UNDP/RBEC

Policy Advocacy Papers

Rebuilding statestructures:

methods and approaches

The Trials and Tribulations ofPost-Communist countries

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Copyright © 2001by the Regional Bureau for Europe and the CISof the United Nations Development Programme1 UN Plaza, New York, 10017, USA

Short extracts from this publication may be reproduced unalteredwithout authorization, on condition that the source is indicated.

The views expressed in this report are those of the authorsand do not necessarily represent the views of UNDP.

Cover design:Stano Jendek | Renesans, Ltd.Layout, desktop & production management:Miro Kollar, Nábre•ie A. Hlinku 7, 920 01 Hlohovec, SlovakiaPrinted in Bratislava, Slovakia

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Abbreviations

CBEP Working Group Working Group on Reform of Central Bodies of Executive Power (Ukraine)

CIDA Canadian International Development Agency

CIS Commonwealth of Independent States

DFID Department for International Development (Great Britain)

ECIS Europe and Commonwealth of Independent States

EU European Union

IFI international financial institution

ISPA Instrument for Structural Policies for Pre-accession (European Commission)

MT Management Team

NATO North Atlantic Treaty Organization

NGO Non-governmental organization

OECD Organization for Economic Cooperation and Development

OSI Open Society Institute

PAR Public Administration Reform

Phare Program financed by the European Communities to assist the applicantcountries of Central Europe in their preparations for joining the EuropeanUnion

PHRD Policy and Human Resources Development Fund (World Bank)

RIU Reform Implementation Unit

SIDA Swedish International Development Cooperation Agency

SIGMA Support for Improvement in Governance and Management

SMSACIFA Secretariat of the Minister for Special Assignment for Cooperation withInternational Financial Agencies, Latvia

SWG Sectoral Working Group

TACIS Technical Assistance to the Commonwealth of Independent States andMongolia (European Commission)

UNDP United Nations Development Program

USAID United States Agency for International Development

WB World Bank

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Preface

This publication reviews the use of functional review as a tool for public administration reform in theEurope and CIS region. The failure to transform systems of public administration in the region frompoliticized, demoralized and ineffective systems of governance to professional and accessible institutions,suitable for performing a pivotal role in the policy process, has stimulated the search for new methods andapproaches in conducting reform. Public administration reform, often considered to be of limitedimportance in the early years of the transition, is now widely seen as a condition for success in economicdevelopment. As a result, answers to the question how the deadlock in administrative reform processes canbe broken are sought ever more widely. Functional review is often seen as part of the solution. It is a toolthat, if properly applied, can in principle help to open up issues that previously could not be addressed andforce a breakthrough on questions over which there is deadlock. It can help states facing painful questionson wider restructuring and re-orientation or of the role of the state. However, if improperly used,functional reviews can also lead to a polarization of reform debates, and a further entrenchment ofpositions.

During the last five years, functional review has been used as a reform tool in almost half of the states inthe region. It is striking that an instrument so often associated with managerialism has found such wideapplication in this region, which often is considered ‘conservative’ at best in its approach to publicadministration reform. This begs the question of whether there is a genuine interest in the region, orwhether functional review is yet another reform tool ‘imposed’ on governments by outside actors.

Indeed, in some states, functional review processes have been highly controversial, and were seen as anessentially Anglo-Saxon tool, a trademark of DFID, USAID and the World Bank. In these cases the conductof functional review processes has often been extremely difficult, and results have often been sub-optimal,mainly due to a self-fulfilling prophecy of non-applicability. In these cases functional review processes wereperceived as ‘part of the deal’, governments would allow a review to be conducted as part of an overall grantor loan facility, creating the risk that the review process was undertaken as a mere formality. However, thisis only one part of the picture. An assessment of the way functional review has been used in ECIS states alsohighlights successes. In these cases, review processes have been supported by a broad coalition of donors,including in many cases UNDP, driven by a genuine desire on the part of governments to make abreakthrough in reforming public administration systems that had become an impediment to successfuleconomic reform. In these cases review processes have often helped to put reform measures that previouslycould not be considered on the political agenda, and stimulated a radical and much needed change inadministrative organization and practice. This, in turn, constitutes one of the basic conditions for a moresuccessful economic reform process.

This publication tries to answer the question ‘how and under what conditions’ functional review canwork as a tool for stimulating deep reforms in state administration. For this, a number of key cases from theregion will be reviewed. Together with a general review of methodological and organizational questionssurrounding functional review, this will provide insight into what we call the ‘do and don’t’ of functionalreview in the specific context of transition states. The material presented here should be seen as a guide tothe often-complicated processes of framing and conducting a review process and implementing theirfindings. Finally, this publication should serve to help allay the fears of those who see the functional reviewprocess as a threat to their organizations, as well as assist those who are interested in creating systems ofpublic administration that will be truly at the service of the citizens of the region.

Tony Verheijen

Bratislava, Slovakia, 19 November 2001

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Acknowlegdements

This publication was prepared by the Governance Team at the UNDP/RBEC Regional Support Centre inBratislava, Slovakia. Tony Verheijen was the editor-in-chief of the publication, assisted by Lisa Smirl andAnastázia Kozáková. They also are the principal authors of the main text. Michal Ben-Gera and PeterBrooke provided substantive advice to the authors. Editorial commentary and suggestions were providedby Mr Ben Slay, Director of the UNDP Regional Support Centre.

Contributions to the text from outside the Regional Support Centre were provided by:

Miroslav Beblavý (Institute of Governance, Bratislava, Slovakia), Michal Ben-Gera (Tel-Aviv, Israel), JulianBoev (Regional Y2K Coordination Centre, Bulgaria), Peter Brooke (Bannock Consulting, UnitedKingdom), Marziya Burangalieva (Treasury Committee, Ministry of Finance, Kazakhstan), TalaibekKoichumanov (UNDP, Kyrgyzstan), Olga Lukashenko (UNDP, Ukraine), Svetlana Proskurovska(Secretariat of the Minister of Special Assignment for Public Administration Reform, Latvia) and OksanaSyroid (Secretariat of the Cabinet of Ministers, Ukraine).

Lenka Rapošová and Katarína Ostatníková assisted with the management of the publication project. OlgaSlavkina, Katia Fedoreaca and Ed Holt assisted with the finalization of the manuscript. Printing and designwere the work of Miroslav Kollár.

We are grateful to all contributors and to our colleagues at the Regional Support Centre for their input andsupport to the project.

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TABLE OF CONTENTS

CHAPTER 1 ............................................................................................................................................ 1HOW TO BUILD A MORE EFFECTIVE APPROACH TO PUBLICADMINISTRATION REFORM1.1 Introduction and Rationale ................................................................................................................ 11.2 Key Problems in Public Administration Systems in the Post-Communist States of ............................ 4

Central and Eastern Europe and the Former Soviet-Union

CHAPTER 2 ............................................................................................................................................ 9DESIGNING A SUCCESSFUL FUNCTIONAL REVIEW2.1 What is the Objective? ........................................................................................................................ 92.2 Types of Functional Review: What is Most Suitable and under Which Conditions? ........................ 122.3 Management of the Functional Review ............................................................................................ 162.4 Financial Aspects of the Functional Review...................................................................................... 202.5 How to Take into Account Expected Results .................................................................................... 23

CHAPTER 3 .......................................................................................................................................... 24METHODS AND TECHNIQUES FOR FUNCTIONAL REVIEW3.1 Information That Should Be Gathered ............................................................................................ 263.2 Methods for Gathering Information ................................................................................................ 293.3 Analytical Techniques ...................................................................................................................... 35

CHAPTER 4 .......................................................................................................................................... 45FUNCTIONAL REVIEW IMPLEMENTATION AND MONITORINGTypes of Recommendations Made ........................................................................................................... 45Implementation of Recommendations: What Form? ............................................................................... 47Monitoring Implementation: What Structures? ....................................................................................... 49Finally, is There an Exemplary Model of Implementation and Monitoring? .......................................... 51

CHAPTER 5 .......................................................................................................................................... 52CONCLUSIONS: THE DOS AND DON’TS OF FUNCTIONAL REVIEWThe Functional Review Objective ............................................................................................................. 54Functional Review Focus – Vertical, Horizontal and System Reviews ...................................................... 55Methodology............................................................................................................................................. 56Timing ...................................................................................................................................................... 56Outputs ..................................................................................................................................................... 56Implementation ........................................................................................................................................ 58The Role of Mass Media in Functional Review ......................................................................................... 58Conclusion ................................................................................................................................................ 61

CHAPTER 6 .......................................................................................................................................... 62FUNCTIONAL REVIEW AND THE OVERALL INSTITUTIONAL REFORM CONTEXT:A SUITABLE TOOL?

REFERENCES....................................................................................................................................... 64

ANNEX 1 ............................................................................................................................................... 65EXECUTIVE SUMMARIES OF NATIONAL REPORTS1.1 Functional Review in the Republic of Bulgaria ................................................................................ 651.2 Functional Review in Latvia ............................................................................................................. 671.3 Functional Review in the Republic of Kazakhstan ........................................................................... 691.4 Functional Review in the Kyrgyz Republic ....................................................................................... 711.5 Functional Review in Slovakia .......................................................................................................... 731.6 Functional Review in Ukraine .......................................................................................................... 75

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ANNEX 2 ............................................................................................................................................... 77SAMPLE QUESTIONNAIRE FORMS2.1 Bulgaria ............................................................................................................................................ 772.2 Ukraine ............................................................................................................................................ 812.3 Latvia ................................................................................................................................................ 87

ANNEX 3 ............................................................................................................................................... 93TERMS OF REFERENCE FOR A FUNCTIONAL REVIEW IN LATVIA

ANNEX 4 ............................................................................................................................................... 99FUNCTIONS OF THE DIRECTORATE “STATE ADMINISTRATION” IN BULGARIA

BOXES2.1 Vertical Review ................................................................................................................................. 132.2 Comprehensive Vertical Reviews in Kazakhstan .............................................................................. 142.3 Combined Reviews: Slovakia and Kyrgyzstan .................................................................................. 152.4 Horizontal Reviews in Latvia, Bulgaria and Kyrgyzstan................................................................... 162.5 State Structures: Kazakhstan and Latvia .......................................................................................... 182.6 Specially Created Unit of ‘External Internals’: Kyrgyzstan and Ukraine ......................................... 192.7 Outside Groups: Bulgaria and Slovakia ........................................................................................... 202.8 Framework of Incentives .................................................................................................................. 223.1 Where to Start? ................................................................................................................................. 253.2 Making the Process Transparent: Setting Up a Memorandum of Understanding .......................... 26

before the Review Starts – Latvia3.3 A Policy Foundation for Functional Review ..................................................................................... 273.4 Using Workshops: Bulgaria, Slovakia and Kyrgyzstan ..................................................................... 313.5 Ukraine: Obtaining Information about Functions Performed by Civil Servants ............................. 333.6 Challenging to Find Out What Is Actually Being Done.................................................................... 343.7 Benchmarks: Slovakia ...................................................................................................................... 373.8 Classification of Functions ................................................................................................................ 393.9 Phasing Implementation .................................................................................................................. 433.10 Using Other Processes in Implementation ...................................................................................... 443.11 Assessing Impact .............................................................................................................................. 443.12 Deepening Reform: Establishment of an Organizational and Structural Database ......................... 44

in Relation to State Bodies in Bulgaria4.1 Ukraine: Example of a New Distribution of Functions .................................................................... 454.2 Bulgaria: Functional Review as a Way of Bringing Administrations Closer to Citizens ................... 464.3 The Law for the Administration: a Breakthrough in Administrative Reform in Bulgaria?.............. 464.4 ‘Traditional’ Models of Implementing Complex Recommendations .............................................. 484.5 Use of the Budget Process as a Tool for Implementation in Kazakhstan ......................................... 484.6 Implementation Failure: Developing Support Programs for Implementation in Ukraine ............. 484.7 Implementation and Monitoring Structures .................................................................................... 504.8 Ukraine: Lack of Monitoring Leads to Sub-Optimal Results ........................................................... 505.1 Ukraine ............................................................................................................................................ 545.2 Kazakhstan ....................................................................................................................................... 555.3 Slovakia ............................................................................................................................................ 575.4 Bulgaria ............................................................................................................................................ 585.5 Bulgaria ............................................................................................................................................ 595.6 Lessons Learnt ................................................................................................................................. 60

FIGURES3.1 A Methodological Framework .......................................................................................................... 363.2 Functional Analysis ........................................................................................................................... 383.3 Decision Making Criteria for Treatment of Functions ..................................................................... 41

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1.1. INTRODUCTIONAND RATIONALE

Structural reform of state administrations hasemerged in recent years as a key element of thereform of governance systems in the Post-Communist states of Central and Eastern Europeand the former Soviet Union. The increasedinterest in this area of Governance stems from thegrowing perception that inadequate publicadministration systems constitute a keyimpediment to economic development in theregion. The growing emphasis on structural reformis a result of the fact that much of the early attemptsto reform public administrations through thedevelopment of civil service systems failed as aconsequence of the lack of attention for structuralreforms. Recent attempts to rationalizeadministrative structures and procedures are thusin many ways an attempt to redress the balance inpublic administration reform efforts.

A further important development in this area isthe gradual move towards a more sophisticatedapproach in the reform of administrativestructures. Whereas states in the region tended touse across-the-board cuts in staff numbers as themain reform tool in the earlier stages of the reformprocess, there has been during the last few years amove towards using different reform tools. One keyreform tool, applied in some ten states in the regionin recent years, is functional review. Thispublication analyses the use of functional reviews asa reform tool in the region, based on a review of sixcountry cases, and sets out conclusions as to whatconstitute the main factors of success and failure inusing the specific reform tool.

Good Governance and the place of publicadministration reform

UNDP views the development of systems of‘Good Governance’ as an instrument for meetingthe UN Millennium Summit objectives: to reducepoverty by 50% by 2015. ‘Good Governance’,however, is a concept that is often used without full

CHAPTER 1

How to Build a More EffectiveApproach to Public Administration Reform

explanation of what is meant. Governance,Democratic Governance and Good Governance areconcepts that are often mentioned, but rarelyoperationalized. The following brief explanation ofwhat is understood by these concepts in the contextof this publication will also clarify how the subject ofPublic Administration reform relates to thediscussion on building Good Governance andultimately Poverty Alleviation.

Governance in the context of UNDPprogrammes is understood as the process throughwhich societies take and implement decisions onthe allocation of public resources to address societalneeds. Governance as such is therefore a neutralterm, it does not carry a positive or a negative‘loading’.

Democratic Governance implies that thegovernance process is organized based on broadparticipation of all groups in society, that theinstitutions through which decisions are formulatedare open to societal participation that these take fullaccount of inputs from society. It also means thatthe implementation of decisions proceeds based onparticipatory principles.

To have a democratic system of governancedoes not necessarily imply that one has a systemdefined as ‘Good Governance’. Whereasdemocratic governance is now generally consideredas a condition for the development of GoodGovernance, it is not sufficient on its own.Democratic Governance, if not well managed, canbe highly ineffective, and lead to a waste of publicresources.

Good Governance therefore implies that thegovernance process is not only conducted based ondemocratic principles, but that it also respects theprinciples of effectiveness and efficiency, in otherwords, that societal problems are addressed timelyand with a minimum use of available resources.Good Governance is therefore a combination ofdemocratic and effective governance.

Systems of public administration are one of thekey factors that determine what type of governance

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system develops in a state. Ideally publicadministration should be a bridge between politicsand society, effectively channeling societal inputsinto policy options, delivering public goods andservices fairly and effectively and providing thenecessary regulatory framework for economicactivities. The development of a system of GoodGovernance requires that systems of publicadministration should be both open anddemocratic and effective and efficient. Open andrepresentative systems of public administration canhinder the development of systems of GoodGovernance if they are not able to deliver policies ina timely and efficient manner. Effective, highquality systems of public administration can stillconstitute an impediment to the development of‘Good Governance’, if such systems are notrepresentative of the interests of society and closedto public participation.

Changing patterns: Public Administrationreform in Central and Eastern Europe andthe Former Soviet Union

The conditions for the development of open,representative, effective and efficient systems ofpublic administration in Central and EasternEurope and the Former Soviet Union have been farfrom favorable throughout the 1990s. The previousregime left these states with a legacy of politicizedand fragmented administrations, ill-suited toperforming the framework-setting role that publicadministrations are expected to play in moderndemocracies. The neglect of public administrationas an institution in most states in the region duringthe early years of the transition further aggravatedthe situation. The renewed attention for publicadministration development in recent years hascoincided with a period of economic hardship inmany states in the region, in particular inSoutheastern Europe and the CIS, which has leftlittle room for the necessary investment inupgrading capacities. However, the gradual movetowards a more rational approach to reformingsystems of public administration in an increasingnumber of states could mark a turning point inadministrative development.

The legacy of the previous regime in terms ofpublic administration has been highly negative.First, systems of public administration were highly

politicized, with political reliability and loyalty a keycriterion in the recruitment and promotionprocess. Even if in a number of states in the regionattempts were made to professionalizeadministrations in the 1970s and 1980s1, politicalloyalty generally continued to prevail overprofessional qualities when recruiting andpromoting staff. This runs counter to the veryprinciples on which the development ofprofessional systems of public administration is tobe based.

Second, public administrations in the regionalso did not play a role in channeling societalinterests, as this was the function of the PartyAdministration, an institution formally abolished inmost states in the early 1990s. In terms of servicedelivery systems of public administration wereexpected to strictly apply the Law. Publicadministration systems thus became mainly policyimplementation machines.

A third characteristic of public administrationsystems under the previous regime was theirextensive involvement in economic management.Administrations were designed according to aneconomic branch model. This created a systemwith a large number of ministries, eachresponsible for a specific sector of the economy.The orientation of ministries was thus vertical,towards the sector of the economy they werecovering, and focused on control andenforcement, rather than on policy development.Policy co-ordination was largely a matter for theParty administration.

The conditions for establishing open andprofessional systems of public administration in theregion were therefore far from favorable. However,this applied to most, if not all, elements of theinstitutional systems in place in the states of theregion. At the same time, more than ten years afterthe start of the transition in the states of Central andEastern Europe and the former Soviet-Union,much progress has been made in the creation ofprofessional parliaments, constitutional courts,Ombudsman and Human Rights institutions, andeven in the reform of the judiciary.2 Systems ofpublic administration, however, remain one of theweakest links in the institutional developmentprocess and one of the foremost cases of ‘reformfailure’ in the region.

1 In particular in Hungary, with the development of the Public Administration ‘college’ as a professional institution,to a lesser degree also in states such as Poland and Bulgaria

2 Even if judicial reform remains a complex area, where progress has been insufficient in many states

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The question is to what degree reform failure indeveloping open, effective and efficient systems ofpublic administration matters.

In the early years of the transition, publicadministration reform was viewed as a marginalelement of the institutional reform process. Theprevailing influence of Neo-Liberal approaches toinstitutional reform, together with the strongcounter-reaction against the all-pervasive role ofthe state under the previous regimes, combined tocreate a focus on reducing the role and size of thestate. As a result, there was a lack of attention forcapacity building in administrative systems, whichwere seen mostly as a danger to reform processes,to be circumvented and marginalized. At most,attempts were made to design and implement civilservice legislation in order to stabilizeadministrative systems, as frequent turnover in staffand falling ethical standards were seen as a risk tothe economic reform process.

Economic reversals in many states3 in the midand late 1990s brought an increasing awareness ofthe link between economic underperformance andthe presence of weak systems of publicadministration, while at the same time there was agrowing recognition of the potential role of stateadministrations in facilitating economicdevelopment. However, the change in perceptionof the role of public administration in reformprocesses came at a time when many states wereunder austerity programs, and thus were requiredto further reduce the role and size of theadministration.

Even if the importance of Good Governance forachieving stable economic development, and byextension the need to develop open, professionaland efficient systems of public administration, wasby then generally recognized, the prevailingapproach to reforming systems of publicadministration did not change initially. Theemphasis remained on across the board cuts instructures and staff.4

It is only during the last few years that afundamental shift in the approach to reformingpublic administration systems has emerged. Thisshift in approach implies:

� A move from partial approaches to reform toholistic approaches;

� A move from across-the-board reductions instaff and structures to a mixture of seekingefficiency gains while investing in buildingcapacities where these are lacking;

� Seeking a balance between a focus on internalreform and changing the relations betweenpublic administration and society.

A continuation of this pattern of developmentcould eventually lead to systems of publicadministration becoming a catalyst for changerather than an impediment to reform, and couldthus contribute to the development of systems ofGood Governance in the region.

Changing reform tools: using functionalreview of state administrations

The increased use of functional review as areform tool is a key element of the change inapproach to rebuilding systems of publicadministration. The initial approach to publicadministration reform was largely ‘reform bylegislation’. Reform strategies adopted by variousstates in the mid-1990s were often little more than aframework for the development of legislation.Strategies were rarely based on in-depth analyses ofthe structural problems of state administrations.The development of Civil Service Laws and Laws onthe Organization of the State Administration, aswell as related legislative acts, such as PublicProcurement Acts and Freedom of InformationActs was seen as the main cure for the ailing stateadministrations in the region. Laws were developedbased either on various ‘Western’ models or on pre-Communist traditions. However, laws were rarelyadopted and even more rarely implemented.Where laws were implemented, their impactremained limited, as modern principles of publicadministration were superimposed on outdatedorganizational structures.

From the mid-1990s onwards, reform-by-lawwas increasingly combined with reform-by-acrossthe board cuts. Starting with Hungary in 1995, anumber of states, as diverse as Bulgaria, Slovakia,Kazakhstan and Kyrgyzstan, ordered across theboard reductions in staff numbers, in many caseswithout studying the implications for individualinstitutions.

3 For instance, the strong economic slowdown in the Czech Republic after 1996 and the collapse of the Bulgarianeconomy in 1996

4 With the exception of a small number of states, such as Poland, Latvia and Bulgaria, where a more comprehensiveand sophisticated approach to public administration reform was started earlier on, starting from 1996

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Across-the-board cuts have the disadvantage of‘freezing’ existing imbalances in administrativesystems. This can be particularly damaging in thecase of Post-Communist states, as in practice thishas meant freezing an underdeveloped centralapparatus of the state administration, whileretaining a plethora of subordinated institutionsthat an ever-weaker central administration isincreasingly unable to co-ordinate and manage.More importantly, in the context of the abovediscussion on principles of Good Governance, thisapproach to reform fundamentally weakensaccountability lines, and thus leads to lessdemocratic control over the state administration.The centrifugal tendencies that this approach toreform generates led to absurd situations in statessuch as Latvia, where core institutions ‘opted out’ ofthe public administration system, leaving analready skeptical citizenry with the impression ofbeing governed by a non-responsive self-interestedadministration.

Latvia was also one of the first states that chose adifferent approach to Public AdministrationReform, trying to rationalize the structure andmanagement processes in the state administrationbased on the conduct of a Functional Review. Since1996, several states have moved away from theunsuccessful approach to public administrationreform of the early and mid-1990s and have basedreform strategies on the result of functional reviews.Some ten states in Central and Eastern Europe andthe former Soviet-Union have conducted functionalreviews in the last five years. In recent years asignificant number of states in the region have builtup experience in using this reform tool. Theirexperience is of great potential importance to otherstates in the region. There are many lessons to belearned for the future, in particular as to whetherand under what conditions the use of this reformtool can contribute to the development of a moresuitable and successful approach to publicadministration reform.

This publication has two main objectives. Oneobjective is to ‘de-mystify’ the concept of functionalreviews. Like ‘Good Governance’, ‘FunctionalReview’ is a term often used, but rarely explained.This publication will thus shed light on the varioustypes of functional review processes that have beenapplied as well as analyze the methodological toolsused in functional reviews, in order to come toconclusions what type of review process would fitwhat type of reform objective. The second objectiveof this publication is to examine how and underwhat conditions it makes sense to conduct a

functional review as a part of a publicadministration reform process. Overall, thepublication aims to assist policy-makers in Post-Communist states in making an informed choiceabout what reform tools are most suitable for theirparticular situation, and what previous experiencesthey could draw on in framing the reform processfor their state.

2.2. KEY PROBLEMS IN PUBLICADMINISTRATION SYSTEMS INTHE POST-COMMUNIST STATES OFCENTRAL AND EASTERN EUROPEAND THE FORMER SOVIET-UNION

Any discussion of the relevance of functionalreview as a reform tool should start with anassessment of the main features of the formersystems of public administration. Three over-arching features of the former systems of publicadministration in the region were alreadyhighlighted in the previous section, their partypolitical nature, their intrinsic lack ofresponsiveness to societal demands and their heavyinvolvement in economic management. Thesethree overall features are in stark contrast to whatmodern systems of public administration aresupposed to be: professional, responsive to citizensand society at large, and policy oriented. A furtherquestion is how these three key features werereflected in the organization and management ofpublic administrations, the answer to which is acrucial factor in determining whether and to whatextent functional reviews can be a relevant reformtool for the states in the region.

At the outset of this discussion, it is important tonote that regardless of a high level of diversity inadministrative systems and cultures, there are still anumber of common features, which to a lesser orgreater degree can be found in virtually alladministrative systems. Studies conducted by theWorld Bank (Nunberg 1998 and 2000), the OECD(in particular SIGMA papers 23 and 26), as well asthe annual assessments of administrative capacityconducted by the European Commissionrepeatedly stress the same common features ofvirtually all systems of public administration in theregion:

� There is a general lack of a concept of the role ofthe state in economic and social transformationprocesses;

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� Many ‘leftover’ elements if the previous systemremain, even if functions are transferred,administrative structures are kept;

� Administrative systems lack transparency andcoherence;

� There is a strong dominance of ‘verticalism’together with underdeveloped systems ofpolitical and administrative co-ordination, inmany states exacerbated by problems incoalition management;

� There are many overlaps but also gaps infunctions;

� A strong focus on mechanical and technicalwork remains, with limited attention forstrategic thinking and policy development.

