Stratwegic Business Plan Part-2 Tarun Das

Preparation of Strategic Business Plans-
General Guidelines and Some Suggestions

for Improvement – Part-2
-Professor Tarun Das
Strategic Planning Part-2 by Tarun Das 1

5. Appraisal of Present SBPs

5.1 Appraisal of Present SBPs
• We have gone through the latest SBPs
of the HQs of the MOF, MOECS, MOH
and MOSWL.
• However, we have not seen any SBP
for an Agency under these Ministries.
• The reason for selecting these
Ministries is that they account for
major share (more than 75%) of the
govt budget, and also very important
by functional classification of budget.

5.2 In 2006 MOF, MOSWL, MOECS & MOH
accounted for 75% of the CG Budget
Others
10%
Justice
5% Finance
26%
Health
9%
Transport
10%
Soial
Eduation
Welfare
18%
22%

5.3 Govt Expenditure by Functions
(%) Average of 2004 and 2005
Expenditure by Function (% ) 2004-2005
Others, 3
Gen services
Health, 10 Gen services, Defence
29
Econ services, Social security
11 Housing & comnty
Education
Defence, 5
Education, 19 Econ services
Health
Housing & Social
comnty, 1 security, 22 Others

5.4 Appraisal of Present SBPs
• We have held discussions on SBP and
Master Plans with officials of these
Ministries, as well as with their
national and international consultants.
• All the Ministries must be
complemented for producing excellent
and comprehensive Reports.
• We appreciate very much their hard
work and high quality of reports.
However, there is always some scope
for improvements.
5.5 Structure of Present SBPs
1. Introduction- scope of laws and regulations
and GM’s Statement
2. Ministry’s Strategic Objectives
2.1 Vision of future
2.2 Mission statement
2.3 SWOT analysis
3. Strategic objectives and outcome
4. Deliverable outputs with their classifications
and descriptions- detailed description of each
output, man-days required and costs.
5. Budget planning and output cost
6. Resource utilization and improvement

5.6 Desired Uniform Structure
1. Foreword by the Minister

2. GM’s Statement
3. Vision, Mission, Values, Priorities and Clients
4. Environment Analysis in terms of Strength-
Weakness-Opportunities-Threats (SWOT)
5. Strategic Purpose and Objectives
6. Specifications of Activities, Outputs,
Outcomes and Goals
7. Structure and Organization
8. Budget for the Strategic Planning Period
9. Monitoring and Assessment System
10. Annex: Implementation and Evaluation
Report of the previous SBP

5.7 References to MDGs
• First three chapters viz. Foreword, GM’s
statement, Vision and Mission can be
improved by referring to the concerned
targets in Millennium Development Goals
(MDGs) and the Master Plan (2006-2015).
• Along with other nations of the world,
Mongolia has committed to achieve the UN-
MDGs by 2015 in the following areas:
 reduction of poverty and hunger,
 achievement of universal education,
 ensuring equality for women,
 improvement in health,
 environmental sustainability and
 global partnership in development.

5.8 References to MDGs
3. Since their adoption in 2000, the MDGs
have become the overarching objective of
all UN agencies and funding organisations.
4. They have reached to the top policy agenda
and are being mainstreamed into the
national development plans of many
developing countries.
5. Their reference at the very outset in the
Minister’s and GM’s statements will
demonstrate, to the citizens and to the
international community at large, that
Mongolian govt is fully committed and
making best efforts to achieve MDGs in the
spheres of education, health, social
security and poverty reduction by 2015.
5.9 Outputs and Outcomes
1. As regards outputs and outcomes, there is a
genuine difficulty in the identification of
outputs and outcomes by the Head Quarter
(HQ) of any Ministry.
2. Most of the outputs as described presently
by the HQ are not really outputs but
activities (or the functions) of the Ministry.
3. Most of these activities relate to routine
works or the policy advice and policy
planning for the HQ and Agencies under it.
4. In the strict sense of the term, policy advice
cannot be regarded as an output as it is not
quantifiable and its quality is not uniform
over time and over individuals.

5. In fact, policy advice and associated
functions should be regarded as “Activities
or Processes” which help to transform
“inputs and resources” (in terms of man,
materials, machines, money etc.) into
“Outputs” and finally “Outcomes”.
6. At present in any SBP for the HQ there is a
very elaborate description of these
activities or the so-called outputs.
7. This list may be kept as an internal
document for guidance of activities.
8. But, a short version of major activities may
be reported in the SBP for public use.

