedone with real entities and real data by pilot teams; there-ore, it is important to understand the tables parts be orecontinuing to read this report.

From le t to right, the columns in Figure 3 are:1. The process being reported on. Processes are how an

entity does its work.

2. Costs. These are the costs incurred to date by a process3. Number o units. A process output measure.4. Unit description. The nature o the unit.5. Unit cost. The cost to complete one unit o output.6. Per ormance measure(s). These are non nancial mea-

sures o per ormance toward achieving outcomes.7. Per ormance value. The numeric value o the per or-

mance measure.8. Per ormance variation. The deviation in process out-

puts over time. (We discuss this more in Appendix D.)9. Internal control variation. A measure o the e ective-

ness o process controls, which are the procedures thatan entity establishes to give reasonable assurance that itis achieving its primary objectives.

10. Internal control best practice. The best level o e ec-tiveness known or a particular process control.

Note that Figure 3 shows on a single page a wealth oin-depth in ormation about a government entity. This is an-

other example o the multidimensional aspect o PBM, thistime applied to two levels o operation. Entities that partici-pated in PBM research added other important perspectives.

Figure 2: Example o major business processes and subprocesses at t e U S Coast Guard (USCG)Business Process: Drill-Down Example FY 2007 Cost Output Description1. Process: Human Resources $1,092,919,511 # o USCG employees served (military, reservist

1.1. Subprocess: Per ormance measurement and evaluation o USCG o fcers $35,531,401 # o active USCG o fcers

1.1.1 Subprocess: O fcer per ormance measurement and evaluation at ElectronicSystems Support Units (ESUs), Naval Engineering Support Units (NESUs) andIntegrated Support Commands (ISCs)

$7,562,550 # o o fcer evaluations completed

Figure 3: Template table or PBM reporting

1. PBM ReportInstallation Services

2.Cost($M)

3.Units 4. Unit Description

5. UnitCost

Per ormance Internal Control V

6. Measure7.

Value8.

Variation9.

Actual10.

Best PracOPERATING FORCES SUPPORT

Air Operations $14.0 30 station aircra t $0.5M mission hours lost per aircra t 120 63% 90%

Por t Operations $5.5 3,000 ship-days $1,833 steaming mission hours lost per ship 80 70% 92%

Operations Support $3.5 300 commands serviced $11,666 total mission hours lost per command 100 65% 78%

Total Operating Forces Support $23.0

COMMUNITY SUPPORT

Personnel Support $5.7 7,000 base population $ 814 complaints per 1,000 personnel 50 70% 85% Housing $5.0 500 housing & BOQ units $10,000 % utilized 94% 42% 90%

Total Community Support $10.7

BASE SUPPORT

Facility Support $7.1 2.0M square oot $4 utilization % 90% 66% 80%

Environmental $0.3 5 incidents handled $50,000 environmental liability $1.5M 80% 95%

Public Sa ety $4.0 2.0M square oot $2 critical incidents 175 70% 85% 8

Command & Sta $6.0 3,000 military population $2,000 # o audit exceptions 37 80% 85%

Total Base Support $17.3

Grand Total $51.0


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PBMs multidimensional beneftsThe just-discussed aspects o PBM enable governments to

take an integrated approach to nancial and program per-ormance management. This helps chie nancial o cers(CFOs) and other leaders to: Understand the basic nature of their processes to guide

the type o nancial and non nancial in ormation need-ed or making budgetary and management decisions indi erent entities and or government as a whole.

Adjust priorities and resource utilization to support mis -sion achievement.

Improve nancial transparency and accuracy. Create budget requests that take into account the re -

quired unding and the outputs and outcomes theyexpect to produce as a result o that unding.

Reduce costs, optimize spending and process ef ciency.

Identify the causes of underperformance with root-causeanalysis. See future possibilities sooner and set or adjust course

accordingly.(We will discuss other bene ts in subsequent sections o

this report.)

Man of the current federal nancialreporting models are lacking in terms of

usefulness for da -to-da management anddecision-making. Speci call , the do notbring together in a concise, coordinated andcombined view the budget, spending, resultsand status/condition of an organizationsinternal controls. In other words, what did weplan, what resources did we receive, what didwe spend, what did we get for that spending(e.g., outcomes and/or outputs), and can werel on the reporting and program executionrelative to the robustness of our managementand internal controls?

Phase II State Department participant

Logic modeling and PBMHow do government programs help bring about outcomes desired b stakeholders and citizens?

Logic modeling provides the following framework for making the connections:

Inputs Processes Outputs Outcomes Value

Traditionall , governments have measured inputs (budgets) and outputs (number of research grants,numbers of aircraft or citizens receiving a service). These are poor indicators of the success of a govern-ment program because the do not necessaril show how effective the program is (that is, the outcome)and how it creates societal value.

PBMs multidimensional nature facilitates the understanding of the relationships among the different partsof a logic model, presenting a chain of activities and events that can be described and monitored so the can

be evaluated and improved.


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Figure 4: Federal Transit Administration PBM statement

1. DOT StrategicGoal Allocations 2. Cost ($M)

3.Units

4. UnitDescription

5. FederalShare o

Unit Cost ($) 6. Measure

7.Value

8.Variation

9.InternalControl

DA

(Scale o 1 to 5)

Goal/Outcome Accessibility (supports DOT strategic goal o reduced congestion)

Core Processes Grant Ma ing

System enhancement

Bus and bus acilities (non-add) $27,858,965 827 vans (other) 33,719 # o vans purchased 4.00 3.50 4.5

Elderly and persons w/ disabilities(non-add)

88,121,519 2,199 vans (other) 40,073 # o vans purchased 4.00 4.00 4.50

Job access and reverse commute(non-add)

794,135 49 vans (other) 16,003 # o vans purchased 4.00 3.75 4.25

Non-urbanized area ormula(non-add)

179 vans (other) 39,961 # o vans purchased 3.00 4.00 4.50

Urbanized area ormula (non-add) TBD vans (other) TBD # o vans purchased 3.00 4.00 4.5

Goal/Outcome Mobility (supports DOT strategic goal o reduced congestion)

Core Processes Grant Ma ing

System expansion Rail purchases (non-add) 91,499,484 97 rail car 939,589 # o rail cars pur-

chased4.00 4.60 4.25

Stations (non-add) 119,251,486 TBD new rail TBD number o rail stations 3.80 4.25 4.0

Maintenance acilities (non add) 365,923,715 TBD new rail TBD acilities and supportacilities

2.70 4.75 4.00

Miles o track (non-add) 605,035,313 TBD new rail TBD number o miles otrack

3.70 4.25 4.00

Signal systems (non-add) 51,593,490 TBD new rail TBD signal systems 2.90 4.75 3.7

Electrical power (non-add) TBD new rail TBD power systems andenhancement

2.00 4.75 3.75

Bus purchases (non-add) 218,080,404 1,883 bus 115,826 # o buses purchased 3.75 3.80 4.25

Non-urbanized area ormula grants(non-add)

14,522,875 363 vans (other) 40,008 # o vans purchased 4.25 3.80 4.50

Non-urbanized area ormula grants(not-add)