The above points are also reflected in all sixcountry studies that were conducted for thepurpose of this policy paper, which included statesas diverse as Slovakia and Kyrgyzstan. Furthermorethere is a general feeling, as indicated in theprevious section, that in many states up to now littlehas been done to address these fundamentalproblems in systems of public administration.Politicians have mainly resorted to across the boardcuts and the adoption of legislation, withoutattacking the root causes of the sub-optimalperformance of public administration systems.

The lack of a clearly defined conceptof the role of the state

There is still no consensus in many states in theregion on the role of the state, even if one looks atthis in a sector-by-sector manner. The initial movetowards a minimal state, under neo-liberalinfluences, has been gradually supplanted by amore balanced view of the role of the state in thesocio-economic system. However, these is still noover-arching agreement on what role the stateshould exactly play in the delivery of social servicesand, in many states, also in the management of theeconomy. The situation is slightly better in Centraland Southeastern Europe, as EU membershipobligations to some degree set guidelines for whatfunctions the state should perform as a minimum.National systems have to then be built around theseEU obligations. However, even in these statesnumerous choices remain, for instance about

health, education and social welfare systems. Inother parts of the region, in particular in CentralAsia and the Caucasus, the direction is even muchless clear. Without a conception of the role of thestate, it is very difficult to define the type ofadministrative system one needs. The lack ofprogress in reforming public administration istherefore certainly in part due to the lack ofconsensus on what public administration shouldactually do. Even though ideally functional reviewsshould be conducted on the basis of an existingpolicy on the role of the state, they can make acontribution to move forward the process ofthinking on this issue. In particular, functionalreviews can help by providing decision-makers withcomparative benchmarks, for instance about statesof similar size in Europe or Asia5 that politicianswant to identify with. This method was usedextensively in the functional review in Slovakia6 anddid help bringing about political decisions on theextent of state involvement in some economic andsocial sectors. It is obviously preferable for astrategic framework for the role of the state to beagreed on in advance, but benchmarking mayprovide an alternative in case this provesimpossible.

‘Leftover’ elements of the previous systemSeveral of the country reports mention the

presence of leftover structures from the previoussystem of governance. As public administrationunder the previous system was heavily involved ineconomic management and direct delivery ofservices, the structure and management of publicadministrations was also oriented in this direction.One would expect that a number of such structures,such as the economic branch ministries thatcontrolled state enterprises as well as units infinance ministries that worked on budgetcalculations for such ministries, would havedisappeared ten years after the start of thetransition to a market economy. Even if there wasan absence of a clear direction on what the role ofthe state would be, some institutions are obviouslyredundant in view of the development of a marketeconomy. Other structures, such as printing andpublishing facilities, many research institutionsattached directly to ministries, credit and loanmanagement institutions, could also have beeneither privatized or abolished. However, thefunctional review in Slovakia, for instance, found

5 as is often the case of Central Asia, where Malaysia and Singapore are often quoted as sources of inspiration6 using Denmark and the Netherlands as specific benchmarks and the UK as an example for the management of the

reform process

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that many of such institutions were in fact still inplace in 1999. Economic branch departments werestill in place, even if on a smaller scale, integrated inthe Ministry of the Economy and with little directpower over industry. A number of institutionsdealing with research as well as the delivery ofservices that could easily be transferred to theprivate sector were also still found to be operatingon the state budget. Similar conclusions were drawnfrom the review in Bulgaria. Both these states areEU candidate states, where one would haveexpected to find a much more advanced state of thedismantling of the previous institutional system.The functional reviews in Kazakhstan andKyrgyzstan, and also in Ukraine, found a muchbroader network of such institutions still operating.They pose a serious hindrance to economicdevelopment, as their influence stifles initiative anduses much needed budgetary resources. In otherstates, such as Latvia, this factor is less significant, asthe new state structures built up after independenceshed much of the redundant institutions of theprevious system. In the sample of states used here,this was the only case where leftover elements of theprevious system were not found to be a feature ofpublic administration. The reform tools appliedbefore the implementation of functional reviewsthus did not address the issue of leftover elementsof the previous system in a satisfactory manner.Across-the-board cuts and legislative initiativesindeed would seem inappropriate tools to deal withthis kind of problem. The result of this is thepresence of a large number of redundantinstitutions in many states in the region, that poseboth a drain on budgetary resources and, in somecases, an impediment to the development of amarket economy. On the basis of the experience inthe region, the conduct of a functional review wouldcertainly seem the most appropriate tool to identifythese remnants and suggest solutions for theirremoval from the system.

Lack of transparency and coherenceThe second main common feature of systems of

public administration in the region is the lack of aclear system of inter-institutional relations insidepolicy sectors. Modern systems of publicadministration are generally built on a cleardistinction between types of institutions in anygiven policy sector, with related systems ofaccountability. Generally the following types ofinstitutions are distinguished:

� Policy-making institutions

� Regulatory and licensing bodies

� Supervisory bodies

� Inspectorates

� Service delivery institutions

� Institutions under tutelage

Each of the above types of institutions shouldpreferable perform only a single type of function andshould have their own specific defined linkage to theother elements of the sector. This should guarantee,for instance, a strong independence for regulatorybodies. Systems of recruitment of management staffand their reporting relations are closely related tothe position of the institution in the policy sector. Awell-defined system of reporting and accountabilityis a key element of a effective, efficient andtransparent system of public administration. Statesin the region have struggled with the development ofeffective institutional systems in policy sectors. Theemphasis the European Commission has placed oninstitution building as a requirement for EUaccession should be seen in that light. The functionalreviews conducted in the six states, which formed thesample for this publication, and other cases in theregion provide clear evidence of the remainingdeficiencies in the institutional systems in individualpolicy sectors. Latvia, for instance, has tried for thelast five years to build a coherent publicadministration system based on the abovecategorization, but still without having achievedsatisfactory results in all sectors. Bulgaria stands outas a positive case where this process was designedand implemented in a comprehensive fashion, thuspaving the way for the design and implementation ofa comprehensive horizontal law on the stateadministration and an ensuing rationalization of thepublic administration system. Functional review canhelp to identify duplication in function typesperformed by individual bodies in the stateadministration as well as deficiencies in theaccountability system.

The comprehensive picture provided in this waycan subsequently form the basis for the drafting andadoption of framework legislation on theorganization of the state administration.Furthermore it can help to find the basis for aredistribution of resources from institutions wherethere is an over-capacity to institutions that areunderstaffed. The experience from the states in theregion has shown that without a thorough analysis ofthe organization of all sectors in the institutionalsystem, the development of a new legal frameworkfor the organization of the state administrationmakes little sense.

7

The dominance of verticalismIn addition to the above problem of lack of a

clear organization and transparency in theorganization of policy sectors, there is the addedcomplication of weak horizontal managementsystems in the state administrations. Formerlyhorizontal management was largely performed byCommunist Party structures, where sectoral inputswere integrated into state policy. Thedisappearance of the Party from the system leftpublic administrations virtually without horizontalmanagement systems. Little has been done toreplace these systems. The crisis in politico-administrative relations has created a strong lack oftrust between politicians and civil servants in manystates, making politicians unwilling to delegateadministrative co-ordination to the stateadministration. This has created a lack of ‘filters’ inthe policy-making systems and resulted in anoverload of government agendas. This has beenexacerbated by the emerging problems in coalitionmanagement, which have come to characterizepolicy-making systems in many Central andSoutheast European states. Problems in politicalcoordination have been piled up on top of thealready prevalent problems in administrativecoordination. There are some positive exceptionsthat deserve mentioning. Most EU candidate stateshave created effective systems of management ofEU affairs in their state administration, and havereceived positive marks for that in Commissioncapacity assessments. This shows that it is possibleto delegate co-ordination and deal adequately withproblems of political coordination. However, as sofar EU membership is a non-controversial issue inmost candidate states, it is not that easy to transferthis ‘best practice’ to other policy areas. Theproblem of verticalism is not easily addressed. Thenumerous failed attempts, for instance, to improveadministrative coordination in a state like theNetherlands show that this is a far fromstraightforward problem. This is an area thatrequires a change in management practices, whichare part of an entrenched political andadministrative culture. Functional reviews can addrelatively little to the solution of this specificproblem, except to help with the identification of itscauses. This requires the development of a systemreview in addition to vertical reviews, in order tobring out the deficiencies in horizontalmanagement systems.

Overlaps and gaps in functionsThe continuing extensive overlap in functions

performed that has been identified by every singlefunctional review process in the region, and is inpart an effect of the lack of a strategic directiondiscussed in the first point above. Nevertheless, theelimination of duplication should be a key priorityfor governments that are generally in a difficultbudgetary situation. In addition, the point made inthe previous section regarding the lack ofhorizontal management systems indicates thatthere are also many potential gaps in functions.These are not only the obvious gaps, like thecreation of new functions and institutions for EUmembership in EU candidate states, but alsoothers. The development of modern systems ofpersonnel management, for instance, has beenidentified as a gap in many states in the region,including in several EU candidate states. Systemreviews7 and horizontal reviews8 can be very usefultools to help identify where there is a scope forrationalization of functions and where investmentsin capacity building are required.

A strong focus on mechanical and technicalwork, with limited attention to strategicthinking and policy development

Reviews and reports on public administration inthe region all point out the problem of policy-making capacity. As has been pointed out before,public administrations in Communist states used tobe mainly implementation machines, with little orno role in policy formulation. Even though the roleof public administration in the new systems ofgovernance in the region should be fundamentallydifferent to that under the previous system, focusedmuch more on assisting politicians in policydevelopment and channeling societal inputs intopolicy proposals, in reality there appears to be littlechange. The lack of policy-making capacity isreflected in virtually all assessments ofadministrative capacity in the region. There havebeen attempts to develop government strategicunits in some states, but where they still exist theyremain at most a type of government sponsoredthink tank, which should be one among manyelements of a policy development system. A recentOSF report on policy-making in Slovakia (OSFSlovakia, 2001), for instance, paints a picture of anadministration that ‘contracts out’ most policy

7Reviews that assess the existence and performance of horizontal management systems,8 Reviews that make a horizontal comparison of performed functions to identify duplications and gaps in substantive

policy functions

8

development work to experts and deals itselfmainly with the ‘translating’ of developed conceptsinto draft legislation. This is a situation that is bothunsatisfactory and potentially dangerous in termsof possible state capture. As in the area of thedevelopment of administrative and politicalcoordination, the role of functional review inidentifying weaknesses in policy-making systems israther limited, as policy process reviews are rarelypart of functional reviews. There may be a case forincluding this additional type of review, as recentlyconducted in Slovakia, into the ‘set’ of functionalreviews to be conducted in order to get acomprehensive picture of the measures required todevelop high quality systems of publicadministration in Post-Communist states.

Structural problems and the use offunctional review as a reform tool

This section has outlined three over-archingproblems inherited from the past system and sixrelated sets of structural and organizational

problems in the state administrations of Post-Communist states. It also explains why conventionalmethods of public administration reform, throughacross the board cost cutting and the adoption oflegislation, are in themselves insufficient to addressthe complex problem of building high qualityadministrations in the region. Functional reviews willcertainly not be a panacea to all the ailments ofadministrations in the region. However, the conductof a comprehensive set of functional reviews, lookingat horizontal management systems, policy process,the organization of individual policy sectors and thedivision of labor between the sectors, could inprinciple make an important contribution to thedefinition of the necessary measures to build highquality administrations. In fact, as the discussion inthis section has shown, it could help address themajority of the key problems facing publicadministrations in the region. The next two sectionswill focus on the process of defining andimplementing a functional review, and set outconditions to be met for defining a successfulfunctional review process.

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The design of a functional review is one of themost critical elements in the review process. Adesign that does not fit political and administrativeconditions in the country where it is applied isbound to fail. Functional review processes canserve a varied set of objectives, discussed in the firstsection below, and what objectives are to beachieved is the first criterion for considerationwhen choosing both the type of review to beconducted and the management system to be putin place. A second question to be considered iswhat type of output is expected from the review.Obviously a review always ends with a report, butthe type of measures to be proposed in the reportcan vary, again depending on the prevailingpolitical climate and the issues that “drive” thereview. The type of measures most likely to fitpolitical conditions can be predicted with somecertainty in most states. It is therefore important totake this into account in the design phase. Thissection, therefore, discusses the most importantissues to be considered in designing a functionalreview and addresses the following issues: the typeof objectives that functional reviews generallyserve, the type of reviews that can be conducted,the way in which these can be managed and finallywhat kind of measures are likely to be pursued as afollow up.

2.1 WHAT IS THE OBJECTIVE?

The purpose of functional reviews is to assistgovernments in moving toward a situation whereinpublic administration institutions collectively, andindividually, perform all necessary functions andonly necessary functions, in the most efficient andeffective manner. The starting point for afunctional review is the assumption that publicadministration institutions exist to performfunctions in order to achieve the objectives of thepolitical system on behalf of society, and that onlythe performance of these functions justifies theirexistence, their structures, their activities, and theirresources. Further, the functional review approachassumes a possibility of identifying alternative

methods of reaching the goals of the politicalsystem in a systematic and relatively objective,experience-based manner, and of ranking thesealternatives in terms of efficiency and effectiveness.

It is clear that in most countries in the region thecatalyst for functional review is almost always a needto reduce government expenditures, a needpropelled both by internal and external pressures.Paradoxically, however, it can be said functionalreview has developed as a corrective to the various‘quick and ready’ approaches to budget reduction,such as ‘across the board’ staff cuts and salaryreductions, or the wholesale elimination of certaingovernment activities and institutions. It is useful inthis context to view functional review as a result ofintellectual dialogue between economists andpublic administration experts leading to therecognition that ‘across the board’ cuts, while quick,produce only limited savings, can cause a seriousreduction in the quality of government output andare often not sustainable over time. Rather thanthis, functional review focuses on systemic andinstitutional objectives and seeks to establishconditions for modernizing administrations tofunction more effectively in the longer term, even ifin the shorter term financial gains are smaller thancould be achieved by direct cost-cutting methods.Therefore, any functional review process always hasimportant systemic modernization objectives inaddition to a cost-reduction objective. Theachievement of systemic objectives is taken as aprerequisite for achieving cost-reduction objectives.The specific systemic objectives in each countryneed to be carefully selected in order to realisticallymatch to local circumstances.

In order to select the appropriate objective forany functional review process, it is useful first tounderstand the sequence of logical and normativeassumptions that underpin this approach. Thepresence of normative and subjective assertions inthe list of assumptions below should be particularlystressed and recognized. Functional review is not inany way a pure science, and the choice of objectivesfor any review is in part ideological and subjectiveand it is therefore important for those defining the

CHAPTER 2

Designing a Successful Functional Review

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objectives to be aware of these subjective elements,and to be prepared to explain and defend them.

The following list presents an idea of theseassumptions:

� The administrative system as a whole should bedesigned to achieve multiple objectives, bothhorizontal and sectoral with the objectivesdetermined by legislature (the Constitution,Parliament) and at a political level(Government).

� Horizontal objectives should be pursued by allinstitutions. These would include transparency,accountability, efficiency, subsidiarity, servicequality, ethical conduct and equality oftreatment.

� The development of policy and delivery ofservices to persons and economic and socialentities is the central objective of government.However, government is obliged to question itsown role in delivering services, and it shoulddivest itself of the delivery of services for which a“better” deliverer can be found. The definitionof a “better” deliverer is subject to cost andefficiency, but also to ideological and subjectiveconsiderations, such as national interest or socialcohesion.

� The administrative system is divided into sectorinstitutions (ministries and agencies), withassigned responsibility for policy developmentand service delivery in specific areas, such ashealth, education, environment, andagriculture. The division into sectors shouldtheoretically be such that all areas ofgovernment responsibility are assigned (nogaps), but that no area is assigned to more thanone body (no duplication).

� In addition, each administrative system alsocontains a small number of “central institutions”such as a government secretariat, a Ministry ofFinance, or a Civil Service agency. Theseinstitutions have coordinative functions ratherthan sector functions. The quality ofperformance of these coordinative functions canbe assessed to international standards.

� The same rule that applies to the system as awhole applies to sub-units within eachinstitution. Ideally, all responsibilities assignedto the institution should be reflected in functionsand activities assigned to specific units in theinstitution (no gaps), but responsibilities shouldnot be assigned to more than one unit (noduplication).

� In sector institutions as well as in the system as awhole, there are some units whose role iscoordinative, e.g., personnel, legal, and financedepartments. Standards of performance ofthese tasks across the entire administrativesystem should be comparable to a high degree.

� In all institutions, whether sector orcoordinative, it should be possible to establishtheir service objectives by reference to law,government decisions, and other sources. Onceestablished the roles and functions eachinstitution carries out should derive from theobjectives the institution is responsible forfulfilling. Accordingly, it is possible to determinewith a high degree of certainty if any givenfunction should or should not be performed,and whether it should be performed by theparticular institution or delegated to another.

Given these assumptions, the process offunctional review always begins with an attempt toclarify the roles, missions and objectives ofadministrative bodies under study, and to derivefrom these relevant functional requirements. Withrespect to functions of the administrative system,functional reviews have four primary objectives:

1. To eliminate redundant functions. Anyfunction performed by the institution for which nojustification can be found in its objectives is acandidate for elimination. In transition countries,many functions performed by administrativeinstitutions are a remnant of a previous economicand administrative system. This is particularly clearin the case of economic planning and economicmanagement, which under communism werefunctions of the state. It is often the case that evenafter privatization, the administrative system stillcarries out tasks that no longer fit the new economicsystem. The elimination of redundant functions canapply to a specific institution, and may also apply tothe system as a whole: for example, wheredecentralization has taken place, certain functionswithin central institutions (e.g., certain types ofservice delivery in all ministries). The purpose ofeliminating functions can be cost-saving, but couldalso be to improve internal operations of theinstitution, remove unnecessary burdens from theprivate sector, reduce the need for internalcoordination, and improve transparency.

2. To reduce duplication between and withininstitutions. All administrative systems are aproduct of gradual development and all tend todevelop duplications over time. Functional reviews

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can be used to examine the system critically inorder to identify such duplications - a differentobjective from eliminating redundant functions.While recognizing that the function is still needed,the objective here is to ensure that the samefunction is not performed more than once. Forexample, it is often the case that a number ofinstitutions or units within the same institutiondevelop policy for the same sector or group. In suchsituations not only is there a waste of resources butcontradictory policy, inconsistent demands on therecipients of the policy and reduced accountabilityand transparency.

3. To add missing functions. In many cases,especially in transition countries, the administrativefunctions required after the move to a marketeconomy do not exist within the administrativesystem. While certain functions have to beeliminated (e.g., investment planning andenterprise management), they need to be replacedby more suitable functions, such as regulation ofmarket activity. Government ownership of bankshas to be replaced with a legal and regulatoryregime as does the ownership of communicationsby regulation of broadcasting and of content in part(e.g., anything spreading hate or racism,pornography etc.).

4. To rationalize the distribution of functions.Functions within institutions are often split betweendifferent units in ways that reduce performanceefficiency and transparency. For example, twodifferent units may deliver services to the sameentities. In such cases, the purpose is to co-locatesimilar functions in order to improve servicedelivery and reduce the need for internalcoordination. Alternatively, incompatible functionsmay be co-located within the same unit. Forexample, the function of establishing regulatoryrequirements and the function of controlling theirimplementation can create conflict of interests andreduce the access to redress of those regulated.Such functions should normally be separated toincrease efficiency, transparency, and admi-nistrative justice. Another form of rationalizationconcerns the equal standards for performance ofsimilar tasks by different institutions. For example,it is normally reasonable to expect that thepersonnel function in all institutions should beperformed in a similar fashion. Where this is notthe case, there is likely to be good reason forrationalization of this function across theadministrative system.

The achievement of these four direct objectivesrelated to functional performance within the

administrative system is not an end in itself, but isexpected to contribute to higher-level governmentobjectives. Normally, it is these higher-levelobjectives that form the impetus and rationale forundertaking functional reviews. At this levelobjectives tend to differ from country to country,depending on political objectives, externalpressures, and the overall state of administrativereform. The most common higher-level objectivesfor conducting functional reviews include the needfor cost reduction, including personnelreductions, reduction in number of ministries andagencies, changes in allocation of resources,privatization of services and improved workmethods. There is also a need to clarify andrationalize the roles and structures of differenttypes of administrative institutions by setting upstandard criteria for functions belonging toministries, agencies, and other forms ofadministrative institutions. Services to public andsocial and economic entities must be improves byreducing duplication and red-tape, raisingcompetition among service providers andincreasing transparency and accountability.

The reform process must also be kick-started bycreating a basis for further reform of publicadministration bodies and defining optimumstructure - especially important where governmentpolitical commitment to reform needs to bedeveloped. The priorities of the government alsoneed to be reaffirmed by identifying areas wheregovernment activities are not in line with policypriorities. Decentralization and de-concentrationare also vital and an analysis of functions is a usefulaid in the rationalization of function distributionbetween central and local authorities, and centraland de-concentrated units of centraladministration. Finally, in EU candidate states,help must be given in preparing administration forintegration into the European Union byintroducing administrative and work methodscommon among member states.

The four primary objectives with respect tofunctions performed by the administrative systemare relevant to all functional reviews. On the otherhand, the definition, selection, and approval of thehigher-level objectives for any functional reviewprocess is an important phase in the design of asuccessful, specific approach in each country. As willbe seen in the section below higher-level objectivesare crucial determinants of the study design as onlycertain objectives can be achieved with specificapproaches.

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2.2 TYPES OF FUNCTIONALREVIEW: WHAT IS MOST SUITABLEAND UNDER WHICH CONDITIONS?

There are essentially three types of functionalreview, which can be combined into a number ofgeneral approaches.

1. Vertical reviewA vertical review focuses on the activities of one

institution. The institution may be a ministry, anagency, or a central body such as the governmentsecretariat or the presidential administration. Avertical review of a ministry may or may not includea review of subordinate agencies, and may focusonly on the central ministry or include de-concentrated units. The main focus of a verticalreview is the extent to which the institutionperforms the functions required to meet itsobjectives and the extent to which theorganizational structure of the institution fitslogically, without duplication or gaps, therequirements for the performance of thosefunctions. At any one time, one or more verticalreviews may be conducted, but the vertical review ofeach institution is essentially separate from thereviews of other institutions.

2. System reviewA system review focuses on a comparative review

of one or more common functions across a numberof institutions, and thus mainly assesses the ability ofadministrations to function as in integrated system. Acommon function is one performed by all or mostinstitutions, such as personnel, internaladministration, legislative drafting and budgeting. Asystem review of one or more common functions iscarried out across the entire administration or onepart of the administration, such as all ministries, allsubordinate agencies, or all ministries in a givensector. The main focus of a system review is on thecomparability in performance of common functionsacross different institutions. In particular, a systemreview seeks to determine the extent to which thestatus and position of a function within differentinstitutions is comparable, e.g., is there a personneldepartment in some ministries but only a sectionwithin a department in others? If there is a differencein status, is it justified by differences in the size orcomplexity of the institutions? It also allows forexamination of the equitability of staffing levels andstaff quality for a given function between differentinstitutions, and of the extent to which the sameactivities are performed, in a similar fashion in all

units. For example, do all personnel departmentsperform activities related to recruitment, or are theresome institutions in which recruitment is strictly theprerogative of line managers?

A number of system reviews can be conductedconcurrently, but the review of each function isessentially separated from the review of otherfunctions. Even if there have been cases where systemreviews were carried out separately, to addressparticular problems in, for instance, legislationdrafting, system reviews are most often conducted incombination with one or more vertical reviews.

3. Horizontal reviewA horizontal review focuses on the distribution of

functions between institutions. The focus of such areview is primarily on objectives and competencies,seeking to establish if at the level of the administrationas a whole the distribution of competences isrationalized, without undue duplications and gaps. Ahorizontal review can also focus on the extent to whichall ministries follow the same methods in definingrelations between central and deconcentrated units,or the extent to which financial and accountabilityrelations between ministries and subordinatedagencies are comparable across the system. Suchhorizontal reviews are particularly difficult to conductand are relatively rare. They may be carried out not asseparate reviews but as an attempt to draw systemicconclusions from a series of vertical and systemreviews.

The three types of review described above canbe combined, in a modular fashion, depending onthe higher-level objectives, capacity and resourcesand political commitment. The most commonpackaging appears to be:

A small number of vertical reviewsThis approach is particularly useful in cases

where there is no real political commitment toadministrative reform, and an outside body,normally an international organization, wants tocreate impetus for reform. It is also very helpful inaddressing issues related to a particularly large orcomplex ministry, e.g., Ministry of Agriculture orMinistry of Economy in countries preparing for EUaccession, and can be important as a pilot project todemonstrate the usefulness of the approach and totrain local staff. There is also an important role forthis type of approach when it comes at the requestof a reform-minded head of a particular institution,e.g., some reviews carried out by SIGMA ofgovernment secretariats or institutions responsiblefor EU accession.

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BOX 2.1

VERTICAL REVIEW

After a general horizontal review had beenconducted in 1997, the second and more focusedstage of functional reviews in Latvia was initiated in1999 – consisting of a vertical functional review ofselected ministries and subordinate systems. TheMinistry of Agriculture and later the Ministry ofEconomy and Ministry of Justice underwentvertical reviews. The rationale behind verticalreviews was the necessity of preparation for EUaccession: During the integration of sectors to theEU, ministries undertake many new tasks, resultingfrom implementation of the acquis communautaireand requiring the ministries to prioritize their tasksand subsequently allocate resources. The choice ofministry for the vertical functional review wasagreed among the three parties: the Bureau ofPublic Administration Reform, the World Bankand the ministry concerned. The World Bankintroduced as a criterion for the choice of sector forreview the importance of the sector to overalleconomic development and EU accession. Thegoal of the reviews was to design the institutionalframework for rational and effectiveimplementation of public functions, throughmeeting following objectives:

� Formulation of mission and strategicobjectives of the ministry and identification ofpriority functions;

� Identification of the functions of public bodieswithin the ministerial system to be retained,transferred to more appropriate bodies,eliminated or divested;

� Identification of new functions;

� Determination of a legally sound and costeffective organizational structure that canefficiently meet its objectives; etc. Thefunctional review included the ministry andvarious bodies under direct subordination andsupervision of the ministry. Although 10ministries were involved in the functional

review program by the end of 2000, the reviewprogram that was undertaken in the Ukrainiangovernment to this point remains limited inboth scope and depth. It constituted merely avertical review of selected ministries. Moreover,each review had been essentially conducted as apilot project at central level and did not have aneffect at regional or local levels even when theministry under review had directly subor-dinated bodies at regional or local levels. Therewere a number of negative factors affecting theoverall functional review process:

� A lack of adequate political support andstability: the CBEP Working Group (WorkingGroup on Reform of Central Bodies ofexecutive Power) was not capable of carryingout such a broad set of reviews.

