Smarter Financial Management -- An Answer to the Missing Link between Key Performance Indicators and Budgeting Decisions for Smarter Cities

Abstract

Most government entities (cities, schools, etc) use traditional accounting systems and related financial tools to plan budgets. Some introduce more advanced technologies, such as ERP systems to perform this task. However both tend to focus on budgeting from a purely financial perspective and are incapable of linking the impact of budgeting decisions with the strategic objectives trying to be achieved. Even ERP systems typically focus on gathering the data and comparing it with the budget, not on the models underlying the budget itself. To address this gap, we introduce outcome based budgeting for cities and local governments, which takes a radically different approach to the budgeting process. Instead of departments, it looks at the government entities as the service systems they are. Every service a government entity provides has both a financial model, as well as a performance model. These models are linked so that the performance impacts of financial decisions can be investigated and studied. Individual service systems are also linked together into a larger service system, allowing the big picture for each financial decision to be seen. This approach offers better insight to decision makers and could help them prioritize projects for budgeting. It might even make the process politically less contentious by offering transparency and rationale to staff and citizens alike. Impacts that were once invisible are brought to light, allowing for smarter, fact-based decision making by the government leaders. Once adopted, outcome based budgeting opens up opportunities for various analytics, as services are well defined and have concrete models. These analytics allow for better decision-support via what-if scenario planning, and can over time help in project prioritization.