34,236,856 497 buses 68,887 # o buses purchased 4.25 4.60 4.50

Rehabilitation and replacement

Non-rail stations (non-add) 1,900,783,023 1,381 non-rail 1,376,382 # o non-rail stations 4.00 3.80 4.2

Non-rail maintenance acilities(non-add)

718,141,579 526 non-rail 1,365,288 # o non-rail mainte-nance acilities

4.25 1.90 4.25

Stations (non-add) 560,918,549 3,043 rail 184,331 # o rail stations 4.00 3.80 4.25

Maintenance acilities (non-add) 968,167,300 287 rail 3,373,405 # o rail maintenanceacilities & support

acilities

4.25 2.70 4.25

Miles o track (non-add) 683,261,699 11,796 rail 57,923 # o miles o track 4.00 2.80 4.25

Signal systems (non-add) 202,981,497 TBD rail TBD signal systems 4.25 2.90 4.25

Electrical power and enhancements(non-add)

101,967,156 TBD rail TBD power systems andenhancements

4.25 2.00 4.25

Goal/Outcome Environmental stewardship

Core Processes Grant ma ing

System enhancement

Alternative transportation in parksand public

400,000 5 buses 80,000 # o vans purchased 3.75 4.40 4.50


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FTA pilot team members saw PBMs potential or link-ing per ormance measures to more speci c costs instead ooverall programs. Finally, the agency already had a mana-gerial cost accounting model when the pilot project startedthat the agency wanted to leverage by providing the contextnecessary or managers to see greater value in the model.

FTAs PBM fnancial report. Figure 4 shows the PBM

nancial report that FTA developed or the Phase II pilotproject. Note that it has many o the same categories as thetemplate in Figure 3, but FTA tailored the report to its in or-mation needs and the data available.

From le t to right, the FTA categories are:1. Core process or subprocess being reported, attributed

to societal goal or outcome (e.g., accessibility, mobility,environmental stewardship).

2. Total cost o the goal process during the scal year.3. Number o units produced during the year.4. Unit description.5. Federal cost per unit (this is the ederal contribution to

the total cost o an item and does not include contribu-tions by other organizations such as transit authorities).

6. A description o a process per ormance measure.7. Value o the per ormance measure to meeting a particu-

lar societal goal (as judged by subject matter experts ona scale o 1 to 5, with 5 being most valuable).

8. Numeric value assigned by subject matter experts toprocess variation. (Variation relates to the predictabilityo repeating the results o a particular process and isdiscussed below under Process Variation and in Ap-pendix D.)

9. Numeric value o the e ectiveness o process controls,as judged by subject matter experts. (This was a substi-tute or variation o process controls.)

10. Demand attribute, the sensitivity to demand where thedemand or a product is so great that the process needsto be adjusted. (This is discussed below under DemandAttributes.)

Figure 4 is also multilevel and ocuses on grant-making,one o FTAs high-level processes, and its subprocesses: sys-tems expansion, operations and maintenance, rehabilitationand replacement, system enhancement and planning.

Focus on obligations. An overarching goal or the pilot was

to develop a use ul reporting tool. Given this, the team decidedto ocus on obligations (that is, unds obligated through grants)instead o expenses because once unds are obligated throughgrants, it may take more than ve years or the money to be ex-pended. There ore, obligations are closer to FTAs real nancialstatus than annual expenses. PBM is fexible and allows ad- justments to a basic template to make in ormation more use ulor both expenditure and obligation analysis and reports.

Reading the report. Figure 4 shows the speci c goals towhich the report relates: reduced congestion. Going romle t to right on the table:

One of the core processes for achieving the goal is grant-making, the primary activity at FTA.

Subprocesses of grant making include transit systemenhancement, system expansion, and rehabilitation andreplacement.

A subprocess of system enhancement, Elderly and Persons with Disabilities, is shown to obligate $88,121,519

or the purchase o 2,199 vans (the products o the sub-process) at a ederal share o unit cost o $40,073 each. The performance measure for this grant-making subpro

cess is the number o vans purchased (2,199). Subject matter experts rated the value of this subprocess

or achieving the goal o reduced congestion at a score o4, with 1 being the lowest value and 5 the highest (more onthis later in this section). As PBM matures at FTA, the goalis to shi t to a more objective assessment o process value.

The quality of the subprocess itself received a rating of 4,with 1 being a high level o process variation and 5 beinga low level. This score indicates a good process.

Internal control of this process is rated 4.5, with 1 beingpoor and 5 being excellent. Good internal controls help toreduce the risk o poor operations or outcomes.

However, despite being of good quality, the potential capa bility o the subprocess to handle an accelerating trend o de-mand or transit services or the elderly and disabled is ratedonly 2 (out o 5). Demand or [these vans] is so great thatthis subprocess needs to be adjusted even though it scoredwell on value and variation, says an FTA pilot participant.This single table is rich with in ormation or stakehold-

ers and managers alike. Equally important, it is really just astarting point or understanding: under a ully unctioningPBM approach, there will be better data or ongoing analy-sis o the e ectiveness o all FTA processes.

We see an opportunit where PBM can be used to more narrowl focus on the federal portion of the gap between actual and needed spending bfederal, state and local levels required to maintain transit s stem conditions. This will give us a moreaccurate view of what the FTA does now and can do

in the future to achieve desired societal outcomes.

FTA pilot participant

Societal value. One o the concepts that FTA exploredduring the PBM pilot was that o societal value. Accordingan FTA team member, A government entity creates societalvalue when it provides a product or service that meets acritical social need. Societal value actors are the products


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and services the entity provides to taxpayers to ul ll theneeds o society. The set o societal needs we consideredwere based on the DOT strategic plan and FTA-speci cobjectives, including mobility, accessibility, environmentalstewardship and sa ety. These particular societal valuesresonate with transit because they refect the bene ts romusing public transportation.

The pilot team reported some initial di culty in tryingto tie outputs to outcomes in a meaning ul way. They thinkthat in the uture this may be addressed by associatingmore speci c ridership and other characteristics to outputsor a better linkage with societal outcomes.

Benefts. FTA reported the ollowing bene ts gainedrom the pilot project: Clearer vision of how to tie nancial information to per -

ormance metrics and a better ability to link measures tomore speci c costs, instead o just to overall programs.

Better display of the relationship between outputs and thegrowing demand or transit services needed by society.

Potential to provide the FTA with better indicators onwhen organizational processes need to be improved.

Enhancement of FTAs efforts to integrate nancial state -ments, internal controls, per ormance and strategic plan-ning or more robust, integrated decision-making.

Finally, the team said that the PBM methodology wouldcontribute substantively to FTAs overall e orts to adapt to arapidly changing environment in American public transpor-tation. DOTs Assistant Secretary o Transportation or Bud-get and Programs/CFO met with the pilot team membersand gave them avorable eedback on the PBM initiative.