9. Although in a strict economic sense, policy
advice cannot be taken as an output, a
major part of the time of the officers at the
HQ is spent on policy advice and planning.
10.Besides, output budgeting in Australia,
which is pioneer in output budgeting
recognize policy advice as an output.
11. Mongolian Public Sector Management and
Finance Act 2002 also recognizes policy
advice as an output (Articles 23.2 & 23.3).
12.Considering all these facts we may consider
policy advice as an output of the HQ.

5.12 Headquarter Budget
• In this respect, it is worth noting that the
share of HQ budget in the total budget of
the Ministry is very small.
• As there are fixed costs for administration,
the share is higher for smaller Ministries
and lower for larger ministries.
• Nevertheless, in large sectoral ministries
such as MOF, MOH, MOSWL and MOECS
with staff directly involved in actual service
delivery down to the grassroots level, in
addition to their planning, distributive,
regulatory and coordination functions; a
very small HQ budget may put constraints
on their efficiency and productivity.
• There is a need to enhance both the staff
and budget for the HQ of these ministries.
5.13 HQ Budget as % of
Ministry’s Total Budget in 2003

5.14 HQ Budget as % of
Ministry’s Total Budget in 2003

5.15 Budget Allocations in 2006
Ministry Total As % HQ HQ as %
Budget of Total Budget of Total
MOF 312238 27 1227 0.39
MOECS 208715 18 287 0.14
MOSWL 263172 22 925 0.35
MOH 103168 9 436 0.42
MOJ 61212 5 489 0.80
MOT 72052 6 534 0.74
MOE 36331 3 609 1.67
OTHERS 119772 10 37203 31.06
TOTAL 1176659 100 41710 3.54
5.16 Some Suggestions
 My suggestion is to prepare only one document
for the SBP for the Ministry as a whole i.e. to
combine SBPs of the HQ and all Agencies under
it for effective budgeting and co-ordination. The
State Secretary may be given this responsibility.
 However, as usual, MOUs will be signed with the
Agency Heads with performance parameters. If
they perform better, they may be allowed to
retain profits for future expansion.
 Such an arrangement is feasible under the Public
Sector Management and Finance Law 2002
provided that the concerned Portfolio Minister
considers it efficient and the GM of the
concerned Agency also agrees (Article 19.4).
6. Stylized Design of a SBP

6.1 Stylized Design of a SBP

6.2 Basic characteristics of indicators
• The basic criterion is that the output and
outcome indicators, as far as feasible, should
be “CREAM”.
• Clear- Precise, unambiguous, tangible
and quantifiable
• Relevant- Appropriate for the strategic
objectives
• Economic- Available at reasonable cost
and within reasonable time period
• Adequate- Provides sufficient basis to
access performance
• Monitorable- Amenable to independent/
objective evaluation
6.3 Components of a Typical SBP
• Inputs (man, materials, machines etc) are the
basic requirements for any output and
strategic planning.
• Activities or Processes are those which
transform inputs into outputs.
• Outputs are the immediate or end results of
activities. Outcomes are the medium term
impact of government policies and programs,
• whereas goals are the wide spread and long
term impacts on the economy, even after the
strategic planning period had been over.
6.4 Top-Down Approach
While preparing Outcome

Strategic Business
Plan, we need to 
adopt a Top- Output
Down Approach.

Activities

inputs

6.5 Example: Australian Treasury Budget
Outcome Output Groups 2005-06
(A$ Mln)
Outcome 1: Output group 1.1: 35.8
Sound Macroeconomic
macroeconomic group
environment
Effective govt Fiscal group
spending and Output group 2.2:
taxation Revenue group
arrangements
Well functioning Markets group
markets
6.6 Australian Treasury Budget 2005-06
Outcome Output Groups (A$ Million)
1: Sound 1.1: Macroeconomic
macroeconomic 1.1.1 Domestic economic Policy
environment advice and forecasting (8.9)
1.1.2 International eco. policy
advice and assessment (26.9)
2: Effective govt 2.1: Fiscal group
spending and 2.1.1 Budget policy advice and
taxation coordination (4.3)
arrangements 2.1.2 Commonwealth state
financial policy advice (2.8)
2.1.3 Industry environment and
social policy advice (7.3)
2.2: Revenue group
2.2.1 Taxation and income
Strategic Planning
support policy advice (44.0) 25
Part-2 by Tarun Das
6.7 Australian Treasury Budget 2005-06
Outcome Output Groups (A$ Million)

