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PLANNING ON CHANGE:

WORLD BANK STRATEGY AND RESOURCE MANAGEMENT

AT FY2000

Planning and Resource Strategy Paper

January 2000

The views and recommendations expressed in this document are those of the author. This document has a restricted distribution limited to World Bank personnel. and may be used by recipients only in the performance of their official duties in the employ of the World Bank. Its contents may not otherwise be disclosed without World Bank authorization.

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INTRODUCTION

With reforms of the Strategic Compact approaching fruition, the World Bank has positioned itself to better lead in the global effort to eliminate poverty. Yet World Bank planning and budgeting, and management of organizational change, have been tenuous over the past two decades. While much innovation has been achieved, budgets have repeatedly reversed direction at high cost. Productivity has at best stagnated since the 1970s according to basic indicators interpreted in light of operational inputs added since then. Absent this consideration, productivity appears to have fallen, notwithstanding partial recovery under the Strategic Compact. World Bank staff have been subjected to lengthy periods of redundancies and job insecurity--contrary to private sector and best practices recommended by the Bank through which reductions in force should have crucial impact and be implemented in a short time.

This paper reviews World Bank planning and budgeting experience, and concludes, while recognizing the long-term progress of the institution, that the organization tends to delay strategic management and resource allocation decisions until serious damage has occurred, at which point correction is costly and difficult.

In management of public organizations where expenditures are not direct functions of commerce or income, a systematic decision-making and resource allocation methodology evolved that the World Bank has nominally followed since 1968. Through this discipline, strategy and resource management-planning and budgeting-turn lofty objectives to action.

In planning and budgeting, objectives are detailed to concrete goals and outcomes, together a plan. To achieve the plan, activities are selected and managed as programs. Budgets are set to fund the programs, at levels affordable and efficient. Since the plans, programs and budgets should mesh-requiring tradeoffs to achieve optimum value from limited resources-the process is not sequential but iterative. Highly informed decisions are required throughout.

Strategy and resource management require that organizational priorities be determined, focused and clear. To the extent the expression of new thinking, critical analysis and internal communications are hindered, the process will not achieve its potential. Where program and resource decisions are avoided, work will be inefficient or dysfunctional. To the extent strategic decisions are avoided, the organization will fail.

Specifically, effective strategy and resource management depend on dynamic tension: continual diverse challenge, analysis and discourse throughout the organization for informed decision making, viable innovation and efficiency. Such means for vigorous executive leadership enable Management to take the hard decisions necessary for the most effective use of scarce resources to achieve the objectives of the organization.

This paper concludes that three key attributes of dynamic tension have been missing from World Bank strategy and resource management:

a process to critically assess and when necessary amend or discontinue strategic programs and management initiatives-strategic selectivity-before problems or wastage become severe; and redeploy budget accordingly;

a focus on sustaining and improving operational and overall productivity; and,

essential internal business communications: interactive strategic and business planning involving managers and staff up and down the line.

Thirteen measures are recommended to strengthen or re-introduce these conditions for effective planning and resource management at the World Bank in the long term. Forward-looking, evolutionary planning and resource management that promote continual innovation and selectivity while sustaining productivity and valuing staff should replace short-term tactical budgeting, so often reactive and over-reactive, that has characterized World Bank resource management and which led to conditions requiring correction under the Strategic Compact.

The World Bank faces daunting challenges, myriad demands for services and innumerable choices among the ways and means to best reduce poverty in over 100 countries. Constrained by limited income and budget, the organization must select and engage activities of maximum effectiveness at peak efficiency, its staff fully committed.

As global commerce expands and investment in people increases, poverty is diminishing, albeit in fits and starts. A hard objective of reducing world poverty by half has now been set in view. Will the World Bank effectively lead and hasten the progress with focused, high-impact activities and investment, its resources leveraged to the maximum, its staff to the ready? Or will Bank effectiveness be limited by a melange of programs of mixed impact, funded by lumpy budgets, its staff always somewhat distracted and insecure? The answer pends largely on the effectiveness of strategy and resource management at once squaring and boosting innovation, focus, productivity and morale.

Bill Katzenstein January 2000

PLANNING ON CHANGE:


AT FY2000-

GUIDING INNOVATION, FOCUS, PRODUCTIVITY, MORALE

Table of Contents

Introduction

I. Executive Summary

11. Dynamic Tension in Strategy and Resource Management

111. Issues of Resource Management at the World Bank

IV. 13 Measures of Dynamic Tension for Innovation, Focus, Productivity and Morale:

1. Relentlessly Sustain and Improve Productivity 8

A. The Productivity Dimension of World Bank Budget History 1 1

B. Issues of World Bank Productivity Measurement Using Numbers of Projects or Lending Commitments

2. Decision Process to Determine Priorities and Withdraw Funding for Activities No Longer of Strategic Importance in Reducing Poverty

3. Interactive Strategic Planning, Resource Decisions and Budget Allocation

4. Combine Resource and Change Management 22

5. An End to Redundancies as Business as Usual 23

6. Tie World Bank Strategic Objectives to Information Systems 24 Investment and Budgeting-Unify Into a Single Program Budget the Three Separate Central Information Systems Budgets- Attribute All Costs

- iv -

Table of Contents

7. Count All Costs of Change in the Budget 25

8. Indicate Long-Term Trends in Program and Budget Analysis 26

9. Adjust the Budget for Price Variances 26

10. Assess the Effectiveness of Resource Management in Staff Attitude Surveys

11. Issue an Appeal and Guidelines to Control Unnecessarily Lavish Spending

12. Development Grant Facility: Oversee and Budget with the 28 Same Rigor as World Bank Programs and Budgets

13. Allay Disincentives to Challenge Orthodoxy 29

Figures

1. World Bank Administrative Expenses: FY50-00

2. World Bank Administrative Expenses (FYOO$) and Lending Operations: FY50-00

3. World Bank Administrative Expenses and Lending Commitments: FY50-00

Attachments

1. World Bank Administrative Budgets & Expenses, FY46-00

2. World Bank Administrative Expenses, Lending Operations & Lending Commitments, FY46-00

3. Alternative Approaches to Realizing Productivity Gain from Operational Process Simplification leveraged by In for ma tion Technology

Figure 1: World Bank Administrative Expenses: FY50 - FYOO

% billions

-

Current $ Constant FYOm Fiscal Years

Note: Expense data are elaborated in Attachment 1. FYOO expenses are the Original Budget, excluding canyovers h m FY99, under a scenario that canyovers to FYOl will approximate carryovers to FYOO.

PLANNING ON CHANGE:


AT FY2000-

GUIDING INNOVATION, FOCUS, PRODUCTIVITY, MORALE

I. Execlltive Summary

1 - 1 World Bank strategic resource and change management functions-including both budgetary and human resource management-have moved the organization through successive innovations and renewal as the institution has attempted and at least largely succeeded in responding to difficult demands under often rapidly changing global conditions. In all, the organization has advanced, sometimes stumbling, but moving forward. An area in which serious slips have occurred is strategy and resource management, traditionally called planning and budgeting at the World Bank. In ways, the process has been notable for the absence of strategy; rather, resource management has been characterized by tactical budgeting, responding to and heavily focused on particular global economic or internal management situations or crises, often belatedly and at high cost.

1-2 This paper proposes long-term planning and resource management strategies for the World Bank to innovate and change more easily, and operate at less cost, based on a number of measures of dynamic tension. Dynamic tension in planning and budgeting is continual, open questioning, examining, and searching for better ways to do business and improve effectiveness and efficiency, involving all levels of staff, that are essential for executive leadership based on realistic, timely information and open, critical thinking. Dynamic tension means concrete processes for strategic review and program prioritization, and requisite resource redeployment. Dynamic tension assumes ongoing effort to measure and improve productivity. Dynamic tension hrther means weighing the benefits and costs of change, taking account of the value and commitment of staff, which pend on mutual dedication and trust, meaning staff expect personnel decisions to be taken with good reason, consistently and without repeated reversals or the appearance of caprice.

1-3 This paper explains how the absence of dynamic tension in strategic planning and budgeting has resulted in lagging productivity, high costs of change, and low morale at the World Bank. Staff have twice witnessed budgets increase far out of proportion to the work, then be cut back at high cost. Staff have been subjected to mass redundancies as an ongoing business practice, whereas in the private sector, such cuts are taken quickly, for critical business reasons. At least partly in consequence, the Bank's traditionally high morale dropped precipitously and has yet to substantially recover. At the same time, the Bank's budget has more than doubled in the past 13 years, and significantly increased in real terms. Productivity has at best stagnated over decades, in terms of the organization's primary products, despite improvements under the Strategic Compact and Cost-Effectiveness Review (CER) that have made up for a large part of declines in the 1980s and early 1990s.

1-4 This paper recommends thirteen measures toward an effective, enduring planning and budgeting system, which should provide the World Bank the capability to elect new strategic priorities and programs while reducing or discontinuing substantially completed or less successful functions, and to improve efficiency while sustaining morale:

Executive Summary:

13 Measures of Dynamic Tension For Innovation, Focus, Productivity and Morale

1. Relentlessly Sustain and Improve Productivity

First and imperative, in view of repeated failures that have severely harmed the institution:

To avoid a third successive decade of overbudgeting and costly readjustment, and to preserve net income and provide more funding for priority operations to eliminate poverty, the World Bank should sustain and attempt to increase the productivity of its operational programs through:

( I ) simplification and streamlining of operations (as distinct from administrative supportfiom which further savings potential is comparatively small);

(2) greater selectivity in providing discretionary operational services to clients; with, (3) resource management aflordingflexible utilization of s ta8

The World Bank should keep in view its apparently highest recordedproductivity in the late 1970s to help make a realistic assessment of the potential to regain additional ground.

2. Decision Process to Determine Priorities and Withdraw Funding for Activities No Longer of Strategic Importance in Reducing Poverty

Institutional leadership and systematic process are needed to assess the impact and cost- eflectiveness of World Bank strategic programs and initiatives, recognizing the organization S income and budget constraints, and possible scope for productivity improvement. Program realignment and budget redeployment should be ongoing, rather than a delayed, corrective measure.