Conclusion. FTA believes that PBM will add value withinthe agency. Tremendous changes occurring in the transit sec-tors environment make the ability to gauge process per or-mance in meeting societal needs increasingly important. FTAthinks that ocusing only on compliance is no longer satis ac-tory to the agency, nor is it being responsible to FTA stake-holders over the long term. Finally, the FTA team said thatPBM supports the philosophy o making nancial reportingmore valuable as a decision-making tool than it is now per-

ceived to be by most potential users o this in ormation.Next steps. The FTA team will implement a more rigor-

ous approach to determining the value and variation oprocesses. The team would eventually like to integratethe summary results o per ormance-based managementreporting into a brie document similar to the citizen-centricpublications promoted by the Association o GovernmentAccountants (AGA). 1 PBM will be broadened so that it is understood and used agencywide as a decision-making tool.

Value reporting at AARPToda s nancial reporting s stems focus on reporting budgets, costs and assets. Measuring the value

that these resources produce has been largel ignored, primaril because traditional nancial reporting

places conservative reporting above relevance. The advent of multidimensional accounting (such as thatgenerated b PBM) makes value reporting simpl a different wa to classif and manage data.The American Association of Retired Persons (AARP) is one of the nations largest membership bene t

and advocac organizations, serving the over-50 population. Concurrent with Phase II, James Brimson, aco-researcher on the PBM project, was working with AARP to appl activit -based management (ABM) ina wa that is similar to that being tested during the PBM pilot projects. (The AARP CFO also was a memberof the Phase II advisor group.)

One of the concepts emerging from the AARP initiative was societal value. At AARP, Brimson distin-guished between member value (services and products purchased from AARP b its members) and societalvalue (the value that AARP adds to societ as a whole through advocac and related activities). AARPwants to ensure that societal value receives top attention, so appl ing ABM to understanding it is important. Regular nancial reports to the board of directors on societal value are slated to become routine at thenations largest senior-citizen advocac organization.


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Figure 5: Examples o macro and business processes in t e PBM report b USCG

FY 2007Cost ($) Output Description

#OutputUnits

Cost perOutputUnit

Per ormance MeasureDescription

Per ormanceMeasure Process Controls

CalcuProcVaria

Macro ProcessDrill-Down Example

Marine Sa ety $233,148,033 # o domestic vesselinspections and oreign

vessel examinations

79,000 2,951 see Section 3 see Section 4 in ormation is not available

SubprocessCommercial Ves-sel Sa ety

127,242,683 In ormation is not available

Subprocess - Certifcate oInspection (COI) Program

23,226,337 # o COI-related casesclosed in MISLE

10,631 2,185 administrative cycle time percase within MISLE (open toclose)

142.7 Days(FY07)

Marine Sa etyManuals (Vols. Iand II)

see narrreport

Business ProcessDrill-Down Example

ProcessHuman Resources 1,092,919,511 # o CG employees(military/reservists/civilians) served

52,666 20,752 see Section 3 see Section 4 in ormnot ava

SubprocessPer ormanceMeasurement and Evaluationo CG O fcers**

$35,531,401 # o active CG o fcers 8,561 4,150 (# o O-6 and below o fcerevaluations submitted to CGPersonnel Command [CGPC]) (# o o fcer Evaluationsrequired by CGPC)

99.4% Personnel Manual:M1006A, Chapter 10

in ormanot ava

SubprocessO fcer Per or-mance Measurement andEvaluation at ESUs, NESUs,and ISCs

$7,562,550 # o o fcer evaluationscompleted

2,152 3,514 (# o O-6 and below o fcerevaluations submitted toCGPC) (# o o fcer evalua-tions required by CGPC)

99.3% Personnel ManualM1006A, Chapter 10

in ormanot ava

*Data are as o June 6, 2006; similar data not available or 2007.**About 20 percent o Coast Guard human resources costs are associated with conducting per ormance evaluations.

PBM at the U.S. Coast GuardThe U.S. Coast Guard (USCG) is a military branch of the

ederal government involved in homeland security, lawen orcement, search and rescue, marine environmental pollu-tion, and response and maintenance o aids to navigation.Part of the Department of Homeland Security, USCG hasabout 40,150 men and women on active duty and a scal year(FY) 2008 operating expenses budget o about $5.9 billion.

When AGA asked USCG to participate in a pilot project,it eagerly agreed to participate or several reasons: USCG executives believe that nancial and performance

reporting can be improved. USCG has been undergoing a complex transforma -

tion rom a program- ocused to a per ormance- ocusedorganization. It needs to integrate cost and per ormancein ormation into one managerial model that is also use ulor reporting.

In support of transformation, USCGis developing andintegrating decision-support systems and per ormancemanagement policies and architectures that are consis-tent with the Malcolm Baldridge Award criteria.Many o these initiatives are process- or activity-oriented

and starting to converge. In addition, like the FTA, USCGhad extensive experience with activity-based costing (ABC),which is an excellent means o understanding processes

and their costs. USCG believed that this pilot project wouldprovide a signi cant learning opportunity to improve un-derstanding o process-based methodologies.

USCGs PBM report. The full report developed by USCor the PBM pilot includes 14 tables showing di erent as-pects and workups o cost, per ormance and other in or-mation. We present here some o the tables that revealed aresh perspective or the Coast Guard.

Figure 5 shows USCGs adaptation of the PBM reporttemplate (shown in Figure 3). Figure 5 shows only a portiono the ull report, ocusing instead on one example each oUSCGs macro or core processes and of its business processes ( or example, nancial and other support services).

USCGs report is rich in detail and information on cost,outputs, controls and e ectiveness. A quick perusal o Fure 5 tells a reviewer the ollowing: Marine Safety is a macro or core process which makes it

important to the agency. The total annual cost o MarineSa ety is $233,148,033, which buys 79,000 domestic or oreigvessel sa ety checks, with an average cost per unit o outputof $2,951. (USCG had not previously determined the costper output o its macro processes or business processes.)

A subprocess of Marine Safetythe Certi cate of In -spection (COI) programaccounted or 10,631 caseso inspections at a unit cost o $2,185. The per ormance


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Figure 6: USCG unit cost o representative outputs o business processes

Business ProcessesFY 2007 Direct Cost and

Overhead Allocation Representative Output DescriptionFY 2007 #

Output UnitsDirect Cost and OvAllocation per Outp

Acquisition $35,775,548 # o contracts greater than $100k 1,642 $21,78

Finances 154,843,604 # o payments (EFT and check payments) 200,974 7

Human Resources 1,092,919,511 # o CG employees (Military/Reservists/Civilians) served 51,548 21

In ormation Technology 153,825,171 # o CG PCs and servers (does not include comms, C2 and NAV devices) 51,536

Planning and Policy Development 14,855,071 # o schedules, plans and directives Output TBD

Maintenance and Logistics 1,108,427,346 # o requisitions or parts received by the ELC 46,212 23

Total Business Process Costs $2,560,646,251

Figure 7: USCG representative non-fnancial business measures o business processesBusiness Processes Per ormance Measure Description Per ormance MeasureAcquisition Per ormance MeasureTBD pending review

Finances Compliance: # o commercial payments made on-time total # o commercial payments =115,567 comm. payments made on-time total # o comm. payments =

95.4% o commercial payments made on(objective: maximize)