Outcome 3: Output group 3.1: Markets
Well functioning group
markets 3.1.1 Foreign investment policy
advice and administration (4.1)
3.1.2 Financial system and
corporate governance policy
advice (22.9)
3.1.3 Competition and
consumer policy advice (19.7)
3.1.4 Actuarial services (1.5)
3.1.5 Circulating coins and like
products (42.1)

6.8 Goals and Outcomes of MOF
• As regards outcomes of the MOF, these will
be trends of major macro-economic and fiscal
variables (such as real GDP growth rate,
inflation rate, ratios of public debt, external
debt, current & overall balance to GDP etc.).
• For other Ministries, the minimum outcomes
could be MDGs and other indicators
mentioned in their Master Plans.
• Health Sector Strategic Master Plan (2006-
2015) prepared by the MOH, and the Social
Security Sector Strategy Paper prepared by
the MSWL provide various output measures.
• Some suggestions on these aspects have
been provided by us for each Ministry.

6.9 Output Indicators
• Output indicators of the Departments could
be the important policy documents, briefs on
economic trends, other reports, surveys
conducted, amendments of existing acts or
preparation of a new act etc. which are
quantifiable, tangible and monitorable over
time.
• Let us take the SBP of the MOF for the year
2005 as given in the MOF SBP for 2005-2007.
• Similar tables can be prepared for other HQs.

6.10 Output-Based Input Budgeting
• Presently the HQ of a Ministry adopts a
methodology which can be described as
“Output-based” or more accurately “activity-
based inputs costing and inputs budgeting”.
• The methodology consists of costing of inputs
(in terms of personnel, goods and services,
and overheads) required to sustain the
activities for producing the desired outputs.
• It may be mentioned here that only Australia
and New Zealand adopts the methodology of
output budgeting, but most of the other
countries adopt the methodology of
“output/activity-based inputs costing and
inputs budgeting”.

7. OUTPUT BUDGETING
MDG Goals: 1. Reduce Poverty and Hunger
2. Achieve universal primary education
3. Promote gender equality & empower women
4.Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, Malaria, TB, other disease
7. Ensure environmental sustainability
8. Develop global partnership for development

7.1 Output Costing and Budgeting
• Under output budgeting, an identified
output becomes a cost and budget
centre, so that the cost of that output
can be estimated, budgeted, monitored,
and evaluated.
• If single output cannot be budgeted,
then related outputs can form an output
group and the cost and budget centre.
• The Departments and Agencies who are
responsible for the output should also be
identified and specified in the Budget.
• The Ministries have already identified inputs,
activities and output groups.
• MOF has also estimated “total output cost” for
broad output groups and sub-groups.
• Output budgeting becomes meaningful only
when the cost of each output is subject to
accounting and auditing. In other words,
under the system of output budgeting, each
output becomes a cost centre.
• In my opinion, this can be achieved only in a
phased manner. At the first phase, each
department can become a cost centre.
• Output budgeting needs to be organised
Department wise. Departmental budget
along with outputs need to be specified so
that accounting and auditing by
Departments and Outputs are feasible.
• My suggestion is that at the first stage the
total departmental budgeting along with
specific outputs may be indicated in the
budget. In other words, Departments will be
cost centres.
• At a later stage, when the system is
developed properly, the specific outputs can
also become cost centres.
7.4 MOF Output Budget for 2005
Output classes and sub-classes Person- Mln tog %
days
1. Economic Policy Advice 3958 67.5 12.7

1.1 State socio-econ SP 2880 44.3 8.3
1.2 Regional socio-econ SP 1078 23.2 4.3
2. Sector & inv. Management 3214 55.6 10.4
2.1 Sector & fincl. management 1743 29.9 5.6
2.2 State budget investment plan 1471 25.8 4.8
3.Budget Management 4343 79.9 15.0
3.1 Revenue policy, planning 1068 20.2 3.8
3.2 Expenditure policy, planning 1706 31.2 5.8
3.3 Unified budget planning 1569 28.5 5.3
Output classes and sub-classes Mln tog
Person-
days %
4. Govt cash assets management 8043 107.7 20.2
4.1 Budget financing registration 2489 33.5 6.3
4.2 State fund services 3058 36.3 6.8
4.3 Govt debt management 2496 37.9 7.1
5. Govt procurement
management 1860 34.4 6.4
5.1 Procurement policy, methods 1080 20.7 3.9
5.2 Procurement coordination 780 13.7 2.6
6. Foreign credit management 2450 49.8 9.3
6.1 Foreign loan & assistance
policy 1500 32.0 6.0
6.2 Loan and assistance control 950 17.8 3.3
Output classes and sub-classes Mln tog
Person-
days %
7. Accounting and auditing 2104 35.4 6.6
7.1 Accounting & audit policy 1468 25.3 4.7
7.2 State sector financial report 636 10.1 1.9
8. Govt admn management 6314 102.9 19.3
8.1 Admn, legality& HRM 3845 62.8 11.8
8.2 IT and advertisement 1287 20.4 3.8
8.3 Monitoring and assessment 1182 19.7 3.7
Total output budget 32286 533.3 100.0