3. Interactive Strategic Planning, Resource Decisions and Budget Allocation

The modern business organization depends on continuous information flows andfeedback Line managers and staflshould be involved in strategic and business planning since they are closest to the action: in the bestpositions to innovate, and also to realize when institutional plans are not working out.

4. Combine Resource and Change Management

For institutional management and organization, as with program management, responsive evolutionary change is prefirable to abrupt, belated, costly disruption.

5. An End to Redundancies as Business as Usual

Ongoing redundancies should not be necessary under a strategic resource management system sustaining productivity and aflording program selectivity and redeployment.

Executive Summary:

13 Measures of Dynamic Tension For Innovation, Focus, Productivity and Morale

6. Tie World Bank Strategic Objectives to Information Systems Investment and Budgeting; Unify Into a Single Program Budget the Three Separate, Central Information Systems Budgets; Attribute All Costs

7. Count All Costs of Change in the Budget

Currently and sometimes in the past, extraordinary or "one-time " administrative expenses such as staflredundancy payments or benefit supplements have been recorded oflbudget. As such, the budget record fails to indicate the full cost of doing business, particularly in times of disruptive change. Change would be more carefilly considered if the full costs of previous change were taken into account in planning similar measures, and iffuture costs of change are charged as regular expenses.

8. Indicate Long-Term Trends in Program and Budget Analysis

Going back only 3 years gives insuficient context of the direction andprogress of the organization.

9. Adjust the Budget for Price Variances

A downward adjustment of $20+ million should presently be considered.

10. Assess the Effectiveness of Resource Management in Staff Attitude Suweys


12. DeveIopment Grant Facility: Oversee and Budget with the Same Rigor as World Bank Programs and Budgets

13. Allay Disincentives to Challenge Orthodoxy

The current top-down strategic and business planning processes together with the Bank's strong emphasis on teamwork discourage managers and staff--particularly individual managers or staff--to challenge prevailing assumptions and work program objectives with new, unorthodox thinking.

Advisory

The World Bank should not consider increasing its budget in FY02-03 until it:

(I) reviews all of its strategic programs and operational support for cost-effectiveness; and decreases funding for activities least or only marginally helpful in reducing poverty; and,

(2) sets measures and a long-term policy for productivity in its operations and activities overall.

11. Dynamic Tension in Strategic Resource Management

2- 1 Dynamic tension is a driver of paramount importance in a quasi-public organization such as the World Bank where strategic direction and budget allocation are not immediate functions of revenue or income. Such dynamic tension requires open discourse, interaction, critical analysis and decision making driven by clear institutional objectives including initiative, responsiveness, productivity and ease of change. Vital dynamic tension in resource and change management, with a focus on new business needs while taking account of the costs of change, enable an organization to improve its responsiveness and market mastery while controlling expenses and sustaining morale. The ideal of a lean, dynamic organization, innovating new products and services in anticipation of emerging business needs, buoyed by a highly motivated staff, depends largely on the quality--openness, depth and integrity-of dynamic tension in business decision making and resource allocation.

2-2 Effective institutional planning and resource management require at least three active, challenging dialogues or negotiations involving senior management-at the World Bank, the President and Managing Directors-and line managers and staff throughout the organization, each adding creative tension and contributing to positive change. Absence or weakness of at least two of the three conditions at intermittent but lengthy intervals are postulated as major causes of the stagnated productivity, high costs of change and lowered morale of the past 15-20 years at the World Bank. Minimal requisites for effective strategic resource management systems:

(1) a clear, well-defined process for determining and funding institutional priorities, and at the same time, identifLing activities no longer of strategic importance, and withdrawing funding. The President must be accountable for these decisions, considering advice of strategic planning and budgeting staff as well as concerned managers. World Bank experience has been that collective decision making about major priorities and their funding results in muddled decisions, in an effort to satisfi most Vice Presidents.

(2) ongoing, unrelenting effort to track and improve productivity tbroughout the organization. Business productivity in the US economy has recently been improving at 2-3% per annum. Cumulative gains in operating efficiency have become crucial to sustaining net income over the long term. To this end, the Bank needs to decide ifoperational work can be made more efficient, as distinctfiom administrative support services. For this purpose it is insufficient to rely on rough external benchmarks such as ratios of front-line to back-line costs, especially when investment in selected back-line functions may be crucial to improving productivity in fkont-line functions.

(3) an interactive business planning and resource allocation process involving managers and staff up and down the line. Assuming clear strategic direction to guide resource management together with productivity improvement, it is vital that in-depth information about conditions "on the line," and possibilities for new initiatives or ways of doing business, be taken into account by senior management and corporate resource managers prior to fmalizing business plans and funding allocations, or they will get out of touch. The modern business organization depends on continuous information flows andfeedback throughout. Centralized, authoritarian corporations have been failing for the same reason that centralized, authoritarian states have failed: they cannot deal with the information requirements ofthe complex world they inhabit.' As the World Bank as

' "Death of the Hierarchy," adopted bom The Great Disruption: Human Nature and the Reconstitution of the Social Order; Francis Fukuyama, Financial Times, June 12, 1999.

an institution has repeatedly failed to recognize in time the critical lapses of governance leading to economic crises in many countries because word of "anecdotal" evidence did not reach or was not desired by decision makers, so can such a disconnect in bottom-up communication in strategy and resource management limit the institution.

2-3 Arguably the most successhl World Bank planning and budgeting methodology, practiced in 1969-1 98 1 ,2 combined top-down and bottom-up information flows and feedback on resource management together with a strong central budget staff considered the right hand of the President. While hierarchical, top-down planning and resource allocation may serve an organization in implementing short-term corrective measures such as Strategic Compact and CER program and budget realignments, an outlet for upward communication and flexibility to make appropriate changes to plan should be maintained even in such times of urgent measures. External conditions change; new options open up; some original internal assumptions may be wide of the mark; staff consider better ways-any number of modifications to plan should be considered. CRM has adjusted Regional budgets flexibly in this period to reflect clearcut work program changes, but in other areas, reasonable divergence from original plan has been

Requirements of Contemporary Strategy and Resource Management

2-4 The World Bank needs a strategic resource management system as a foundation for vital decision making and resource allocation for a future requiring more rapid and essentially continual change in the dynamic of the organization. The system must encourage bottom-up as well as top- down communication of initiatives to improve responsiveness and competitiveness, and as a means to inform senior management when institutional plans do not fit operational realities. Long-term productivity must be assured to sustain net income as well as help to streamline operations. Looking ahead, the evolving resource management system should ease the process and reduce the costs of adopting to what has become unceasing change in the fast-moving global business and technological environments. Finally, the resource management system should feature the depth and flexibility to afford lasting value, so that the planning and budgeting methodology does not have to be changed very often, as such major revamps have a major cost, and at the World Bank, a historically high rate of failure.

' See retrospective below, 1. A. The Productivity Dimension of World Bank Budget History.

' In implementing the Strategic Compact and CER, resource emergencies and unforeseen priorities have been funded but the process of redeployment has been difficult. Institutional taxes were imposed in the absence of reassessment of program priorities to fit the budget to changed conditions. Supplemental h d i n g was requested of the Board in amounts that normally would be expected to be redeployed.

111. lssues of Resource Management at the World Bank

3- I The requirements of contemporary strategic resource management at the World Bank are especially compelling considering problems of planning and budgeting in the 1980s and 1990s, including:

Many resource management systems tried: The World Bank has operated with no less than six successive, different planning and budgeting methodologies since 1980.~ Four extensive consultant studies have been undertaken since 1983; at a cost of over $8 million (and which exhausted the central planning and budget staff) in ultimately unsuccessful efforts to reshape the Bank's resource management system to meet the changing needs of the organization.

Seesaw budgeting: As an unintended consequence of its efforts to correct cumulative overbudgeting as well as improve its products and transform itself over the past two decades, the Bank has repeatedly engaged in seesaw budgeting at a high cost in expenses and morale. In 1982- 1986 and again in 1989-1993, the Bank increased its budget over and above what could be justified according to outputs. Next, costly efforts were made to reduce expenses, with minimal or negligible success, largely because budgets were soon if not immediately increased again (see retrospective below, 1 .A. The Productivity Dimension of World Bank Budget History.) Now, approaching the climax of difficult, costly budget adjustments under the Strategic Compact and CER, Bank management is beginning to suggest it is time again to increase budgets, without having undertaken strategic program review or seriously explored means to improve operational productivity.

The six periods were, in brief (Note: the periods do not exactly correspond to associated presidential terms.) (1) End-McNamara (1980-198 1): Resource management characterized by strong executive decision making and

central planning and budget staff (PBD); interactive top-downhottom-up open-ended or flexible business planning; high attention to program and budget analysis and productivity improvement.

(2) Clausen (1981-1986): Collective budget determination and allocation among a Managing Committee; diffise and decentralized program and budget authority and accountability; de-emphasis of analysis and productivity.

(3) Reorganization (1987-1988): Program and budget decisions by senior management dictate administered by PBD. (4) Conable (1988- 1992): Mixed executive and collective budget determination and allocation; PBD in ambiguous

role, often lacking executive support; partial restoration of analytical capabilities but absent focus on productivity. (5) Preston (1993-1996): Resource management finction formally subsumed within Controller's as a finction of

financial administration. PBD role briefly reduced to budget process manager and data administration under executive fiat; subsequently, central budget management was partially restored.

(6) Strategic Compact (1997-1999): Program and budget decisions by senior management focusing on strategic priorities and selected efficiencies based largely upon PBDICRM advice; top-down resource allocation and business planning process; analytical capabilities and emphasis on productivity restored.