Human Resources Cycle time: total # o personnel administrative document days old # o documents submitted =avg. # o personnel administrative days old7,095,984 document days old 335,142 documents submitted =

Average document: 21 days old (objecminimize)

In ormation Technology Productivity: % CGDN availability. This measure represents the reliability o the Coast GuardData Network (CGDN) by measuring the percentage o time that it is operational

99.96% Availability (objective: maximize

Planning and Policy Development Per ormance measure alignment with SOPP TBD pending review

Maintenance and Logistics Inventory readiness: # o requisitions completed by issuance rom Engineering Logistics Centerstores divided by the total # o requsitions received. 41,410 requisition flled rom stores 46,210requisitions received =

89.6% o requisitions flled rom stores (objmaximize)

Figure 8: Average c cle time per case closed: Certifcate o Inspection vessel inspectionsAvg. Cycle Time Mean Cycle TimeUpper Limit Cycle Time Lower Limit Cycle

180

160

140

120

100

80

60

40

20

0

FISCAL MONTH/YEAR

D A Y S O P E N

2005 2006 2007

O c t 0 4

N o v 0 4

D e c 0 4

J a n 0 5

F e b 0 5

M a r 0 5

A p r 0 5

M a y 0 5

J u n 0 5

J u l 0 5

A u g 0 5

S e p 0 5

O c t 0 5

N o v 0 5

D e c 0 5

J a n 0 6

F e b 0 6

M a r 0 6

A p r 0 6

M a y 0 6

J u n 0 6

J u l 0 6

A u g 0 6

S e p 0 6

O c t 0 6

N o v 0 6

D e c 0 6

J a n 0 7

F e b 0 7

M a r 0 7

A p r 0 7

M a y 0 7

J u n 0 7

J u l 0 7

A u g 0 7


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Marc 2009

measure is administrative cycle time per case, asmeasured between the time a case was opened andclosed in USCGs Marine Information for Safety and LawEn orcement (MISLE) system, which was 142.7 days in FY2007. Cycle time can be a measure o both e ciency andcustomer satis action.

Process controls for the COI program are documented

in speci c manuals. The Calculated Process Variationcolumn remains empty at the time o the writing o thisreport because USCG was still working on determiningthe most meaning ul process data on which to report.Also, unlike the Phase I conceptual table ( Figure 1 o thisreport), the USCG statement does not include internalcontrols best practices.The upper hal o Figure 5 shows a core process directly

connected to the USCG mission. The lower half givesin ormation about business processes that support all coreprocesses: Human Resources. Before the pilot, USCG hadnot clearly articulated business processes as elements o a business architecture. Instead, these were re erred to col-lectively as overhead or indirect costs. During the pilot,the USCG team identi ed and de ned six major businessprocesses and their total costs. Figure 5 shows the HumanResources business process and selected subprocesses: It is clear that Human Resources is a signi cant part of

USCG expenses (about $1 billion), so it will be of interestto legislators and administration executives concernedwith the budget.

A subprocess, Performance Measurement and Evalua -tion o CG O cers, applies to all uni ormed o cers. Foreach o cer, this comes to $4,150 a year. The per ormancemeasure is the percentage o o cers who receive evalua-tions, in this case virtually all o cers, which is important because evaluations are supposed to be done annually.Internal controls or the subprocess are documented ina manual, and as noted earlier, USCG is still working oncalculated process variation.In summary, Figure 5s in ormation provides a di er-

ent type o value than do traditional nancial statements.In addition, the procedures used to prepare the chart addmore value to USCG than those for preparing a traditionalnancial statement.

Workup to the PBM report. In preparing the PBM reportin Figure 5, USCG participants in the pilot developed severalother reports and tables o interest to executives.

As noted earlier, before the pilot, USCG had identi ed 11mission-oriented core or macro processes and had assignedtotal costs to each. Using a nancial model of activity-basedcosting and a PBM approach, the USCG pilot team was ableto create unit costs for each macro process. The USCG pilotteam also calculated the unit costs o representative outputsrom the business processes (as shown in Figure 6).

The USCG pilot team underscored the bene ts of showing process costs:

As a result o any process cost calculation, the naturalquestion is, How/why does it cost so much? This results instakeholders asking important questions about improvedtransparency, increased granularity and greater con dencein the data; about what can be done to lower the costs;

about what drives the costs o these processes; about howwe de ne outputs, etc. . . . With new data comes the oppor-tunity to break old paradigms. This should result in newknowledge that could be used to better manage processesand their costs. USCG must encourage further developmento per ormance-based management and reporting.Figure 7 shows representative non- nancial business mea-

sures or the business processes. (These are not the only non -nancial performance measures for USCG business processes.)

Variation. Before Phase II, USCG had not calculatedprocess variation 2 or used control charts 3 on its high-levemacro and business processes. Part o PBM involves moni-

toring process execution to detect process variation, with agoal o reducing it. A well-controlled, stable process shouldproduce predictable results in the uture, which is also valu-able in ormation in orecasting nancial results.

USCG experimented with calculating variation in severalo its processes. Figure 8 is a control chart o a per ormancemeasure o the Marine Sa ety macro process: administra-tive cycle time per case under the Commercial Vessel Sa etysubprocess Certi cate o Inspection (COI) programs. (In or-mation on cycle time is available from USCGs Marine Information or Sa ety and Law En orcement [MISLE] system.)

Figure 8 showed USCG several things:

Average cycle time of COI-related vessel inspection caseshas a seasonal trend, increasing (a negative) during theall, peaking at the end o the calendar year and then de-creasing (a positive) during the spring. Possible reasonsor seasonal variation include that the upward trend that

begins in the late summer coincides with the trans erperiod in which inspectors rotate in and out o MarineSa ety billets. The new inspectors have a learning curve,which would cause an increase in cycle time. The spikelate during the calendar year is most likely the result oMarine Sa ety personnel taking leave time, so that ewerare available to do the work. With ewer personnel, ittakes longer to close a case.

Average cycle time appears to be trending upward overtime. This may be a result o additional duties that arestraining personnel resources, so that they have less timeto close cases.To reduce the variation, USCG will need to solve the

problems that cause it. A control chart similar to that shownin Figure 8 will indicate whether the solutions are working.Improvement will be marked rst by decreases in variationwithin the upper and lower control limits and later by adownward trend in mean cycle time.


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USCG should consider implementing processcontrol charts into its process methodolog in order to identif process problems and correct them.

USCG pilot team recommendation

Technology or presenting data. Both data and technol-ogy are available or advanced management analysis ingovernment entities. Almost all the in ormation neededalready exists in myriad databases, but it sits there un-used. The technology needed or management analysisand reporting also existsindeed, it has been aroundfor years. During the pilot, the USCG team also reviewedways to present PBM in ormation, such as per ormance

dashboards. The USCG team said that the presentationo PBM results . . . is an important consideration in itsimplementation. Easy-to-use dashboards are more likelyto be understood, accepted and used by managers andleadership. (Appendix D has many examples o applica-tions that are use ul or creating, analyzing and displayingPBM reports.)