� The failed attempt to carry out a parallelreview of functions by the Main Department ofthe Civil Service, due to a restrictive and overlysimplified approach to the review process (Itincluded only reviewing normative documentsand ministerial regulations).

� Vertical review processes in Kyrgyzstan thusfar appear to have a larger chance of successthan the earlier system review (See Box 2.3).The pilot reviews of the Ministries ofEducation and Culture, Health andAgriculture and Waters have passed the stageof initial recommendations and are now in thefirst phase of implementation. Action plans forreform have been developed for all threeministries (though at varying levels ofcomprehensiveness) and the approach hasreceived a cautious welcome from the centralmanagement structures in administration(Presidential Administration, Prime Minister’sOffice and Ministry of Finance). One of the keyquestions now is how the methodologicalapproaches used to review the three pilotministries can be effectively adapted for thereplication of the pilot schemes.

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Vertical reviews of all institutionsThis approach is particularly useful where the

main higher-level objective is to reduce costs, andthe possibility to do so exists over a longer period oftime, and where there is sufficient commitmentfrom the government, e.g., as part of a government-

approved PAR strategy, and there is acceptance byall or most ministers. This approach is also positivein assisting the planning and/or implementation ofa new decentralization or de-concentration schemeand as part of the process of sectoral institution-building in the context of EU integration.

State functions in Kazakhstan are ordinarilyperformed by public bodies. Ministries and statecommittees are principal central executive bodiesin charge of the implementation of state policy invarious sectors of the economy and theperformance of state functions. Accordingly,functional analysis in Kazakhstan was carried outon all ministries, committees, national agencies,and local executive bodies, as well as subordinateand territorial agencies, i.e. horizontal andvertical structures of administrative bodies - inother words the entire public sector providing thefollowing public services:

BOX 2.2

COMPREHENSIVE VERTICAL REVIEWS IN KAZAKHSTAN

� Public services of a general nature such asfinancial, auditing and planning activities, lawmaking, defense, public order and security,etc.

� Communal and social services such aseducation, public health, welfare, etc.

� Government services associated with economicactivities (in the fields of farming, industry,construction, etc.).

� Other functions such activities related to thenational debt service, to the service of anygovernment guarantees and to the support ofother levels of public bodies.

Partial combined vertical and system reviewThis approach is useful in situations where costs

need to be watched. A full vertical and systemreview, covering all institutions and all commonfunctions is rare. It is costly and time consuming,and is likely to produce so many recommendationsthat it would be difficult to implement. Therefore,most examples where both types of review areconducted in combination are partial in nature.However, the approach can also be important when

training local staff as a means to kick-start PARwhere there may be political resistance. Systemreviews are also easier to conduct as their scope islimited and they usually deal with smaller units,such as personnel or finance departments.However, it should be remembered that systemreviews require the co-operation of a (large)number of institutions at the same time, a task thatmay be difficult to achieve.

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Full horizontal reviewThis approach may be based on a comprehensive

set of separate organizational reviews, or on a moremodest approach that examines, at the level of theentire administrative system, fundamentalorganizational issues. It is particularly useful wherethere is a strong drive for far-reaching reformcoupled with a strong political commitment and alead minister or institution. The approach also has

certain advantages, not least in that it allows thegovernment to pursue all the higher-level objectives,and can thus lay solid foundations for significantrestructuring and modernization. There are,however, some disadvantages including difficulty incarrying out such a broad review in sufficient depthwith time and resource limitations while to makesuch reviews useful, there must exist a strong capacityto absorb and implement change.

In Slovakia a full review of the entire centralgovernment system was conducted. It was focusedon central state administration, specificallyministries and other central state administrationbodies along with budgetary and subsidizedorganizations that fall under their jurisdiction. Itwas not a pure vertical review as it contained keyfeatures of system analysis as well while some ofthe vertical reviews of the ministries were not indepth. Overall, the audit in Slovakia covered 172institutions and 40,962 staff. Some components ofthe central state administration were excludedfrom the audit as their problems called for aspecific approach, or fell outside thegovernmental resolution. Among them were theOffice of the National Council, the ConstitutionalCourt, Supreme Audit Office, courts, the Ministryof Defense, universities, theatres and the SlovakAcademy of Sciences, etc. In Kyrgyzstan differenttypes of review were carried out: horizontal review

BOX 2.3

COMBINED REVIEWS: SLOVAKIA AND KYRGYZSTAN

(See box 2.4), vertical reviews and system reviews.The system review, carried out in 2000 includedreviews of central structures (the PresidentialAdministration, Prime Minister’s Office). Theirstatutes, legal acts and functions performed werereviewed and an assessment of their role andposition in the structure of executive authoritieswas conducted. A review of ‘common functions’was also conducted, including departments suchas personnel, finance, legal services and audit wascarried out for such key ministries as Ministry ofFinance, Ministry of Justice, Ministry of Laborand Social Security, Ministry of Agriculture, etc.(but not for all ministries). The vertical functionalreview included a review of sector functions ofministry departments and dependent organiza-tions and agencies. In addition the TACIS projectprovides for realization of a vertical functionalreview of the Kyrgyz Republic’s Ministry ofAgriculture and Ministry of Finance.

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As this section shows, there are manypossibilities to combine the three basic types offunctional review – vertical, system and horizontal –into packages that may suit the conditions andobjectives of each country. The most importantcriteria in the selection of approaches appear to bethe level of political commitment and the mainobjective(s) of the analysis. Also important aretiming and resource consideration, and the capacityof the system to implement and absorb change.

2.3 MANAGEMENT OF THEFUNCTIONAL REVIEW

There are two important elements in themanagement of a functional review process: theexpert team(s) carrying out the review, and themanagement team, responsible for decisions

regarding the actual conduct of the review,including objectives, timing, process, co-ordinationwith reviewed institutions, and final reporting. Insome cases, the expert team and management teamshare some of the same members, while in othercases they are completely separate. In all cases,there is also a need for high-level ministerialresponsibility for the review (a single minister or acommittee), and the body providing managementof the review should be closely linked to thisministerial body.

The expert team: In almost all cases, expertteams conducting the reviews include bothinternational and local experts. The mostimportant element in any team is a combination ofexpertise that includes both knowledge of theapproach and methodology of functional review,

In Latvia the mandate received from theCabinet and formalized in a Declaration of theIntended Action of the Cabinet of Ministers(August 7th, 1997) clearly set the requirement forfunctional review of the entire publicadministration. The objective of the full horizontalreview was to review functions and structures ofpublic administration bodies and providerecommendations to the government onrationalizing structures to eliminate overlap andduplication of functions among publicadministration bodies. The Bureau of PublicAdministration Reform, with the technicalassistance from the Civil Service Administration,carried out the horizontal functional review withinthree months. The analytical report of thecollected data and recommendations waspresented at the end of the process. According tothe report the horizontal review performed inLatvia in 1997 did not have a mandate to identifyany new functions needed as part of the EUintegration agenda but was not linked togovernment emerging policy issues and priorities.Following this, a second and more focused stage offunctional reviews in Latvia was initiated in 1999 –vertical functional review of ministries andsubordinate systems (See Box 2.1). In 1997 in theexecution of the government program ‘Bulgaria2001’ the first general functional review of thecondition of administrative system of the Republicof Bulgaria was planned and implemented. The

BOX 2.4

HORIZONTAL REVIEWS IN LATVIA, BULGARIA AND KYRGYZSTAN

implementation of the government program andthe necessity of transformation of the governingmodel in all spheres of state control, both at acentral level – in the system of legislative,executive, and legal powers, and at a local level – inthe system of local self-government, identified aneed to carry out an overall review of the conditionof the administrative system. It incorporated alladministrative bodies of the executive powers – atcentral and regional levels, the administrativebodies of legal and legislative powers and of thepresidential administration. In both countriesthere was a need for far-reaching reform whichwould assess the existing state and potential ofadministrative systems, determine major strategicdirections and scope of the process of institutionalestablishment of the states’ administrations,develop a universal plan for implementation ofgovernment policy with respect to administration,schedule of action, criteria for assessment of theefficacy of the process and necessary resources.Here system analysis was also used but only toconclude the findings of the full horizontalreviews. The horizontal review conducted inKyrgyzstan was largely unsuccessful. The review,carried out in 1999, included analyses of theformal tasks and functions of all central ministriesto eliminate duplication. However, as the reviewlacked an in-depth approach (as it was basedmostly on formal document analysis), its impactwas limited.

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and subject-matter knowledge of the institutionsbeing reviewed. Since most teams would be toosmall to include knowledge of the specific subjectmatter of all institutions, the team should be able todraw on the resources of the institutions underreview, and to receive assistance from thoseinstitutions. This can be guaranteed by agreeingwith each institution to assign a person to the team,or to create a small working group within theinstitution to work with the team during the review.This last point should be given special emphasis asexperience shows the functional review is in itselfinsufficient for producing high-quality analysis ofdiverse subject matter. To produce a goodfunctional review of a Ministry of Finance, forexample, it is crucial to have considerableknowledge of what finance ministries in othercountries do, and how they are structured. Thesame is true for a review of personnel or legaldepartments. Without such knowledge the resultsof the review risk being too abstract, difficult toimplement, and of limited use. The same is true forthe combination of local and international experts.International experts may bring importantcomparative knowledge, and good knowledge ofmethodology. But without local experts, they cannever hope to acquire the depth of understandingof local culture and administrative tradition that isrequired to produce realistic recommendations.

The steering group: There are three basicmodels to follow here, though each country shoulddesign its own specific model, based on a number ofconsiderations.

1. Management by a government agencyWhere there is a specialized government agency

responsible for public administration reform, it islogical to entrust the responsibility to manage thereview to this agency. In such a case, the expertteam working on the review should be attached tothis agency, either formally or informally.

The main advantages of this approach are bestoutlined below:

� It allows for good coordination and linkagesamong all activities related to PAR;

� It relies on an existing body, thus avoiding thecreation of a new institution. This simplifiesresource allocation to the review and speeds uplogistics and start-up time;

� It can draw on the resources, expertise, andnetworking of the specialized agency;

� Assignment to an agency other than theresponsible for PAR may risk limited objectives.For example, assignment to the Ministry ofFinance risks too narrow a focus on cost-reduction;

� The agency would normally report to a ministerresponsible for PAR, which can give thefunctional review results an entry point into thedecision-making system; and

� The agency can begin the preparatory workprior to the start of the review (e.g., preparationand translation of documents, circulation ofinformation to administrative bodies, creationof working groups within institutions to bereviewed, agreement on pilot ministries), thussaving time and resources once the review teambegins work.

However, there are also disadvantages to thisapproach, among them being the fact that in manycountries there is no agency responsible for PARissues. In some countries, although such an agencyexists, its status within the administration may notbe sufficient to enable it to steer a review involvingother institutions. Also, if the minister responsiblefor the agency is not senior enough in comparisonwith other ministers, it may prove difficult toachieve cooperation. One other related problem isthat in many countries the minister responsible forPAR has many other responsibilities, and thus maynot have the time to devote to the review process.

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2. Management of the reviewby a specially created unit

Where the decision to undertake functionalreviews is taken by the government it is possiblethrough this same decision to also create a specialbody (normally a temporary body) to undertakeand manage the review. This has the advantage thatas a body especially created for the purpose it ispossible to carefully choose and appoint personneland within this if the body is staffed by peopleexternal to the administration there is likely to be ahigher degree of objectivity in the review. There are

also the advantages that if the body reports to aspecially assigned senior minister (e.g., a deputyprime minister), this in itself would facilitateacceptance by the institutions under review and thata team created specially for the review is notburdened by other responsibilities, and can devoteall its energies to the process.

However, there are also a number ofdisadvantages. For example, a new team might lackthe knowledge and experience within the

The actions undertaken by the Republic ofKazakhstan, including efforts to prepare the 1999Budget, have been accepted as actions for publicsector functional analysis. The BudgetCommission was instituted in order to summarizethe findings of the public sector functionalanalysis, to make decisions in funding from thenational budget in 1999, to plan actions to reducethe public finance deficit. Therefore, newapproaches have been worked out as to theimplementation of budget reform providing foran amendment of the following year’s budgetformation principles and reform of budgetprocedures by way of:

1. Explicit delimitation of the budget spherebetween public bodies supported by nationalbudget expenditures and those providingservices to these bodies that enable them tofulfil their public functions.

2. Delimitation of functions among centralauthorities themselves, and also betweencentral and local authorities.

3. Adoption of fixed guidelines for thedistribution of national taxes between nationaland local budgets.

4. Consolidation of all financial resources of thestate into one single national budget. However,the experience of the functional review in 1998shows an analysis of functions of public bodiesis an arduous task that can only be completelyfulfilled by a specialized organization. As aresult, the Kazakh Government in 2000instituted a working group among theemployees of some of the publicadministration bodies responsible fordeveloping a methodology for futurefunctional review (including main principles

and approaches). In Latvia the main task for anewly created Bureau of Public AdministrationReform under the Deputy Prime Minister(September – October 1997) was to reviewfunctions and structures of publicadministration bodies and providerecommendations to the government onrationalizing structures and eliminatingoverlap and duplication of functions amongpublic administration bodies. The horizontalreview performed in Latvia in 1997 by thisinstitution provided the government withinformation on overlapping competencies andgeneral recommendations for improvingpublic administration on a macro level.However, this method did not provide ananswer regarding the optimum allocation offunctions, because it needs further in-depthvertical analysis. In consequence, morefocused stages of functional review wereinitiated in 1999 in Latvia – vertical functionalreviews of ministries and subordinate systems.The Bureau of Public Administration Reformwas merged into the Secretariat of the Ministerfor Special Assignment of PublicAdministration Reform on January 1st 2000.This intermediary monitoring institution wasessential in maintaining the focus of the reviewon set targets and ensuring methodology wasobserved. The involvement of experiencedexternal and local consultant teams (forinstance, in the Ministry of Agriculture theconsultations of a senior civil servant from theHungarian Ministry of Agriculture were used;in the Ministry of Economy consultations of asenior civil servant from the Finnish Ministryof Economy were followed) influenced theprocess and facilitated good workingrelationships among the parties involved.

BOX 2.5

STATE STRUCTURES: KAZAKHSTAN AND LATVIA

19

administration to facilitate the review, and mighteven create resentment if it is perceived as anoutsider to the administration. The success of theapproach is also greatly dependent on theministerial authority responsible for the new unitcreated for the review, since the unit would have noinstitutional links. The approach also carries a risk

of time loss in its initial start up phase and aninherent difficulty in obtaining resources andfinding appropriate staff. Finally, if externalmembers of the team lack practical experience inthe administration they risk producing unrealisticrecommendations that would be difficult toimplement.

The implementation of a functional review ofcentral public administration bodies in theKyrgyz Republic was assigned to a managementteam – the Working Group under the NationalCouncil for public administration and servicereforms, which was headed by the President ofKyrgyzstan and members of which were selectedon the competitive basis by the PresidentialAdministration and UNDP. It included formeremployees of the Presidential Administration andPrime Minister’s Office, as well as representativesof public organizations and mass media. This canbe considered one of the major strengths of such amanagement team– mainly the work experienceof team members in central public administrationbodies as well as in NGOs, private sector and massmedia, sufficient experience of working withregulatory and legal acts. This combinationprovided an opportunity to define the role andobjectives of public administration bodies intransition more precisely. The major weaknessesof the management team were, however, aninsufficient experience of analytical work and alack of special skills in public administration andeconomics. In fact, the members of themanagement team were only for the first timeaddressing the issues of restructuring of publicadministration bodies and of applying methods ofrestructuring implementation. In Ukraine twoworking groups were established by PresidentialDecree (July 1998) to implement plans for publicadministration reform at central and local levels:

BOX 2.6

SPECIALLY CREATED UNIT OF ‘EXTERNAL INTERNALS’:KYRGYZSTAN AND UKRAINE

Working Group on Reform of Central Bodies ofExecutive Power (CBEP Working Group) and theWorking Group on Reform of Local Government,Self – Government and Civil Service. A small teamof four people was drawn from a multi – donorproject (which was supported by the World Bank,UNDP, USAID, DFID, SIDA and CIDA) tosupport the CBEP Working Group to conductfunctional review in the ministries. It includedlocal Ukrainian experts and one internationalconsultant supported by a number of short-terminternational experts. In October 2000 themanagement team was increased to seven allnative Ukrainians. The team’s strengths lay in thevaried experience of team members from bothpublic and private sectors, its independence fromthe ministry under review, which helped fosteredimpartial recommendations. The financing frominternational organizations allowed the team theaccess to long-term and short-term internationalexperience and expertise. However, there weremajor weaknesses, among them the team’ssubordination to the politically appointed Vice-Prime Minister and, as a result, subjection to thevagaries of the political situation in the country.Also none of the team members had long-termbureaucratic experience, insufficient training wasgiven to the team at the beginning of the processand knowledge of modern public administrationamong the team was gleaned largely from booksand other materials, but not from practice/training.

3. Management of the reviewby an outside body

This approach would normally be pursued intwo cases. First, where there is as yet no real politicalcommitment for PAR in general and the functionalreview in particular. In such cases, internationalorganizations or bi-lateral funding institutionsoften take the initiative to push forward reformprocesses in the hope of gaining commitment fromthe government at a later point. Second, where the

government wants to keep the management of theprocess outside the administration and usually hiresa local institution from outside government toconduct the review with the explicit support of thegovernment. This type of management system isoften applied in a situation where there is a lack oftrust between the government and theadministration. Again this approach has itspositives and its drawbacks. The main advantagesare that it can be used in cases where often there is

20

no other way to proceed, while externalmanagement can often call on financial resourcesand expertise that may not be available to thegovernment. It also possible that the outside bodymay be able to augment its resources with localpersonnel and create certain conditions eventuallycontributing to increased political commitment toPAR. But in adopting this approach it must be

borne in mind that if political commitment toimplementing the results does not exist, the reviewrisks developing recommendations that have nochance of being implemented, and if the review isnot steered internally by a government decision,there are likely to be difficulties in achievingnecessary levels of co-operation from theinstitutions to be reviewed.

Bulgaria and Slovakia represent rathersuccessful examples of involvement of localconsultant firms in the functional reviewmanagement process. In Bulgaria the minister forstate administration took major responsibility forthe management of the general functional review.The methodical and operational execution of thefunctional review was carried out by a project team,consisting of Bulgarian experts from a localmanagement consultancy firm (STRATEGMA),not employed in the administration, but fundedthrough the Phare framework. This approachprovided maximum objectivity with respect to boththe necessary assessment of the condition andplanning of concrete measures for policyapplication. The project team established acontinuous communication with representatives ofadministrative bodies and helped themmethodically and technically in the preparationfor their answers to the questionnaire. A majorproblem in review management here was lack oftime in detailed development of methods and thenecessity to clarify the terminology in the review.On that basis a proposition for the establishment ofa permanent methodically backed system forcontinuous monitoring of the administrativesystem was prepared. This suggestion was includedin the Law of Administration, which regulates theestablishment of a register of the administrativebodies. In Slovakia a working group, responsible

BOX 2.7

OUTSIDE GROUPS: BULGARIA AND SLOVAKIA

for a functional review, was composed ofrepresentatives of state institutions and nationaland foreign experts. It cooperated with theInstitute for Economic and Social Reforms(INEKO) and other donors such as the UNDP,Phare, British DFID, and OECD. It also drew onthe experiences of state and public administrationreform in a number of countries of WesternEurope (Denmark, the Netherlands, Ireland,Sweden, Norway, and Finland). The strengths ofthe management team were that it utilized bothforeign and domestic external expertise, makingup for a deficiency of such skilled personnel ingovernment and an ability to work dynamically,independently and without ties to any specialinterest group within or without publicadministration. The team was also creative andinnovative, unifying philosophy behind the wholeproject, while it had a close relationship with theDeputy Prime Minister and the personalcommitment of the people involved. However, italso carried with it a number of weaknesses. Theseincluded an insufficient prior knowledge of theway the Slovak government works in practice,mixed attitudes of government employees towardsthe team (in some cases, being an outsider was anadvantage as many civil servants professed theydid not believe an insider could produce majorproposals for change) and a lack of permanentcapacity building for such work.

2.4 FINANCIAL ASPECTSOF THE FUNCTIONAL REVIEW

Finances are obviously a key issue in designingfunctional reviews. Even if most governments quote‘higher objectives’ when starting a functionalreview, cost-savings are obviously always a keyconsideration. In many states functional reviews aremostly seen as a more rational way to implementcost-savings. Capacity building considerations areoften seen as secondary. At the same time, those

who take responsibility should make sure thatespecially these elements of the review areconsidered, since otherwise they will fail to reap thefull benefits of the review process.

Several mechanisms are available to ensure thatcost savings identified through functional reviewsare at least in part re-invested in capacity building.As a first possible method, an agreement can benegotiated between the managing body and theorganization to be reviewed prior to the review that

21

would stipulate a certain percentage of the savingsthat can be re-invested in upgrading staff capacitiesor organizational infrastructure. This would thenbecome a condition for conducting the review.Obviously this kind of agreement can only be usedwhen a full vertical review is conducted. The resultsof horizontal and system reviews are far lesspredictable, in that the recommendations of thesetypes of review often require staff numbers andbudgets to be upgraded for some institutions andreduced for others. In the case of horizontal reviewsthis can be the result of a re-allocation of functions ifduplications are identified, while in the case ofsystem reviews this could result from theidentification of capacity imbalance in one of thecommon functions reviewed.

As a second possible method a resourceagreement could be concluded after the review iscompleted between the ministry reviewed and theMinistry of Finance (and possibly other centralbodies, such as the civil service agency), as anelement of the implementation plan. This methodis particularly useful in a review of pilot ministries,as it shows other ministries the possible advantagesof undergoing a functional review in terms of addedfinancial flexibility. Even if the use of resourceagreements could be decided on later in the reviewprocess, the possibility of using this method wouldsend a clear signal that the review process is not justa cost-cutting exercise. Resource agreements comein varying degrees of sophistication. Models ofagreements as applied in the United Kingdom,Australia and New Zealand obviously hold littlerelevance for transition states, many of whichstruggle to overcome basic problems in theiradministrative systems. However, a basic version ofa resource agreement, providing flexibility in theuse of the budget allocated to the ministry tofacilitate the implementation of internal reforms,

could well be a very useful element of the reviewprocess. A strong central endorsement for the useof resource agreements is obviously required forthis method to work. In addition, in states where thelevel of trust between central agencies and lineministries is low, such agreements may need to bebacked up for them to be credible. Taking intoaccount the strong involvement of internationalactors in the functional review process in theregion, conditionality imposed by IFIs, would bethe most watertight guarantee. However, evensmaller donor institutions could play a positive rolein ensuring the implementation of resourceagreements, especially if they can define a commonapproach to government.

A more long-term aspect of financialimplications is the use of possible privatizationrevenues. With few exceptions, the privatizationprocess in Central and Eastern Europe and the CIShas not been fully completed. Functional reviewstherefore have the potential to identify possibleareas where functions could be privatized. Theincome derived from the privatization process canbe significant, depending on the privatizationmethod applied. Including a provision in thedesign of the functional review that a certainpercentage of privatization proceeds will be re-invested in capacity building in the civil servicecould provide a further potential incentive fororganizations to take a positive approach toadministrative restructuring. The use of aproportion of privatization proceeds foradministrative capacity building has the addedadvantage that this is not necessarily as closely tiedto the review of individual ministries as the previoustwo mechanisms discussed. Investment in thedevelopment of common functions and horizontalmanagement systems can be more easily argued forwhen this particular method is applied.

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The functional review in Latvia treated sectorministries as ‘clients’. The management teamsought to engage the ministries based on a clearunderstanding of what the potential benefits fortheir institutions. The following are some of theoptions considered.

� To allow the sector to retain [all or (x)%] ofpotential savings identified for diversion toother sector priorities.

� To receive help and advice in implementingrecommendations.

� To be given greater flexibility following asuccessful review to shift funds betweenpriorities across and during the year, includingroll-on of budget funds saved during the year.

� To be given access to funding that might berequired to realize potential savings.

� To be given favorable consideration in theallocation of development funds and the fixingof overall ceilings following a successful review.

BOX 2.8

FRAMEWORK OF INCENTIVES

� To be assisted in implementing appropriateon-going performance review, informationand monitoring systems that encompass theentire sector including the activities ofagencies and local bodies.

� To be given access to training support forconducting the review, implementing itsrecommendations and for developing capacityto manage emerging priorities.

� To be given favorable access to EU and donorfunding in implementing review recommen-dations and moving towards agreed priorities.

� To receive assistance from central bodies inresolving any cross-ministerial or agency issuesthat are impediments to improved efficiencyand effectiveness.

� Assistance in managing any redeployment thatis a consequence of the review. To be given afavorable profile in announcing the review andupon completion.

23

It is important to spell out as early as possible inthe design of the review process how cost savingswill be used. In view of the budgetary problems thatmany of the states in the region are facing, anyapproach to administrative restructuring is likely tobe perceived as a cost-cutting exercise by those thatare the subject of the review. Building financialincentives into the design of the process can helpalleviate such concerns, especially if the financialaspects of the review are spelt out in enforceableprinciples and if they are backed up by the external‘sponsors’ of the review process.