7.7 MOF Output Budgeting
• We have observed in the last three slides that
MOF has committed to deliver 8 output
groups with 19 specific outputs.
• For proper output budgeting, we need to
keep separate accounts for 19 separate
output/cost centres, and need to have
separate budgets fo each of them.
• In my opinion, this may not be feasible at this
stage of accounting and auditing in Mongolia.
• But we need to have at least separate
departmental budget with broad output
groups in order to implement output
budgeting.
7.8 MOF Departmental Output Budgeting
Department
Output Group Mln Tog %
1. Economic 1. Economic Policy
Policy Advice 67.5 8.5
2. Fiscal Policy 2. Revenue,
& Coord. expenditure &
investment policy
& planning 105.7 13.3
2.1 Revenue
Division 2.1 Revenue policy 20.2 2.5
2.2 Expenditure 2.2 Expenditure
Division policy 31.2 3.9
2.3 Fiscal
Consolidation 2.3 Unified budget
Div planning 28.5 3.6
2.4 Investment 2.4 Investment
division planning 25.8 3.2
Department
3. Treasury 3. Govt cash assets
management 107.7 13.5
3.1 Debt
Management div 3.1 Govt debt
management 37.9 4.8
3.2 treasury exp
accounting & 3.2 consolidated
reporting finan report 33.5 4.2
3.3 Banking 3.3 Banking
settlement div settlements 36.3 4.6
4. Procurement
Policy & 4. Procurement
Coordination policy & coord 34.4 4.3
Department
5. Loan & Aid 5. Foreign credit
Policy & Coord. management 49.8 6.2
6. Accounting
policy & 6. Accounting and
Supervision auditing 35.4 4.4
7. Financial 7. Financial sector
sector policy policy & regulation 29.9 3.8
8. State Public
Admn including
State Secretary,
Minister, Vice 8. Govt admmn
Minister management 366.9 46.0
Total Ministry of Finance
Strategic Planning
HQ Part-2 by Tarun Das 797.3 100 40
8. Benchmarks and
Accrual Accounting
MDG Goals: 1. Reduce Poverty and Hunger
2. Achieve universal primary education
3. Promote gender equality & empower women
4.Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, Malaria, TB, other disease
7. Ensure environmental sustainability
8. Develop global partnership for development

8.1 Cash Accounting and Benchmarks
• Costing Methodology adopted by the
Ministries is based on the cash accounting
system. This is the traditional method
adopted by many developing countries.
• The methodology is alright so long as the
implicit norms or benchmarks for costing
different heads are made explicit and are
subject to approval by the financial advisers.
• Although it is not categorically mentioned in
the SBPs of different Ministries, there
appears to be some symmetry, uniformity
and convergence of various norms for
costing.

8.2 Composition of Total Cost

8.3 Composition of Total Cost

8.4 Compensation to Employees
World Bank study on Mongolia Public Expenditure
and Financial Management Review (2002) has
argued that among the transition economies
the share of wages as a percentage in GDP in
Mongolia is relatively higher than that in other
transition economies.
We donot agree with such observation because
the analysis is subject to the following errors:
(a) Concept of wages may be different (other
countries may receive many in-kind
allowances which may not exist for Mongolia,
(b) Composition of GDP may also be different.
(c) Due to these differences in the concept and
scope of wages and salaries, it is difficult to
make meaningful international comparisons.
8.5 Compensation to Employees
• Table on next slide presents data on
average personnel cost in MOF, MOECS and
MOH of Mongolia compared with that in the
corresponding Ministries and the Central
Govt of India, which had almost the same
per capita income (although in recent years
the Mongolia has higher per capita income).
• Table indicates that the average cost per
govt official in any Ministry in India is much
higher than that in Mongolia.
• Even if we account for 30% rise of salaries
for govt officials in Mongolia in 2006, the
present average salary per person in
Mongolia is less than half of that in India.