Benefts. USCG participants in the pilot report the fol -lowing lessons learned in using PBM: Improved understanding of USCGs higher-level pro -

cesses or public goals and or agency-readiness goals,which led to improved understanding and relabeling o

elements in USCGs enterprise architecture. Better understanding of the relationship between organi -zational purpose and processes.

Identi cation of measures to evaluate process perfor -mance and leading indicators o risk and per ormance,which are process metrics that lend themselves to pre-dictability.

Development of a basic methodology for assigning coststo business processes.

In addition, the pilot project team identi ed a numberof gaps in USCGs ability to systematically collect authori -

tative data and consistent, repeatable metrics, which theagency intends to address and improve.

Conclusion. The USCG team members reached the following conclusion based on the results o their pilot project:

(T)he projects results con rmed that the PBM con-cepts are applicable to USCG, and are informative. Thedetailed PBM Report, while perhaps not su ciently ac-curate or decision-making purposes at this time, shows

the possibilities that such in ormation could become bothinvaluable and actionable, ollowing additional researchand validation. Indeed, the team encourages manage-ment to begin implementing this methodology to im-prove management transparency and accountability.

Next steps. After the pilot, the USCG team reviewed itschallenges and developed plans or dealing with them. Theteam also identi ed short-, medium- and long-term solu-tions to take to the Coast Guards executive management.Once the team members get management buy-in, they willproceed with implementing PBM.

Lessons learned rom Phase IIHere are some of the important lessons learned during

the second phase o this PBM research initiative: PBM is easible. The experience of USCG and FTA show

that it is easible to produce a PBM nancial report in theederal government.

Data were di fcult to obtain. Pilot projects reportedsome problems in gathering the non nancial data re-quired or a PBM report. This is indicative o an under-lying problem with ederal government per ormancemanagement in ormation: the lack o readily availabledon cost and per ormance. As said be ore in this report, orthe most part the data needed already exist, but requireextra e ort to nd and collect.

Time and resource constraints limited the teams. PiPBM report production ran or a ew months (Marchthrough June 2008) and was done mostly in the sparetime o the entity pilot team members. Di culty in ob-taining data exacerbated the problem.

Terminology matters. To create a concise report, we neto have agreed-upon de nitions so that communication isaccurate while using words economically.

Communication is essential. Communication betweenprogram and in ormation analysts/managers is essen-tial, and barriers such as a compliance mind-set should be removed. Compliance itsel is not the issue; the e ortmust be relevant to the intended user. I there is a percep-tion o compliance and infexibility, then the perceptiono relevance is lost.


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Marc 2009

Federal legal guidelines or PBMFederal entities will need guidelines or including a PBM

report in their routine nancial and per ormance reporting.These guidelines should cover how to integrate cost, per-ormance and nancial data in a per ormance-based report.(Appendix B o this report provides details o existing guid-ance that relate to PBM, including legislation, accounting

principles and OMB directives.)The Federal CFO Council, the Federal Accounting Stan-dards Advisory Board (FASAB) and OMB should work tore ne, align and provide instructive guidelines or imple-menting the integration o PBM reporting, standards, con-ventions and rules that support e orts to integrate nancialand per ormance reporting. This will help ensure consistentnancial and management reporting practices across thegovernment. For PBM reporting, such new guidance wouldinclude: Objectives and requirements for PBM reporting, includ -

ing actors used to judge its success.

De nition of key processes, including process-orientedarchitectures and development methods that encouragee cient and e ective implementation and appropriatedocumentation.

Examples of how best to implement PBM reporting, anevaluation o its use ulness to the varied unctions oentities, and process mapping o program or unctioncharacteristics.

As required by the Federal Enterprise Architecture(FEA), a governmentwide taxonomy guideline or pro-cesses and subprocesses, including a logical rameworkor agencies to map their programs and activities, along

with listings o logical output and per ormance measuresor all processes and subprocesses. Expansion of OMB Circular A-123 to integrate perfor -

mance-based nancial data with process and reportingcontrols, in keeping with Section 2 o the Federal Manag-ers Financial Integrity Act requirements or statementso assurance concerning management, administrativeand accounting controls.Congressional buy-in and involvement are essential to

the success o ederal PBM reporting. As with current leg-islation, active and ongoing congressional involvement willexpedite the adoption o PBM reporting and help sustain it

over time.

XML/XBRLTo maximize the e ciency o implementing PBM, entities

must have a technical architecture that supports consolidat-ing and standardizing nancial and non nancial data. Inmost cases, this is accomplished by using the eXtensibleMarkup Language (XML) to de ne how data will be shared by disparate systems. For business purposes, a speci c

variation o XML, the eXtensible Business Reporting Lan-guage (XBRL), was created. XBRL is an important enabler oPBM because it acilitates sharing data across institutional boundaries in ways that make it easier to do analysis andprepare reports o interest to decision makers.

XBRL is the Rosetta Stone that will makePBM data integration possible.

In Phase I o this research e ort, we proposed that XBRL,with its ability to give every transaction its own perma-nent DNA-like tag, could be the bridge that would makedata available or nancial, process and cost accountingapplications, singly or in concert. In Phase II, as this sec-tion reports, we looked at how XBRL can create the robustmetadata layer that orms the bedrock o data portabilityacross systems, applications and usage. (Metadata show thecontext, content and structure o records and their manage-ment over time.) We also reviewed how XBRL could helpmeet requirements o the FEA, the CFO Act, the Govern-

ment Per ormance and Results Act (GPRA) and the Govern-ment Paperwork Elimination Act o 1998.XBRL tags encapsulate both data and linkbases that al-

low metadata, so that each data element is more preciselyde ned. For example, a data element is a act, such as a lineitem in a budget. By itsel , the data element is not very use-ful. However, if we tag the data element with the followingin ormation, we can use it in many ways: Exact de nition of the fact To which entity it pertains Time period to which the fact relates Units in which the fact is reported Precision of the reported fact Provider of the fact Any calculations used to determine the fact Relationships between facts (e.g., fact A is the sum of facts

B and C)


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Given metadata such as this, one is better able to per ormobjective analysis o actors such as the impact o materialor personnel costs on budgets. Comparisons among entitiesalso become more accurate and error-free. However, ag -gregates such as total costs say little about e ciency or howexpenditures satis y mission needs. To gain that insightrequires disaggregating data elements into categories ordimensions such as geographic location o service, dates,demographics o those served and others.

Because o their fexibility, XBRL data elements provideintelligent data in which one can drill down and see meta-data in the electronic document. In other words, XBRL datacan be used fexibly, as opposed to static data in other leformats, such as HTML, .pdf, .doc. Finally, XBRL produceshigh-quality data because it can sel -audit in ormationrom transactions.XBRL in government

Our research ound that XBRL is being adopted through-out the world or public service applications, primarily ornancial reporting or nancial institution oversight.

Government users o XBRL: Federal Deposit Insurance Corporation (FDIC)

Federal Reserve S stem (FRS)

Of ceof the Comptroller of theCurrenc (OCC)

Securities and Exchange Commission (SEC;proposed in June 2008)

Central governments of Japan, the Netherlandsand Australia

European Union nancial industr regulators

In addition, the State of Oregon ControllersOf ce did an AGA-sponsored research project that explored the steps necessar to build a

Governmental Accounting Standards Board(GASB)-based taxonom for use b state andlocal governments in their nancial reporting(XBRL and Public Sector Financial Report-ing Standardized Business Reporting: the Oregon CAFR Project , AGA CPAG ResearchSeries: Report No. 16, September 2008).