2.5 HOW TO TAKE INTO ACCOUNTEXPECTED RESULTS

As a final point in this section, it is important toconsider the likely type and structure of theimplementation phase. It is obvious that everyfunctional review should result in a well-preparedreport that describes the scope of the review, themethod used, the sources of information, the mainfunding, analysis, and recommendations. However,the review does not end with the report andrecommendations and should also explain themechanisms to be used for implementation. It isimportant to take into account in the design phasethe type of implementation measures that may beneeded to reach the defined objectives. Even if onecannot predict the outcome of a review, the

objectives set out at the start will generally point thereview in a certain direction, imposing constraintsas to what type of review will be designed.

The review should be set up in a way as to ensurethat the report will include, at least in draft form,suggestions for an implementation plan and evenan implementation mechanism. Obviously themethod of implementation can be amended as thereview progresses but starting without a referencepoint for the implementation system’s eventualmake-up is likely to throw the review into disarrayin the middle of the process when questions aboutimplementation are likely to be raised. Typically, animplementation plan should also list the documentsto be prepared in order to implement therecommendations, such as a government resolutionand a list of the laws and/or internal regulations thatwould need to be drafted or amended. Theimplementation plan should also address humanresource implications and how these might bemanaged, and the training of staff to perform newor changed functions. The design of the functionalreview should thus take into account what type ofimplementation plan is likely to be proposed. As anexample, if the likely approach chosen in theimplementation plan leans toward adopting newlegislation with a mainly horizontal impact, theconduct of a limited number of vertical reviews isobviously not likely to bring the necessary results.

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What and how information needs to be gatheredand its analysis so as to make effectiverecommendations for organizational change arevital to carrying out a successful functional review.The discussion in this chapter will therefore be of amore technical nature, looking at the ‘nuts andbolts’ of the functional review process.

But while the basics of the functional reviewprocess are important and need to be examined,there are some prior issues which need to bediscussed before that can even begin, such as theboundaries of a proposed study, the form thereview will take, who will oversee the review’sprogress and ultimate end, and how each taskwithin the study will be addressed.

The boundaries of any proposed study need tofirst clearly be defined before anything else isaddressed as it is not possible to encompass theentire public sector in one study and to attempt todo so would dissipate resources and limit theeffectiveness of the study carried out. Defining thestudy’s boundaries has a profound effect on whatdata is collected, how it is collected and the form ofanalysis carried out. A decision must also be madeat the outset as to how the review will treatgovernment-wide objectives that affect a range oforganizational units. In the same way it must also bedecided whether a ‘top down’ or ‘bottom up’ reviewwill be conducted. For example, if the work is beingphased, should the review start with centralministries and agencies or at a sector level, and whowill carry out that work? This last decision will bekey as each approach has a distinct advantage initself and the answer to this question will affect howindividual tasks within the review process are set upand tackled.

Addressing both the vertical and horizontalissues at the start of the review prevents a deferralfrom the beginning of the review to its end of anypotential ‘show-stoppers’ in implementingproposals. Therefore an important early task is tocarry out an analysis of the key bodies involved in aSector1 and to sketch them into the review process.But a common experience of all the subjectcountries is that some issues have been found to beinherently cross-sectoral and difficult to delineatewithin the review process. To overcome this certainapproaches can be adopted however, one of whichis to examine Government strategies and prioritiesand to attempt to identify policy objectives of thissame fundamentally cross-sectoral nature. Thesecan then be dealt with by assigning them to a ‘lead’Sector to ensure that they are covered in the reviewprocess.

In contrast the choice of whether to adopt a ‘top-down’ or ‘bottom-up’ approach with the reviewoften depends on the degree of political support forthe process and the willingness to force conclusionsat a political level. This can lead to hard choices inwhich administrative bodies should be dealt withfirst in the review – central or local. However, if adecision is made to start with central bodies(Government Secretariat, Ministry of Finance, CivilService Department etc.) it should be rememberedthat these bodies are normally the most powerfuland are adept at side-lining processes that they mayregard as ‘threatening’. A successful review of theseinstitutions before reviews on others are carried outmay though produce a perception of the review’spositive progress among those other institutionsand can strengthen the remainder of theprogramme.

CHAPTER 3

Methods and Techniquesfor Functional Review

1 In the rest of this chapter, the terms Sector and Ministry are used synonymously and the techniques involved may beapplied to a review that tackles either.

25

The decision on who leads and carries out thereview has important implications for modalities.Those reviews that are largely consultant drivenand focused on one Ministry become the mostdifficult when the implementation stage isreached, while those that have established aninternal team of specialists seem to make the mostprogress in moving on from pilot exercises tosystematizing a regular review across the publicsector as a whole. In all cases, leadership andownership are key questions. Where there isstrong political impetus for public sector reform,

leadership is often centralized but where this will isless clear, ownership by Sector/Ministry becomesmuch more critical. But regardless of whichorganizational approach is ultimately adopted, akey issue is the perception of incentives for thoseunder review, the most successful reviews beingthose where positive incentives, which can take anynumber of different forms and will depend onlocal legislation, have been perceived.Transparency about the process itself and whatwill happen to those who participate is, though,essential at all stages.

Different countries have taken differentapproaches.

Slovakia very much drove its review from acentral perspective, but then stepped back toallow individual ministries to conduct theimplementation of recommendations in their ownsector, while centralizing the implementation ofhorizontal reforms. This reflected a clear politicalmandate for the process.

Ukraine started by piloting the review processin a number of sector ministries, but also included

BOX 3.1

WHERE TO START?

Finance. It then attempted to apply the reviewmethodology to the Government Secretariat.

Kyrgyzstan began with central agenciescombined with a system review, but met resistanceand afterwards reverted to sector ministries. Themodel developed for the analysis of the system ofthe Ministry of Health and the Ministry ofEducation and the implementation modality ofthe review is currently under discussion forapplication to other ministries.

26

Reviews are conducted on a complete or partialbasis, examine all functions in an organization‘vertically’, address functions related to a particularpolicy objective, or review common functions on anacross the board basis. But the methodology for eachapproach, for which the core techniques applicablein part or whole are outlined below, will vary.However, bearing all the above in mind it should beremembered that Functional Review should rarelybe used on its own and is often best implemented asa complement to other relevant reform activity.

3.1 INFORMATION THAT SHOULDBE GATHERED

Four types of information typically called forduring a functional review relate to different stagesof the process: preparatory information is used asbackground for the review and provides a basis forbenchmarking and broadening horizons;information about the Sector/Ministry that is

externally available is used to provide an objective,external view of the institution; information fromthose working in the sector on what they are doingor are required to do and why is key; clearinformation on what tasks they are actually carryingout is also needed. However, the latter two sets ofinformation, both of which are equally instructive informing recommendations, need to be viewed apartas they are invariably different.

1. Preparatory informationThe time devoted to gathering preparatory

information at the start of the review will produce astronger end study as the information gathered atthis stage is vital to both the review process itselfand the initial approach to it. Reference was madein the first part of this publication to the importanceof starting functional review in the context of a clearover-arching policy towards public sector reform.Information about that policy and the place offunctional review within it is essential.

An important event at the start of thefunctional review process was the signing of aformal memorandum of understanding betweenthe Ministry and Bureau of Public AdministrationReform on conduct of the review and theexpectations of both parties. The Ministry wasasked to assign a team of officials who would helpin gathering information and act as a liaisonbetween the expert and the heads of variousbodies and units. The Ministry insisted onincluding a clause that it was not obliged toimplement the recommendations of the finalreport, raising the moral responsibility for thequality of analysis and recommendations andsubsequently making the task of the review teammore difficult.

From September-December 1997, before thefunctional review process was initiated in Latvia,the Cabinet charged the newly established Bureauof Public Administration Reform with the task ofreviewing the functions and structures of publicadministration bodies and providingrecommendations to the government on how torationalize the structures so that there was nooverlap and duplication of functions among

public administration bodies. The assumptionsbehind this task were mostly driven bygovernment fiscal concerns.

Some initial assumptions were made. It wasthought that public administration bodies wereengaged in performing similar functions that wereaimed at delivery of the same outputs andtherefore imposed additional costs on thegovernment; there was a lack of clarity publicbodies’ mandates that weakened responsibilityand accountability; overlapping functions createdextra costs for the government due to the need forhorizontal coordination between the bodies andpublic administration organs were engaged inactivities which in a market economy did notconstitute core functions for public administrationand should have been divested. This would havecreated savings to fund more urgent governmentpriority tasks.

Formally, the objective of the horizontalfunctional review was to identify areas of publicadministration with overlapping functions andprepare proposals for elimination of overlap andthat would be presented to Cabinet.

BOX 3.2

MAKING THE PROCESS TRANSPARENT: SETTING UP A MEMORANDUMOF UNDERSTANDING BEFORE THE REVIEW STARTS – LATVIA

27

But this is not the only preparatory informationthat is important for the study. Comparisons withthe organization of similar sectors in othercountries and reports on output and performancemeasures and targets used in those countries isuseful and can be found through reports producedon the sector in question in other states. Withindividual sectors any strategic plans or macrostudies that have been undertaken about the sectorfor other purposes are a key source of preliminaryinformation, as is a broad organizational map of thesector showing all the bodies which act within it.Information about earlier attempts atorganizational reform and their results also gives asound base of information for the review while theviews of other key institutions in the public sector,such as the Ministry of Finance’s opinion on thesector and how it performs, need also to becanvassed. Government policy and strategystatements that relate to the sector and a statementof sector objectives are also critical (differentapproaches to developing this statement will beoutlined later).

Thinking as widely as possible about what ishelpful is useful at this stage as this will vary fromsector to sector. (See Box 5.1 – about the process ofgathering information during the preparatory stage in theUkraine).

2. Information about the external face of theSector

Finding out what information is available aboutthe Sector from outside sources can be highlyinstructive, not just as a basis for the review, but alsofor understanding how the Sector sees and tries topresent itself. This sort of information can beobtained not just by examining all the data that is

freely available, but also by looking at informationthe Sector is obliged to provide as part of acontribution to wider national processes, such asthe budget. The type of information that is keyincludes:

� Any legislation that defines the tasks that theorganizations in the Sector are required toundertake. In most transitional countries it hasbeen typical in the past for tasks undertaken bystatutory bodies to be defined in legislation insome detail. In many cases, these statements stillexist, even if they do not reflect current reality.

� Any strategies or working plans published by theSector.

� An existing organizational chart for the maininstitutions involved showing their currentstructures.

� Staff establishment summaries.

� Financial allocations made under the nationalbudgeting process.

� Where systems of program-based budgets havebeen introduced, the programme structuresadopted in the sector under review.

� Norms and standards used in the budgetprocess.

� Any output or performance indicators used inthe Sector.

� Any annual reports on performance producedby the Sector.

In obtaining this information it is important tohave positive working relationships established withsome of the key central Ministries, such as Finance.

In Bulgaria, the development of an over-arching public sector reform strategy wasundertaken under the leadership of a speciallyappointed Minister. This strategy was publishedand widely disseminated.

In Slovakia, leadership came from a DeputyPrime Minister who provided a strong mandatefor, amongst other things, the functional review toproceed. The media were actively engaged in

BOX 3.3

A POLICY FOUNDATION FOR FUNCTIONAL REVIEW

rallying awareness and support for what was to bedone and expectations of results lifted.

In Ukraine, a Committee led by a formerPresident was formed which developed a ‘concept’for administrative reform encompassingfunctional review amongst many other aspects ofpublic sector reform. The Concept waspromulgated through Presidential Decree.

28

3. Internal perceptions about functionsIt is important that space be allowed for

managers and staff working in the Sector to expresswhat they think their functions are. Otherwise thereis a temptation to apply a template of expectationthat will lack important things and lose theengagement of those that will be affected by theoutcome. Therefore the core information sought atthis stage is that which sheds light on existingfunctions and the performance of those functions.Experience suggests that there is a natural tendencyin transitional countries to turn to the statutory listof tasks that normally exists when questions like thisare posed. These lists are usually merely a mix ofgenuine functions and minor tasks. They alsousually fail to capture the nature of the contributionbeing made in practice, which may actually be muchmore peripheral than indicated in legislation.Therefore it is useful to precede questions onexisting functions with at least some briefing on thedefinition of function that will be used in the review.In order for this information to be of use later thedefinition of function should be focused as much aspossible towards output and ‘customer’.

Achieving consistency is not easy. In many casesthere will be a tendency for those working in thesector to define low level activities rather thanfunctions while in other cases several functions maybe bundled with what people are currently doing andthey then have to be separated for the purposes ofanalysis. In regard to this the following have provedto be useful tests in assessing whether the functionsdefined by people in the sector themselves need tobe refined for the purposes of analysis:

Is there a customer for the function? If there isonly a customer if several functions are takentogether, it may be a sign that the function is toonarrowly defined and needs to be aggregated to ahigher level.

Is there an output from the function? Similarlyif there is no clear output. This may be a sign thatthe function is redundant, but it may also be thecase that the output requires several activities to befulfilled and these need to be aggregated in a singlefunctional definition.

Is there a need for someone else to contributeto achieve either of the above? If anotherorganizational unit is required to contribute inorder to achieve a certain goal or fulfil a certainfunction this may again be a sign that the functionaldefinition is too narrowly defined.

Does the function contribute to more than oneobjective of the sector? If it contributes to morethan one objective, this may be a sign that there are

in fact two or more functions that need to be splitfor the purpose of analysis.

Does the function fall clearly into one category?A classification system for functions will be describedlater but if a function potentially falls into more thanone category this again may be a sign that there ismore than one function that needs to be split.

Ideally, all the above can be clarified at the datagathering stage of the review so that the functionsare consistently defined from the start.

In addition to seeking a list of functionsexpressed in these terms, other data are likely to beimportant, such as:

� The staffing resources assigned to a particularfunction and related grading. In practice, this ismore likely to be determinable by spreading thetime of total staff assigned to an area across thefunctions identified, rather than seeking to buildan understanding from the bottom upwards. Inthe latter case, problems always arise withreconciliation.

� Similar information about budget allocations.

� The products from each function. At this stage,experience suggests that products will beexpressed very much in intermediary terms withlittle concept of a ‘final’ product that iscontributed to.

� Views on how the adequacy or success of suchoutputs might be measured. This will be adifficult question for many, but it is worth posingto see to what extent thought has been given tothe actual purpose of the function.

� Views on who else contributes to facilitatingperformance of the function and to whom the‘output’ is given. The purpose at this stage is todevelop the basis of a ‘map’ of inter-relationshipsthat will be useful in testing the relevance of thefunction later in the review process.

� Identifying the external processes that are beingcontributed to (such as the budget process). Themore successful reviews recognize that there is aprocess as well as an organizational dimensionto change and there is a need to understand thechain of processes that may be contributed to.

At this stage, because it reflects the views ofmanagers and staff themselves, the quality andconsistency of the information supplied will bevariable but will nevertheless be valuable as thereview process unfolds.

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4. Information about functions actuallyundertaken

There are many reasons why simply askingpublic servants about their functions might notproduce a full or accurate picture and most of themare to do with natural human responses to thosesame questions. Some of the concepts discussed,such as ‘output’, may not be understood or theremay be a reluctance to acknowledge that a taskdefined in statute is not performed or performedonly minimally. It may also be difficult to acceptthat there is no real use for certain ‘outputs’ thathave traditionally been produced. Whatever thereasons, there is a need to thoroughly analyze theinformation obtained in order to uncover thereality of what is actually performed and produced.

There are several ways of achieving this that willbe discussed a little later, but the main areas whereactual practice will need to be probed includeidentifying clear outputs and what is done withthem, defining who the ultimate ‘customers’ are(including internal customers) for those productsand in appropriate cases identifying what valuethose ‘customers’ place on the outputs produced.This process will inevitably require a degree ofprobing and re-iteration in order to investigate andexamine each situation fully.

3.2 METHODS FOR GATHERINGINFORMATION

The amount of information involved in thefunctional review process is potentially enormousand in order to ensure that this information is anaid to focus rather than a distraction, it is importantthat it be collected within a clearly establishedframework. One way to achieve this is to employ aseries of checklists that relate to the different sortsof information targeted.

1. Preparatory informationExperience suggests that there are a number of

very useful sources of information for gatheringinformation that will give important backgroundfor the review:

The internet

There is now a large amount of information on thenet about other public administrations, some of whichcan be extremely useful in providing background andshowing how similar organizations in other countriesview themselves. The information often includesstatements of objectives, strategic plans/statements,

performance indicators, annual reports andorganization charts. In carrying out a search it is wellworth targeting countries regarded as having relevantexperience in the Sector under review.

Other functional review teams

In earlier years, much of this sort of work wascarried out on an ad hoc basis, but increasingly thereare teams of people in other countries who have theremit to carry out functional review work across theentire public sector and/or on a programmed basis.It is well worth establishing contact with these teamsand investigating if they have done something in thetarget sector. They may have a growing indigenousexpertise and this can be very helpful in obtaining apractical view about what does and doesn’t work insimilar environments. For instance, statements ofobjectives for individual sectors produced by theseteams can be invaluable for benchmarking purposesand can be used to challenge the status quo andensure that the development of such statements takea fundamental look at what the sector needs to do.

International institutions

Institutions such as the World Bank, AsianDevelopment Bank and the OECD have oftenundertaken or sponsored work in individual sectorsthat touches upon functional review. In the case ofthe World Bank this might include PublicExpenditure Reviews for individual countries thatwould often include sector-based reviews for keysectors. The World Bank may also have agreedstrategic statements with the sector as part ofpreparations for lending activities. The OECD alsohas some very useful comparative information on awide variety of organizational issues includingstructure and performance indicators. This can beaccessed on the Net. (See Box 2.7).

Donors

It is often the case that other donors havepreviously sponsored organizational review worksimilar to functional review. Apart from UNDP, theWorld Bank, TACIS/Phare and DFID in particularhave done work in this area and it may be worthinvestigating what is available. (See Box 2.7).

Schools/Institutes of Public Administration

These organizations, both in-country and inother countries, are often in the best positions toknow what has been done in terms of an

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organizational review and to be a general source ofrelevant information. They are also often moreorganized in recording and storing documents andtherefore an excellent source of information.

The client sector

The client themselves will also have many pastdocuments, including consultancy reports, that maybe relevant. However, experience suggests that it isoften quite difficult to locate someone who has alarge enough institutional database and overview toknow what might be available. This fragmentation,after all, is a typical target for functional review.

2. Internal perceptions about functionsA big challenge is to try and express as much of

the relevant information as possible in a singlerequest rather than to make the requests piecemealas one document leads to another. Again, achecklist prepared at the start of the review can be auseful means of conveying what is sought in astructured and coherent manner.

Central Ministries

A very useful source of information foridentifying functions is the budgetary process.Obtaining a copy of annual estimates may still be alittle sensitive in some countries, but can usually behandled with a bit of goodwill. This can beparticularly helpful if the country has made movestowards some form of programme basedbudgeting. The definition of programmes reflectedin the programme structures of each sector can be apowerful pointer towards the functions undertaken.It will often be the case, however, that theprogrammes defined are a reflection of the existingorganizational structure rather than vice versa,limiting the part they can play in ‘challenging’ thestatus quo. The Cabinet Secretariat, or equivalent,can also be a source of helpful information. It willoften have a central repository of the formalmandates of each public sector organization andrelevant legislation, while also providing a view ofthe performance of the organizations under review.

The client sector

In the end however, the client sector itself will bethe source of most of the information required. Aninvaluable agreement at the inception of the review

is on someone within the sector who will bemandated to collect information and material onbehalf of the review team. A checklist idea isimportant here as it is possible to quickly alienatepeople in the sector by repeated and unstructuredrequests for information. This should be avoided ifat all possible. Information about functions actuallyundertaken

3. Information about functions actuallyundertaken

This is the most intrusive and difficult part of theprocess in terms of accessing information for thereview, demanding a careful balance of rigor,challenge and attention combined with judgementabout what is being said. There are a number oftechniques used in different studies and in practiceit has been normal to deploy several of these incombination.

Desk work

Some functional reviews have been heavily desk-work based in that they rely considerably onanalysis and interpretation of availabledocumentation, but on its own this technique isunlikely to produce satisfactory results. Reliance,for example, on the list of functions included informal mandates will have serious drawbacks. Intransitional countries with a legacy of organizationsmandated in this formal and detailed way,functional lists are usually a mixture of theimportant and the trivial, the general and thespecific, the actual and the theoretical, the fundedand the unfunded etc. In many cases the activitiesdefined will relate to small elements of overallprocesses that get lost in detailed specification.They can rarely be relied upon to give a realisticbasis for defining what is being done in practice.

Workshop

Information might be gathered through one ormore workshop events in which a number of peopleare drawn together. The advantage in this methodis that it allows for interaction and iteration andcareful selection of workshop members can alsohelp to develop an understanding of crosscuttingfunctions. However, the workshop environmentmay be counter-cultural in some countries and theunderstanding gained may ultimately be distortedby a reluctance to openness and deference to theauthority of some of the participants.

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Survey

It is possible to try and derive the informationrequired by issuing a questionnaire to appropriatestaff. But the key issues then are how to ensure thata response is received at all and how to deal withincomplete returns or returns where the questionhas been clearly misunderstood.

Structured interview

This might involve ‘walking around’ the sort ofhighly structured questionnaire discussed aboveand working alongside interviewees while theycomplete them. This approach has the advantage ofensuring that returns are completed and gives theopportunity to clarify any points that mightotherwise be misunderstood. While it is an intensiveprocess and potentially very time consuming, itdoes focus in on the specific questions contained inthe questionnaire. Where more complicated dataare sought, such as the allocation of time spent oneach function, the interview approach can be veryhelpful in leading the interviewee through aprocess by which those allocations are derived. Atthe same time, it will help to introduce a degree ofconsistency in interpretation of what is required toanswer each question fully.

Semi-structured interview

The structured interview approach will fail toexplore issues that surface unexpectedly or whichpoint to inconsistencies that must be furtherexplored if a full understanding of what is actuallybeing done is to be reached. It may also make itdifficult to connect the work of individualscontributing to a cross-cutting function.

A less structured approach can help to addressthis as in adopting this approach certain fixedquestions can be asked during the interview whileothers that are more open-ended in nature andleave the interviewee to express opinions can alsobe put forward. The freedom to express andexplore the answers given by digging deeper intothe response can be a powerful tool inunderstanding what is really happening. On theother hand, to be effective, sufficient time must beallocated to the interview process and it becomesmuch more difficult to programme the work,because the amount of time required may vary fromcase to case and be difficult to predict.

Free interview

A more extreme option is to simply ask eachinterviewee to express themselves openly about

Bulgaria, Slovakia and Kyrgyzstan have usedworkshops at various stages of the process ofreform.

In Bulgaria a retreat bringing together keyministers and their advisers, national experts andforeign donors was organized during the initialphase of the data gathering process to presentinitial findings and assess the direction in whichthe review process (and subsequentimplementation measures) should move forward.The retreat came at a crucial time in the processand was extremely important to set out the nextphases of the process. The informal nature of themeeting also served as a means to initiate an opendiscussion of the pros and cons of differentoptions the government was interested in taking.

In Slovakia a workshop was used to present theresults of pilot reviews to a cross section ofministries, both to prepare them for the follow up

BOX 3.4

USING WORKSHOPS: BULGARIA, SLOVAKIA AND KYRGYZSTAN

process and the effect it would have on theirinstitutions, and to reflect on the methodologyand the results it had brought. The workshop wasuseful in raising awareness of the process, but didlittle to change the adopted approach to thereview.

In Kyrgyzstan, workshops were used toincrease levels of support for the review process,with mixed results. The preparation for the firstworkshop was not managed adequately and theopen presentation of the review results on thePresident’s Administration and Prime Minister’soffice drew a strong negative response, almostfinishing the entire process. However, a laterworkshop, used to present the reviews andrecommendations regarding two pilot lineministries was much more effective as a consensusbuilding exercise between central authorities andthe two ministries reviewed, also raisingadditional donor support.

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what they do and why they do it. But the results ofthis sort of approach have usually been ratherdisappointing as cultural environments are oftenset against people expressing themselves openlyand honestly in this sort of situation.

Combined approaches

In practice, a combination of these differentapproaches is likely to be best. The exactcombination will be a trade off between the timeand resources required to undertake the reviewwork and the importance of discovering what isactually occurring. It is important that the reviewprocess does not become bogged down in datacollection and a certain acceptance of ‘rough edges’and lack of complete clarity is also inevitable.

In regard to this combined approach theevidence so far suggests that a combination of semi-structured interviews combined with workshops todiscuss the results in homogenous ‘groups’ ofsimilar and connected areas has appeared toproduce better results. This does, however, haveimplications for the resources required toundertake the information gathering process andthe length of time required to carry out the review.If circumstances make it necessary to limit theamount of time and resources put in to theinterviewing process one approach is to simplysurvey those areas of the organization where theposition is reasonably clear or straightforward anduse interview based techniques in areas that areparticularly sensitive or where a greater degree of‘digging’ is likely to be required to achieve clarity.

33

During the implementation phase of thefunctional review programme the ManagementTeam interviewed the heads of structural units inrespective ministries to collect the followingpreliminary information:

� determination of their point of view on themain objectives of the sector identified duringthe first meeting of the Sectoral WorkingGroup (SWG);

� identification of all functions performed byeach structural unit and their nature;

� determination of the subordinate structureand staffing of the unit.

The majority of those interviewed weremembers of the SWG and were therefore aware ofthe main objectives and principles of thefunctional review process. The interview processaveraged up to 2 hours per interviewee.

As a result of the interview process theManagement team facilitated the preparation of listsof objectives and functions of the respectiveministries. During a follow up meeting with the SWGthe Management Team undertook a discussion ofthe sector objectives and functions that had beensummarized after the interviews. Because of thelarge number of participants, it was difficult to reachconsensus concerning the list of functions duringsuch meetings, but usually a protocol of the agreedobjectives was established. The list of functions wasfinalized during the second round of interviews withthe same focus groups.