Major studies of World Bank planning and budgeting methodology and process were conducted by: (1) Bo Cutter and associates (1983); (2) McKinsey (1987); (3) CapGemini (1996); and (4) KPMG (1997).

a Key Bank outputs in relation to overall costs appear to have stagnated in the past 30-40years notwithstanding recent improvements: Currently measured Bank productivity in terms of lending and project quality is arguably no better than at a high point of the late 1970s, after taking account of partial recovery and advances under the Strategic Compact (see Figure 2, page 10, and productivity retrospective.) Considering that U.S. business and financial sector productivity have increased at least 25% over the past two decades: the only rationales for the Bank's apparent lack of improvement would be that service and quality improvements occurred that cannot be measured-yet issues of project quality and effectiveness arose from that period--or that Bank operations are not amenable to productivity improvement.

a Large redundancy payments: Mainly as a result of seesaw budgeting, and associated problems with planning, redeployment and human resource management, the Bank will have spent more than $400 million on staff redundancy payments over the past 13 years7-much of it "off- budgetw8-for the purpose of budget reduction. As staff levels fluctuated, over $75 million was spent repeatedly leasing, outfitting, then unloading ofice space "on the margin." Expenses for staff development paled in comparison to such outlays. Despite the large investments ostensibly for cost-effectiveness, the Bank's budget doubled in size in the same period, increasing in real terms by over 20% (and would have increased by up to 35-40% if not for extraordinary of f~ets )~ while productivity lagged, though it has picked up under the Strategic Compact.

Questionable downsizing: With hindsight it is clear the Bank has breached many of its current norms for best practice in "downsizing" in public sector reform." Mass redundancies have occurred not in an organization in dire financial or operating condition, but to essentially correct the cumulative impact of weak budget discipline and to some extent, planned changes in the mix of staff skills, and weak performance evaluation of staff, but secondary to budget rationale and inconsistently. As such, World Bank staff have been subject to mass redundancies in 8 of the past 13 years, rather than in short, 1-2 year periods which the Bank recommends to clients. Staff let go

6 Source: U.S. Bureau of Labor Statistics.

7 Redundancy and separation payments include S 149 million in FY87-88 under the Reorganization; about $40 million in FY89-94; about $120 million in FY95-97; and about $120 million in FY98-00. Sources: "Reorganization ofthe Bank: Supplementary Budget" (R87-208), September 13, 1987; CRM Historical Budget Records ("Reorganization"); annual Board budget documents; and Strategic Compact plans and CRM reports.

8 For example in 1995, $13 1 million of expenditures for staff redundancies were charged directly to Net Income rather than to the Administrative Budget; $10 million was later reversed. Source: "Interim Report on Staff Redundancies" (SecM95-988); September 7, 1995. In FY98-00, about $105 million of planned redundancy expenses of 6 1 19 million are being charged directly to Net Income instead of to the Administrative Budget. Source: CRM status report.

9 Authorized administrative budgets increased by more than 20% in constant dollars; see Attachment 1, World Bank Administrative Budgets and Expenses, FY46-00. The increase in annual expenses tiom FY87 to FYOO approximates 25% in real terms considering additional costs of staff redundancies, estimated at $40-50 million per annum, that are recorded off budget. The increase would have been as high as 35-40% if not for extraordinary reductions of $loo+ million in annual contributions to the Staff Retirement Plan beginning FY98.

10 "Efficient Public Sector Downsizing," Martin Rarna (DECRG), Finance & Development, September 1997; also Policy Research Working Paper, WP51840, November 1, 1997.

with redundancy or related mutually-agreed separation packages have often returned in short order to work for the Bankas consultants, another indication per best practices that downsizing has been poorly managed and by large measure may not have been needed.

Low morale: World Bank staff morale plummeted following the reorganization and downsizing of 1987, and has yet to substantially recover, according to the record of the Staff Attitude surveys and informal institutional history among the more than one quarter of headquarters staff with 15 years or more service." It is postulated and has appeared confumed through Staff Attitude survey follow-up discussions that a major cause of the fallen morale has been a perceived lack of reasonable employment security. In contrast, in the private sector, downsizings are normally managed quickly and in response to critical business needs, not as a normal operating condition.

IV. 13 Measures of Dynamic Tension For Innovation, Focus, Productivity and Morale


1.1 The primary cause of repeated overbudgeting and painhl readjustment of World Bank resources has been failure to sustain productivity, meaning that expenses grew excessive by any measure of the organization's major outputs, then had to be cut back at additional cost and serious harm to morale. While this occurred, project quality also faltered, a condition driving the Strategic Compact and which is just now recovering, suggesting a link between frequent organizational dislocation, breaks in accountability, and declines in the quality of project preparation and supervision.

1.2 In the private sector, productivity improvement has become associated with rapid responsiveness to client needs, and in the long term with effective competition and increased earnings. Measurable U.S. business productivity has been improving from gains of about 1 % per annum in 1973- 1994 to more than 2% per annum in 1995-1999, which is considered a crucial aspect of the U.S. economic expansion as well as a factor of survival for businesses and public agencies alike.12 In the U.S. and many countries abroad, operating expenses of public organizations have been pared to an unprecedented degree. In turn, the World Bank will have to uphold and if possible improve its operating efficiency to sustain net income, notwithstanding the possibility of new sources of income generation. In this light, the World Bank must consider fproductivity gains should be achieved in operational programs or be limited to operational and administrative support services, which has been the case up to now.

I I Currently 27% of headquarters-based staff have 15 years or more service. Average length of service is about 10.5 years. Source: ISGHR Information Services.

'* See Robert J. Samuelson, "Boom-Time Battle," Washington Post, July 22, 1999; productivity figures are 6om U.S. Bureau of Labor Statistics.

Long-Term Measures of World Bank Productivity

1.3 The best and among the few systematically available measures of productivity over the six decades of World Bank history are numbers of new lending operations (projects) and amounts of lending committed in relation to administrative expenses.13 As background to review World Bank budget and productivity developments over time, Figure 1 (page v above) shows World Bank administrative expenses in FY50-00 in current (actual) and constant FYOO$ (adjusted for price inflation to indicate contemporary (FYOO) dollar worth). Figure 2 on the following page indicates numbers of lending operations in FY50-00 in relation to administrative expenses, in constant FYOO$. Figure 3 on page 12 indicates amounts of lending committed in FY50-00 in relation to administrative expenses, a more volatile indicator but which follows a similar pattern and does not require conversion to FYOO$.'~ Attachment 1 elaborates World Bank budgets and administrative expenses in FY46-00 in current (actual) dollars and inflated to FYOO value. Attachment 2 elaborates the data in the graphs. Issues of long-term productivity indicators for the Bank are discussed in paras. 1.6-1 -7 and in Part B of this section, Issues of World Bank Productivity Measurement Using Numbers of Projects or Lending Commitments.

World Bank Budget and Productivity Trends: Historical Overview

1.4 The evolution of World Bank planning and budgeting methodology and its impact on organizational productivity can be explained to a large degree using trends in numbers of lending operations in relation to administrative expenses, as indicated in Figure 2.

1.5 According to raw indicators, the measure of administrative expenses per new lending operation indicates World Bank efficiency peaked in the late-1970s, fell sharply in the 1980s and into the 1990s, and has recovered somewhat in the latter years of the decade.

1.6 However in response to conclusions of falling productivity, it has been opined that the trend of administrative expenses per new lending operation has become increasingly unrepresentative of a broadened scope of World Bank activities. Project worth can be claimed to have increased with environmental, gender, financial management, decentralization, anti-corruption and other more time- consuming or costly requirements; another point is that operations occur in more countries, geographically more remote and in which it is more expensive to conduct operations.

1.7 As a rejoinder, it is suggested that project inputs designed to improve impact, together with supplementary activities such as expanded WBI programs, should be taken into account in the productivity equation, which would however require major historical study. At the same time, it is believed that World Bank productivity has lagged nonetheless because of the following factors: First, measurable corporate and financial sector productivity have increased substantially in the U.S. and

13 Other available quantitative indicators include numbers of lending operations under supervision, which affect a significantly smaller part of the budget; and numbers of borrowing countries, a less precise indicator but which shows increases in operational program complexity, e.g., the opening of former Soviet -bloc states.

l4 Inflation adjustment is unnecessary since the productivity measure is a ratio of dollars to dollars (commitments to administrative expenses). In contrast, a measure of cost per output such as numbers of lending operations requires dollars of constant value over time, adjusted for the impact of inflation.

Administrative Figure 2: World Bank Administrative Expenses (FYOO$) Expenses and Lending Operations: FY50 - F Y O O ($ billions) No. of Lending Operations

- .̂ I .- . - .: . - C 3 S - _ I - _ . , - , , a 5 - - = - = = . = ^ , - - - - - ~ ~ ~ i - I C , - - < - , = * 3 = . = c C - - =

, ~ . - -- .~ -~ -~ ~ ~~

I L Constant FY0O.S +No. oflending Operalions Fiscal Years ~ -,..- ~ - ~~

other countries since the mid-1 970s. It is not unreasonable to expect World Bank productivity to improve similarly, or at least to some extent, which over time would have offset the costs of additional inputs toward improved project impact. Instead, Bank productivity as indicated by the direct cost of its major outputs appears to have fallen. Second, observers have noted the Bank may be too far stretched in the number and diversity of its activities. Operational complexity and an absence of selectivity are veritable factors in determining productivity in relation to key outputs and outcomes.

1.8 Section A summarily reviews World Bank budget evolution and efficiency.

A. The Productivity Dimension of World Bank Budget History

Early years: From the start of lending in FY47 through the mid-1960s, the Bank was small, centralized and essentially managed from the President's Ofice; the pace of change and innovation was rapid; the amount of lending operations relatively volatile and difficult to project; and the budget function small and consisting of control and basic analytical functions-2 to 4 full-time budget staff- working in the Administration Department and later Controller's; and accountable to the President's Ofice for budget formulation. Historical research has indicated that Bank management and budget staff made an effort, in full consultation with unit managers, to contain overall administrative expenses in relation to the number of operations and other operational support function^.'^ Furthermore, staffing was controlled centrally, so that although operational work may have been difficult to predict for a particular unit, redeployment of staff was frequent. As such, World Bank productivity appears to have remained roughly constant in the period FY50-67, an achievement as the organization transformed itself from a reconstruction to a development bank, innovating new kinds of lending, introducing IDA and technical assistance, and moving into relatively remote regions of the world where conduct of operations was substantially more costly due to poor communications and lengthy travel times The fust systematic analysis of World Bank productivity was produced in 1956.