Figure 9: Comparison o traditional and per ormance-based management reporting

Traditional reporting model Per ormance-based management reporting model

One-to-One:One request or in ormation pertains to only one requester. Man -to-Man : Many related requests can be compiled into a single call or in orand then shared with many interested parties.

Single Audience:A single report has only a single audience based on a narrow interest. Broad Audience:A single body o in ormation can have an expansive audience thatall or part o the original pool o in ormation as the body moves down the supply cha

Narrow Purpose: A single report has a narrow purpose. Should another purpose emerge,another separate report is created. Using a report or more than one purpose is too complexand expensive and undermines the integrity o the content.

Broad Purpose:A single body o in ormation can have a set o puposes. Should apurpose emerge, the same body can be reused or slightly augmented. Reusing a bin ormation or more than one purpose is inexpensive, given that it is easily reconswithout undermining the integrity o the content.

Static in Composition:The defnition o a report does not change, once it is properlydesigned. In ormation is in a fxed ormat that recipients cannot easily customize.

D namic Composition:The defnition o a body o in ormation is intended to chantime. It is designed or requesters and reponders to readily adapt to changes and toview as best suits each individual recipient.

Transient: Each report instance quickly becomes irrelevant because o time, medium andormat, limiting its use or other purposes. It is easier and more economical to replace thereport than reuse it.

Reusable: Each report instance becomes irrelevant only with the passage o time,that the medium and ormat do not limit the use o the in ormation or other purpos

Isolated Redundant Cost:Expensive and redundant,cost carried by single entity or eachisolated use.

S ared Minimal Cost: Cost o reporting is distributed across all interested partieshigh opportunity or reuse o data, taxonomy and tooling.


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Marc 2009

XBRL or PBM fnancial reporting: a suggested modelThe current model or nancial reporting in the ederal

government is static and produces a report with a narrowpurpose. A PBM model would be dynamic and producemultipurpose reports. Figure 9 compares the two models:

Structure o the model. An ideal PBM reporting modelor government would be an in ormation supply chain

based on a shared services model with service-orientedarchitecture (SOA) and with XBRL as the carrier. Sharedservices are in ormation technology (IT) servicessuch ashardware, so tware and communicationsthat are avail-able rom one provider and used by many customers. SOAconsists o linked services (shared and unshared) that mayreside inside or outside a user organization and that com-municate and interoperate through agreed-upon standards.Many SOAs are built with XBRL as the in ormation carrierand the Internet as the communication channel.Outcomes o t e wor to date

Phase I o PBM research was another step in an evolu-

tionary process o improving the transparency and utilityo governmental nancial reporting. During Phase I, gov-ernment entities came to agreement that the current modelo nancial reporting was o limited value to users. PhaseI also introduced the concepts underlying Process-BasedManagement.

During Phase II, ederal entities produced PBM reportsas each deemed best. Each implementation was very di -erent in scope and objectives. Although these entities haveonly scratched the sur ace o the power o PBM, they sawits value. They also identi ed barriers to wider and deeperuse o Per ormance-Based Management, o which the most

critical were the di culty o getting the data and extendingtheir usage to other parts o an entity.Next steps

All entities that participated in Phase II pilots have plansto move orward with PBM in their organizations. We believe it important to continue to support those teams withtechnical assistance and advice. We urge a Phase III o thisresearch to help other entities begin to explore PBM as anew way to understand and improve their operations.

ConclusionOur research demonstrates that PBM is both easible and

e ective when applied in a government setting. It o ersways to use existing nancial and per ormance data inways that deliver the insights needed to change governmentoperations or the better. PBM is a fexible approach, so it tsinto any other sound management approach or methodol-

ogy. It has the ollowing bene ts: Integrates a wide variety of management data into multidimensional views o operations.

Links performance to speci c line-item costs, not just tooverall program costs.

Is predictive and forward-looking, so it supports performance-based budgeting.

Helps forecast risk, cost and performance and enablesagile response to changes in demand or environment.

Expands understanding and labeling of elements in theenterprise architecture.

Enhances transparency through multidimensionalreporting that lets o cials and citizens see cost, per or-mance and internal control in ormation in one snapshot.

Delivers what pilot participants call integrated awareness: the big-picture in ormation that decision-makersneed to keep their organizations steering in the rightstrategic direction. It also provides the data that manag-ers need to detect and solve per ormance problems.The best conclusion or this report is o ered by a partici-

pant from the U.S. Department of State:

Overall, ederal nancial management has seen tre-

mendous improvements over the past decade, largely as aresult o the hard work and devotion o people dedicatedto urthering good governance. However, we need to leage these efforts and establish effective and value-added reing models that further improve our governance frameworability. Our constituents, the U.S. taxpayers, our peers, ourpro ession and our descendants deserve no less.


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Steven O. App, CGFM, FDIC Jonathan D. Breul, IBM James A. Brimson, Activity-Based Management Institute Martha Eining, University of Utah Kim Farington, OMB Steven Feller, IBM Joel A. Grover, CGFM, Department of the Treasury

and AICPA Robert Hagans, AARP C. Morgan Kinghorn, CGFM, Grant Thornton Jon C. Lemon, SAS Anna D. Gowans Miller, AGA Wendy M. Payne, CGFM, CPA, FASAB John J. Radford, CGFM, CIA, CFE, State of Oregon Paula Rascona, GAO David Rebich, Department of the Treasury David Robinson, Department of Commerce Bryan Smith, U.S. Senate Kenneth Smith, Ph.D., CPA, Willamette University James L. Taylor, Department of Homeland Security Daniel Werfel, OMB Skip White, University of Delaware Clifton A. Williams, CGFM, CPA, Grant Thornton

AGA would also like to express appreciation or the helpprovided by Steven Clyburn, Grant Thornton; Becca Gorenand Ted Warner o SAS; and Collin Miller, Denise Rabon,Mike Rowling, Luther Hampton and Peter De Meo of IBM

APPendix A

Advisor Group Members


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Marc 2009

APPendix b

Federal entities will need guidelines or including a PBMreport in their routine nancial and per ormance reporting.These guidelines should cover how to integrate cost, per or-mance and nancial data in a per ormance-based report. In

this section, we will point out the many existing guidelinesthat support PBM and suggest how to modi y them anddevelop new ones.Existing guidance or PBM

This section makes it clear that existing ederal laws andguidelines will support PBM reporting as envisaged inthis report. Indeed, they can even be said to mandate PBMreporting or something closely akin to it.