After the list of the functions was identified andagreed upon, two different questionnaires weredistributed to the same focus groups that hadparticipated in the prior interview process. Thequestions were designed to identify data relatingto each function performed, including thecategory of function, outputs, customers using theservice, budget and staff required to perform thisfunction. Also, questions concerning furthertransformation of functions were addressedduring this stage. Questionnaires were distributedand collected by the contact person identified ineach SWG. On average it took 2 to 2.5 months tocollect all the required information. During thisperiod, interaction between the ManagementTeam and the focus groups was completed bytelephone and through individual meetings. TheManagement Team provided additional expla-

nations and answered follow up questions bytelephone or during separate short meetings.

In autumn 2000, the Management Teamaltered its approach to the process due to the poorquality of information that was being obtained inthe questionnaires from the focus groups. It wasdecided to interview each head of departmentusing the previously determined questions.Further, discussion with the focus groups wasexpanded to include not only the list of functions,but also to include questions related to basic datain connection with each function. This processalso halved the time necessary to gather thisinformation.

After collecting all the necessary information, theManagement Team was involved in analyzing thedata to refine the list of ministry functions. On thisbasis, it was possible to draw conclusions concerningthe necessity of each given function. When the list ofnew functions has been identified, the ManagementTeam worked with the SWG to prepare a draft neworganizational structure of the ministry and in theassessment of staffing requirements.

In general, structural changes in abureaucratic organization meet with resistancefrom within and Ukrainian ministries and theirsubordinated structures evidenced suchresistance. To attempt to overcome this and speedup the implementation of the proposedrecommendations, the Management Team usedthe following approach:

� introducing the aim of the functional review,methodology of work and the expected resultsto the employees of each ministry as early aspossible to build an understanding amongstaff;

� taking into account the complexity of theprocess, to propose the transitional structureas an intermediate stage between the presentand the future structure of the ministry;

� incorporating training into theimplementation programme to reduce thecompetencies gap among employees of eachministry; and

� procuring technical assistance from donorsaimed at supporting the implementation ofrecommended changes in the ministry and thesector (if possible).

BOX 3.5

UKRAINE: OBTAINING INFORMATION ABOUT FUNCTIONSPERFORMED BY CIVIL SERVANTS

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The use of workshops is particularly helpful atcertain stages in the review process. For example,obtaining a view of the objectives of the Ministry/Sector benefits from a discursive approach andscope for considerable iteration. The role of thereview team here is to facilitate that debate and toprovide exposure to different views andbenchmarks drawn from other countries andorganizations. In relation to this the workshop

approach allows room for answers given by oneorganizational unit to be compared with those ofanother. For example, if one organizational unitindicates that a ‘product’ is supplied to anotherorganizational unit for further processing it isuseful to see what, if anything, that other unit doeswith the ‘product’. However, attention is needed tothe sequence in which interviews are conducted tomake this self-checking activity work.

In Ukraine attempts have been made to trackkey outputs through the system. In the case of theMinistry of Culture it was discovered that one ofthe Divisions was charged with issuing adviceconcerning safety at cultural events. When otherresponsible Divisions and promoters of suchevents were questioned about what they were

BOX 3.6

CHALLENGING TO FIND OUT WHAT IS ACTUALLY BEING DONE

doing with this advice they said they were unawareof it. It transpired that the booklets were beingissued through a former State Enterprise that wasnot making the availability of such advicegenerally known and was seeking to sell thebooklets at unrealistic prices.

Form of questionnaires and interviewsIt has been found to be important that any of the

survey/interview options discussed above aresupported by a template for completion as the datagathering process proceeds. This will help toensure that the data gathered are consistent, thereis a clear record maintained for subsequent analysisand there is a basis for seeking confirmation thatthe answers and data obtained are accurate. On wayto ensure this accuracy is to return the completedtemplate back to the interviewee and ask for asignature. This is usually enough to concentrateminds and quickly lead to a correction of anymisunderstandings.

To assist in this it is helpful if as much of thequestionnaire as possible is reduced to tick-boxes,leaving space for text completion where open-ended questions are involved. And with carefuldesign it is also possible to build cross-checkingdevices into the questionnaire. For example, byasking about functions in one part of thequestionnaire and outputs in another it is possibleto cross-refer for miss-match and then seek furtherclarification. The interview process orquestionnaire completion process also needs toreflect upon the many demands being made on thetime of the interviewee. In general, it is bothpossible and effective to carry out interviews withinan hour.

But one should also be aware of some of theother pitfalls of questionnaires. Their use may bealien to the people being surveyed/ interviewed and

may also be counter-cultural, while there may alsobe a reluctance to give information for fear ofhigher-level criticism. The sting needs to be drawnout of this situation if frank responses are to begained and to do so there are a number oftechniques which can be employed, such as clearingthe format of the questionnaire with seniormanagement before beginning, giving anopportunity for interviewees to review the writtenrecord of the discussions and to challenge what hasbeen recorded, and to keep the completedtemplates confidential to the review team and onlyquote from them in order to draw generalconclusions. The terms in which confidences will berespected need to be clear from the start of thereview process as well.

Examples of questionnaires used in severalcountries are shown in the Appendix 2.

Who should be interviewed/surveyed?It is clearly not possible to gather data from all

employees in the sector. In most cases it has beenfound to be enough to base the data gatheringoperations at the level of the Head of Department.Even this may be fairly onerous given thatorganizations with a Soviet legacy tend to be highlycompartmentalized into a large number of relativelysmall departments. But this is not the case in allcircumstances. In particularly sensitive areas it maybe appropriate to lower the information gathering tosection level within departments. As well asdeepening the information gathered this can help to

35

provide a reality ‘cross-check’ by providing a meansof comparing data obtained at different levels. Afunctional review is more effective when it is appliedto a whole sector rather than a single institution, suchas solely a Ministry, within that sector. Who isinterviewed in other bodies such as StateCommittees, agencies and local bodies within thatsector will depend on the size and range of functionsof the organizations. For smaller organizations itmay be enough to approach the equivalent of theChief Executive. In larger organizations it may bemore appropriate to again go down to Departmentlevel. In either case, though, questionnaires shouldbe consistent at all levels.

Who should conduct the data gathering?When answering this question a range of

approaches can be adopted, all of which may becombined in different situations to produce the bestresults. The following approaches may be tried out:

� To carry out the work with internal people withinthe organization under review. Those peoplewould need to be given some initial training.

� To use a central team to undertake the datagathering in all organizations to be reviewed.This team might be part of the Public SectorReform team if there is one or maybe based inthe Ministry of Finance. This team will havereceived initial training and will, of course, gainexperience of the techniques involved as theymove from one review to another.

� To recruit a team of locally based consultants.

� To primarily use locally based consultants, butto provide some help and guidance frominternational consultants experienced in thisfield.

It has been found to be unlikely that theMinistry/Sector will be able to free up the peoplenecessary to make the first approach work. In lightof this the second approach perhaps offers the bestlonger-term solution given that functional reviewshould not be a one off exercise, but something thatneeds to be regularly repeated so that it contributesto a process of organizational evolution rather thanunrealistic revolution.

If resources and/or donor support is availablethe third and fourth types of approach might beused to supplement an internal core team – bothstrengthening the access of the team to broaderexperience and to talent that might not otherwisebe available within the public sector. It may alsohelp to introduce an element of objectivity into thereview process that would be difficult to otherwiseachieve using people already within the publicsector and steeped in its traditions and concepts.These last two approaches may also be used to kick-start a review, but it is important that steps are takenquickly towards the first or second options if long-term sustainability is to be ensured.

3.3 ANALYTICAL TECHNIQUES

Functional Review is by no means a science andthere remains a clear role for judgement in theentire process. There are, however, a number oftechniques and processes that have been found tobe useful, some of which are outlined below. Apartfrom providing a framework for undertaking areview, establishing an agreed methodology ishelpful in letting the target sector know what isgoing to happen so that there are no surprises.

An example of overall analytical methodology isgiven in Figure 3.1.

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1. Establishing some benchmarksA tendency to slide back towards the status quo

or to settle for limited incremental changes is aconstant tension during the Functional Reviewprocess and unfortunately a combination of humannature and the natural conservatism of bureaucratstends to pull in that direction throughout theprocess. One way to counter that is to use the

preparatory data collected as recommended aboveto establish some clear vision of how others havetackled the sector under review. Examples ofalternative strategies and the practical results theyhave had will help to keep the process focused onthe objectives of the review and establish achallenge to any tendency to focus on minutia or to‘tinker’ at the margins.

FIGURE 3.1

A METHODOLOGICAL FRAMEWORK

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2. Defining objectivesEstablishing a vision of the role and objectives of

the sector well before the detailed functionalanalysis has begun is another tool that will help thereview. If the two get mixed together there is a realdanger that perceptions of where the functionalanalysis might lead will condition the definition ofrole and objectives. Those who most see change will‘see it coming’ and getting the sector to agree onwhat it ought to be doing rather than what it isactually doing at present is a vital part of the reviewprocess. This must represent a real challenge to thestatus quo for the review process to worksuccessfully.

Criteria along the following lines have beenused in several other countries where reviewprocesses have been carried out for testing thedefinition of objectives to ensure that they are goingto be useful in the review process:

Concrete

The objective must be clear and specific. Vaguegeneralizations or statements of general hopeshould be avoided and the nature of what will beachieved should be made clear from theformulation of the objective.

Action Related

The objective should be clearly related to actionand the nature of that action should also be clear.

Measurable

In general, there is little point in having anobjective that cannot be expressed in measurableterms. This implies two related requirements:Firstly, that whatever is targeted can be quantifiedand secondly that there is a source of data tosupport the measurement of performance.

Time Related

To be of value, the objective must be specific asto when the targeted level of performance will beachieved. In many cases it will be appropriate todistinguish between short-term performance andlonger-term goals.

Realistic

The objective should be realistically achievable.If it is not it will fail as an encouragement ofperformance because it will be clear that failure is

Before it was possible to obtain information inthe form of an interview during the ‘audit’ datahad to be collected concerning structure(organization charts, rules) and preliminaryindicative information on outputs (status analysis,answers to two questions). In the second phase,especially during the interviews, informationregarding the structure of outputs was collectedsimultaneously with information on humanresources, data on information managementsystems and information about the relationshipbetween the budget and organizationalstructures.

Due to the practical impossibility of analyzingindividual employees’ responsibilities, the scopefor restructuring central authorities of stateadministration was analyzed using a methodbased on accessible domestic and internationalquantitative and qualitative information. The

BOX 3.7

BENCHMARKS: SLOVAKIA

method was based on a comparison with theefficiency of organizational structure andpossibilities for restructuring and increasedefficiency analyzed using benchmarking and ‘bestpractice’ methods. This comparison was used onthe following three levels according to suitability:

� comparison of individual state administrationauthorities;

� comparison with foreign authorities (smalldeveloped countries);

� comparison with the private sector (if compar-able, for example human recourses).

Also, a study tour to Denmark, Netherlands andthe United Kingdom was undertaken to examinethe experiences o f those countries of WesternEurope that successfully undertook major publicadministration reforms of a similar kind.

38

guaranteed from the start. It should encourage asense of ‘stretch’ and the idea that reaching outtowards a better performance that is realisticallywithin reach. An important consideration is alsothat the objective should be realistically affordablesince objectives based on unfounded mandates aregenerally worthless.

Balanced

The overall development of improved servicesfor the public usually requires several aspects ofperformance to work together in a supportive wayand each objective needs to reflect an appropriatebalance with others. For example, there is often atension between objectives that relate to the qualityof a service and those that relate to efficiency ofexpenditure - the former often may pull in one wayand the latter in another. This tension needs to beresolved.

As suggested earlier, the definition of role andobjectives is a suitable target for a workshop andgiven the role that it will play in the overall reviewprocess, establishing widespread ‘buy-in’ to thisdefinition is crucial. The discussion and iterationthat can be facilitated through a workshop is

important in this respect. (Read about the setting ofobjectives in Kazakhstan, Box 4.5).

3. Functional analysisBased on the information and data collected

during the earlier phases of the review it isnecessary to begin with a consolidated list offunctions actually performed as this is likely toinvolve more than simply listing the functionsidentified during the survey/interview process.Some grouping together and redefinition is likelyto be needed to produce a homogenous set offunctions consistently defined and formulated, butapplying a template to individual functionsidentified to test them for consistency and integrityis a useful approach in this case. An example of thistemplate was given earlier.

It is also important that any consolidation orreformulation of functional definition that arisesfrom this process is agreed to with theorganizational units concerned. Where interviewtechniques are employed it may be possible toensure consistency at the point of data gathering.The final set of functions arrived at is then availableto feed into a process of classification andcategorization that will be the basis of analysis.

FIG

UR

E 3

.2

FU

NC

TIO

NA

L A

NA

LY

SIS

39

4. Functional classificationThe classification of each function identified in

terms of its inherent nature and purpose isimportant prior to functional analysis as this helps

ensure that the subsequent analysis focuses on whythe function is being performed. The followingillustration shows a form of classification that hasbeen found to be useful:

A system for classifying functions based ontheir inherent nature is a useful way of laying thefoundation for subsequent analytical work; aclassification system used in Latvia, outlinedbelow, provides us with a good example of this:

� policy functions: such as strategic planning,legal drafting, development of performancecontracts, minimum standards, norms, policyanalysis and evaluation, forecasting. These arefunctions requiring specialist skills and areusually provided by the core ministry;

� service delivery functions: such as theprovision of products or services to internal(other public bodies) or external (farmers,foresters, fishermen) customers. Servicedelivery is normally performed by sub-ordinate or supervised bodies;

BOX 3.8

CLASSIFICATION OF FUNCTIONS

� regulatory functions: such as licensing,certification, permissions, accreditation, inspec-tion, compliance, and financial audit. It is goodpractice to separate regulatory functions fromthose policy functions that determine theregulations, and service delivery functions thatprovide services to customers;

� co-ordination, supervision and performancemonitoring functions: such as coordinatingrelationships between different bodies,monitoring the performance of subsidiarybodies, facilitating and enabling subsidiarybodies to reach their performance targets;

� support functions: such as financialmanagement, human resources management,information systems, infrastructure, stafftraining, efficiency review and managementaudit; and secretarial services.

In some cases it will be found that a function thathas been identified could be classified under morethan one of these categories. This may be a sign thatthere are, in fact, two functions here that should bedealt with separately in later stages of analysis.

5. Future treatment of functionsBy this stage, the review process should have led

to a list of functions actually being performed,definitions of those functions, inputs and outputsand related information about the scale ofperformance. Having established this platform theheart of the analysis can now take place and otherissues can now be turned to, such as what forms thecore of the analysis.

At its center is a need to align the objectivesdefined at the beginning of the review process andthe functions performed, and on a first run throughit is likely that functions could be assigned into anumber of broad categories. These would likelyinclude those appropriate to the objectives of thesector at the level of intensity actually performed,those appropriate to the objectives of the sector butat higher and lower levels of required intensity.

Other categories which may established would befor initiatives with a dubious relevance to theobjectives of the sector and which should bereviewed for consideration of their redundancy, aswell as those with an apparent overlap with otherfunctions and which should as well be reviewed forconsideration of their either redundancy ormerger. In addition to this any missing functions,additional functions that are required to achievethe objectives set, must be considered. In so doing itis possible to identify another final category -Additional functions required to achieve sectorobjectives.

A further, more detailed analysis can now beundertaken with a view to identifying how thefunction should be treated in the future. In anumber of countries decision tree style analysis hasbeen adopted as a basis for following the complexrange of options that may be available. Then at theend of this decision making process there should bea list of both currently performed functions andthose functions further required to achieve theagreed sector objectives while for each functionrelevance to agreed objectives, the required level ofintensity of performance and suggested basis for

40

fulfilling each function that appears to havecontinuing relevance should have been identified.(See the example of a new distribution of functions inUkraine, Box 4.1).

The process will also point to decisions abouthow each function should then be treated, with anumber of possible suggestions, such as:

� abolished because it is not needed to protectpublic interests, or there is no demand for itfrom the public,

� transferred to other ministries or reduced inquality of volume because it is not a priorityfunction relative to the goals of the organization.

� rationalized with other similar types of functionto realize economies of scale;

� decentralized to lower levels of government;

� privatized into fully private companies;

� privatized into government regulatedcompanies and utilities;

� incorporated into self financing state enterprises;

� performed by government subsidized profitoriented state institutions;

� performed by government subsidized non profitoriented state institutions;

� undertaken by the core ministry;

� delegated to sub-ordinate bodies;

� delegated to supervised bodies.

It may also be appropriate now to prioritizeproposed changes as a basis for subsequent impactevaluation and the matching of proposals toavailable funds.

The following is an example of decision treeanalysis drawn from the functional reviews carriedout in Latvia.

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FIGURE 3.3

DECISION MAKING CRITERIA FOR TREATMENT OF FUNCTIONS

42

6. Output trackingOutput tracking is an important technique

whereby the output from each function is trackedthrough to its end use, either as the delivery of aservice to the end customer or as an input intoanother function performed by an internal‘customer’, giving a clear view of what is happening‘for real’. Any inability to track in this way shouldlead back into the functional analysis stage for areview of proposed treatment of the function.

7. Developing organizational structuresAs a result of the previous stage the review

should have led to a consolidated set of functionsand definitions of those functions and a clear viewof how they are to be treated. At this stage this has tobe expressed in terms of the type of organizationthat will carry them out.

There are certain criteria here that experienceshows to be useful:

Objective facing: As far as possible, the upperstructure of the organization being reviewed shouldas closely as possible reflect the structure of agreedoverall objectives.

Building synergies: The functions groupedtogether into organizational blocks shouldcomplement each other. As far as possible theyshould support each other in delivering overallobjectives.

Customer focus: The organizational blocksdeveloped from functions should each have a clear‘customer’ for what they do. This customer may beinternal (such as the recipient of advice in anothersector) or external (the public).

Reduce the need for multiple handling ofmaterial and issues: As far as possible the groupingof functions for organizational purposes shouldempower those working within that grouping tocarry out the job and deliver what is requiredwithout having to seek clearances elsewhere. Thiswill also require an avoidance of overlaps.

Eliminate conflicts of interest: Where potentialconflicts arise these should be dealt with byappropriate separation of duties. For example, itwould be appropriate to separate functions fordelivery of service from those that regulate orreview the standards of service provision.

However, beyond these, other guidelines shouldbe followed to make the process smoother andmore successful and along with the above can beapplied as a guide to how functions might be

grouped together to form a new organizationalstructure. In practice, it is unlikely to be possible todo this in a purely mechanical fashion, particularlyif the review is strong on the need for participation,and it will be impossible to insulate the review frompersonal and political interests and pressures.However, some of this will be inevitable and in somecases may even be appropriate.

The extra guidelines are that:

� functions should be decentralized except whennot in the public interest;

� there should be clear and short reporting lines;

� there should be viable sizes of divisions anddepartments (five or more experts to a division),three to five divisions in a department;

� policy functions should be undertaken by theministry, unless they can be delegated;

� service delivery functions should be performedby subsidiary bodies;

� different organizational units should performdifferent types of functions (policy, regulationetc);

� structures should take into account local history,culture and circumstances;

� there should be optimum spans of command formanagers;

� there should be equitable workloads;

� where appropriate, structures should becompatible with EU and other international law.

The form of review output at this stage willdepend on what might be most helpful in localcircumstances. Typically, it might be in the form ofone or more organizational charts lowered toDepartment level, but rarely any lower than thatsince the principle of functional distribution acrossthe proposed Departmental structure will be clear.Exceptionally, if there are particular issues thatneed to be illustrated a decision may be taken to godown to Section level within Departments.

8. Reporting and implementationThis phase is among the most important in that

the writing up and reporting of conclusions from thereview will reflect the way that the review wasestablished initially. In some countries the approachhas been centrally directive with the sector underreview being largely passive while in others it has

43

been based very much on sector leadership of thereview where the sector has been assisted as the‘client’. In this later case in particular, it is likely thatfinal reporting will require a degree of iteration andcompromise if the objective is to bring everybody onboard with something that they can support.

Typically the structure of a final report wouldintroduce and describe its approach andmethodology. A background analysis and look atpast trends with a review of sector role andobjectives would then follow while there would alsobe a review of existing/current functions and adviceand recommendations for future functions. Thereport would also be expected to includearrangements for the implementation andassessment of the likely impact of, any proposedmeasures as well as transitional arrangements andfurther work proposed. However, in addressing theimplementation measures they must be set out in asspecific terms as possible. Given the legal heritageof most transitional countries an important element

of any transitional measures is likely to be requiredchanges in legislation. Identifying who is going totake implementation forward and what resourcesare necessary is vital at this stage.

Also the scale of the changes proposed may beextensive and daunting for those working withinthe sector and there is a real risk of catharsis ifimplementation produces a reaction againstchange. There may also be a fear of instabilityduring the process of change and it may be better tobreak the change implementation process into anumber of stages which can be more safelyimplemented, leading naturally to subsequentchanges and allowing scope for refinement of thosesame stages with experience. However, this wouldrequire the production of several organizationalcharts outlining the proposed evolutionary routeand under these circumstances it becomesparticularly important that an emphasis is placedon the proposed final solution as the target lest theinterim steps become objectives in themselves.

In reviewing the Ministry of Labor and SocialPolicy in Ukraine recommendations were made asto the future wages policy that had hitherto been afunction of this Ministry. But these functionsoverlapped with those of the Main Department ofthe Civil Service that had not yet been subject to

BOX 3.9

PHASING IMPLEMENTATION

review. Consequently, the review report containedrecommendations about a longer-term solution tothis issue but retained the function in the revisedorganization as an interim measure. In thedeveloped organization chart the function wasclearly identified for subsequent follow-up.

However, if this sort of phasing is contemplatedit implies a considerable period of time over whichchange must be spread and the formation of animplementation team becomes of paramountimportance to ensuring that momentum for changeis sustained. The impact of the proposed changesshould therefore be assessed including the impacton service levels provided and the resourcesrequired, both initially and on an on-going basis tomake the proposed changes happen. If, as would beexpected, there is a ‘hard’ budget constraint it willbe necessary to apply the prioritization of proposedchanges developed during the functional analysis

in a decision on which sub-set of the proposalsshould be implemented in the shorter term.

It is neither possible nor appropriate thatfunctional review is isolated from other aspects ofsector management and service delivery. Thereview can and should be used to identify as manyof these complementary considerations as possibleand in particular attention should be paid to theimportant connections between institutional reviewand process change. The review should be used toidentify business processes that need to be reviewedas a consequence of the proposed institutionalchanges.

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The first functional review carried out in 1997laid ground to further public administrationcoordination initiatives in Bulgaria. A permanentpattern of conducting public administrationreviews was incorporated into the Law onAdministration and with that the Register ofadministrative bodies in Bulgaria was established.The Register of the Administrative Bodies, a web-based information system, was completed at thebeginning of 2000 and now includes a complete

BOX 3.10

USING OTHER PROCESSES IN IMPLEMENTATION

In Kazakhstan the budget process has beenused as a key driver for implementation offunctional review proposals. Once individualfunctions have passed through the functionalreview process and have been confirmed forretention they receive a budgetary ‘passport’. The

intention is that in future, budgets will be attachedto functions rather than just institutions. Amongstother things, this will make it easier to repeat thereview in future and to hold budget holdersaccountable for performance.

The distribution of review reports is also asensitive but important issue and how this is dealtwith will depend partly on how the review was set upand mandated initially. If it is highly participantdependant and ‘owned’ by the Sector/Ministryunder review it would be inappropriate to distributeit to an audience beyond that which the Sector/

Ministry feels comfortable with. However, lettingthe Ministry of Finance, for example, have a copycan bring the budgetary process into play as apowerful ally in implementing therecommendations. Judgements will need to bemade on a case-by-case basis.

BOX 3.11

ASSESSING IMPACT

In Latvia, a senior public servant took part in afunctional review that had been felt to bebeneficial and to have yielded practical results.This public servant subsequently became a

member of the local parliament and expressed hissupport for the review process, and in doing sogained positive political support for it.

Finally it is important to acknowledge thatfunctional review is not a one-off process and as faras possible, measures should be encouraged thatlead towards continuous reassessment. It is likely,therefore, that only part of the impact of afunctional review may be immediate and in somecases, particularly where the political mandate forreform is weak, a review may become part of a

general external pressure for reform that will sitalongside, and be part of, other efforts. In thiscontext, a process of deepening reforms after aninitial functional review is likely to be important andany functional review report should identify theopportunities for deepening reform andsubsequent programmes.

BOX 3.12

DEEPENING REFORM: ESTABLISHMENT OF AN ORGANIZATIONAL ANDSTRUCTURAL DATABASE IN RELATION TO STATE BODIES IN BULGARIA

description of all administrative bodies, as well asall the acts issued by them to date. DirectorateState Administration within the Cabinet is thebody responsible for the operational support ofthe Register. The purpose of the Register istwofold – to permanently monitor the status of theadministration system, and to provide anopportunity for the citizens of free access toinformation about the work of governmentbodies.

45

As a rule, a final report is an output of functionalreview; it contains an analysis of the currentsituation in the respective country, main findings,and specific proposals and recommendations forchanging and improving the situation.

In some cases, it is also advisable for the expertteam to include a draft of, for instance, a proposedgovernment resolution, or even an early draft of therequired legal instruments. However, in this respectit is advisable to proceed with caution. In manycases, the report produced by the expert team is adraft for consultations and for review andamendment by the institutions themselves. Movingtoo fast and making the report look too final beforethe necessary review and consultations are carriedout can alienate stakeholders and result inweakening of support. The best situation is onewhen the report of the team is accepted by theminister or ministerial committee responsible for

steering the report, who then proceed to get itapproved by the concerned ministers and thegovernment. Only then should the team be asked toproceed to the next stage, preparation of theappropriate draft legal instruments required toimplement the recommendations.

TYPES OF RECOMMENDATIONSMADE

The objective of the majority of functionalreviews conducted in the region was to assess thefunctions actually performed by the centralgovernment bodies and compare them with thefunctions that should have been performed by themand thus track down duplicity or disparities in thesefunctions. The majority of final reports thereforeproposed a new redistribution of functions.