8.6 Average Emoluments per Person
in Mongolia and India (US dollar)
Average Employee Cost Per person per annum (US dollar)
Ministry/ Country 2004 2005 2006 2007
Mongolia- MOF 1469 1450 1970 1996
Mongolia- MOECS 1461 1503 2162
Mongolia- MOH 1327 1547 2195
India- MOF 4145 4134 4143
India- Min of Edu 4862 5067 5936
India- Min of Health 3827 4371 4435
India Central Govt 2706 2877 3397
Memorandum Items
Mongolia per capita income (US$) 676 785 951 1088
India: per capita income (US$) 637 719 792 868

8.7 Average Emoluments per Person
in Mongolia and India
• The differences will be much larger if one
considers the following factors:
(i) The personnel costs for India include only
wages and salaries and do not include
contributions made by govt towards
provident funds, pensions, life insurance
and health care.
(ii) The Indian govt officials receive many
other in-kind benefits such as govt
accommodation and its maintenance at
concessional rate, use of staff car or
transport allowance, free medical
treatment, free telephones, magazines,
newspapers, computers at residence etc.
8.8 Average Emoluments per Person in
Mongolia and India
• Although Indian example cannot be considered
as one of the international best practices, the
fact is that such in-kind allowances and benefits
do exist in many developing countries and their
sudden withdrawal may result in a substantial
increase in cash emoluments, otherwise it may
affect adversely efficiency of govt officials.
• Judged by these cases, personnel costs in
Mongolian govt appear to be reasonable, and
may even justify some increase to compensate
for more responsibilities assigned in the SBP,
need for skill upgradation to deal with new
methodology, high inflation, recent economic
boom and rise of private sector salaries.
8.9 Benchmarks
1. As regards Benchmarks on costing, due to
variations in the fiscal structure and scope
of activities of government in different
countries, it is difficult to provide some
international benchmarks for different
components of cost.
2. However, benchmarks can be developed by
suggesting some improvements in one’s
own performance after comparing its
performance in the past, performance in the
public and private sectors, trends of other
financial variables (such as inflation, interest
rates etc).
3. The Consultants will produce a
methodological paper on benchmarks.
8.10 Accrual Accounting
1. There is a need to move towards accrual
accounting system so that there are no
hidden costs and the full financial impact of
government activities are captured in the
Budget.
2. However, it may be mentioned here that only
Australia and New Zealand have been able to
adopt full accrual accounting, and all other
countries are adopting partial accrual
accounting which is known as “cash plus
accrual accounting”.
3. The IMF Government Finance Statistics
Manual (GFSM) 2001 recognizes that the
implementation of the accrual accounting can
take numerous forms and will depend on
each country’s circumstances.
8.11 Accrual Accounting- IMF GFSM-2001
4. For countries that have data only on a cash

basis, a first step could be to reclassify these
data in the GFSM 2001 framework.
5. Introduction of accrual reporting can take the
form of either (i) the implementation of ad
hoc adjustments to the cash data (for
example, the recognition of in-kind
transactions and the accrual of interest) or
(ii) the implementation of accrual accounting
for the source data.
6. Consultants will produce a methodological
paper on an operational system on “cash plus
accrual accounting” for Mongolia.
9.1 Concluding Remarks
 As first generation reforms take root and second
generation reforms unfold, Mongolia is emerging
as an economy with high growth prospects and
as a land of immense opportunity for all citizens.
 Mongolia should continue with structural
reforms and maintain its open door policy in
goods & services production, investment, trade.
 Carried to their logical ends, Strategic Business
Plans for 2008-2010 combined with governance
reforms would make Mongolia as one of the
dynamic economies of Asia by 2010.
 All the Ministries and Agencies have to play their
distinct roles in that exciting process of
development.

Thank you
Have a Good Day

Stratwegic Business Plan Part-2 Tarun Das

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Preparation of Strategic Business Plans-

General Guidelines and Some Suggestions

Strategic Planning Part-2 by Tarun Das 1

Strategic Planning Part-2 by Tarun Das 2

Strategic Planning Part-2 by Tarun Das 3

Strategic Planning Part-2 by Tarun Das 4

Strategic Planning Part-2 by Tarun Das 5

Strategic Planning Part-2 by Tarun Das 7

1. Foreword by the Minister

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While preparing Outcome

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Outcome Output Groups (A$ Million)

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1. Economic Policy Advice 3958 67.5 12.7

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4. For countries that have data only on a cash

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