Bridging Policy and Finance:
Integrating Financial Consideration into the Policy Life-Cycle
Murray Lindo:
Director, Financial Management & Control Policy
Office of the Provincial Controller
Ministry of Finance
November 20, 2009
1. Purpose
 To understanding the key strategic challenges, facing the government is
pivotal to designing policy and achieving program value-for-money.
 Describe five key financial “lenses” that can enable you to identify, assess
and mitigate the financial risks and establish risk-based financial measures.
 Provide a framework to better integrate financial considerations and
measures, across the policy life-cycle from design, implementation,
maintenance and evaluation.
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2. Policy and Financial Management Definitions
 What is Policy?
 “Policy is the translation of government’s political priorities and principles into
programmes and courses of action to deliver desired outcomes.”
 What is Financial Management?
 “Financial management is the process by which financial aspects of public sector
organizations are directed and controlled in order to achieve the organization's
goals.”
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3. Strategic Financial/Policy Challenges
 Economic: managing program expenditure and evaluating performance/alternatives during
a global economic recession that has constrained revenues.
 Stewardship of the Long-term: balancing immediate program funding over infrastructure
investments, while understanding the long-term financial legacy of current policy/program
decisions.
 Public Expectations: access to information and heighten public expectations will drive
greater transparency and the need to demonstrate effectiveness, efficiency and value-formoney.
 Core Programs: demographics changes will impact the sustainability of large, “open
programs” in the health, social services and education sectors.
 Broader Public Sector (BPS): changing government’s role as a “social-investor”
overseeing BPS management and leveraging performance through agreements that codify
expectations.
 Capital and Investments: Increasing complexity of integrating financing, capital
investment and operations planning to ensure efficient and effective delivery of services.
 Public Reporting: Strengthen public accounting and financial disclosure standards will
necessitate more rigorous financial analysis and data supported by attestations of its
integrity.
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4. 2009-10 Budget Expense
Education Sector
14% $14.2B
Health Sector
43% $42.6B
Postsecondary
Education And
Training Sector
6% $6.6B
Children’s and
Social Services
Sector
13% $12.7B
Environment
0.37% $0.367B
20th Overall
Justice Sector
4% $3.9B
Other Programs
20% $19.5B
Program expense equals total expense
minus interest on debt.
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5. Key Messages
 Only by integrating financial analysis into policy and programs proposals can
ministries design high-quality, sustainable and cost effective policies.
 In an constrained economic environment, the strengthen of your policy
proposal (and its success) will depend on the ability to demonstrate savings,
value-for-money and positive cost/benefit analysis.
 Evaluating your existing portfolio of policies and programs, using objectives
financial analysis, to find efficiencies and effectiveness improvements is
going to be essential to maintain services with less resources.
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Processes
Mandate
Governance
6. Financial and Policy Decision Process
Proposals with Financial
Implications
Voted
Appropriations
Legislature
Cabinet
Treasury Board/
Management Board of Cabinet
• Treasury Board authorizes annual and in-year
spending plans and ensure compliance.
• Reviews policies with financial implications.
• It approves the government's overall human
resource, information technology plans and
also makes decisions about government land
and buildings.
Ministry of Finance
(Treasury Board Office)
Eight (Policy) Subcommittee
(e.g. Legislation and Regulations
Committees)
• Policy committees review and make
recommendations to Cabinet on the policies
and programs government delivers.
Cabinet Office
• supporting Treasury Board in its
fiduciary responsibilities
• supports Cabinet and subcommittees
• financial long-term stewardship
• manages how the government
makes decisions
• responsible for the development of the
fiscal plan (budget), Fall Economic
Statement and publishing the Public
Accounts.
• managing the Results-based Planning
process.
• developing financial policies
• works with ministries to coordinate
policy, communications and
intergovernmental strategy
• monitors government strategies and
supports implementation and
delivery of results
Ministry of
Environment
• focused on policy development
• program delivery and managing
service partners
• managing within the fiscal
envelope
• establishing performance
expectations and evaluating
program outcomes
• financial management and
results reporting
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7. Five Financial Lenses for Developing Policy/Programs
Economic/ Fiscal Impact
•What are the economic and fiscal
implications and risks?
• How can these risks be mitigated
through policy and program design?
• What are the financial and fiscal
“trade-offs” in supporting the
decisions?
Fiscal
Impacts
Value
for
Money
Financial
Risks
Impairing Future Decisions
•Impacts on (future) revenues/ assets/
liabilities (e.g. auto sector pensions)
• Impacts on budgets, the multi-year
fiscal/capital plans, transfers/ cash
flows and appropriations.
Efficiency:
• Inputs over outputs
Effectiveness
• Outputs over outcomes
Economy:
• Cost/benefits against alternatives
Transparency/
Public Reporting
Financial
Accountability
Public Reporting (consolidation):
• Ensuring appropriate financial accountability and
transparency provisions are incorporated into
program delivery and design.
Financial Transparency Risks
• Disclosure of financial
information consistent with public
accounting and financial reporting
standards.
• Financial information is
completes, reliable, timely,
comparable, relevant, clear and
verifiable.
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8. An Integrated Financial-Policy Model
Financial
& non-financial
risks/options
Risk-based
reviews
Policy
Decision
Financial
Analysis
Program Implementation
Asset Management
Asset
Implications
Effectiveness
Forecasts/
fiscal impacts
Value-for-money
Assurance of
controls
Consolidated Public Reporting
Efficiency
Program Evaluation
Policy
Analysis
Financial Performance and
Public reporting
Integrity of financial data and reporting
Sustainability and
Value-for-Money
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9. Integrating Financial Considerations into Policy-Making
 Integrated Policy should be:
 Positive benefits: complete and objective cost/benefit analysis that includes immediate and
on-going capital, operational and administrative costs;
 Forward looking: consider the complete and long-term fiscal and financial impacts over
the policy’s lifetime;
 Outward looking: understand the financial “trade-offs” of the recommendation;
 Innovative and creative: embed the identification and management of financial risks in
the policy design and implementation;
 Evidence based: costing, budgeting and estimates must be build on complete information,
solid assumptions and objective analysis
 Joined up: “horizontal” connect with other policy areas and ministries. Provide
opportunity to realize efficiencies or economies of scale;
 Evaluated: financial and non-financial performance must be measured against objective
and weighted leading and lagging indicators; and
 Demonstrate Value-for-money: the initiative must be able to efficiency (outputs/inputs),
effectiveness (outputs/outcomes) and economy (cost effective comparisons).
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10. Policy and Program Design: Financial Considerations