1967-1981 : The McNamara Era:

President George Woods initiated the fust systematic operations programming and budgeting fbnction in the Bank in 1967. Robert McNamara introduced a dynamic planning, programming and budgeting system (PPBS) in 1968-1970, supported by dedicated data-processing and time-recording systems. At that point, in FY68, the administrative budget had reached $40 million ($280 million in FYOO$), and nearly 1,700 staff were employed by the World Bank. The Programming & Budgeting Department (PBD) was established June 3, 1968.'~ (PBD was renamed the Planning & Budgeting Department in the early 1980s, and the Corporate Resource Management Group (CRM) in 1998.)

I5 References: (1) Archival research and presentation, "The Origins of Budgeting in the World Bank, 1946-1956," Fiftieth Anniversary Presentation and Exhibit; B. Katzenstein, 1994-1995; (2) Galambos, Louis and Milobsky, "Organizing and Reorganizing the World Bank, 1946- 1972: A Comparative Perspective," Business History Review, Volume 69, Summer 1995.

l6 Sources of information on planning and budgeting methodology and productivity during the McNarnara years: Archival research and current records, own experience (served in PBD fi-om 1977 to 1997) and discussion with then veteran staff Also see, Galambos, Louis and Milobsky, "The McNamara Bank and Its Legacy," 1968-1987, Business and Economic Histoty, Volume 24, No. 2, Winter 1995.

Figure 3: World Bank Administrative Expenses Administrative Expenses and Lending Commitments: FY50 - FYOO

(f billions) Lending Commitmen&

(f billions)

-. - I - - z = > , - i- 3 = , - , - - , - , = ~ ~ ~ . ~ ~ ~ ~ ; ? < : . ? : ~ g ~ g = = - = > = = = ~ --- ..- ~ ,

i Administrative Expenses --a-.- Lending Commitments Fiscal Years . . -


A. The Productivity Dimension of World Bank Budget History (. . .continued)

Planning and budgeting methodology in the McNamara years and into the early 1980s was characterized by: (I) strong executive involvement and decision making in planning and budgeting; (2) an interactive top-downlbottom-up program and budget formulation process, through which Units could request any amount, and recommend programs or innovation without limit; or in other years, with some limitations; (3) a strong, expertly staffed central planning and budgeting staff, which ruled decisively on units' program and budget proposals; over which, however, Units could routinely appeal any program or budget decision to the president;" and (4) an aggressive, ongoing effort to monitor and improve the productivity of the organization in operational and support functions.

Expenses and staffmg grew rapidly in the McNamara years. Local offices in major borrowing countries were established at significant cost; yet additional Bank expenses were exceeded by output growth. Productivity rapidly increased as measured by lending, the organization's major activity, in relation to administrative expenses; while at the same time, country economic and sectoral review, technical assistance, economic data management and research, and development education (EDI) were broadly expanded. Efficiency of support functions was systematically measured, and improved according to output indicators. Reasons for the marked improvement in Bank efficiency are believed to have included focused effort to monitor and improve productivity; resource allocation for explicit priorities together with tight program and budget monitoring; operational learning experience; and economies of scale from increased operations and in the provision of support services.

1981-1986: Collective Budgeting and Decentralization

While Tom Clausen generally continued the strong leadership style of Robert McNamara, he believed that budget allocation should be determined collectively, by consensus of a Managing Committee of Vice Presidents; and that budget authority should be partly decentralized from PBD to Units and to the Accounting Department, with the major roles of PBD becoming process manager and data analyst. Emphasis on improving or sustaining productivity rapidly dissipated, and most of the extensive operational and support measures of inputs and outputs established under McNamara were discontinued by 1983. The role of PBD in program and budget formulation was essentially reduced to justifying increases desired by the Vice Presidents, which were commonly stated in the form of new initiatives, without followup for accountability for use, while activity lagged operational lending and other program targets.

As a result, numbers of Bank operations and lending commitments decreased as administrative budgets increased, even as structural adjustment lending increased. The resulting crisis was utterly predictable: PBD management became visibly frustrated and was replaced; PBD staff monitored the rapidly increasing budgets, and projected serious consequences if budget reforms were not put in

" In practice, appeals were frequently made but decisions of PBD were almost always upheld by the President.

'* For example, a paper, "Budget Policies for Invigoration: Alternatives for FY86-95," PBD, Budget Division, June 21, 1984; documented substantially decreasing productivity; recommended budget policies of rigorous program review and a return to productivity focus; noted, "If reform is not introduced now, administrative expenses may very well have to be arbitrarily reduced in later years without due and rational regard for the context of



1987-1993: Abortive Correction-Reorganization and Mass Redundancies-and Further Decline

Growing impatience and ultimately upset among member countries concerned about the Bank's increasing inefficiency, as well as organizational and operational issues, led to what quickly came to be called "the '87 Reorganization" to a generation of Bank staff. Large budget and staff cuts were initiated, while major reorganization was implemented to reduce central departments that were considered too cumbersome and powerful, and out of direct touch with country conditions. As a result, Regional projects departments were disbanded and the central economics and projects complexes reduced. Yet the new structure had its own inefficiencies: a shortage of specialized staffs, increased reliance on short-term consultants, and small Sector Operations Divisions unable to readily accommodate workload peaks and valleys.

Following determination of the Reorganization budget by Presidential dictate with PBD advice, the central planning and budgeting function was strengthened somewhat from its prior powerless state. However, due to a lack of consistency by the President, program and budget management became an unpredictable function of executive and collective budget determination, with PBD struggling to sustain an impact and often finding itself in an ambiguous role. In an effort to improve accountability, "contracts" were introduced to hold managers to operational targets, but these were not enforced, while a large increase in paperwork resulted. PBD analytical functions began to recover, but the new and improved data were hardly put to good use. World Bank efficiency continued to be largely ignored as a factor in planning and budgeting.

As a result, World Bank expenses did not even dip following the heavy cuts in budget and staff of the reorganization in 1987, but briefly plateaued and then rapidly increased. World Bank expenses continued to increase while operational volume stagnated, and morale plummeted due to the staff cuts and subsequent lack of organizational discipline and consistency.

The "Benefits Hump"

World Bank expenses reached record levels, and productivity record lows, in the early to mid-1990s. About one half of the expense increase from FY87-88 to FY93-94, resulting in a "hump" in the expense graphs of Figures 1-3, was caused by unconstrained increases in staff benefits and what was later determined to be overfbnding of the Staff Retirement Plan. As had occurred eight years previously, PBD staff documented the situation, projected forthcoming crises and recommended measures to alleviate the situation. Yet with rare exceptions, PBD was powerless to act.I9

- -- -

operations."

l9 For example, a paper "A Call for World Bank Budget Policy Reforms: Focus on Operational Priorities and Provide Management the Discretion to Save and Redeploy $40-60 million Within the Annual Budget," PBD, Budget Policy & Review Division, July 1, 199 1. Demonstrated substantially decreasing productivity since 1987 reorganization; recommended savings measures; documented increases in staff benefits as major cause of recent productivity



Investment in former Soviet and Eastern European states

A large share of budget increases in the early 1990s was appropriately justified for the purpose of initiating operations in more than 20 new member states; nevertheless, it was not until FY96 that these efforts resulted in raising the number of total Bank operations to the level of the late 1970s.

1993-1995: Frustration and Attempted Recovery through a Hybrid Budget Process

Under the Preston presidency, efforts were taken that began to reverse the severe declines in organizational productivity, notwithstanding initial frustration and disillusionment with the independent planning and budgeting function, which was hence briefly integrated with the Controller's hnction. In this period, the role of PBD was again reduced to budget process and data manager; with program and budget decisions made by executive flat taking account of PBD analysis.

Another major round of staff redundancies was implemented in an effort to reduce expenses. Some recovery was achieved in the volume of operational outputs, but operational quality would later be assessed as requiring urgent improvement under the Strategic Compact. Low morale persisted.

1996-1999: Major Recovery Initiated under Strategic Compact and CER Plans

The leadership roles of the President and central planning and budgeting staff were restored in the creation and implementation of the Strategic Compact. A renewed focus was placed on organizational productivity.

However as an expedient to implement the Compact and CER plans, the program and budget formulation process (or business planning) became a hierarchical (top-down) exercise, with limited critical information or feedback flowing up. Consequently, limited buy-in occurred at the staff and middle management levels for specific goals and redeployments of the Strategic Compact. Overall strategic direction, focused on a Strategic Forum seen as a platform for Vice Presidents to promote their agendas, provided no systematic process for decision making on institutional priorities or redeployment diverging from existing plans. Staff morale and trust in management remained low as redundancies continued; staff complained of overwork; and overprogramming was recognized as a major issue together with an absence of selectivity in planning and budgeting. Yet morale began to recover as the Compact progressed in its objectives of renewing the Bank, and the President recognized the need to alleviate high pressures on staff. Concerted efforts were taken by CRM to reduce overprogramming.

decline; recommended inclusion of then separate staff benefits policy and decision making within the overall planning and budget formulation process, which was done.

1.8.1 Section B responds to queries about using the Bank's key outputs as indicators of productivity of the entire organization.

B. Issues of World Bank Productivity Measurement Using Numbers of Projects or Lending Commitments

Three major questions or complications can be raised about the accuracy or viability of productivity measurement as a function of the major Bank outputs of numbers of projects and dollars of lending in relation to administrative expenses:

( I ) Changing composition and features of projects: It has been commonly stated in the Bank that development lending has become more complex over time, as newer social sectors required more staff effort, and incremental input for factors such as environmental and gender impact and corruption was required. On the other hand, some adjustment lending required less time. Another view, however, is that Bank decisions to engage in particular kinds of lending and impose new or tighter controls are significant components themselves of the productivity dynamic, and that this knowledge can be taken into account in assessing the indicators.