CHAPTER 4

Functional ReviewImplementation and Monitoring

BOX 4.1

UKRAINE: EXAMPLE OF A NEW DISTRIBUTION OF FUNCTIONS

The following new classification of functionswas adopted in Ukraine: policy formulation,service procurement, legislation drafting,standards setting, development of regulatory acts

and procedures, control and inspections,proceedings in public complaints, and adoptionof necessary measures. (See also the example ofclassification of functions in Latvia, Box 3.8)

In some cases, the implementation of functionalreview recommendations has prompted theadoption of new working methods by the central

government bodies and ensured a bettertransparency of public administration and broughtpublic administration closer to citizens.

46

Finally, and most common, most functionalreview reports proposed the adoption of newregulations governing the management of the

After the necessity of effective instruments forpermanent monitoring of the application andrealization of the Strategy for establishing of amodern administrative system was noted, the Lawon Administration, approved on the basis of thestrategy, provided for the establishment of aRegister of the administrative bodies.

The Register of the administrative bodies wasestablished. It includes a complete description ofall the administrative bodies in the executivesystem as well as the acts issued by thecorresponding bodies. The Register of theadministrative bodies represents a Web-basedinformational system accessible to all citizens. Theoperational support of the Register is carried outby the directorate ‘State Administration’ – aspecialized unit in the Administration of theCabinet, which has the following key missions:

� Analyses of the organizational status of theadministrations in the executive system, of

BOX 4.2

BULGARIA: FUNCTIONAL REVIEW AS A WAY OF BRINGINGADMINISTRATIONS CLOSER TO CITIZENS

human resources and their qualification andadministrative services;

� Analyses the work methods and procedures inthe administrations and develops projects ofprograms for their optimization andupgrading;

� Provides methodically the carrying out of thepolicy of management of human resources inthe executive system.

An additional element in the system formonitoring of the status of the Bulgarianadministration are annual reports, regulated bythe Law on Administration, for the condition ofthe separate administrative bodies, which arehanded to the Minister of State administration.The Minister of State administration prepares onthe bases of these reports a general report for thestatus of the administration, incorporatingrecommendations on the priority measures, whichneed to be taken during the following year.

administration and the flow of the policy process, aswell as legislation, for instance, on the organizationof the state administration.

BOX 4.3

THE LAW FOR THE ADMINISTRATION:A BREAKTHROUGH IN ADMINISTRATIVE REFORM IN BULGARIA?

The law on administration was approved byBulgarian Parliament in November 1998. Itdetermined the sphere of the state service anddifferentiated the political layer of the stategovernance from the administration, having createdreal conditions for depolitization and neutrality ofthe state servants. The goals of the law are directed tothe creation of a professional and depoliticized stateadministration with clearly determined rights andresponsibilities. At the same time it guarantees acareer promotion of the servants according to theirprofessional qualities and merits.

It set the following tasks: to determine the rulesand the procedures for access of the citizens to any

kind of state information, which does notconstitute a state secret; to define the informationregime, ensuring the national sovereignty and theeconomic prosperity of the nation.

It highlighted enforcement tools: they arespecial structures necessary for pursuing the statepolicy. These structures will be responsible for aprocess of implementation of the GovernmentStrategy for the Establishing of a ModernAdministrative System of the Republic ofBulgaria, and consequently it will be in charge ofdeveloping and improving the administrativesystem. (See also Box 4.2).

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The functional review final report is to beunderstood as a set of recommendations ratherthan commands. In order to ensure theimplementation of the functional reviewrecommendations, appropriate steps must be takenfirst. First and foremost, the report and itsconclusions of must be approved by the Presidentor the Government. Oftentimes, the approvalprocess is complex and time-consuming andrequires additional discussions, meetings, andnegotiations with the government officials. It is atthis stage when the support of all the key players,mass media including, is of paramount importance.For example, in Slovakia, the Governmentapproved the report after two months of intenseinter-ministerial and political consultations, andpressure from the media, which wanted to see‘action instead of words’ played an important role.

The experiences in the region have shown thatthe president or the Government are more likely toconsent to the implementation of functional reviewthan the implementation of the functional reviewrecommendations. On the one hand, approving thefunctional review implementation means that thereis a will to conduct a reform of public administrationwhich, in most cases, requires the support ofcitizens (the result being an increase in the electionpoll figures); on the other hand, consenting to theimplementation of the functional reviewrecommendations means an actual implementationof the public administration reform.

Implementing functional review recommen-dations also requires adopting unpopular measuresthat affect the central government bodies.Interestingly enough, when being confronted withsuch a situation, as a rule, ministers tend to assumethe role of protectors of their respective sectors.The more they are able to save of the old structuresand procedures, the bigger heroes they are in theeyes of their subordinates. The introduction ofunpopular measures may also lead to theweakening of the government coalition, as not allthe government members will agree with them.Consenting to the implementation of unpopularmeasures goes hand in hand with assumingresponsibility for them. Hence, it may happen thata Government which has given its consent to thefunctional review implementation will not adoptany measures to facilitate the implementation of thefunctional review recommendations, or, willtransfer the responsibility for the functional reviewimplementation to the relevant ministries.

IMPLEMENTATIONOF RECOMMENDATIONS:WHAT FORM?

The implementation of recommendations cantake various forms. In general, the type offunctional review conducted determines at least tosome degree the instrument to be used for itsimplementation.

The implementation of a ministry-by-ministryvertical review can take various forms. In itsminimal variant a ministerial order that sets out thereforms to be implemented would suffice, whichcan work only in highly decentralized systems withhigh degrees of ministerial autonomy. It alsorequires the full commitment of the minister to thereform process. If either of these conditions is notfulfilled, this mechanism is bound to fail. In the caseof far-reaching reforms, amendment of legislationgovernment the sector covered by the ministry mayalso be required, which would already go beyondthe scope of powers of the minister.

In systems where ministries have less autonomy,in particular where there are detailed centrallyimposed constraints on staff numbers and budget, aresource agreement, as referred to in Chapter 2above, would be a necessary condition for theimplementation of review recommendations. Inthis kind of system, the simply commitment of theminister is insufficient, as he/she may at any pointbe overruled by higher authorities.

The implementation of both horizontal andsystem reviews, or any form of combined reviews,generally requires much more compleximplementation mechanisms. These can range fromstrategic frameworks for administrative reform,packages of legislation, a government resolution, orany combination of these. The case of Kazakhstan,where budget reform was used as the key instrument,stands out as an interesting alternative. Theadoption of such high-impact implementation toolsrequires building a broad political consensus aroundoften controversial reform steps. This has proven tobe highly difficult, in particular in a situation wherethere is a formal coalition government. However,also in single party governments or in presidentialsystems there have been serious problems over theadoption of reform packages based on functionalreview reports. The next section, on lessons learnt,will discuss ways in which such resistance can be pre-empted or overcome.

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BOX 4.4

‘TRADITIONAL’ MODELS OF IMPLEMENTINGCOMPLEX RECOMMENDATIONS

In Slovakia, a government resolution wasadopted after several months of negotiationbetween the coalition partners. The governmentresolution set out tasks both for individualministers, regarding reforms in their sector, andfor the Deputy Prime Ministers and the Ministryof Finance, for different horizontal measures.

In Bulgaria, the analytical report that resultedfrom the functional review was used as the basisfor a comprehensive administrative reformstrategy, which provided a broader basis for theimplementation of the recommendations of the

review. Subsequently a package of six key laws wasdrafted and adopted to provide the legalfoundation for the implementation of the reviewrecommendations.

In Latvia the horizontal review carried out in1997 provided background information andjustification of the development of the Conceptof the Development of Public Administration,amendments to the Civil Service Law, draft lawon the Framework of Public Administration, andthe Normative Act on Delegation of StateFunctions.

BOX 4.5

USE OF THE BUDGET PROCESS AS A TOOLFOR IMPLEMENTATION IN KAZAKHSTAN

In the summer and fall of 1998 the Ministry ofFinance of the Republic of Kazakhstan waselaborating the 1999 Budget. Prior tocommencing the 1999 Budget elaboration theadministration of the Finance Ministrycommissioned a group of ministry workers withimplementing the following actions of budgetprogramming: To work out precise criteria forevaluation of activities and methods of analysispermitting to evaluate the fitness of the activitiesof public institutions or of better transmission tothe private sector of all or some of theirfunctions.

� To collect and validate information relating tothe sorts of the activities of public bodies, list oforganizations performing the state functions,the status and the sources of funding thereof.

� To evaluate the functions of establishmentsfunded from of the national budget in theconditions of a market economy; to distributefunctions among different levels of power.

� To rationalize the functions of executivebodies in order to define what functions andinstitutions would not be funded from thenational budget, and how that would be done.

BOX 4.6

IMPLEMENTATION FAILURE: DEVELOPING SUPPORT PROGRAMSFOR IMPLEMENTATION IN UKRAINE

During the review the behavior of theUkrainian government varied in a mixture ofevolutionary and revolutionary measures. Forexample, on the one hand, the government stroveto conduct the review through a series ofcompromises between the existing system and thegoal of an administrative reform. On the otherhand, some of the Presidential and Cabinetdecisions had a radical effect on the structure andorganization of government agencies. Theinconsistency of actions and decisions on the partof the government thus affected the stability andpredictability of the review process.

In this situation, ministries did not often see anycoherent initiative within the government tosupport the reform process. The absence of strongleadership and commitment to reforms in theexecutive led to the existence of at least threedifferent centers of authority which could initiateand make decisions concerning the reformprocess: the CBEP Working Group, the President’sAdministration, and the Main Department of theCivil Service. As a result, ministries often took thisprocess less seriously, knowing that any decisioncould be subject to change through the lobbyingefforts of another ‘initiative center’.

49

MONITORING IMPLEMENTATION:WHAT STRUCTURES?

It is very important to understand that politicalauthorities do not implement reports andrecommendations directly. They implementdecisions, decrees, laws, and regulations. So acrucial step toward implementation is thetransformation of recommendations into decisions.The study team makes recommendations to theauthorities, but the authorities have to decide whichof the recommendations to accept fully, which toaccept in part, and which to reject. As was notedabove, the study team can go some way towardtransforming the recommendations into decisiondocuments, but they do not make decisions for thegovernment, and the government should have thefull responsibility to view the recommendationscritically, and assess their appropriateness, as wellthe right timing and process of implementation.

For implementing the results of functionalreviews, there must be a mechanism fortransforming the recommendations into proposalsfor decision by the government. This mechanismshould normally be a unit inside the administration,either within the administration of the Ministerresponsible for PAR, within the Ministry or Bureauof Public Administration Reform, or within othercentral institution, such as the Secretariat of thegovernment.

The responsible unit should prepare a proposalfor decision for consideration by the responsibleMinister, and subsequently the government. Thedocument should then be subject to the same rulesthat apply to all documents for decision bygovernment, such as inter-ministerial consultations,consultations with NGO’s, and review by the legal

department or legal council, according to theprocedures in each country. The same central unitshould also be responsible for monitoring progressonce the decision is made and the implementationbegins.

As a minimum, the proposal for decision shouldinclude:

� The recommendations that are brought forwardfor approval, including supporting rationale;

� Financial and other resource considerations, ifnecessary;

� For each recommendation, the ministry oragency that should be responsible forimplementation;

� For each recommendation, the time table forimplementation;

� Reporting requirements, including ministerialresponsibility and timing.

It is very important that the ministries andagencies responsible for implementation shouldbe involved and consulted in the preparation ofthis decision document. Otherwise, it will not berealistic, and implementation is likely to bedifficult. In each Ministry or Agency that isresponsible to implement recommendations,there should be a dedicated team. Ideally, this willbe the same team that was set up for the reviewitself, but it may be necessary to make somechanges depending on the implementation tasks.The work of the institution’s team regardingimplementation is likely to be more demandingthan during the review itself.

50

The consequences of a failure to develop anadequate monitoring system are clear from the case ofthe Ukraine. Apart from the lack of a clear and

In Slovakia, the Government resolution gavethe authority to monitor implementation of thefunctional review recommendations to the sameperson who was responsible for the working out offunctional review - Deputy Prime Minister. Theworking group, which had conducted the review,was transformed into a new unit called the ReformImplementation Unit. Its responsibility wasthreefold: prepare proposals of specific reformsthat were the task of the Deputy Prime Minister,assist other ministries in their tasks and monitorprogress of implementation of reviewrecommendations.

The RIU is an ad hoc structure created by theDeputy Prime Minister. Its members are bothgovernment employees and outside experts. It hasa director, who is responsible for a day-to-daymanagement, and a chief consultant forsubstantive issues, who is responsible foroverseeing content of all the specific reforms

BOX 4.7

IMPLEMENTATION AND MONITORING STRUCTURES

prepared based on the Government resolution aswell as their coherence and mutual harmony. Inaddition to that, there are three full-time chiefconsultants, who are responsible for specific areasof the functional review and they work withexperts hired for specific purposes. In addition tothat, there is an administrative assistant.

In Kyrgyzstan, the functional review reportproposes to establish a special structural unit –agency for public administration and publicservice reforming. This agency should be createdbased on President’s Administration and/or PrimeMinister’s Office approval and one of its objectiveswould be to coordinate functional reviewimplementation and trace the review results. Thisagency should report regularly to the NationalCouncil on the status of the public administrationand public service reforms, on the results of thefunctional review implementation and activitiesplanned in the future.

coherent follow-up strategy, the lack of a structureempowered to monitor follow-up stands out as one ofthe two main causes for the lack of progress in reform.

Ten ministries were involved in the functionalreview process between 1998 and 2001. However,just as the government failed to adequatelymonitor the conduct of the functional review, italso failed to introduce any effective procedures tomonitor implementation of its results. Thefunctional review programme in Ukraine was

BOX 4.8

UKRAINE: LACK OF MONITORING LEADS TO SUB-OPTIMAL RESULTS

weakened by the absence of a general procedurewhich could monitor the implementation ofagreed objectives upon and measures withindividual ministries. Ministries were thereforeleft to their own devices to try to implementmeasures agreed upon in the report.

51

FINALLY, IS THERE AN EXEMPLARYMODEL OF IMPLEMENTATIONAND MONITORING?

As has been pointed out several times, aprecondition of an effective implementation offunctional review and its recommendations is apolitical will and involvement of all thestakeholders. The president and/or theGovernment, once taking a decision to re-engineerthe system and working procedures of the centralstate government based on the functional reviewrecommendations, whereby the objective would bemaking the system more efficient and effective, isbound to conduct regular monitoring of:

� the implementation of the measures proposedwithin the functional review;

� the impact of these measures upon the quality ofpublic administration, and

� the level of satisfaction of citizens.

The implementation of the functional reviewresults is to ensure sustainable development of

public administration and hence, it cannot be aone-time or short-term affair. Therefore,monitoring ought to be a permanent strategicprocess focused on a regular observation andevaluation of the effectiveness and efficiency ofpublic administration while reflecting thechanging conditions in any given country. Aninstitution tasked with the monitoring of publicadministration is expected to enjoy a solidposition within the public administration structureand its tasks and responsibilities are to be clearlyset forth. The institution is expected to conductregular evaluation whether the publicadministration institutions carry out the activitieswith which they have been tasked, and,subsequently, whether these activities are beingcarried out efficiently. The first question to beposed by a monitoring institution is: Does a publicadministration institution deliver functions thathave been assigned to it, or, does it deliver theservices it should? If the answer is positive, thenext question is: Is it feasible to enhance thequality of delivered functions, or, services, in termsof the structure of the organizational unit,resources (human, financial, technological), andoutputs?

52

The countries in the ECIS region pursue thesame goal in their administrative developmentpolicy: building an efficient and effective stateadministration based on democratic principles.These principles as applied to publicadministration include accessibility, transparencyand professionalism. However, regional systems ofpublic administration have retained severalfeatures of the former communist regime in termsof the structure of institutions and style of the workof its personnel. With a view to eliminating thesedrawbacks and building a modern publicadministration, some countries in the region haveopted for an instrument referred to as functionalreview. A functional review enables countries toanalyze the current situation in publicadministration, compare it with its optimum stateand thus form the basis for the development of acomprehensive administrative reform strategy.

Functional review must be based on a clearvision regarding the role of the state, a vision thatmust be transformed into specific, measurable,acceptable, realistic and time-sensitive objectives.Alternative strategies of reaching these goals mustalso be put in place. These global visions mustprovide a basis for the goals of the individual sectorsof public administration.

The experiences of countries within the regionthat have used functional review as a reform toolshow it is only one part of an overall effort torestructure systems of public administration andthat they cannot be implemented in isolation.Public administration reform entails a transfer ofresponsibilities from central state administration toregional or local state administration bodies and ofadministrative tasks and responsibilities to localself-government and/or the private sector. Itfacilitates the modernization of publicadministration by making civil servants moreprofessional as well as implementing informationtechnology systems and ensuring effective controlmechanisms. If governments show little interest inpublic administration reform, they have no interestin functional review either. In such cases, it isdifficult to implement any recommendations based

on functional review. For instance, in Slovakiafunctional review was implemented within theframework of a public administrationdecentralization and modernization conceptapproved by the government. Hence political will isthe foremost precondition of a successful functionalreview implementation.

The next task is to win the support of all thestakeholders interested in functional review. To winover everyone involved is not easy, as it meanswinning support for changes in the structure andoperations of existing public administrationinstitutions. In general, people are reluctant toaccept change as it means giving up routine,abandoning well-tried methods of work andembarking on something new and risky. Resistanceand reluctance among the public administrationinstitutions are often features of review processes. Itis not unusual for key institutions to agree with andsupport functional review as long as the changesproposed in its recommendations do not affectthem. But people are much keener to implementideas that are the products of their personalinvolvement. Hence, another precondition of asuccessful functional review is to ensure that allinstitutions concerned take active part in it. Somecountries have exempted certain institutions fromreview processes to shelter them from changes. Insome cases, this has concerned central institutions,such as the Presidential Administration. But thisalso concerns Ministries of Defense and Interior,which are often exempted for security reasons.Likewise, limits were set for functional review inadvance. For instance, in so me cases it was notpossible to propose a reduction in the number ofministries, although such a proposal would beappropriate in terms of effectiveness andexpedience. In other words, functional reviewresults may be ensured only to the extent to which itis acceptable for the President or the government.

The first step in conducting a functional reviewis to communicate to all the stakeholders potentiallyaffected by the process what the underlying reasonsare for the review and what results are expected. Itwould be most motivating if initial information was

CHAPTER 5

Conclusions:the Dos and Don’ts of Functional Review

53

communicated by the individual responsible forfunctional review implementation, be it the DeputyPrime Minister or the minister tasked with reviewimplementation (Slovakia, Ukraine), or the Head ofthe Presidential Administration (Kyrgyzstan). Thiswould elevate the significance of functional reviewand would leave central administration bodiesfeeling more involved and thus more obliged totake an active part in the review.

Functional reviews are usually coordinated by amanagement team that, as a rule, is appointed by aperson tasked with a nationwide functional reviewimplementation scheme. In Kyrgyzstan and Latvia,the members of management teams were selected ona competitive basis through interviews. In Slovakiaand Bulgaria, national non-governmentalinstitutions were tasked with the conduct of thefunctional review (See Box 2.7). National and foreignexperts were on the majority of management teams.In terms of the professional requirements expectedof native experts, they were to have a clearunderstanding of public management issues,knowledge and understanding of the operation of

public administration and the mechanics ofgovernment as well as experience with analyticalwork. Bulgaria set up a management team consistingof local consultants who were not active in publicadministration so as to ensure maximum objectivitywith respect to both the necessary assessment ofconditions and the planning of concrete measuresfor policy enforcement.

Given the fact that some management teamsreferred to above did not have prior experiencewith functional review implementation, foreignexperts assisted local experts in drafting the reviewmethodology and also took part in the functionalreview implementation on a majority of themanagement teams. In Slovakia, in addition to amanagement team an official steering committeewas set up. Members of the committee included thedeputy prime minister responsible for functionalreview, state secretaries of the relevant ministriesinvolved in the review, and several otherindividuals. The steering committee, the ‘client’ ofthe functional review process, was regularlyinformed of its progress.

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THE FUNCTIONAL REVIEWOBJECTIVE

The functional review objective, as laid out byindividual ECIS countries was similar in a numberof ways, with variations only in its scope. Althoughall the focus was on the building of an efficientpublic administration, identifying ways to cut statefunds for public administration was a featurecommon to all of them. Until recently, the mostcommon form of cost reduction was staff cuts to apercentage set by the government. This issomewhat ironic since experience from the regionteaches us that funds allocated for wages constitutea relatively small proportion of expenditures while

other expenditures have rarely been examined in aconsistent manner.

Functional reviews focus on the identification ofdata related to each function performed by theministry, including the categories of function,outputs, service users, budget and staff required toperform these functions. Based on a comparativeanalysis, management teams found disparitiesbetween the tasks and functions to be performedand those actually performed by the ministries.

Based on the results of the analysis, all thesefunctions have been broken down into categoriesbased on whether ministries are expected tocontinue performing them, or whether they should

During the preparation stage, themanagement team developed and conductedvarious preparatory measures to ensure therealization of three key objectives. Theseincluded:

� building awareness within the Ukrainianbureaucracy of new approaches towards publicmanagement;

� creating a participatory environment intendedto install within each ministry a feeling ofownership in the process;

� building competencies within the staff of eachministry to undertake the functional review.

In this regard, the management team took thefollowing steps, with respect to each ministry,described below.

First, the management team held meetingswith the minister and/or deputy minister of eachministry to explain the principles, objectives andprocedures of the functional review. During thismeeting, a discussion was undertaken with theminister and/or deputy minister regarding theministerial mandate and responsibilities andnecessary steps required by the managementteam. The discussion included the currentorganizational structure, constitutive documentsof the organizational units of the ministry, and aproposal regarding the establishment of aninternal ministerial group to participate in thereview.

BOX 5.1

UKRAINE

The second step was for the minister toestablish a working group in the ministry (SWG).This was to identify and include in the SWG bothministry and agency staff who understood themechanics of government and had sufficientpersonal authority and understanding of thereform concept of the government in Ukraine topush forward the functional review process.However, in practice, such groups usuallyincluded all heads of structural units in respectiveministries, resulting in upwards of 20 members ormore. Typically, the SWG was headed by a deputyminister with one of the SWG members appointedas a contact person to coordinate day-to-dayactivities with the management team.

Third, the management team and a contactperson for the functional review from the SWGdrafted the review schedule. This schedule mainlyincluded a timetable for conducting interviews ineach structural unit of the ministry.

Fourth, the first joint meeting of themanagement team and SWG was held and atwhich the involved bodies reviewed the functionalreview methodology and discussed sectorobjectives held in each ministry. During thismeeting a schedule developed with a coordinatorwas usually agreed upon.

During the preparatory stage, members of themanagement team also reviewed all relevantnormative legal acts to determine to what extentthe tasks outlined in the Constitution andlegislation were covered by the ministry and itsstructural units. The results of this comparativeanalysis were summarized in a separate table.

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The functional analysis in Kazakhstan wasconducted by the Ministry of Finance as part of theexecution of the Decree of the Republic ofKazakhstan government, known as “On theProgram of Further Reforms of the Public Servicein the Republic of Kazakhstan and thegovernment’s Plan of Measures to Implement It.”The functional analysis also involved the Programof Actions of the Republic of Kazakhstangovernment for 1998-2000, which was endorsed bythe Decree of the Republic of Kazakhstangovernment to reform the budget program. Abudget commission was created by order of theKazakhstan Prime Minister to summarize thefindings of the public sector functional analysis, toreach decisions on limits for funding a functionalreview of the national budget in 1999 and to planactions to organize public finance. The first DeputyPrime Minister was appointed chairman of the

BOX 5.2

KAZAKHSTAN

commission and its members were representativesof executive public strategic bodies and aides in thePresidential Administration and the PrimeMinister’s Office. The commission outlined theresults of work done on the functional analysisfocused on the specification of a grouping of statefunctions, the distribution of functions betweencentral and regional authorities, the transfer offunctions of the review from one level of authorityto another and the determination of the list of statebodies and a list of organizations graduallytransferred to the private sector. The results of thework Ministry of Finance’s work on functionalanalysis were also summarized. On each state body,the commission, the list of the budget programsfunded from the republic’s budgets, and forms offinancing (complete contents, subsidy or as thestate order in conditions of the market services)were determined.

be lifted, decentralized (transferred to self-government), de-concentrated (delegated toregional or local state government bodies), orprivatized. (See Boxes 3.8 –3.10; Box 1.4).

FUNCTIONAL REVIEW FOCUS– VERTICAL, HORIZONTALAND SYSTEM REVIEWS

If functional review is to be implemented in itsvertical form, that is, only at some ministries, itwould be positive if institutions falling under thevertical functional review would told of theirweaknesses, and based on functional reviewrecommendations, re-engineer their organizatio-nal structure and management systems. However,one should keep in mind that such institutionsbelong to the public administration system andtheir restructuring makes little sense in a vacuum.Hence, findings of vertical functional reviewsshould be seen as pilot findings and, once assessed,applied to all public administration institutions.This could be followed by a horizontal review,addressing duplications in the system as a whole.However, the Latvian experience should serve as awarning: ‘No government body was in place thatcommanded sufficient authority to consider areview of multiple ministries; nor to summarize theresults and develop proposals for the introductionof changes across the whole system of government’.(See examples in boxes in Chapter 2).

System reviews, just like vertical functionalreviews, have their limitations. Indeed, while theyallow comparison of functions common to variousministries, they do not focus on the justification ofthese functions nor assess the functions of aministry in general. Although combined functionalreview is more expensive and time-consuming, itseems to be the best form of review in terms of itsimpact and efficiency. Close cooperation betweenthe management team and all organizationsinvolved in functional review must be establishedfrom the beginning of the functional reviewimplementation. Once an individual tasked withfunctional review implementation and answerableto the President or government sets the reviewobjectives it is the management team that shouldassume responsibility for all successive steps. Thegeneral strategy pursued by management teamswas to first organize meetings with key officials inthe relevant ministry during which the objectives,methods, and expectations of the review werecommunicated. These meetings were alsoimportant because the overall implementation ofthe functional review methodology was agreedupon, including the presentation of the relevantdocuments and information and the setting of atime frame for its implementation. Information onfunctional review must be continuouslycommunicated during its implementation as well asfinal stages. All stakeholders who have taken part inthe implementation process will be keen to learnabout the review’s findings and recommendations.