Legislation. The Government Per ormance and ResultsAct o 1993 (GPRA) is the oundation or integrating per or-mance and nancial measurement in the ederal govern-ment and a mandate or results-oriented programs. Other

legislation that supports PBM includes: The Federal Managers Financial Integrity Act (FMFIA) of

1982, which requires executive agencies to establish andevaluate internal accounting and administrative controls

The Chief Financial Of cers Act of 1990 (CFO Act) asamended by the Government Management Re orm Acto 1994 (GMRA), which provides or systematic measure-ment o per ormance

The Federal Financial Management Improvement Act of1996 (FFMIA), which requires entities to prepare reportscomparing resource use with activity results

The Information Technology Management Reform Act(ITMRA) or the Clinger-Cohen Act o 1996, which en-courages per ormance- and results-based managemento IT investments, and the Federal Enterprise Architec-ture (FEA), an OMB initiative that, among other things,aims at improving the sharing o in ormation govern-mentwide by complying with the Clinger-Cohen ActAccounting principles. The Federal Accounting Stan-

dards Advisory Board (FASAB) is the body designated by the American Institute o Certi ed Public Accountants(AICPA) to establish accounting principles or Federal enti-ties. FASAB support or PBM reporting includes: Statement of Federal Financial Accounting Concepts (SF -

FAC) No. 1, Objectives of Federal Financial Reporting SFFAC No. 2, Entity and Display Statement of Federal Financial Accounting Standards

(SFFAS) No. 4, Managerial Cost Accounting Concepts andStandards for the Federal Government

SFFAS No. 7, Accounting for Revenue and Other FinancingSources and Concepts for Reconciling Budgetary and Financial Accounting

SFFAS No. 8, Supplementary Stewardship Reporting

Together, these FASAB pronouncements recognize thatusers o nancial reports need quantitative per ormancemeasures and results linked to nancial in ormation toassess an entitys per ormance and evaluate underlying

actors that may have a ected it. SSFAC No. 2, Entity andDisplay, calls or a Statement o Net Cost to present the totaland net costs o agency services, particularly how much othe services are nanced by taxpayers. SSFAC No. 2 alsomandates a Statement o Program Per ormance Measuresthat could be an early prototype o a PBM report. FASABhas not yet recommended standards or this new statement, but it is supposed to provide in ormation that helps nan-cial report users determine costs and results o programs.SFFAC No. 2 says that the new statement is . . . likely to bethe most important statement or those persons interestedin how a Federal entity is using its resources.

Executive branch guidance. OMB guidance related to aPBM report includes: OMB Circular A-11, Preparation, Execution, and Submiss

of the Budget, which has guidelines or the Program As-sessment Rating Tool (PART) and the Federal EnterpriseArchitecture (FEA) Business Re erence Model (BRM),which uses a three-tier hierarchy to describe the businesso government

OMB Circular A-136, Financial Reporting Requirements,which shows the orm and content o the Statement oNet Costs

OMB Circular A-130, Management of Federal Informatio

Resources, which requires entities to evaluate existingwork processes be ore creating new or updating existingin ormation systems

OMB Bulletin A-123, Managements Responsibility forInternal Control, provides a basis or reporting on internalcontrols over the reporting o the material line items in aPBM report

Federal Enterprise Architecture (FEA), OMBs business- based ramework or governmentwide improvement,which supports the need or process decomposition andstandardization across governmentA Common Governmentwide Accounting Classi cation

(CGAC) structure, established by OMB and its FinancialSystems Integration O ce (FSIO), establishes a standardmethod or classi ying the nancial e ects o government business activities. This standardization will support PBMreporting by enhancing transparency, data sharing andcross-comparability among agencies. It also supports theuse o XBRL in ederal nancial reportingindeed, XBRLmay be part o the solution to standardizing process andnancial data throughout the ederal government.

Statutor requirements related to per ormance-based management


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APPendix bFinally, in keeping with GPRA, OMB management initia-

tives aimed at better integration o cost, per ormance and budgeting include the Presidents Management Agenda(PMA) and PART. (Guidelines or PART are in OMB Circu-lar A-11.)

We believe that existing laws and guidance are strongmandates or PBM reporting and that most o the guidance

needed for its reporting is already in place. However, wediscuss next some areas that need clari cation and tailoringto process-based reporting.New or expanded guidance or PBM

FASAB, OMB and the Federal CFO Council should worktogether to re ne, align and expand current nancial guid-ance that supports e orts to integrate nancial and per or-mance reporting. This will promote consistent nancial andmanagement reporting practices across the government. ForPBM reporting, such new guidance would include: Objectives for PBM reporting, including factors used to

judge its success.

De nition of key processes, including process-orientedarchitectures and development methods that encouragee cient and e ective implementation and appropriatedocumentation.

Examples of how best to implement PBM reporting, anevaluation o its use ulness to the varied unctions oentities, and process mapping o program or unctioncharacteristics.

A governmentwide taxonomy guideline for processesand subprocesses, including a logical ramework oragencies to map their programs and activities, along withlistings o logical output and per ormance measures orall processes and subprocesses.

Expansion of OMB Circular A-123 to integrate process- based nancial data with process and reporting controls.Congressional buy-in and involvement are essential to

the success o Federal PBM reporting. As with Section 2 oFMFIA, GPRA and the CFO Act, active and ongoing Con-gressional involvement will expedite the adoption o PBMreporting and help sustain it over time.


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This appendix examines the role that XBRL could play inproviding the robust metadata layer that orms the bedrocko data portability across systems, applications, and usageand thus makes possible the long-awaited integration o

nancial and per ormance reporting in the Federal nan-cial space. The paper also demonstrates how XBRL can actas an enabler or ul lling the requirements o the FederalEnterprise Architecture (FEA; 2006), the Chie FinancialO cers Act (CFO Act; 1990), the Government Per ormanceand Results Act (GPRA; 1993) and the Government Paper-work Elimination Act (GPEA; 1998).Using process-based accounting to enableper ormance management

The relationship between the Federal EnterpriseArchitecture (FEA) and process-based accounting. TheFEA is a high-level ramework intended to orm the basis

or enterprise architectures at all major ederal entities. Itoriginally consisted o a set o re erence models or de ningan entitys business (Business Re erence Model), services(Service Component Re erence Model) and data (DataRe erence Model). 5 Individual entities would tailor thesemodels by extending or modi ying them to better describetheir current operations, services and data (the As-Ismodel) and their desired To-Be model, based on the long-term business goals o the entity. The changes necessary totrans orm an entity rom the As-Is to the To-Be state thenorm the basis or the entitys Capital Planning and Invest-ment Control (CPIC) process. This means that potential

investments can now be evaluated based on their contribu-tion to the attainment o the To-Be state, which refects thehigh-level goals o the enterprise. This, in short, is what theenterprise architecture process is all about: a current state(or architecture), an end state and a plan to get there.

The early FEA e orts concentrated on establishing anenterprise architecture (EA) ramework at each entity;that is, an As-Is architecture, a To-Be architecture and aCPIC process de ning how the trans ormation should beachieved. The development o these plans proved valuablein itsel . Redundant systems and processes were identi edand eliminated, and uture goals or entities were clari ed.These represented important savings to the government;however, one major question remained: What is the overallvalue o the trans ormation? Does the entity deliver su -cient additional value at the To-Be state to justi y the cost othe trans ormation?