(2) Addition over time of new or expanded World Bank services in addition to lending projects (eg., World Bank Institute): New operational services apart from project and program lending should dilute the significance of lending productivity coefficients; however, the number and cost of these factors remain a relatively small part of the budget (as distinct from internal support services that are a component of the lending productivity equation). It is also stressed that Technical Assistance has always been a key operational input together with project lending, and would not be a complicating factor similar to expanded WBI services.

( 3 ) Project effectiveness as a further measure of productivity: Projects evaluated for effectiveness are a further indication of ultimate impact, and in this sense, productivity. When differences in overall lending quality can be identified, these can be considered in interpreting the productivity measures. At the same time, "raw" productivity-output apart from effective project quality-is useful since project quality is partly a hnction of development policy, and not necessarily or only of time spent on the work or process design.

Summation of Factors for Evaluation of Long-Term Productivity Indicators

Numbers of lending operations and amounts of lending committed in relation to administrative expenses are key long-term indicators of World Bank productivity because lending remains the organization's major, single most important output. At the same time, a large increase in operational inputs has occurred for environmental, financial management, gender, anti-corruption and other factors. A continually changing flux of project composition, program lending, and other operational support fbrther impacts productivity measurement. To see through or around these largely unquantifiable factors to derive meaning from the productivity indicators over time, three approaches can be applied:

( 1 ) Assess indicated changes in productivity to the extent these can be deduced from known events or changes in Bank management practices and resource allocation.

(2) Treat variables such as more or less complex lending and quality results as implicit productivity factors resulting fiom presidential, operations policy and sector management decisions. And,

(3) To help resolve analytical and interpretive issues, undertake a serious quantitative review of World Bank operational productivity over time to assess and weigh the impacts of additional operational inputs, complexity, and project quality.

Approaches to Productivity Improvement in Operational Work

1.9 Attachment 3 elaborates ways to approach productivity gain through operational process simplification, from passive to proactive.

2. Decision Process to Determine Priorities and Withdraw Funding for Activities No Longer of Strategic Importance for Reducing Poverty

2.1 Since 1968 the World Bank has attempted to practice an iterative Planning, Programming and Budgeting System (PPBS), as the term was coined in the mid-1960s. PPBS was intended as a substitute in the public sector for the dynamic tension of income and revenue generation that guides private sector resourcing and management. PPBS and descendent resource management attempt to guide public agencies to businesslike, cost-effective decisions on which activities to pursue, to what extent and at what cost. Dynamic tension to encourage management to these ends is expected to be established through systematic process emphasizing rational review of what products or outputs will best achieve the organization's objectives. The process continues with deciding what inputs- expenses and staff-are needed to produce the services or outputs, with requisite eff~ciency measures to maximize impact with limited resources available. A centralproblem in World Bank resource management since the early 1980s has been an absence of dynamic tension orpressure to make the hard decisions necessary to prioritize activities and conduct them efficiently.

2.2 Since 1969 the Bank has ostensibly been practicing PPBS and modem variations. In principle:

(1) The organization's objectives are defined and set out in terms of goals to be achieved (planning).

In practice, important changes in strategic direction of the Bank have been determined outside of the formal planning and budgeting process, with the process itself used for implementation, with limited forecasting based mainly on extrapolation. Multiyear planning by the Bank has been most successful in setting a determined resource management course towards institutional reform- action within the control of the Bank such as the Strategic Compact-than as an exercise in forecasting external events and demand for Bank products in a meaningfiul way. Methodology and practice never advanced to serious review of alternative long-term strategies or scenarios and how the Bank might position itselffor various eventualities. Quantitative long-range forecasts of operational activities in the McNamara years and occasional attempts in the 1980s and 1990s were extrapolations assuming current policies, typically with high and low-case scenarios tied to more or less optimistic global economic scenarios. With occasional exceptions that were in the

nature of exploratory feints, the planning or strategic planningprocess has not been used to seriously question or revisit operational priorities of the World Bank.

(2) Work needed is determined, and desired outputs and outcomes agreed among organizational units, in order to produce the desired products (programming);

(3) budget is allocated to the organizational units to do the work, incorporating unit-cost and efficiency analysis (budgeting), in which course plans, programs and budgets are usually reset and finely tuned; and,

(4) through retrospective review, the multiyear plans, programs and budgets are updated, with measures to address underfulfillment of plans andlor inefficiencies of operations.

2.3 In practice, the system has worked this way in the Bank only in the 1970s, when it was not difficult since the organization was expanding rapidly in a stable and fairly predictable external environment, and in which innovation (e.g., movement into new sectors) could be achieved largely at the discretion of the organization, with relatively few external fmancial or other constraints. Further, there was strong central leadership.

2.4 In the 1 980s and into the 1990s, the full trappings of PPBS remained. Yet because of a more volatile and unpredictable external environment, including unstable country conditions, as well as joint or collectivist management of the Bank among Vice Presidents all desiring budget increases, necessary conditions for dynamic tension and the PPBS sequence fell short, for four main reasons:

(1) an inability to set out even medium-term (3-year) plans and operational outputs with any meaningfbl precision, due to more rapidly changing global political and economic conditions;

(2) a reluctance by senior management to take corrective action when deployed budget repeatedly failed to produce desired outputs;20 and complicated by,

(3) a deterioration of analytical data and rigor, which is presently being corrected, together with the addition of more complex, non-lending outputs that firther clouded the original input-output indicators; and,

(4) deterioration of the quality of staff of the Planning & Budgeting Department. In the McNamara era, elite personnel in the PPBS field were brought in to work with seasoned Financial Analysts and Economists with broad operational experience. In the early to mid-1980s, the quality of staff in PBD became diluted. The number of external recruits sharply declined, and operational staff moving to PBD were less senior. More than half of new recruits left the Department within two years, which resulted both from skills mismatches and a decline in morale.

20 Caveat: In the more difficult operating environments of the 1980s and 1990s, many developing countries were in situations that called for temporary suspensions of Bank activity. In the short term, this would cause Bank units to underhlfill their work programs and operate less efficiently until resources could be redeployed to better fit operational demand. Management was justifiably reluctant to rapidly shift staff and budget in the short term when the duration of difficulties would be hard to predict. Yet in the medium term, substantial overbudgeting resulted, which under a more rigorous analytical regimen and stronger management should have been partly avoided through active redeployment, and which ultimately was corrected through costly downsizing.

The Present: Period of Decision-by-Compact is Coming to An End

2.5 Since 1997 and through FYO 1, planning and resource management decisions will have been guided by the Strategic Compact, an unprecedented multiyear dictate of resource management decisions to achieve explicit effectiveness and efficiency goals. While progress has been made towards specific objectives, the system has been somewhat inflexible in effecting a limited number of budget adjustments required due to unexpected external conditions giving rise to new initiatives, and to correct incomplete or unrealistic original assumptions that put extraordinary budget pressure on certain units." Nevertheless, adjustments in resource allocations to Operational units have been made on the basis of lending program changes since the approval of the Compact.

Looking to the Post-Compact Era: A Need for Senior Management-Preferably the President- To be Preseoted With Options and to Make Hard Decisions About What Activities to Fund

2.6 In the McNamara era of systematic planning and budgeting, innovation was encouraged through an open-ended or loosely guidelined business planning process. An expertly staffed and unabashedly strong central Programming & Budgeting Department then presented the President with concise, explicit choices and options. Decision meetings were then held with the President and each Vice President, in which the options and PBD recommendations were discussed. The President would then take a decision. Vice Presidents had the right of formal appeal. PBD, in the meantime, would update the President on the cumulative impact of his decisions. PBD staff worked closely with clients to assure, using tight position controls, that supplemental hnding for explicit purposes was used for such ends. These methods worked well for some time, albeit under simpler operating conditions and processes.

2.7 In sum, it is necessary to ensure that decision making with respect to resource allocation occurs systematically and transparently, allowing senior management-the President and Managing Directors-to make decisions with hll view of the organization's priorities, and taking account of cost effectiveness and productivity objectives. This can be achieved through a framework for decision making for resource allocation, requiring analysis and examination of redeployment options, as well as application of organizational efficiency measures (e.g., operational process simplification).

For example, the cumulative impact on the Information Solutions Group (ISG) discretionary budget from CER budget reductions, belated institutional taxes and unexpected costs of NRS reform would have been more than a 50% reduction-fiom $39 million in FY97 to $17 million in FYO2--of &ding ofthe Bank's business and knowledge management systems, documents management, information security, and archival records, in an active global information economy. Since the Bank's formal business planning process was effectively limited to pre-established top-down resource allocation, the only way for ISG to communicate its analysis and concerns to SRM and Bank management was through ad hoc communications seen as contentious because they conflicted with overall institutional plans.

3. Interactive Strategic Planning, Resource Decisions and Budget Allocation Taking Account of Units' Proposals and Outlook

3.1 It is essential to evolve the present strategic planning, resource decision and budget allocation processes fkom the "top-down" methodology required to implement the Strategic Compact and CER, to a more broadly based, participative process considering Units' own applications of strategic objectives, Units' budget proposals, and ultimately focused on the President taking authoritative decisions; as contrasted to either "co11ective" decision processes or strictly top-down dictate. Managing units should be able to make open-ended or at least somewhat flexible program and budget proposals, subject to review and recommendation by a strong CRM; the President (with Managing Directors) should have final word subject to appeal. At the same time, it is recognized that resource management discussions should be limited to significant variables, and not be reduced to nickel and diming.

3.2 Under the Strategic Compact, the shift in the focus of Bank resource allocation from unit- centered to strategic priorities, in conjunction with the strategic planning process, has been an improvement. However this experience shows two weaknesses:

(1) hierarchical strategic planning and front-end resource allocation processes: Line managers and staff are not involved in the dynamic; and there is little opportunity for advice, feedback and appeal of resource allocation decisions from the ground level to decision makers. And;

(2) insufficient information is communicated and without a process for senior management to make informed resource allocation decisions and clear tradeoffs.