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Among the ways of motivating central stategovernment organizations is a deeper involvementin functional review allowing these organizations tobe first to learn about the review’s findings.

METHODOLOGY

In a majority of countries, foreign experts havecontributed largely to the drafting of functionalreview methodology. In addition to a greaterinvolvement of all the stakeholders in thepreparation and implementation process, and amutual agreement on the mode of the functionalreview implementation across various institutions,all the countries have invariably usedquestionnaires and interviews with keypersonalities. These actions were preceded byinformation gathering campaigns and the scrutinyof material on the legal form of an institution, itsstatus, organizational structure, responsibilities,technical equipment, staffing, and outputs. Somemanagement teams gathered information onorganizations by contacting external sources, forinstance, users of the services and outputs of aparticular organization. The comparative analysismethod, mentioned above, facilitated thecomparison of tasks to be performed and thoseactually performed by the institutions. Anotherfrequently applied method was benchmarking,used to compare functions common to theindividual sectors in conjunction with the numberof the staff charged with common functions acrossthe ministries. It was also used as a comparison ofthe proportion of personnel executing differenttypes of functions, the budget per employee, or theuser of the functions. Benchmarking was alsoemployed to compare functions executed byministries operating in the country and theircounterparts in other states of a comparable size. InSlovakia, a dynamic analysis of employmentstructure development across individualorganizations, over a span of several-years, hasbeen conducted. (See Box 3.7).

A new method employed in functional reviewwas the evaluation of outputs of individualorganizations. This method was until recently

applied largely to private organizations. Functionalreview focused on outputs rather than inputs so thereview focused on the number and nature of theoutputs generated by an organization rather thanthe funds invested by the state into an organization.

TIMING

As regards the time frame of the functionalreview, a time limit could not be suggested on itsimplementation as its scope and depth variedacross individual countries depending on theinstitutions involved in functional review. In theUkraine, functional review was carried out in stages.Experience in the region has confirmed the beliefthat the implementation of functional reviewshould not exceed one election term (e.g., in theUkraine, functional review has ‘outlived’ threegovernments); otherwise, its implementation wouldbe impeded. Neither is it advisable to launchfunctional review implementation prior toelections.

OUTPUTS

A final report detailing findings andrecommendations, sometimes complemented by anaction plan outlining how and when the proposedchanges should be introduced, was among the mostcommon functional review results. Anotherapproach was to organize a workshop attended byall key players at which functional reviewconclusions were communicated and afterdiscussion agreed on, altered or rejected. InSlovakia, the final functional review report wassubmitted to the Deputy Prime Minister along withan analysis of the current situation and specificproposals for change and improvement. TheDeputy Prime Minister accepted the report andsubmitted it to the government. After two months ofinter-ministerial and political consultations, thegovernment approved the report. In Latvia, ananalytical report on the collected data andrecommendations was presented to the cabinet fordecision and, afterwards, to the mass media.

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The working group submitted a report to theDeputy Prime Minister with an analysis of thecurrent situation and specific proposals forchange and improvement. The report wasstructured in the following way:

� general analysis of systemic problems affectingpublic administration;

� general solutions of these problems;

� application of these principles to specific areasand recommendations.

The report stated that a common problem inalmost all post-communist countries - includingSlovakia – inherited from the past is a focus onstate ownership of goods and service providers inmarket activities and an associated lack ofinstitutional capacity and de facto privatization ofactivities related to non-market activities.Regarding non-market activities, the functionalreview recommends the following pillars of action,which, to some extent, will differ from therecommendations made in connection withmarket activities:

� Emphasis on the transparency of activities,financing, spending, and prices.

� Maintenance of the direct control of the state (inthis case, of the central authorities of stateadministration) over carrying out non-marketactivities in the form of state ‘ownership’, and thechange of structural and compensationconstraints in carrying out these activities so as toenhance flexibility and motivational factors forboth the organizations and individuals withinthe system framework, and also the quality oftheir work together with a marked enhancementof conceptual and strategic capacities of centralauthorities of state administration andimprovement in their quality.

In market activities that need/need not beregulated, the functional review made thefollowing recommendations:

� Introduction of transparency of activities,financing, spending, and prices.

� Transition from direct control over providersof goods and services to contractually-basedprovision of goods and services.

BOX 5.3

SLOVAKIA

� Transfer of funds allocated directly orindirectly from public funds for the provisionof goods and services from providers tobuyers.

� Enhancement of competition and thederegulation of service and goods provision.

� Introduction of a simple and transparentregulatory framework in instances where thereis a need for such a special framework.

� Gradual change of ownership of providers ofgoods and services presently owned by thestate.

� Sweeping liberalization of wage, structural,and budgeting rules for the providers of theseservices within the framework of applicablelegislation for non-profit organizations andalso the creation of a new legal framework fordelivering those market activities for which thepresent legal forms of organization are foundto be inappropriate.

The report also made specificrecommendations concerning ministries andother areas, such as property administration,public procurement reform, research institutions,training, consulting, accommodation, holidayresorts, catering services, services with legalmonopolies, etc.). The Deputy Prime Ministeraccepted the report and submitted it to thegovernment. After two months of inter-ministerialand political consultations, the governmentapproved the report. The resolution thataccompanied the report contained 53 tasksrequired for its implementation. These can bedivided into various groups:

� 19 tasks for all ministers aimed atimplementing some of the recommendationsacross the board;

� 13 tasks for the Deputy Prime Minister toprepare specific reform proposals (policypapers, government resolutions, laws) on mostimportant cross-cutting systemic issues;

� 21 tasks for specific ministers to preparereform proposals (policy papers, governmentresolutions, laws) on systemic issues in theirown areas.

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IMPLEMENTATION

It may be stated that the greater the involvementand willingness of the government or President tore-engineer the public administration system, thekeener the interest to implement functional reviewrecommendations. However, it should be notedthat in the majority of countries, the willingness toimplement functional review was found to be muchgreater than the willingness to implement therecommendations based on the functional reviewfindings. Most often, functional reviewimplementation was a result of compromise. Forinstance, while the Ukrainian governmentapproved the necessary conceptual framework forthe functional review process and delegatedauthority to conduct the review, it has neverintroduced a coherent procedure to monitor theresults. Ministries were therefore left to themselvestry to implement measures agreed in the report. InUkraine, it is unclear which institution is to be heldresponsible for functional review implementationbecause according to the current legislation asmany as three institutions may be tasked with itsimplementation. As a result, ministries do not takethis process very seriously, knowing that anydecision can be easily changed in their favor by

lobbying from another ‘initiative center’. (See Box4.6 on implementation failure in Ukraine).

It has already been mentioned that theimplementation of functional reviewrecommendations is affected by human factors.Ministers still see themselves as mainly in charge ofimplementing narrow sector tasks and decisions,rather than in setting political objectives andachieving results on a sector-wide basis. As a result,they are often reluctant to take the initiative in thereform process. Mid-level bureaucracy is alsoresistant to change. For decades, most of today’sbureaucrats had been assured that the system inwhich they worked was the most optimal and thateven if it required changes this would be taken careof ‘higher-up’. Most officials perceiveadministration reform as a threat to their seniorityand job security. Functional reviewrecommendations were not positively received,especially when drawbacks were identified by themanagement team. The team was then accused ofincompetence as critics claimed its members didnot understand public administration. It holds truethat when a large gap exists between the currentand proposed systems of public administration,special effort is needed to build awareness amongall the stakeholders.

In Bulgaria as a result of the functional review,the Strategy of Establishing a ModernAdministrative System of the Republic of Bulgariawas prepared and approved by the government.On this basis, the Law on Administration wasadopted, which in its turn facilitated theestablishment of a register of the administrativebodies. (See Box 4.2).

BOX 5.4

BULGARIA

The establishment of the register and othergovernment acts is a step towards the creation of amore open administration. The Council ofMinisters adopted regulations on keeping theregister. It incorporates all basic ministries andagencies under the executive and containsinformation on their hierarchy, functions andnormative acts concerning the general public.Data on the total number of employees andvacancies in each structure is also kept.

THE ROLE OF THE MASS MEDIAIN FUNCTIONAL REVIEW

Mass media hold a vital position in functionalreview preparation and implementation and incritical situations are likely to play a crucial role intilting the balance in favor of functional review.Hence, the management team ought to maintaincontinuous and close contact with the mass media.Not all countries in the region that haveimplemented functional review were able to gainthe support of the mass media. Among the positive

examples are Slovakia and Bulgaria. In both states,one of the functional review goals was to restructurecentral government in compliance with EUregulations, that is, the central government isexpected to be effective and efficient as well astransparent. In order to ensure transparency,management teams did their utmost to make theentire functional review process transparent.Slovakia and Bulgaria on a regular basis kept thepublic informed of functional review progress andresults via the press, radio, television and Internet.Also, public discussions were held with politicians

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and citizens concerning the purpose andsignificance of functional review, enhancing thegravity and credibility of the entire process. Theobjective was not only to inform the citizens of theactivity but also – first and foremost – to win theirsupport.

From the outset the management team inSlovakia expected many civil servicerepresentatives and some politicians to showreluctance towards the project; therefore, mass

media became their faithful companion throughoutthe functional review process. Since the functionalreview was comprehensive, each minister orministry found something against which objectionscould be raised. However, due to the support of theDeputy Prime Minister and the Prime Ministerhimself, and because of the broad media coverageduring the government’s consideration of thereview, ministers eventually felt they had no choicebut to accept the functional review with only minoramendments.

The major results of the recommendationsbased on the accomplished review were:

� Quick improvement in the provision ofinformation to physical and the judiciary aboutoffered administrative services in separateadministrative bodies.

� Information charts produced containingmaximum information on administrativeservices available, taxes collected for them andthe administrative unit offering data on itsleadership and experts.

� Additional information about eachadministrative service presented in a suitableway – sample application forms for separateadministrative services and accompanying

BOX 5.5

BULGARIA

documents; brochures; bulletins; Web siteaddress of the corresponding administrativebody; information centers for visitors.

� Publication of a brochure called “Regionaladministration in favor of citizens and firms”.

� An organization created for the officialdelivery of necessary forms and applicationsneeded to carry out administrative service.

� Different forms of dialogue with citizens on theimprovement of administrative services –meetings and conversations with represen-tatives of non-governmental organizations;questionnaires and clarifying emissions,broadcast by local media; reception offices inregional administrations etc.

The Slovak and Bulgarian experiences haveshown that it does not suffice to keep citizensinformed, however. Citizens have a responsibility toinvolve themselves in the functional review process,

especially via NGOs and various interest groups.Only in this fashion can a more effective andobjective implementation of the functional reviewbe ensured.

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1. The need for a clear goal and agreementbetween key players prior to starting. Such agoal or agreement must exist between publicstructures (executive and individualministries), civil society, and the private sectoron the basic directions and problems of publicadministration reform (Kyrgyzstan, Latvia).While difficult to secure, a unifying philosophyand the willingness of government to carry outthe reforms are also key factors (Slovakia,Ukraine).

2. The establishment of a government unit or bodystrictly responsible for public administrationreform or perhaps even strictly for thefunctional review process. This ensures that themomentum of reform is maintained and mayalso serve as a dispute resolution mechanismthroughout the process. The establishment ofsuch a body allows for the possibility of a moreflexible strategy that can be modified based onfeedback and observed needs as they arise(Slovakia).

3. Establish an action plan and follow it. Theneed for a clear implementation plan wasemphasized in all the countries. This includesthe need for a realistic assessment of thenecessary time and resources to complete thisplan (Kyrgyzstan). Clarification may beimproved by the signing of an agreement ofunderstanding on the roles and expectationsbetween various bodies involved, i.e. betweenthe ministry under review (Latvia) and themonitoring body, thus providing a benchmarkfor the review as it progresses.

4. Adequate training, raising awareness. Wheregovernment officials will be responsible forimplementing the reform or heading workinggroups, sufficient attention must be paid totraining in regard to the overall methodologyof the FR (objectives, tasks) as well as specificFR approaches (Kyrgyzstan). Where a largegap exists between current and proposedsystems of public administration, special effortis needed to foster awareness among allstakeholders (Ukraine). Ministries mustreceive relevant technical assistance andfinancial support to implement the results ofthe functional review.

BOX 5.6

LESSONS LEARNT

5. Need for communication between consultantsand the government and between variousministries. This should occur on a regular basisin order to ensure that all parties will buy intothe project. This communication may take theform of the submission of a draft report withrecommendations to ministry officials forreview and comment, or through consultationswith officials and politicians from otherministries (Latvia). Throughout the process,the press may be used to communicateactivities to the public (as in Latvia) and to swaypublic sentiment in favor of implementation ofthe reforms (Slovakia).

6. Functional reviews must take account of theparticularities of the situation under review. Inthe case of Ukraine this resulted in anevolutionary rather than revolutionaryapproach and the recommendations wereimplemented as complementary buildingblocks over several cycles. In other countriesthis determined the type of FR that was to becarried out. Factors to consider are the size ofthe country, levels of development, and thepolitical and popular support for furtherreforms (Slovakia). This is especially true forcertain types of reviews, the relationshipsbetween the various ministries, as well as theexpected impact of the reform on otherministries. The Slovak case illustrated thatwhile privatization of public sector services isgenerally preferable to non-market basedsolutions, it must be balanced with theconsideration of the transaction costs of amarket and contract based relationship. Inunderdeveloped countries, systems based oncommand and control principles require a lesssophisticated set of institutions andmanagement tools and can thereforesometimes be preferable. Further, distinctionsshould be made between long and short termpossibilities for change, particularly withreference to such external factors as politicalbusiness cycles.

7. The need for monitoring mechanisms andfollow up. There is the need for an ongoingmonitoring mechanism to ensure the actionplan is followed. Assigning the task of

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CONCLUSION

Political support at top levels, consensus of allstakeholders, broad public media support, aprofessional management team and an appropriatemethodology are sufficient guarantees of anefficient functional review implementation and,above all, the implementation of itsrecommendations.

The majority of functional reviews recommendthe government gives up functions which theyshould not be exercising (operative functions) andinstead, focus on those which the government is

monitoring to a particular institutionguarantees the focus of the review ismaintained, targets set and methodologyensured (see point 2, above). The media mayalso serve an informal monitoring role forimplementation of the desired reforms(Latvia). With regards to the results themselvesparties must be aware that results may not bewhat was expected and the ministries mustreceive relevant technical assistance andfinancial support to implement the results ofthe FR (Ukraine).

8. Need to deal with freed up resources after thefunctional review. Prior to beginning thereview involved parties should be aware of the

likely outcome of budgetary alterations andprovisions should be made on how to deal withthem.

9. Implementation of Review. During theimplementation of the review it is important torefer back to the initial philosophy of thereview as well as to clearly define those toolsavailable.

10.Need to embed functional review policy inoverall public administration reform. It isimportant that the FR is not seen as an initiativestanding alone, but that it is widely recognizedthat its success is dependent upon its positionamong a larger commitment to reform.

obliged to exercise (strategic, legislative,methodological, coordinative). Changing theexercised functions also changes the organizationalstructures of institutions, rules, procedures and staff.

A typical characteristic of all the governments isthat they are unwilling to voluntarily give up any oftheir tasks and responsibilities for fear of growingweaker. The contrary is true. If governments freethemselves of all ‘unnecessary’ activities they nowperform, they will have more time to exercise theirmajor functions and make their performance moreefficient and less costly. After all, this is the purposeand goal of each functional review.

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This publication has examined functionalreview as a tool for public administration reform inthe ECIS context. The frequent use of thisparticular instrument, associated as it is withmanagerial approaches to public administration, ina region mainly dominated by traditional Europeannotions of public administration may come as asurprise. Many questions have been raised as to itssuitability for this region and the experience thatstates have had with functional review processes hasbeen far from universally positive. Nevertheless, incountries where the conditions set out in theprevious chapter were ‘right’ review processes haveprovided a clear impetus to reform. Slovakia andBulgaria stand out as the main examples here, withLatvia and Kyrgyzstan showing at least partialresults. One important question to be addressed,which has been gleaned from almost five years ofvarious forms of UNDP involvement in functionalreview processes, is to what degree support to suchprocesses has contributed to the overall objective,and one of UNDP’s six corporate objectives, ofbuilding democratic systems of governance in theregion? If the answer to this question is negative, itis important to review the implications this has forfuture UNDP work, and possibly also for otherfunding organizations sharing similar objectives.

The first issue to be raised here is capacities toconduct the review process. Local capacities toconduct review processes are generally not availablein the region. In states that are more advanced in thereform process, this problem can be addressed byproviding support to local institutions. In the threeEU candidate states reviewed in this publication,local management and institutional reformspecialists played a key role in the review process,which they conducted either mainly themselves afterlimited on-the-job training, or together withinternational advisers. However, in other parts of theregion such resources do not exist and engaginglocal specialists prematurely can create seriousproblems. At the same time, relying only oninternational experts is likely to produce equallynegative results. A functional review under theseconditions has to be framed in a longer-term

perspective, leaving sufficient time for thedevelopment of adequate local capacities. Thisobviously may go against the very nature of theprocess, as often reviews are conducted under heavytime pressure. Nevertheless, in such cases it is betterto cancel a review all together rather than to invest ina process that is doomed to failure. Alternatively itmay be possible, as has been the case in Kyrgyzstan,to ‘correct’ deficiencies in local capacities by allowingfor a brief pause in the process and giving localexperts time to catch up, even if this may not bepossible in every case. In view of the experience ofvarious states in the region, it may well be worthwhile for international funding groups to developsome form of capacity building initiative for localexperts in order to create a better local basis forinstitutional reform processes.

The second issue to be considered is the natureof functional review. Functional review is often seenas a managerial tool associated closely with NewPublic Management, but the studies in this volumeshow that this is far from a universal truth. Even ifcost-cutting and increasing efficiency is always anelement of a review process, the extent to whichfunctional review becomes a disguised tool forshrinking the state depends largely on the way theprocess is defined. In many of the cases discussedhere functional review may have initially beenintended as a tool for rationalizing cost-cuttingoperations. However, in many cases it has given animpetus to at least some investment in capacitybuilding that may not have been feasible underother circumstances. In this respect, the wayfunctional review processes are designed andconducted reflects above all the preparedness andability of policy-makers to think strategically andassess what capacities will be needed in the longterm. EU accession requirements may help pushpolicy-makers in this direction, and this couldexplain why arguments pertaining to strategicthinking are sometimes more readily accepted incandidate states, and even in Ukraine, whileregarded with more skepticism in Kyrgyzstan andKazakhstan. International advisers can play animportant role in advocating the inclusion of

CHAPTER 6

Functional Review and the OverallInstitutional Reform Context:a Suitable Tool?

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assessments of capacity building needs in reviewprocesses. In our view, ultimately, this shouldbecome a condition for support.

A third important issue directly related to thelink between functional review processes andhuman development is potential impact on keypublic services, such as health, education and socialwelfare. It is these particular areas where countrieshave experienced the greatest difficulties inchanging the role of the state. The development ofa strategic perspective on the transformation of thehealth and education sectors has come late. Someargue it has come too late to repair the damagedone in the initial years of the transition. Theweight of across-the–board staff cuts, combinedwith a lack of investment in central steeringcapacities has been particularly felt in these sectors.It may not therefore come as a surprise that in thosestates where functional reviews have focused onthese ministries, conclusions have pointed to theneed to re-orient the involvement of the state inthese sectors, not to reduce it. Across-the-board cutshave little impact on the way a sector is organizedand generally keep in place existing institutions,regardless of whether their continued support bythe state is required. Questions regarding thenecessity of maintaining state support forinstitutions are generally not asked. Functionalreview reports have often found that the continuedfunding, often for political reasons, of institutionsthat either play no role of importance in a marketeconomy, or could be made self-sustainable outsidethe state sector, constitutes a huge drain on limitedresources. Functional reviews have in this wayhelped to put issues on the political agenda whichotherwise may have been declared off limits.

Obviously the use of this instrument does carry therisk of it being ‘taken over’ by over-zealouspoliticians, which could do even more damage tosectors that have in many states been weakened toan unacceptable degree. However, also in this areainternational institutions providing support to thereview have a duty to anticipate and address suchdevelopments. Supporting a functional reviewprocess in this respect gives funding organizationsan opportunity to steer reforms indirectly, whichmay have been impossible under othercircumstances. Considering this, it is certainlybetter for an organization like UNDP to be part ofsuch a process rather than to wait and watch fromthe sidelines.

One of the main objectives of this publication isto ‘de-mystify’ the concept of functional review andto assess the way it has been used as an instrumentto stimulate structural reform of outdated stateadministration systems in the post-communiststates of Europe and the CIS. Whereas the use offunctional reviews has been much criticized in theregion, the problems that have hampered thesuccessful implementation of review processesappear to lie more in the design of the process thanin the relevance of the instrument itself. Apart fromthe obvious need for strong political support,designing a suitable process, taking into accountpolitical dynamics and conditions as well as thedevelopmental context of the review, remains thekey condition for success. This publication shouldbe viewed in this perspective, illustrating how toframe a review process, depending on prevailingcircumstances. Applying the lessons set out here iscertainly not a guarantee for success, but shouldhelp to avoid failure.

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Nunberg, B. (1998), The State After Communism,Administrative Transitions in Central andEastern Europe, The World Bank, Washington

Nunberg, B. (2000), Ready for Europe, PublicAdministration Reform and European UnionAccession in Central and Eastern Europe, TheWorld Bank Technical Paper No. 466,Washington

OECD (1998), Preparing Public Administrationsfor the European Administrative Space, SIGMAPaper 23, Paris

OECD (1999), Sustainable Institutions for EUmembership, SIGMA Paper 26, Paris

References

Open Society Foundation (2001), Development ofPolicy Making Culture in Slovakia, OSF,Bratislava

Verheijen, T. and D. Coombes (1998), Innovationsin Public Management, Edward Elgar,Cheltenham

Verheijen, T. (1999), Civil Service Systems inCentral and Eastern Europe, Edward ElgarPublishers, Cheltenham

Verheijen, T. (2000), Administrative capacitybuilding for EU membership, a race againstTime, WRR, The Hague

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1.1. FUNCTIONAL REVIEWIN THE REPUBLIC OF BULGARIA

The original report on the functional review in Bulgariawas prepared by Mr. Julian Boev, Executive Director,Regional Y2K Coordination Center for Central andEastern Europe and Central Asia

Background — the first functionalreview in the Republic of Bulgaria

The implementation of administrative systemfunctional reviews has been widespread in the lastfour years in the Republic of Bulgaria. The firstfunctional review of the Bulgarian administrativesystem was planned and implemented in 1997.

In 1997, when the decision to conduct the firstfunctional review was taken, a new reformistgovernment was elected. The newly electedgovernment submitted its program Bulgaria 2001to Parliament. Its main goal was full membership inthe EU and NATO. With that, active measures hadto be taken to turn Bulgaria into a modern andsteadily developing European country with a clearnational identity and contemporary stategovernment, capable of meeting the challenges ofthe twenty-first century.

The overall transformation of the governmentalmodel of the country in accordance with theprinciples of the new Bulgarian Constitutionbecame the foremost task in the implementation ofthe program. The first functional review wasdesigned to assess the existing conditions of thepublic administration system, determine majorstrategic directions for the institutionalestablishment of the Bulgarian administration, aswell as develop a universal plan for implementationof governmental policy with respect to publicadministration. The 1997 functional reviewincorporated all administrative bodies of executivepower at central and regional levels, the

administrative bodies of the legal and legislativepowers, and of the presidential administration.Twenty-six administrative bodies participated inthe functional review.

How the functional review was conductedThe first functional review consisted of four

stages. The scope of the functional review wasdetermined during the first stage. The range,methodology, schedule, realization, consumers andresources were identified. The second stage of thefunctional review was devoted to the analysis of theexisting informational infrastructure. The thirdstage was targeted at the planning and formulationof a strategy to implement a government policy forestablishment of a modern administrative system inBulgaria. During the final implementation stage,appropriate legislative and organizationalmeasures were taken to ensure the establishment ofa modern administrative system in Bulgaria.

The general functional review assessed themissions, functions and tasks of each administrativebody and its units. It also formulated suggestions forreconstruction and planning of future activities.Those who planned and implemented the functionalreview did not intend to change the existing systemof public administration or establish a new one.Rather, their purpose was to modernize the alreadyexisting system by making it more efficient, as well asby laying ground for the universal, strategicallyoriented and steady process of change.

The Minister of State Administration wasresponsible for the management of the generalfunctional review. The implementation of thefunctional review was carried out in the frameworkof the Phare program. It was conducted by a projectteam consisting of local experts not employed ingovernment. The final analysis of the informationand the formulation of the proposed tasks werecompleted in collaboration with officials from theCabinet administration and in agreement withother ministries.

ANNEX 1

Executive Summaries of National Reports1

1 The National Reports are available on the web site of the UNDP Regional Support Centre in Bratislava:http://www. undp.sk

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The first general functional review in Bulgariaresulted in the Strategy for Establishing a ModernAdministrative System of the Republic of Bulgaria whichwas approved by the Cabinet in February 1998. Apermanent system for continuous monitoring ofthe public administration system was incorporatedin the Law on Administration.

Other functional reviews carriedout in Bulgaria

The first functional review carried out in 1997lay ground to further public administrationcoordination initiatives in Bulgaria. A permanentpattern of conducting public administration reviewswas incorporated into the Law on Administration.With that, the Register of administrative bodies inBulgaria was established. The Register ofAdministrative Bodies was completed at the beginningof 2000 and now includes a complete description ofall administrative bodies, as well as all acts issued bythem to date. The Register is a web-basedinformation system. Directorate State Administrationwithin the Cabinet is the body responsible for theoperational support of the Register. The purpose ofthe Register is twofold – to permanently monitorthe status of the administration system, and toprovide citizens free access to the information onthe work of the government bodies.

