PUBLIC SECTOR MANAGEMENT

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By CPA Benard Gitonga

Why application of Management Accounting Techniques must be considered.

Management accounting has been popularly and simply described as a continuous process of
analyzing information to advise business strategy and drive sustainable business success. It extends to strategic management, performance management, and risk management. One of the main differences between financial accounting and management accounting is that while the former produces annual reports mainly for use by external stakeholders, management accounting generates reports on a more frequent basis mainly for use by organizations’ managers in planning, performance evaluation, and operational control.

In addition to accounting and financial data used in financial accounting, management accounting also incorporates nonfinancial data to enhance the quality of decisions. Management accounting techniques
can therefore be described as tools used by management accountants to analyze various strategies, processes, systems, and operations of an organization in the context of resource allocation efficiency amongst other considerations.

Management accounting techniques have been predominantly applied in the private sector until recently
when citizens and the private sector heightened their demand for public sector efficiency and better response to existing deficiencies. There is the emergence of the post-new public management approach that aims at reforming central capacity, control, and coordination between all public sectors through value-based management.

The citizens and the private sector are questing for better administration of the public sector and its organizations using managerialism theory. Applications of management accounting techniques fit the post-new management approach and are key to addressing public sector inefficiencies and deficiencies as has already been documented in the private sector.

Total Quality Management One of the management accounting techniques that is gaining prominence
in the public sector is total quality management (TQM). This is a management technique that seeks to
integrate all organization functions and efforts to focus on providing the customer with products and
services that satisfy their needs and on organizational objectives.

It requires quality in all aspects of the organization’s operations and processes to increase efficiency by reducing losses due to wasteful practices. The objective of (TQM) can be summarized as “Do the right things, right the first time, every time.’’ This technique applies to all organizations; small and large, manufacturing and service, commercializing and not-forprofit, private and public. The Public sector organizations need to adopt the principles of TQM which include a commitment by management/board, cooperation (interdepartmental approach), employee involvement and empowerment, fact-based decision making, customer/citizen focus, continuous improvement, communication etcetera.

Government entities that are certified to ISO 9001:2015 (ISO is an acronym for International Standard of Organization and is an international standard that specifies the requirements for a quality management system) such as the University of Nairobi, Kenya School of Government, Kenyatta National Hospital, etc need to demonstrate their ability to consistently provide products and services that meet customer needs (satisfaction) and conform to applicable statutory and regulatory requirements.

Successful commitment to ISO 2009: 2015 will translate into proper quality of education that addresses the needs of a county, holistic health system that promote prevention without compromising treatment,quality, and safe food for human and animal consumption, etc. Successful adoption of total quality management has an almost perfect interplay with the adoption of other management accounting techniques such as target costing, principles of kaizen, business process reengineering, benchmarking amongst others.

One of the management accounting techniques that is gaining prominence in the public sector is total quality management (TQM). This is a management technique that seeks to integrate all organization functions and efforts to focus on providing the customer with products and services that satisfy their needs and on organizational objectives. It requires quality in all aspects of the organization’s operations and processes to increase efficiency by reducing losses due to wasteful practices. The objective of (TQM) can be summarized as“Do the right things, right the first time, every time.’’This technique applies to all organization s; small and large, manufacturing and service, commercializing and not-for-profit, private and public.

Target Costing

TQM seeks to provide products and services that are beyond customer satisfaction. Customer satisfaction
is a mix of many factors that include perceived quality, variety, and price. The price paid by a citizen to obtain a product or service by the government is directly related to the cost incurred by the government entity in providing such service or product (save for public goods). Studies have shown that when a product or service costs more but is worth it, its value becomes acceptable to the consumer.

It, therefore, makes no sense for a government entity to provide poor goods and services just because it wants to provide them at cheap prices or no price. Notwithstanding the need for government to subsidize certain essential goods, the government needs to determine the price it would want to charge for a given good or service to the citizen and then adopt all efforts to ensure that the final price does not go beyond the predetermined price.That is what target costing entails.

To achieve the intended predetermined price, target cost involves rigorous research before a product or service is produced and continuous reduction of cost tied to product or service components and features. The public sector needs to adopt target costing in areas such as the construction industry. Target costing
should be considered by the engineers responsible for the development of designs and bill of quantities for
infrastructural projects such as the railway lines, road networks, ports, and housing projects. If propertarget
costing is done, the country could realize project cost savings and liberate itself from the chains of unendin-g contract price variations that usually arise from inefficiencies rather than the improvement of designs.