Hierarchical Structure

3.3 The strategic planning and resource allocation process .under the Strategic Compact is comprised essentially of Corporate Day discussions-limited to Vice Presidents/Network Heads and other senior managers-and the Strategic Forum, again limited to Vice PresidentdNetwork Heads and other senior managers. On this basis, senior management is expected to make the major resource allocation decisions for the next fiscal year, and plans for the medium term. Presumably there is input from line managers and staff in the strategic position papers prepared by vice presidencies in advance of the Forum, but the crux of the process-sharing, discussion and decision making-is closed to all but the apex of Bank management.

3.4 A major benefit of the new planning process is that strategic priorities, hrthered by innovative directions, are highlighted. The shortcoming is that whatever redeployment decisions are taken appear to be made in a black box at the top, without transparency and sometimes clear rationale or awareness of impact, and incompletely (e.g., for FY99 and FYOO business planning, CRM had to essentially "tax" units to hlly cover new institutional priorities). For the moment, Strategic Compact and CER budget targets provide guidance, but this is a temporary condition. Inevitably of course the Compact and CER frameworks will require increasing adjustment and ultimately become obsolete in the face of continuous change.

Lack of Consultation and Information

3.5 The new front-end resource allocation process lacks the throughput-business perspective and data-to ensure viable decision making and reality checks on senior management assumptions and decisions. It is insufficient to budget on the basis of relative priorities or business principles when the effect of substantial cuts is not known, since reductions can be critical to clients, partners or operational support services. In public and private sector budgeting, absent direct market indicators, the resource allocation process normally involves:

(1) advice and feedback on the impact of resource allocation decisions from affected parties-at least an opportunity for units to respond-together with,

(2) independent analysis, in the public sector from a central budget staff. In the Bank, CRM has this crucial role, but the process is not clear.

"Bottom-Up" or "Top-Down" (vs. "Top" only)

3.6 There has long been a debate whether a "bottom-up" or "top-down" resource allocation process is better. In a "bottom-up" process, line managers and staff make open or range-guidelined program and budget proposals, which are vetted at the vice-presidential level and reviewed by senior management and central budget statf, and on which basis final resource allocation decisions are made. Participation and innovation are boosted, but rigorous budget review is needed at the center to assure consistency with strategic objectives and cost effectiveness. In a "top-down" process, senior management (meaning, in the World Bank, the President and Managing Directors) and the central budget staff determine draft budget allocations on the basis of strategic and program priorities, which are communicated to line managers. Managers are encouraged to budget on the basis of the allocations but are expected to make counterproposals and provide open feedback as necessary. Then final budget decisions are taken by senior management.

3.7 Whichever the two or combinations of which have been used, it has ahvays been reasonably assumed that the "bottom" or "ground level'-those afected-should be directly involved in resource allocation--at least through a meaningfir1 feedback loop. The Business Planning process was originally intended to fill thls role in the Bank. EFY99 experience is a guide, however, the resource allocation decisions taken months earlier are fixed, for all intents and purposes, apart fiom adjustment. by CRM to reflect latest operating results andlor to accommodate new management priorities.

Risks of Decision Making without Input from the Ground

3.8 The Bank's historical experience with consensus resource allocation at the senior management level (e.g., Managing Committees) has been poor, although weak presidential leadership was a major factor. In addition to the need for informed decision malung, a more open and systematic resource allocation process is desirable because:

The psychology of group dynamics can tend to favor the status quo in a closed resource- allocating environment, with necessary reductions assigned to weaker members as may be defined by organizational culture or personalities-even moods of the moment-absent systematic analysis and impact statements to assist decision makers. (We want to believe that

Bank management is above this, but closed-group dynamics probably contributed to the Bank's failure as an institution failed to foresee or prepare for the possibility of financial collapse in many client countries.)

When strategic planning directly guides resource allocation, the design and viability of the strategic planning process can make-or break-the resource allocation process. Jf the process happens to be off-base, an "out" or alternative recourse should be provided through a more open resource allocation process allowing feedback and appeal.

3.9 Looking to the post-Compact era, the Bank should modify the strategic planning and front-end resource allocation methodology towards a more inclusive and informed resource decision process. First, open strategic planning and fiont-end resource allocation to greater participation or at least a feedback process at the vice-presidential level. Second, adopt more systematic and coactive decision making leading to clear tradeoffs, assessed by senior management and openly communicated to affected line managers. Better and more conclusive resource allocation decisions, albeit harder choices, should result, which would reduce fhdge factors and program implementation problems as well. Appropriately managed, a more open and consultative resource allocation process need not require a large amount of additional work.

4. Combine Reso~rrce and Change Management

4.1 Management policies, plans and resource allocation should foster dynamic change on a continual basis, rather than wait for critical lapse, by which time action is much more disruptive and costly. Application of the three measures elaborated in the sections above:

(1) relentless attention to sustaining and improving productivity; (2) institutional decision-making methodology to enable rapid shifts in priorities and

redeployment of finds; and, (3) two-way, up-and-down communications from line staff to senior management to apprise all

concerned of changing or unexpected conditions or results in operational effectiveness and efficiency. . .

should obviate the need for sudden, major organizational downsizing or other costly reorganization.

4.2 The large-scale organizational upsets and downsizings of the past 20 years, so costly to the World Bank, were largely necessitated by repeated inattention to productivity and budget growth, on the one hand; and to a limited extent, lags in recognizing emerging demands on the Bank and adjusting operational processes accordingly. As a result, solutions required changes to entrenched interests and practices that were more costly than if the organization had been able to manage and adjust course rigorously albeit gradually on a year-to-year basis. This may not hold with respect to operational reorganization per se, towards which partial measures may not be feasible in some circumstances. However, the major causes of organizational turmoil of the past twenty years at the Bank were not reorganization per se, which if managed properly does not have to be terribly traumatic, but the successive overspending, decline in productivity, budget reduction and downsizing; to be repeated again, at a high cost in expense and staff morale, and probably, operational quality.

Frequent Replacement of Strategic Resource Management System and Budget Director

4.3 An extremely costly phenomenon in the World Bank has been sweeping changes to the organization's strategic planning and resource management system with every new President over the past 30 years: McNamara, Clausen, Conable, Preston and Wolfensohn. Not only were the decision- making and resource allocation methodologies replaced or drastically revamped, but the Budget Directors (and VPs for Strategy) departed as well. If the systems had been largely effective, the new Presidents would not have wanted to radically change the methodologies (presuming these leaders were rational thinkers and the budget environment was adequately explained) though at least in one case the decision was clearly a matter of personal style (e.g., Mr. Clausen, who favored collective resource management).

5. An End to Redundancies as Business as Usual

5.1 More mass redundancies should not be necessary in an organization with ongoing, dynamic productivity improvement and a strategic planning and resource management system that afford continual change, ending the need for major disruptions to make up for years of inaction and stagnation. The World Bank should restore some semblance of the "Psychological Contract" that existed between Management and Staff prior to 1987.

The Breaking of the "Psychological Contract"

5.2 The term "Psychological Contract" has been used by Brad Babson (EAPVP) to explain the sheer and still largely unrelieved decline in Bank staff morale since the heady days of the 1970s and good feeling of the early to mid-1980s.

5.3 Prior to 1987, there had been an unwritten "contract" between staff and the Bank: Staff expected to be employed on their merits, and were willing to give their all to the Bank, with the understanding that assuming competent performance on their part, the Bank would provide reasonable employment stability. The Bank would not fue competent, dedicated staff unless it was required by defmitive, permanent program reductions (e.g., phaseout of the Tourism sector) and not without making reasonable effort to secure the staff viable employment in a different area of the organization.

5.4 Staff understand there is no guaranteed employment for life, and expect to be assessed on their merits. At the same time, staff look to reasonable employment stability similar to the private sector, in which financially and strategically viable organizations do not repeatedly cut budgets and staffs, then quickly reverse themselves in succession, on a poorly planned, arbitrary appearing or seemingly political basis. When staff are subjected to continual redundancy programs, in contradiction of Bank best practices for public sector reform, and understand that original rationales for earlier cuts were not followed through, they quickly lose faith in senior management; and morale plummets.

Alternative Approach of the IMF to Redundancies Management

5.5 The LMF, over the past two decades, has unlike the Bank avoided mass redundancies. First, the Fund avoided seesaw budgeting, managing change through marginal annual redeployments together

with a more graduated (but nonetheless cumulatively substantial) budget growth. Second, when it became clear that a number of staff in selected specializations would no longer be required, the Fund resolved the overstaffing through a combination of attrition, retraining, and offers of a small number of voluntary separation packages. As a result, the IMF has been able to effect gradual change while maintaining its efficiency, and has sustained the morale of its staff, at less cost than the Bank. It is noted that external observers have criticized the Fund for a slowness to change direction and programs at the policy level; also, that the World Bank manages substantially more complex and diverse operations than the IMF, which complicates management of redundancies of staff of particular skills. Nevertheless, as a matter of tack, given emergent requirements of the World Bank to reduce staffing, the Bank could have applied more measures to ease transition and sustain morale. The use of redundancies as a belated substitute for weak performance evaluation is another factor.

6. Tie World Bank Strategic Objectives to Information Systems Investment and Budgeting-Unify Into a Single Program Budget the Three Separate, Central Information Systems Budgets-

Attribute All Costs

6.1 The central Information Solutions Group (ISG) has three separate administrative budgets amounting to over $1 10 million-4iscretionary, overhead and chargeback-each formulated on a different basis. Not one is set in close correspondence to requirements of World Bank strategic objectives impacting the organization's five information solutions programs: computing infrastructure, global connectivity, enterprise business systems, information delivery and knowledge sharing, and customer support and training.

6.2 At the same time, the Bank's information services governance is focused on individual projects and chargeback rate increases, usually after product development, with little impact on information strategy.