Cost-benefit analysis: all options should be valued against full net benefits and costs calculations.
Costs should be expressed in terms of relevant opportunity costs. Categorising costs (fixed, variable
and semi-variable) will strengthen sensitivity analysis, including: market interest and demographic
fluctuations.

Cost-effectiveness analysis: assess the comparative costs and merits of different delivery mechanisms.
This should be balanced against an assessment of the relative financial risks.

Delivery Options: transfer payments and agency methods of service delivery place increasing
(financial) oversight, evaluation and accountability requirements on the ministry.

Short and Long-term Financial and Fiscal Impact: understand integrated program, operating and
capital costs. Amortized capital costs and “sunk” program commitments will constrain “downstream”
ministry fiscal envelopes.

Full cost of service delivery: All costs associated with the program should be factored into its
cost/benefits analysis. Direct and indirect costs borne by another ministry or central agency (e.g. OSS)
come from the same Central Revenue Fund “Peter/Paul scenario”.

Investment Proposals: Capital projects (for example: buildings, IT&T and fleet vehicles) require a
complete asset life-cycle analysis from the initial investment, post-build and periodic cost/asset
evaluations, maintenance, replacement and disposal.

Cost utility analysis: accurate forecasting and modeling. Fees and revenues program need to be
substantiated by robust sensitivity analysis using different scenarios.
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11. Policy: Implementation, Maintenance and Evaluation

Sustainability: using robust forecasting and modeling to assess the fiscal and financial sustainability
and opportunity cost of the program. Should alternatives delivery mechanisms or changes in service
offerings be considered?

Transfer Payment/ Agency Oversight: review of the recipients or service delivery organization’s
service and financial results. Assurance of effective controls, accurate financial reporting and analysis
of the organization's financial well-being.

Non Tax Revenue: legal constraints on fees (Eurig decisions), the need to demonstrate transparent
costing and pricing, and associated accounting structures for Special Purpose Accounts. Are the
revenues directly adversely and disproportionately effecting another government revenue stream?

Cost Recoveries: what are the full and associated costs of collecting fees, fines and defaults
(particularly during an economic recession)?

Influence and Control: the concept of “arms-length” is governed by an understanding of the degree of
influence and control over a given organization. Provincial “control” defines whether an entity is
consolidated into the Public Accounts and is subject to Ministerial responsibility.

Oversight, Program and Technology Enhancements: sustainability of a program with a substantial
infrastructure “footprint” requires an evaluation of the key enhancement milestones and their associated
costs.

Assessment of Outcomes: performance measures should be able to indicate whether the intended
client are benefiting (and to what extend) from the program/policy and demonstrate its costeffectiveness as a service delivery method.
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12. Policy Design Questions
 What are the key financial risks faced by your programs and core policies?
How do you mitigated these financial risks?
 What financial analysis “gaps” do you typically find when developing a
policy proposal?
 What are the key financial drivers impacting the sustainability of your
policies and programs?
 What tools and approaches are you using to evaluate policies and programs’
efficiency, effectiveness and value-for-money?
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13. Looking Forward
 Integrating financial risks, analysis and measures are critical to evaluating
policy, programs and ensuring sector sustainability.
 Only by balancing and “weighting” efficiency, effectiveness and value-formoney measures can a full picture of a policy/program’s performance be
established.
 Increasing financial reporting requirements and the complex relationships
between capital, financing and operational require an integration of these
considerations into policy decisions.
 Forward looking policy that seeks horizontal sectoral solutions cannot be
divorced from robust financial, cost/benefit, business and capital investment
decisions.
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