Posted by Gerardo Uña[1]
In a previous blog article, I spelled out some of the reasons why the performance of FMIS systems in developing countries around the world has been generally disappointing. These reasons include the lack of well-crafted conceptual design, sufficiently strong leadership by the ministry of finance, financial and technical capacities within the government, secure financing, good project management, adequate testing of the systems before they are implemented, and a feasible maintenance strategy. In this second article, I consider the question of whether there is an alternative path for implementing FMIS that would be more cost-effective, and could lead to improved results.
Looking back historically, we can see that the implementation of FMIS went through two main phases. In the first phase, from about the early-1980s until the mid-1990s, the dominant approach was to implement a comprehensive IT system that supported core PFM business processes, including budget preparation and execution, cash management, accounting, and debt management. In addition, “peripheral” functions such as public procurement, payroll, and asset management also used the same technological platform. This approach broadly replicated the so-called Enterprise Resource Planning (ERP[2]) systems that were widely used in the private sector to support companies’ resource management business processes.
The huge cost and complexity of the many FMIS projects that were initiated in developing countries and emerging economies during this period partly explain the major shift in approach that took place in the late 1990s and early 2000s. Another important factor was the explosive growth of internet services. In this second phase, the idea of covering the whole range of PFM processes was abandoned, and the scope of FMIS design was refocused on the core PFM processes referred to earlier, using a single IT platform (see chart below). Other business process, such as planning, public investment, payroll, and procurement were supported by different IT systems, which in some cases were able to exchange information with the FMIS in order to produce timely, relevant, and reliable financial data. Unfortunately, as explained in my previous article, this new breed of FMIS was also characterized by many problems, including high cost, lengthy implementation periods, and inadequate coverage.
Looking forward, a new approach to thinking about the design of FMIS to reach their original goals may be warranted. The private sector is shifting its IT systems strategy from “one size fits all” solutions to “plug and play” solutions. The latter focus on the continuous improvement of specific core business functions, agile development strategies, the use of the latest technology, and rapid response.
How could such an approach be adapted to the public sector? Each core PFM process would be supported by a specific module that is developed and operated under a different IT platform. For example, if a country has in place certain FMIS modules that already provide effective support for specific business processes (e.g., cash management or budget execution), these modules should be retained. In many countries, however, some modules of the FMIS – notably on accounting - are not performing well, and do not deliver the full range of financial reports that the government requires. In such circumstances, the government should consider focusing on the renewal or upgrading of the accounting module, using a separate IT platform.
A key characteristic of this new strategy is that all modules in the “core” PFM system should have the capacity to exchange information with other systems, both within the core and with the periphery. In this manner, the broad integration of PFM core functions would be achieved by establishing a common financial information architecture that incorporate a chart of accounts and budget classification that are aligned with international accounting and statistical reporting standards, such as the IMF’s Government Finance Statistics Manual.
The new approach would have the following main benefits:
- It should be more cost-effective and also increase the flexibility of the FMIS to incorporate new technologies. By focusing on a single FMIS module, the new approach takes advantage of the investment in IT systems and human resources that countries have already made, rather than starting from scratch with a brand new system.
- There would be no need to establish a single IT platform for the whole range of PFM business processes. Instead each process would utilize its own platform with reliable interconnections to other systems, thus achieving full information integration at relatively low cost. This benefit could be enhanced by utilizing the Service Oriented Architecture (SOA) paradigm to join up the various components of the new system.
- It would facilitate the extraction of financial information about “peripheral” functions, without the need to create additional modules. For a function such as the management of public assets, for example, a cost-effective solution could be to collect relevant information from the existing budget and accounting modules.
An example of the new approach is the Public Sector Cost System introduced by the State of São Paulo (Brazil). This system was implemented as a new FMIS module by integrating functionalities of the state’s traditional mainframe FMIS (SIAFEM), functionalities from its web-based version (SIAFEM.net), and implementing a Business Intelligence world class solution[3]. The module was developed in less than a year, with only marginal investment in hardware and software, by reusing existing IT platforms while modifying certain processes to capture the additional information needed.
[1] Gerardo Uña is a Technical Assistance Advisor in the PFM M2 Division of the IMF’s Fiscal Affairs Department. The author is grateful to Richard Allen from FAD for his valuable comments.
[2] Business management software, which is usually a suite of integrated applications that organizations can use to store and manage data across the entire range of their business activities and operations.
[3] IT information systems implemented by globally-recognized vendors that achieve a standard of design, performance, quality, and customer satisfaction in line with good international practice.
Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.