6.3 As a result, ISG's financial and operating structure has the following issues:

(1) Current IS strategy is based on the Strategic Compact, but will soon need to be revised and eventually refocused to keep up with the ever-changing global information and knowledge sharing environment.

(2) The roughly half of ISG's administrative budget not on chargeback is determined in relation to Institutional front-linehack-line budget targets that bear no direct connection to strategic requirements for ISG services, while managed overheads are essentially held constant year to year. As such, ISG's discretionary budget covering enterprise business systems, information delivery and knowledge sharing, security, archives and other legacy hnctions has taken cuts of -13% in FY97, -3% in FY98, -20% in FY99, and -6% in FYOO, with additional major cuts planned for FYO1.

(3) About half of ISG7s costs are on chargeback, covering desktop services and network infrastructure, communications, user support, and collaborative tools such as Lotus Notes and video-conferencing. In contrast to major cuts in the ISG discretionary budget, chargeback revenues have increased over 50% since FY96. The chargeback structure has been

streamlined and is largely based on per-seat services. However, relatively costly effort and documentation are devoted to approving technology investments already planned and budgeted from a strategic standpoint-with or without adequate consultation with clients. External benchmarking indicates internal Bank pricing to be roughly competitive with comparator organizations, but has been conducted on a costly, ad hoc basis.

Towards An ISG Financing and Planning Environment Tied to Bank Strategic Information Requirements

6.4 To resolve the disjointed financial and resource management processes in which ISG operates, its three separate administrative budgets should be unified, and resourced according to the demands on its five information solutions programs, and as would be modified in the future to keep up with changing needs and technologies. The proposed new fmancial structure should:

(1) focus client governance on World Bank information strategies and their total costs. Information investment decisions should be made at the corporate level with leading input from Operations staff.

(2) place all ISG services-not just half-n streamlined chargeback or cost allocation methodology, possibly with a per-seat charge according to a Master Service Agreement. Within this structure, users would have some choice over which services to use, recognizing a proper balance between standardization and customization. Current ISG finding would be redeployed to vice-presidencies at commencement of full chargeback or cost allocation. (Chargeback provides cost accountability for major business decisions, e.g., taking on new programs, field office expansion andor hiring new staff. In World Bank experience, chargeback has not been useful in controlling expenses by individual staff in the use of strategic information services accepted as required by the organization.)

(3) set uniform chargeback rates according to fair market cost as determined by comprehensive benchmarking conducted by CRM (with external model) and ISG. Once conducted initially using SAP accounting, the model should hopefully not be too time-consuming to operate in the future.

(4) Institutional cost impact of variable usage would be monitored by the governance body. Measures to control demand, or pay for additional demand, would be adopted accordingly, rather than nickel and dime users.

(5) ISG semices in the form of an Information Services & Technology Contract could be put up for bid, with ISG competing; or, individual segments could be put up for bid; and outsourcing conducted on that basis.

7. Count All Costs of Change in the Budget

7.1 Bank FY98-00 budgets and administrative expenses under the Compact exclude staff separation costs of $40-50 million per annum, thereby under-representing in the budget record the costs of doing business. Over time under this practice, reported expenses will understate the full cost of operating

under conditions of continual disruptive change. In the future, such costs of change should be included in the regular budget and institutional productivity analysis.

7.2 In previous years, extraordinary, one-time expenditures to cover future liabilities or retroactive impact of staff benefits enhancements were also covered off-budget; for example, a $149.8 million supplemental budget expenditure in FY90.

7.3 In the case of high, one-time expenditures, an option is td amortize the expenditure, or to treat it as if amortized for the purpose of long-term business and productivity analysis.

8. Indicate Long-Term Trends in Program and Budget Analysis

8.1 To allow and encourage continual questioning and comparison of current Bank program and budget performance, crucial summary tables of Board budget documents as well as internal reviews should indicate the historical record going back at least 5 and preferably 10 or even 15 years. Otherwise it is not possible to track long-term trends in income, productivity, project quality or other operational attributes.

8.2 Recent Board budget documents have indicated World Bank operational program and budget trends back 3 years; e.g., the FYOO Budget document shows FY97 and FY98 data, FY99 estimated data, and FYOO budgets. At other times in recent memory, budget documents went back as few as two years. This made it extremely difficult for the Board and the Bank's own staff to gauge the state of operations and institutional cost-effectiveness.

8.3 "Best practice" in this respect were the 1970s, in which Board budget documents included retrospective analyses of major Bank performance indicators and costs going back 5 and sometimes 10 to 15 years at milestones. Such summaries are low-cost and take up little space in the document, while providing the Board and Management a means to assess the medium and long-term performance of the organization.

9. Adjust the Budget for Price (Inflation) Variances

9.1 Current low price inflation notwithstanding, the Bank's budget needs to continue to be calibrated and when necessary adjusted for lower (or higher) than budgeted price inflation.

9.2 Budget price savings of at least 1.5% ($20 million) occurred in FY98, and more in FY99, by which amounts the Bank FYOl base budget could be reduced consistent with Strategic Compact budget targets in real terms, andlor the savings redeployed to priority programs.

9.3 From the late FY60s through FY94, annual price inflation affecting Bank expenses usually topped 4% and ranged as high as 1 1%. Cumulative increases in World Bank remuneration combined with a progressive structure of key staff allowances, together with intermittent dollar exchange losses affecting local offices, served to raise Bank budget price increases 1-2% above external price comparators. As a result, adjustments to World Bank budgets for price inflation were budgeted and

monitored in substantial detail, and retrospective adjustments made when prices had been significantly over or under-budgeted according to benchmark external indicators.

9.4 With external inflation and the annual compensation adjustment low, and dollar exchange rates relatively stable, the Bank's budget pricing and monitoring has been appropriately streamlined. Nevertheless, variances &om budgeted to actual price experience will remain, and when significant should continue to be taken into account in determining price provisions for the next fiscal year.

9.5 The FYOl budget could be reduced by at least 1.5% ($20 million) to reflect the impact of overbudgeting for price inflation in FY98. Pending retrospective analysis of FY99 price savings, up to an additional 1% reduction could be taken."

9.6 The budget for FY98 was increased 3.7% to cover projected inflation, taking account of external consensus forecasts of overall inflation (3.1%) and detail forecasts for expenses such as staff and consultant compensation, and staff travel. In the event, retrospective analysis indicated the actual Bank budget price increase was only 0.9% for FY98, a much higher than usual variance reflecting lower external inflation but also lower salary, consultant and travel price rises. Of the overall price savings of 2.8%, over half (1 3%) are attributed to lower than projected external price increases (e.g., US inflation and International Travel Price Index). In the event of such savings, overall budgets for the following year should be reduced accordingly (or the savings transparently redeployed to priority programs, representing a real budget increase). Other budget price savings-gained directly by the Units through own efforts-may under Bank budget policy be retained by the Units.

9.7 It is important to continue annual retrospective price analysis, since variances of 0.5-1% or higher from external benchmarks and original budget price assumptions remain possible; while for the purpose of overall expense volume and price calibration, price savings of about 1% per annum are typically achieved by Units through selection of lower-cost spending alternatives. Cumulative variances of such magnitude, if uncorrected (unreduced or not redeployed) after 5-1 0 years would amount to substantial overbudgeting.

10. Assess the Effectiveness of Resource Management In Staff Attitude Surveys

10.1 There has been an expression that a Budget Officer should be unpopular or they are not doing their job. It is true to the extent managers may be disappointed with budgets cut or requests denied, particularly if the Budget Oficer has not communicated adequately, or has not been consistent in their actions or analysis, or has had to follow bad orders. This notwithstanding, those dealing with a Budget Oficer can usually identify sincerity, helpfulness and intelligence.

10.2 The inclusion of a general question on the effectiveness of World Bank resource management in hture Attitude Surveys would go far beyond experience of day-to-day contacts, and attempt to assess how the overall Resource Management function is doing. Do managers and staff believe they have the

22 The budget price retrospective for FY99 remains to be undertaken, but preliminary indicators are that significant savings occurred in Staff Travel, for example, for which a 6% increase was budgeted for fares, based on industry projections, whereas external indicators such as the International Air Fare Index show a zero increase.

wherewithal to fund priority programs, and respond quickly to unexpected needs (or get help fast)? Do they have the management information they require? Does senior management hear them? What is their overall sense of the effectiveness of planning and budgeting in the organization?


1 1.1 The World Bank, with its mission to help eliminate dire poverty, and supported by taxpayers of many countries, should strongly discourage needless extravagant spending. Such outlays can be defined as services or goods that have no obvious or direct bearing on the organization's mission to alleviate poverty and requisite, day-to-day business operations. In some cases the added cost may be de minimis but just the appearance of unnecessary spending in an organization dedicated to fighting poverfy harms the morale of the institution. Not only from inconsistency but the sense that spending and by implication the organization are not closely managed. Visibly questionable outlays may include:

awarding separation packages to departing staff who have reached retirement age with lengthy service and good performance records, and whose functions are found "redundant" only through the greatest stretch of imagination. (It is recognized to Management's credit that the size of World Bank separation packages has been substantially reduced). festive, elegantly catered affairs to promote poverty-reducing initiatives; some external training from which impact may be minimal as adduced from responses in the recent Staff Attitude Survey; the occasional but conspicuous creation of vice-presidencies to accommodate senior staff in need of portfolio; in general, sending more than a couple of staff to a distant conference-when those attending can report back andlor video can be utilized; and, overnight retreats at premium or recreational lodgings and waterside hotels, when day meetings could be arranged close to office or in a Bank conference room.

1 1.2 The above kinds of expenses probably do not amount to more than I % of total Bank administrative expenses, but this in itself is significant on a human scale, in relation to the cost of turning around the life of one person in dire poverty. To the extent World Bank expenses are inconsistent with its mission by an order of a percent, thousands of desperately poor people may be denied a chance, since such expenses would otherwise be directed to priority work, or as net budget savings to IDA and Development Grants, notwithstanding the corrosive effect on morale within the organization.