In early 2007, the government began to require objectivemeasurements o the value o the trans ormation; it wasno longer enough to develop a To-Be architecture that wasbetter, it was now necessary to quanti y how much betterthe To-Be state would be compared with the cost o attain-

ing it. This is where process-based accounting becomesparticularly valuable. By looking at the problem rom thetop down, one can justi y the actions rom the bottom up.

Introducing a process-based view will help each entity

optimize its internal processes and help it judge where andwhen to contract out services to other government orprivate organizations. The current ederal e-governmentinitiative encourages entities to identi y services that theyeel they per orm particularly e ciently and make theseavailable, or a ee, to other entities. An objective processsuch as process-based accounting can vastly simpli y anentitys choice in a matter such as this.

Per ormance-based management and ederal nancialdata standards. Process-based accounting, as an enablero PBM, aids the linkage between nancial reporting andper ormance measurement. For example, in traditional

accounting, labor accounting transactions are recordedwhen employees are paid; however, the payroll cycle isdisconnected rom the actual workfows. Such accountingaccurately portrays actual salary and wages cost, but cannotlink it to work that generated the need or paying employ-ees, except through a separate data collection step. Becauseprocess-based accounting seeks to report not only thesalary and wages cost but also the amount o time needed by a worker o certain quali cations to complete a unit ooutput and how much workload was completed duringthe reporting period, it looks to a data generation method-ology that enables the recording o both values (cost andper ormance) simultaneously. The FEAs Data Re erenceModel (DRM) creates a conceptual ramework that speci -cally supports such capability (as shown in Figure C-1 anddiscussed below):

Figure C-1 shows three standardization areas: Data De-scription, Data Context and Data Sharing: Data Description. The Data Description standardization

area o the DRM provides a means to capture uni ormlythe semantic and syntactic structure o data. This enablescomparison o metadata (data about data) or purposeso harmonization and supports the ability to respond toquestions regarding what is available in terms o datadescriptions (metadata).

Data Context. The Data Context standardization areaestablishes an approach to the categorization o data as-sets, using taxonomies and other descriptive in ormation.In general, Data Context answers key questions about thedata required within a Community o Interest (COI) andestablishes the basis or data governance. Data Contextalso enables discovery o data and can provide linkagesto the other FEA re erence models, which are themselvestaxonomies.

APPendix c

XBRLPBMs Rosetta Stone4


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APPendix c

Data S aring

Quer Points and Exchange

Data Descriptions Data Context

Data and Data Assets Taxonomies

Source: The Data Reference Model v.2.0, 2005, of the Federal Enterprise Architecture

Figure C-1: DRM standardization areas

Data Sharing. The Data Sharing standardization area de-scribes the access and exchange o data, in which accessconsists o recurring requests (such as a query o a dataasset) and exchange consists o xed, recurring in orma-tion exchanges between parties. Data sharing is enabled by capabilities provided by both the Data Context andData Description standardization areas.

XBRL is a data standard that could ul ll the require-ments o the Data Re erence Model o the FEA and en-able process-based reporting o nancial data through itsschema and taxonomy (see Figure C-2).

Figure C-2 shows the ve standard linkbases o the XBRLtaxonomy that enable tagging o source data or multiple uses:1. Presentation linkbase. Structures taxonomy in the orm

o tables (rows/columns) and de nes hierarchical relation-ships between elements, creating presentation trees.

2. Calculation linkbase. De nes basic calculation rules,and subelements roll up to know the value o the par-ent element.

3. Defnition linkbase. De nes standard types (roles) orelationships such as general special.

4. Re erence linkbase. De nes the legal regulations relatedto the XBRL elements representing nancial terms.

5. Label linkbase. XBRL enables assigning many di erentlabels or one element, depending on the context and thelanguage used.XBRLs schema and taxonomy acilitate the kind o di-

mensional analysis mentioned in the next section.

XBRL and t e interactive data modelSo what is XBRL? XBRL is based on eXtensible Markup La

guage (XML), which is extended (hence the X) to allow thestorage and trans er o nancial data across disparate systemsin the business reporting supply chain, using Internet-basedtechnologies. XBRL tags not only encapsulate the data but alsoprovide linkbases that allow metadata, so that each data ele-

ment is more precisely de ned. The basic components o XBRLare the taxonomy, instance document and style sheet. Thetaxonomy or schema (.xsd) de nes the name and contents o allelements that are permissible in a certain document (identi edas a tag). A tag is similar to a barcode: it provides metadata orin ormation about the element (think optical scanning).

Taxonomy gives the structure o the document an order inwhich the elements must appear, much like an old- ashionedoutline. The instance document (.xml) includes the actualvalues or each element, together with re erences to the tax-onomy to which the values should con orm. These re erencesare the linkbases that provide labels, calculations, re erences to

authoritative literature, etc. Finally, the style sheet (.xsl) rendersthe data or display in the desired ormat ( or example, a Webpage or Excel document). The data can be easily presented invarious ormats to display via a Web browser or in other so t-ware packages such as Excel. Because o their fexibility, XBRLdata elements provide intelligent data in which one can drilldown and see metadata in the electronic document. In otherwords, users can get in ormation about the data, as opposed tostatic data contained in a basic HyperText Markup Language(HTML) document or any other le format that contains staticdata (such as MS PowerPoint or MS Word documents).


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APPendix c

XBRL and fnancial interactive dataXBRL has continued to evolve since its early roots in

nancial reporting. XBRL has been designed to be relativelygeneric and has potential or cross-industry use; in addi-tion, the recent addition o XBRL eatures such as dimen-sions and ormulas positions XBRL well as a standardmultidimensional modeling language.

The banking industry took an early lead in de ningindustry-speci c XBRL taxonomies. The Common Re-porting ramework (COREP) and the Financial Reportingramework (FINREP) were designed speci cally or theEuropean banking industry and have been success ullydeployed in that region. The U.S. Federal Deposit InsuranceCorporation (FDIC) has also been success ully using XBRLor banking call reports, enabling more than 8,000 banks tole in a more automated ashion. Along with the manage-ment bene ts that FDIC has derived internally rom XBRL,it has improved the banking industry and its transparencyto the nancial markets.

More recently, public nancial reporting has taken a hugestep orward with entities like Japans Financial ServicesAgency (FSA) and the U.S. Securities and Exchange Commission (SEC) progressing with their XBRL programs. SECis taking steps toward a broad and deep XBRL ramework by recommending the use o a dimension-heavy GenerallyAccepted Accounting Principles (GAAP) taxonomy and byproposing the use o XBRL or regulating mutual und riskreturns and credit rating re orms.

In June 2008, the SEC proposed that U.S. rms use XBRLto ormat their nancial disclosure statements. The SECcurrently endorses a phased approach to XBRL adoption,starting rst in 2009 with companies that have market capi-talizations in excess o $5 billion; smaller rms would haveuntil 2011 to get XBRL-compliant. In fact, U.S. regulatory bodies have been proponents o XBRL adoption or sometime. The SEC already sponsored a pilot program wherebyorganizations could opt to use XBRL to report their nan-cial in ormation.

XBRL Arc itecture

LINkBASES(La ers)

Perf Based Mgmnt

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