If the country had adopted target costing, projects such as the standard gauge railway and Thika Super Highway would have cost the taxpayer much less. Despite the goal for the Kenya Revenue Authority to collect more revenue, it is my opinion that it is possible to determine the extent of capping interest rates that will generate required revenues instead of advocating for uncapped interest rates that may end up hurting the economy even more.

Kaizen Principles.

Kaizen is a Japanese word that translates to “good change or continuous improvement”. The Kaizen
approach is based on the belief that continuous incremental improvements add up to substantial change over time. While target costing mainly focus on the design stage of a product, kaizen costing focuses on post-design stages including production and distribution by reducing wastes, losses, and unnecessary steps during these processes.Kaizen principles include inter-departmental cooperation,collective decisionmaking and knowledge application, establishing standards and continually working on improving them, focusing on waste or loss elimination, that there are no limits for improvement etcetera.

The government should consider removing unnecessary steps in its operations. The government needs
to adopt lean systems that seek to eliminate anything that does not add value to the customer and work
systematically and continuously to create value for the customer. Waste includes anything that the customer is not ready to pay for. Lean systems are characterized by aspects such as standardizing and automating tedious and often repeatable processes or those prone to human error, fast and consistent flow of service delivery, and just-in-time responses.

Through the application of kaizen costing and its principles, the government will be able to improve
the quality of services such as education, health, and security using fewer resources. To enhance quality
and reduce inefficiencies in the delivery of aforementioned services, the government needs to invest in
developing capacities of its public servants, motivate them and institute a culture that values quality and continuous improvement and adopt just-in-time deployment of human and other resources.

Business process re-engineering (BPR)

BPR is a management strategy that focuses on the analysis and design of workflows and business processes within an organization. BPR is aimed to help organizations fundamentally rethink their operations (implement radical changes) to improve customer service, cut operational costs, and
become exemplary competitive.

A business process is a set of logically related tasks performed to achieve a defined business outcome.
Examples of business processes include administration, procurement, manufacturing, asset management,
performance management, customer service, operations, etc. Re-engineering emphasizes a holistic focus on business objectives and processes related to them, encouraging the transformation of processes rather than improvement of sub-processes.

It is time for the country to rethink its governance and administration systems and processes and consider
a complete overhaul in a bid to improve the efficiency of the public sector. The country needs to consider
the transformation of payment and procurement processes such as the Integrated Financial Management
Information system (IFMIS) and e-procurement to save the country from losses and wastes occasioned by delays and susceptibility to fraud.

The government needs a complete overhaul of food security and disaster management processes. One will
wonder why the government will always provide relief food year after another in times of drought and in
times of floods but will never put in enough efforts to enable communities to provide for their food. It makes no sense when the best a government can do is set aside emergency funds without adequate investment in disaster preparedness.

Benchmarking is a process for comparing the policies, procedures, products, and processes of an entity
to those of other entities or to standard measurements to identify opportunities for improvement. Before
undertaking to benchmark, an entity needs to identify activities or processes to benchmark on, identify suitable benchmarking partners and make considerations on how to overcome confidentiality issues. An observant reader will realize that benchmarking is important in actualizing other management techniques such as total quality management, kaizen costing, and business process reengineering.

Government entities need to embrace benchmarking with a bid to improve the quality of service delivery, increase efficiency and create opportunities for job creation. The government of Kenya could benefit from benchmarking without adequate investment in disaster preparedness. Benchmarking is a process for
comparing the policies, procedures, products, and processes of an entity to those of other entities or to
standard measurements to identify opportunities for improvement. Before undertaking to benchmark, an entity needs to identify activities or processes to benchmark on, identify suitable benchmarking partners and make considerations on how to overcome confidentiality issues.

An observant reader will realize that benchmarking is important in actualizing other management
techniques such as total quality management, kaizen costing, and business process reengineering. Government entities need to embrace benchmarking with a bid to improve the quality of service delivery, increase efficiency and create opportunities for job creation. The government of Kenya could benefit from benchmarking with governments that have been able to develop without relying on external debts. The country could also benchmark on infrastructural projects without necessarily copying its benchmarking partners.

County governments should benchmark on how best to perform the devolved functions. It makes no point why the Government of Kenya should ban benchmarking activities by its entities but should seek ways of making it purposeful and reap from it rather than seeing it as money-minting businesses and recreational tours.

Conclusion

There are other important management accounting tools and techniques that have been tested and improved by the private sector and with slight or no modifications could be applied by the public sector as a turnaround strategy where a paradigm shift is inevitable.

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