12. Development Grant Facility: Oversee and Budget with the Same Rigor as World Bank Programs and Budgets

12.1 The budgeting of grants to international development organizations through the Administrative Budget-as if the grants are World Bank administrative expenses-is an anomaly which nevertheless

implies that such grants should be planned and budgeted with the same concern for effectiveness and efficiency that is applied to World Bank expenses. In particular, World Bank staff should not be overworked or stressed on account of Bank budget rationing due in any measure to failure to apply own standards to grants to external organizations, with respect to continual review of priorities, and effectiveness and efficiency of the organizations. It is noted that the Development Grants budget increased from $98.4 million in FY95 to $125 million in FYOO, an increase of 27%; at a time when, at least toward the end of the period, a large number of World Bank staff were recognized as greatly overworked.

13. Allay Disincentives to Challenge Orthodoxy

13.1 The current top-down strategic and business planning processes together with the Bank's strong emphasis on teamwork discourage managers and staff-particularly individual managers or staff-to challenge prevailing assumptions and work program objectives with new, unorthodox thinking. Clearly senior management can and does engage in unorthodox thinking; the risk is that staff on the line who are in the position to witness the reality of development work cannot communicate radical thinking upwards, or face daunting obstacles in questioning established assumptions and policies:

Since lines of communication are from top to bottom in planning and resource allocation, staff have to rely on "upstart" communications to reach senior managers.

A staff member would be vulnerable to not being considered a "team player," and obstructing achievement of objectives towards which everyone is busily committed and funded.

Large numbers of consultants and staff on short, fixed-term assignments with limited employment security have an additional disincentive to challenge established orthodoxy.

Hence the potential for more country surprises, behind which the buildup to economic crisis was obvious "with hindsight" but the Bank-in principle a global expert-had only "anecdotal" evidence--observed by staff on the ground that was not taken into account and pieced together. Ironically, such failures to foresee the possibility of financial collapse have ofien occurred in countries in which the Bank had established a large staff presence.


Fiscal Y m -

Current S million Constant FYOO $million Revised . ' Actlal Gmwth b/ Variance cl Original Revised Actual Growth bl Price

Bud (YO) (YQ) Budaet Budst a/ Expenses (%I Index

Nominal - Real

A m d i Growth: FY48-55: 16.2% 13.5% FY56-65: 14.2% 12.3% FY65-75: 20.1% 12.8% FY76-85: 15.5% 5.8% FY86-95: 7.8% 3.3% FY96-M): 0.5% - 1.4% FY48-00: 13.2% 8.2%

a A 'L" indicarzs rhrre wcs no rwirrd bdmf or l k r e is m recwd of thrs idormaf~on 6,' G r m h rare ofAcluJ Erpenses For FYOO, r k O r i i m l B&a i s wdas a proxy.forAcml fipenses. c/ Acrud fipenres vs. Rased B&er, or vs. O r i m ~ l B e e r if no Revrserl Bu&l. u? Erpenses of $1 25. I59 innvredfor w ~ m i - ( d i d md ~nrrial operafrnx upensa./rom December 27, 1945 to Jlae 30. 1946. e.' Ercldts 516.8 million a& for vamrian pov char& lo M 9 erwmes. B Ercluler budget suppfrmenr of Sl49.8 million l h o r . ~ f h e . f i r s l lraxhe of enhomeJReirree SafBene/it.s P l m K/ Orrmnd b&t ~ l u c c-rs.

Attachment 2

World Bank Administrative Expenses, Lending Operations and Lending Commitments

Adrn. Exp. Adm-Exp. No. of Lending Commitments ~y Current $m MOO fm Operations (current Qb)

46 OJ 25 1.6 _ _ _ _ _ _ o . o --- 47 __- 2.0 21.8 1

48 4 . 0 - 3 ~ . - - .- 5 0.2 '

A!L-_- 4.1 ___-._ 413- - 10 -. 0. I 50 4.4 44.0 12 0.2 51 A!L ---- 46.3 _ _ _ 2 1 - _ _ _ _ 0.3 52 -5.1 ________-,- 46.5 19 0.3 53 5.7 51.5 .---A _ _ 0.2 54 6.0 53.3 - 0.3 55 20 1 0.4 56 - 0.4

0.7 59 - 0.7

0.7 el-. 12.6

--- 62 13.8- 110.1 . - _ _ - . - - - - . - 4 - _ _ _ _ _ - - 47 1 .O 14=---____- 45 1 0.7

55!--- -- 1.1

-_ -_ 1.3 :: r-- _____- 62 1.0 ~

112(-- _ _ _ _ _ 1 .a_ __>I- 2.2

.. -- 4 3 . _ - ~ ! ! o L - _ _ - 3.3

148?-__ ~ 3.5 _

63 -- 18.0 64 ._ 21.5 166.9 ..

25.2 -65 ~ . . - 191.9-_ 66. 67 68

69.- 70 71 72. 73

- -

75 -~ - 76

77 78

--- 33.2 35.0 _____ 38.0 45.5 . --- 61.3

95.4 109.5

246.2 .-__

- - 252.7 264-2 294.3 -__-

__, 368.7 76?_.____- 436.1

-~lw? - -5A6 3-

134.2 7 4 - - -

z1d-T-7 10.0

615.5

79 276.7

_ x q 4.3

809.7

A__ 5.9 6.7 7.1

236 8.4

157.5- ---- - 185.1 213.1

640.6 684.7

-. - _

80 38.3 -- !!I 4 X "

770.0 731.4

2x0- -.

873.8 -. 913.4

988.5 1,028.2

-- 82 83

- 247 ____ 1 13 12.3

..

-- 243, 14.4 506.1 559.1 --___

84 85 86 87

&----Ti 618.5 . 1,osl.Z 2351 15.5

708.0 1,153.2 740.8_-_-.. 1,162.4 _

88 755.0 1,159.1 217i 19.3~ ns. i 8 9 . . - _ _ _ _ - 5 . 2 2 5 L --_____.- 21.3

90 887.1 - - - _ - . _ _ _ 2 1.202. I 223 __._- 20.7 963.7 , .--91. .-__ - - 1 2382 22.7-

-- -~ - 92 1,074.0 ____ 1,298.9 21.7

1,388.4 1,560.1__ 228 1 20.8 94 --

- 951 1,409.0 -i,S50.6 242 i 22.5 256 I------ * , --__~ -- 1,489.1 - 21.4- -_91--_!,362.0 A431,% - - 244j - - - !9_1

98.- - 1,353.3 1,416.5 -_2_88~ 28.6 __--1,44!!4 --a 29.0

1.445.d 276L__---_- 290! 27.5

Note: FYOO exoenses are the Orieinal Budget. excludina carrvovers from FY99. under a scenario that camovers to FYOl will a~oroximate carrvovers to FYOO.

Attachment 3 Page 1 of 2

ALTERNATIVE APPROACHES TO REALIZING PRODUCTIVITY GAIN FROM OPERATIONAL PROCESS SIMPLIFICATION

1. Historically the World Bank has attempted to derive marginal productivity gains in its operational work through application of information technologies to reduce staff time devoted to administrative support hnctions. Presently, budget savings of 1.2% are expected from the impact of Systems Renewal in streamlining administrative support.

2. Savings of significantly greater magnitude would require a decision by World Bank management to derive additional productivity gains from: (I) factoring the impact on operational work of many time-saving improvements inaugurated over the past decade; and (2) simplifying operational work process and structure with the objective of productivity improvement, as well as to increase responsiveness. In the past, the World Bank has been reluctant to effect such efficiencies in mainline operational work because of concern for the quality of operations.

3. Some alternative approaches to achieving productivity gain from operational process simplification:

( 1 ) Across-the-board budget reductions to reflect productivity gain: considered coarse but better than nothing when there is rationale. In the McNamara years, administrative budget reduction of 1 % was typically factored in annual budget formulation to reflect productivity improvement which, it was reasoned, staff would achieve through experience, economies of scale (operations were rapidly expanding) and the then pioneering investments in data- and word-processing systems. On this basis, as a last resort, the currently planned 1.2% budget savings from Systems Renewal, and other assumed savings, could be "ordered" by decree. It is noted that in the U.S. economy, business and financial sector productivity are presently increasing by an order of 2% per annum.

(2) Project staff time savings in operational work from recently introduced information systems; consult and observe the impact of applications; and take an ultra-conservative amount of savings through budget reduction.

Posit that associated with Systems Renewal and in addition to savings in resource management, automated pro-iect documentation saves 2% of a typical staff member's time. The data warehouse may be estimated to save 2-3% of a staff member's time. Supporting global communications and videoconferencing may save, on average, another 2-3% of a staff member's time, and occasional travel. Knowledge management and automated documents management may save another 3%. The cumulative potential impact of 10% time savings cannot of course be translated into budget. Especially with contemporary pressures, staff would be expected to reinvest much of the time in quality improvement, overtime reduction and other needs. Moreover there is the problem of granularity-how to make tangible savings out of snatches of time savings, when the overall operations process and organization are unchanged.

Attachment 3 Page 2 of 2

ALTERNATIVE APPROACHES TO REALIZING PRODUCTIVITY GAIN FROM OPERATIONAL PROCESS SIMPLIFICATION (. . .continued)

At the same time, if not a 10% savings, there should be some real impact, say, 2-3% (or $17- 26 million of the Bank's operational expenses) since there are sizable time savings, when managers are induced to cut costs where such major improvements, on the margin, allow. But this kind of effort, to be validated, requires serious involvement of the staff managing operations policy and procedures, and the direct backing of the Bank's mid-level as well as senior management.

(3) Undertake a high-level review of the design and productivity of the operations lending and other work processes, incorporating policy improvements and process streamlining together with value and time saved from inform ation systems. Inefficiencies of matrix management could be alleviated in such a review as well. OPS, SRM/CRM and OCS would have to take the lead, supported by ISG. Potential savings can only be speculated, but under the circumstances-a large organization shearing itself of superfluous process and time in the production of its main products-ultimate savings or redeployment of 5% or more ($40+ million) implemented over an extended period do not appear unrealistic.


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