Another permanent practice established tomonitor the Bulgarian public administrationsystem in Bulgaria is the submission of all annualreports for each administrative structure to theMinister of State Administration.

After the first functional review was carried outin 1997, several horizontal and vertical functionalreviews were in place in Bulgaria. A system ofconducting horizontal functional reviews wasestablished and its statutes were incorporated intothe Law on Administration. Regarding vertical

reviews, several of them have been conductedsince 1998:

� Review of the licensing, permit and registrationregimes was carried out in November 1999-April 2000.

� Functional review of the systems for collecting,processing, and storing of personal informationwas conducted from November 1999-December2000.

� Functional review to improve the organizationand forms of providing services to physical andlegal entities by the administration was carriedout from June-December 2000.

Results of the functional reviewThe practice of carrying out functional reviews

in the Republic of Bulgaria indicated that thismethod of studying the state of administrationproved exceptionally effective in reforming thepublic administration system. The Bulgarianexperience in planning a system of conductingfunctional reviews on a permanent basis, especiallythe web-based Register of administrative bodies,proved to be an up-to-date and efficient model forthe creation an important prerequisite for furtherfunctional reviews.

At present, the major factors in the successfulapplication of the functional review method are toa large extent due to the government’s willingnessto fulfill the recommendations following thereviews. At the same time, effectiveimplementation of functional reviews is directlydependent upon the methodical and practicalreadiness of the project teams which are oftenpressed by lack of time and insufficient resourcesto manage and organize their work so that theycan obtain the necessary objective information onthe process or object under survey.

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1.2. FUNCTIONAL REVIEWIN LATVIA

The original paper on the functional review in theRepublic of Latvia was prepared by Ms. SvetlanaProskurovska, Deputy Head, Secretariat of Minister forSpecial Assignment on Public Administration Reform.

Background – first functionalreview in Latvia

The major task of the newly established Bureauof Public Administration Reform in 1997 was toreview functions and structures of publicadministration bodies and providerecommendations to the government on how torationalize the structures in order to avoid overlapand duplication of functions among the publicadministration bodies. It was assumed that existingpublic administration bodies in Latvia wereengaged in performing similar functions with thesame outputs, which created extra costs on thegovernment, weakened responsibility andaccountability of public administration bodies, etc.

The mandate received from the Cabinet ofMinisters and formalized in a Declaration of theIntended Action of the Cabinet of Ministersdetermined the need for the horizontal functionalreview of all public administration bodies.

How the functional review was conductedThe horizontal functional review in Latvia was

carried out by 4 civil servants of Bureau of PublicAdministration Reform with the technicalassistance from Civil service Administration. Theimplementation of the horizontal functional reviewconsisted of 3 steps. The information aboutfunctions, staffing levels and budget of ministrieswas accumulated by the Civil ServiceAdministration during the first stage. Based on thisinformation, special Regulation of the Cabinet ofMinistries provided rough classification of basicfunctions of public administration bodies. Thesecond stage was devoted to the analysis of theexisting information about institutional functions.The areas of functional duplication and overlapacross the sectors were identified and a preliminarylist of institutions for further analysis was prepared.The third stage was targeted at testing the workinghypothesis of duplication of functions andexploring the reasons whether the duplication canor cannot be eliminated. It was carried out with thehelp of interviewing the heads of public institutionsabout the functions they perform.

As a result, the Analytical Report on thehorizontal functional review with recommendationson elimination of the duplication of functions andfor further perspective steps in publicadministration bodies reform was presented to theCabinet of Ministers in December 1997. Theanalysis of the public administration provided thebackground information and justification fordevelopment of Concept of Development of PublicAdministration, amendments in the Civil ServiceLaw, draft law on Framework of PublicAdministration, Concept and normative act onDelegation of State Functions. Recommendationsof the horizontal functional review were includedinto a strategic government plan of development ofpublic administration till the year 2000.

However, horizontal functional review in Latviadid not provide an analysis of operational efficiencyof public bodies. It didn’t give an answer regardingthe best way of allocation of functions that need tobe carried out as a part of EU integration agenda. Itbecame obvious that a further, in – depth “vertical”analysis is needed.

Other functional reviews carriedout in Latvia

Following the same approach to analyze allgovernment functions in 1997, the second andmore focused stage of functional review in Latviawas initiated in 1999 – performing of verticalfunctional review of ministries and subordinatesystems. Vertical functional review was carried outfirst in the Ministry of Agriculture in 1999, then – inMinistry of Economy and Ministry of Justice in2000. The choice of the Ministry to undergo thevertical functional review was agreed among the 3parties: the Bureau of Public Administration, whichundertook the responsibility to organize andmanage functional reviews, the World Bank, whichallocated financial resources for implementation ofpublic administration reform, and the Ministryconcerned.

Functional review included the Ministry andvarious bodies under direct subordination andsupervision of the Ministry and had the major goalto design the institutional framework for rationaland effective implementation of public functions.

In contrast with the horizontal functional review,external and local consultants from private sectorwith clear separation of responsibilities amongthem were involved in the implementation of thevertical review. This brought into theimplementation process, on the one hand, thenecessary experience of reengineering of ministries

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in other countries, and, on the other hand, ithighlighted the practical role of local experts,responsible for collecting and processing of thedata, conducting interviews in the Ministerialinstitutional system.

Monitoring of the functional review was a task forBureau of Public Administration reform, and sincereorganization in January 2000, the Secretariat ofMinister for Special Assignment on PublicAdministration reform, as a central governmentbody responsible for reforms in publicadministration. It also assisted when it was necessaryto remove blocking issues that hindered the process.

Outcomes of the functional reviewsThe methodology and process of vertical

functional and organizational reviews carried out inLatvia proved to enable a Ministry clarify its role inpublic administration, mission, strategic objectives,functions and structures.

Involvement of an intermediary monitoringinstitution – Secretariat of Public Administration

reform – was proved to be essential to maintain thefocus of the review on the set targets and to ensurethat the methodology is observed. Theaccountability of consultant teams helped toinfluence the process and facilitate the goodworking relationships among parties involved.

At present, the commitment of a Ministry toimplementation of the review and, moreimportantly, commitment to the designed courseof reorganization are the key success factors. It isachievable through various methods: it isnecessary to have an initial desire from the topsenior civil servant in a Ministry to implement thereview, the Ministry should have an opportunity toparticipate in the designing of the review, theMinistry and monitoring body should agree ontheir roles and expectations of a publicadministration reform, etc.

As Latvian example shows, the combination ofhorizontal and vertical functional review enablesthe government to improve capacity and efficiencyof public administration.

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1.3 FUNCTIONAL REVIEWIN THE REPUBLIC OF KAZAKHSTAN

The original report on the functional review in Kazakhstanwas prepared by Marziya MuhanbetrahimovnaBurangalieva, Deputy Chairperson of the TreasuryCommittee, Ministry of Finance of the Republic ofKazakhstan

Background and the purposeof the functional review

The necessity to conduct a functional review inthe Republic of Kazakhstan in 2000 resultedprimarily from large-scale economic instability thathad affected the country in the previous years. Theneed to conduct a review of the publicadministration system in the Republic ofKazakhstan arose from the budget cuts in 1999, anecessity to lower national budget expenses in 1998and 1999 due to an external economic crisis, falls inthe prices on raw materials, production cutbacks inthe key sectors of the economy, dwindling exportsand receipts in foreign currency which allnegatively affected the national budget and itsimplementation. The economic instability wascoupled with the lack of efficient distribution ofresponsibilities among civil servants, and a greatdegree of overlapping in the functions performedby the public administration institutions.

The functional review in the Republic ofKazakhstan was conducted by the Ministry of Financeas part of the execution of the June 1997 GovernmentDecree on reforming the structure of public service.The purpose of the functional review was to establish aprocedure of defining the state responsibilities topursue an efficient government policy and to achievea stable standard of living for the population. Thefunctional review aimed at building a rational systemof public administration that would guaranteesustainable socio-economic development based on theefficient state regulation and creation of economicenvironment friendly to the private sector.

How the review was conductedDuring the summer of 1998 the government of

Kazakhstan undertook important activities toprepare the 1999 budget. The actions undertakenwithin this framework were later on considered tobe part of the functional review since theyrepresented an attempt to analyze the existingstructure of public administration and rationalizedistribution of executive power functions.

Prime Minister of Kazakhstan established aBudget Commission with the mandate to summarize

the findings of the public sector functional analysis,and to plan activities to better control publicfinance. Based on the functional analysis preparedby the Budget Commission, new approaches havebeen worked out as to the implementation of thebudget reform. For example, certain functionswithin the central authorities were delimitated,fixed guidelines of distributing the national taxesbetween the national and the local budgets wereadopted, all financial resources of the state wereconsolidated into one single national budget.

The following are the specific initiatives whichwere planned to be implemented as a result of thefunctional review:

� Some government funded organizations withthe exception of those working in the fields ofgeneral education, farming and environmentwere given authority to receive remunerationfor their products and services thus becomingstate-owned enterprises. This approach wastaken with the intention of creating acompetitive environment for the state-ownedinstitutions in which they would act moreefficiently.

� Government-coordinated pattern of financingmany programs in the areas of highereducation, transport, construction andutilization of mineral resources, culture, sports,etc. allowed to curtail expenses in these areas.

� Restructuring of the human resources withingovernment institutions led to substantial cost-cuts in the government budget. A number ofemployees at government-owned enterpriseshave been reduced which also led to thereduction of government spending.

� The functional review proved to have a positiveeffect on the social sector because of the betterallocation of the state funds.

Outcomes of the functional reviewOne of the main achievements of the functional

review in Kazakhstan was the precise definition ofthe tasks and functions of the main publicadministration bodies. The following maincategories of these tasks have been identified:

� Public services of general nature, includingfinancial, auditing, external political activities,and others.

� Services provided to the society and households.These include education, public health, welfareand social assistance, housing and communalservices and the like.

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� Economic services. These include state activitiesapplied to specific sectors of the economy suchas farming, industry, construction, utilization ofsubsoil resources, transportation, communica-tion, and the like.

Initially, only the organizations funded from thenational budget were the primary subjects of thefunctional analysis. However, later on organizationsfunded from local budgets and from off-budgetfunds were also covered by the functional analysis.

The results of the functional analysis werepresented in two reports issued in 1998 and 1999,respectively. As a result of the functional analysis,transition has been ensured from the principle ofsupporting budget-funded organizations to theprinciple of encouraging them to fund their ownfunctions. A list of government institutionsauthorized to perform functions of administration,control, and surveillance has been defined moreprecisely; functions have been delimited betweencentral and local executive bodies. Likewise,standards were established in terms of distributionof each type of receipts between the federal andlocal budgets.

The functional analysis formally defined thestatus of all the budget institutions in the country. Anew term - public institution - has been introduced intothe legal language of Kazakhstan. It was defined as“an institution supported from the national budgetand empowered to assume financial obligationswithin preset budget assignments only.”

Based on the results of the functional review,several legislative acts and resolutions were passedby the government of Kazakhstan. Among them isthe law On Budget System that set out the functions ofnational and local authorities, the Resolution OnDevelopment of Market for Some Works and Serviceswhich set out the principles of creating friendlymarket environment for the development of state-owned enterprises.

The performed functional analysis carried outin the Republic of Kazakhstan was not a single-timeactivity, and it will continue in the future, especiallybecause of the need of decentralization of thefunctions performed by the state. In thisconnection, the government of Kazakhstan willelaborate the procedural budget methodology anddelimitate the responsibilities of central andexecutive bodies of the state.

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1.4. FUNCTIONAL REVIEWIN THE KYRGYZ REPUBLIC

The original report on the functional review in the KyrgyzRepublic has been prepared by Mr. TalaibekKoichumanov, National Policy Adviser of UNDPprogramme in Kyrgzyzstan, Doctor of Economics.

BackgroundReforms of the public administration began

already at the beginning of the nineties in theKyrgyz Republic. However, they were not consistentand deep from the standpoint of efficiency of publicadministration. In most cases, reforms representeda series of uncoordinated attempts to change thestructure of the public administration system andreduce numbers of staff at government institutions.A complicated administrative system, poor qualityof public services provided to the population,corruption within the government circles andgrowth of the shadow economy all demandedimmediate changes in the system.

The decision to conduct a comprehensivefunctional review was made by the management ofUNDP in Kyrgyzstan within the framework of theproject on public administration and servicereforming. Its main purpose was to establishconditions for radically positive transformations inpublic management, and to provide solid groundfor the further process of reform in thegovernment.

How the functional review was conductedThe functional review in the Kyrgyz Republic

was carried out for the central authorities such asthe President’s Administration, Prime Minister’sOffice, Ministry of Finance, Ministry of Justice,Ministry of Labor and Social Security, Ministry ofIndustries and External Trade, Ministry ofAgriculture, Ministry of Transport andCommunications, Ministry of Education, Science,and Culture, Ministry of Health and Social Fund.Some administrative institutions subordinate to thecentral the government were subject to thefunctional review as well.

In the course of the initiative several types ofreview have been carried out: overall functionalreview with respect to the President’sAdministration and Prime Minister’s Office,vertical functional reviews with respect to theMinistry of Education, Science and Culture andMinistry of Health, and horizontal functionalreviews with respect to government institutionsworking in the social sphere.

The overall functional review included review ofthe Statute, legal acts, assessment of the role andposition in the structure of executive authorities,and the review of functions being performed. Itprovided clarification of the role and objectives ofpublic administration bodies based on new tasksrelating to the transition to market relations, role ofstate and budgetary limitations.

The horizontal review was carried out for suchkey ministries as the Ministry of Finance, Ministryof Justice, Ministry of Labor and Social Security,Ministry of Industry and External Trade, Ministryof Agriculture, Ministry of Transport andCommunications, Ministry of Education, Scienceand Culture, Ministry of Health and Social Fund. Ittook form of the review of personnel, finance, andlegal services. The functional review was performedby means of information gathering throughquestionnaires, interviews with employees ofministry departments responsible for theperformance of general functions. The verticalfunctional review included an analysis of sectoralfunctions of ministry departments as well as theirsubordinate organizations and agencies.

One of the most important tasks during thepreparatory stage before the functional review wasinitiated was to study administrative reformingprocesses in the Kyrgyz Republic. This work wasdone with the purpose of clarifying the directions ofreforming, objectives and final tasks. At thebeginning of the preparatory work the members ofthe management team managed to visit Hungaryand Slovakia with the purpose of gettingexperience in public administration reforming.Likewise, before implementing the functionalreview in pilot ministries, the management teammembers got acquainted with materials on reviewoutput in Latvia and Kazakhstan.

In order not to alienate civil servants working atthe Ministries under review, and to make themactive participants of the review andimplementation process, joint teams of ministryworkers and independent consultants wereestablished to monitor the functional reviewprocess.

During the first stage of the functional reviewthe management team studied the regulatory andlegal documents related to the activity underanalysis. The management team also studied thedocuments related to each organization’srelationship with other structures. By doing this,the management team found out the disparitiesbetween the required and declared functions andprepared appropriate recommendations. At theend of the first stage of the review the management

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team has given its recommendations to efficientlyrationalize the work plan.

The principal aim of the second stage of theprocess was to conduct interviews with managers ofthe departments under review. The objectives andfunctions performed by these departments wereclarified during these interviews. At the end of thesecond stage of the functional review themanagement team came to a conclusion that therewere great disparities between the tasks declared bythese departments, and the actual activitiesperformed by them.

The purpose of the third stage of the functionalreview was to classify the main functions performedby the public administration bodies under review.The main functions were divided into sectoral policy,service provision, regulatory; coordination,monitoring and supervision, and support functions.After interviews had been conducted, internationalexperts and members of the working groupprepared separate reports based on their results.These reports reflected the purposes, objectives ofinterviewing, analysis, problems andrecommendations. Finally, separate reports wereintegrated into one single report.

Implementation and outputs of the functional review

Implementation of the functional review ofcentral public administration bodies in the KyrgyzRepublic was assigned to a Working Group under theNational Council for Public Administration and Service

Reforms which was headed by the President ofKyrgyzstan. Head of the President’s Administrationwas appointed Project Manager. The ManagementTeam proposed that a special administrative bodybe established to monitor the implementation ofthe functional review, but no such body has yet beencreated.

At the end of the functional review process it wasdecided to publish the final report about its outputs.It was also planned to hold a Round Table ofdiscussions of the review results. Based on theround table discussions, the implementation planof the functional review implementation would bethen finalized.

These proposed measures were implementedonly partially. The final report on the functionalreview was published, and the round table was held.However, the Project Manager and President’sAdministration did not give their support for theimplementation of the functional review results.The management team members explained this asa reaction to their critical remarks about theactivities of the government officials, especiallytheir professional skills.

This resulted in the removal of the remarksrelated to the professional skills assessment fromthe report. The final report will be submitted to theHead of President’s Administration forconsideration and further application during therestructuring process after project completion. Themanagement team is currently planning to preparean amendment to the law On Public Service and todraft the law On Public Administration.

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1.5 FUNCTIONAL REVIEWIN SLOVAKIA

The original report on the functional review in theRepublic of Slovakia was prepared by Mr. MiroslavBeblavy in cooperation with the Institute for Economicand Social Reforms, Bratislava, Slovakia, and theUniversity of St. Andrews, St. Andrews, Great Britain.

Background and purposeof the functional review

The functional review in Slovakia, which wasinitially titled “Audit of Financing and Activities ofCentral Authorities of State Administration andOrganizations under Their Jurisdiction”, was initiatedin 1999 when the Slovak Government gave DeputyPrime Minister Mr. Ivan Mikloš the task of carryingout an audit of the activities and financing of stateadministration central authorities by June 30, 2000.

In 1999, the existing situation in publicadministration called for immediate action. After1989 there were only partial changes made in stateadministration in Slovakia. The functions andstructure of public administration could not keeppace with the sweeping changes that were takingplace in Slovak society, turning the country from astate with a command economy into a partlydecentralized state with a market economy. Thus,the purpose of the planned functional review was topropose both systemic and specific reforms thatwould go a significant way towards establishing aflexible, rational, well-arranged, and effectivecentral state administration.

The purpose of the functional review in Slovakiabecame two-fold:

� To reduce costs in central state administration;

� To make central state administration moreefficient.

The latter task was more difficult to quantify, buthad a more far-reaching impact. Overall, thefunctional review covered 172 institutions, amongthem ministries, budgetary organizations andsubsidized organizations, with a total staff of 40,962.However, the functional review was not designed tocover the entire central state administration system.Some areas of central state administration wereexempted from the audit, since a specific approachwas necessary to address their problems.

How the functional review was conductedDeputy Prime Minister Mikloš set up a Working

Group to conduct the functional review. The groupconsisted of representatives of state institutions,national and international experts. It cooperateddirectly with the Institute for Economic and SocialReforms (INEKO) and other donors, such as UNDP,Phare and British DFID. In addition to the WorkingGroup, there was also a Steering Committeeconsisting of the Deputy Prime Minister, statesecretaries of the most relevant ministries andseveral other individuals.

The methodology of conducting the functionalreview was largely connected with the task ofobtaining appropriate information andinterpreting it correctly. Information sources usedfor the analysis consisted of qualitative data,statutes or organization rules, quantitative data,information about the number of employees, andinterviews with central public administrationrepresentatives. Before information was obtainedthrough interviews with civil servants, dataconcerning the structure and preliminaryindicative information about outputs had beencollected. During the interviews, informationregarding the structure of outputs was collectedalongside with the information about humanresources, information management systems, andthe relationship between budgets andorganizational structures. The analytical part ofthe survey demanded expert opinions on specificmatters, such as, for example, agriculture andgovernment office. International experts in theseareas were invited to participate in the evaluationof the relevant departments. Two pilot projectswere carried out during the functional review atthe Office of the Government and the Ministry ofEconomy. They were carried out in two differentways:

� They were executed by a team of Slovak andinternational members and an internationalexpert who was invited to participate in theproject. Based on the project results andrecommendations of the expert, the method ofauditing central authorities was improved.

� A UNDP expert worked out an in-depth ‘value-for-money’ analysis of the FacilitiesAdministration of the Office of the Government.Based on his analysis and recommendations themethod of auditing subordinated organizationswas further elaborated.

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Implementation of the functionalreview and its results

In June 2000, Deputy Prime Minister Miklošreceived an analysis of the existing situation inpublic administration in Slovakia, and numerousspecific proposals for change and improvementfrom the Working Group. After two months ofinterministerial consultations, the Slovakgovernment approved the report on August 30,2000. The report presented a general analysis ofsystemic problems affecting public administrationin the Slovak Republic, an overview of generalmethods to solve these problems, and applicationof these principles to specific areas andrecommendations. The report prepared solidground for the implementation of the suggestionsstemming from the functional review.

The government resolution approved thefunctional review and gave the Deputy PrimeMinister the authority to monitor implementationof the review recommendations, as well as to submitreports to the Government on their progress. TheWorking Group which had conducted the reviewwas given the task of implementing itsrecommendations. It was renamed the Reform

Implementation Unit (RIU). RIU’s responsibilitywas threefold: to prepare proposals for specificreforms, assist other ministries in their tasks andmonitor the progress of review recommendations.

The audit carried out in the Slovakia proved thatrecommendations for any functional review shouldbe based on the individual development of eachcountry. Without taking into account such factors asthe size of the country, development of its privatesector, the country’s legal sector and others, noreforms are likely to be successful. However, generalknowledge of public administration and how it worksis necessary to conduct any functional review.

The functional review carried out in Slovakiaprovided a solid basis for further democraticdevelopment in this country. The success of thefunctional review in Slovakia was due to twoimportant factors: willingness to adjust to new factsand discoveries and ability to create workingrelationships with tens to hundreds of top civilservants with whom the audit team communicated.Political support for the functional review as well asbroad public media interest were indispensablewhile carrying out the audit.

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1.6 FUNCTIONAL REVIEWIN UKRAINE

The original paper on the functional review in Ukrainewas prepared by Ms. Olha Lukashenko, Support officer toUN Resident Coordinator in Ukraine and Ms. OksanaSyroid, Head of the Secretariat of Analytical Counsel, theCabinet of the Ministries of Ukraine.

BackgroundFollowing independence in 1991, the Ukrainian

government recognised that a newly-born countryemerging from more than seven decades of a one-party government system required not only new lawsbut also new governmental institutions. Structuralchanges at governmental institutions needed to beundertaken along with the political and economicreform underway in Ukrainian society. However,despite the fact that the need to carry out a structuralreform was recognized as early as in 1992 as one ofthe highest priorities of the government’s agenda, itwas not until early 1997 that, under pressure fromthe World Bank and other donor organizations, thegovernment slowly started to bring structural reformin Ukraine into effect.

The legacy that remained in Ukraine after theseven decades of the Soviet regime was a complexadministrative hierarchy that planned andcontrolled all spheres of economic activitythroughout the country. During the first years ofindependence many government institutions, bothnew and newly restructured, continued toadminister and control the economy. Thefunctional review process itself emerged from apolicy dialogue between the Ukrainian governmentand the World Bank during 1996-1997, whichresulted in an agreement to initially conductfunctional reviews in the Ministry of Economy andthe Ministry of Finance. The selection of these twoministries was based on the need to rethink the roleof government to advance Ukraine’s transition to amarket economy.

How the review was conductedIn June 1997, the Ukrainian President

established the State Commission on ImplementingPublic Administrative Reform in Ukraine (the PARCommission) to be the lead body for theadministrative reform process. The main purposeof the PAR Commission was to develop proposalsregarding the structure, functions and proceduresin the Ukrainian government to encourage thetransition of ministries and other bodies ofexecutive power from the “branch” to the

“functional” approach. The Presidential Decree ofJuly 1998 adopted the Concept of AdministrativeReform (Concept) that described the government’sintention to create a new and more efficient publicadministration system.

The main objective of the functional review thatwas initiated in Ukraine was to identify and definethe further direction of public administrationreform at a central level. The review was conductedby interviewing focus groups formed by civilservants drawn from each of the participatingMinistries.

The first target institutions that were chosen in1998 were the ministries of Labor and Social Policy,Agricultural Policy, Science, and EnvironmentalProtection. The pace of the functional review wasslowed after the October 1999 presidentialelections. Only in November 2000 did theUkrainian Government reaffirm its commitment tothe functional review programme. By the end of2000, ten ministries were undergoing thefunctional review process.

The functional review mainly took the form ofinterviews of focus groups drawn from civil servantsin each ministry. Questions relating to the nature ofthe functions were addressed during oral interviewsas well as in separate questionnaires disseminatedamong the focus groups. To identify the possibletransformation of each function, functions weregrouped according to a prior developedclassification system based on such categories as, forexample, service provision, policy formulation,standard setting, and other categories. Theclassification system was not the only parameterintroduced to measure the efficiency of thefunctional reform. Foreign “best practices” as wellas objectives identified for each sector were alsotaken into consideration. Decentralization,redistribution, transfer to non-governmentalorganizations, merging, cost recovery andliquidation were the function processes taken intoaccount while conducting the functional review.

The management of the functional review wasperformed by the Working Group on Reform of CentralBodies of Executive Power (CBEP Working Group). Asmall team of four people from business and publicsector backgrounds was drawn from a multi-donorproject to support the CBEP Working Group. Thisteam was appointed by Vice-Prime Minister Tihipkowho was both head of the CBEP Working Group.Since the summer of 1998 the group performed therole of the central management team (MT) of thefunctional review process. The Management Teamwas composed of local Ukrainian experts and oneinternational consultant supported by a number of

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short-term international experts. Having gonethrough a review process, each of the ministries wasasked to prepare a report that included proposalsconcerning a new organizational structure and animplementation plan.

Before performing the functional review assuch, the Management Team undertookpreparatory steps in respect of each Ministry. First,the MT held meetings with a respective Ministerand/or a Deputy Minister to explain the principles,objectives and procedures of the functional review.The second step established a sectoral workinggroup (SWG) within each Ministry. Third, the MTand a contact person from the Sectoral workinggroup drafted the schedule for the review. Thefourth step was to organize a joint meeting of theMT and SWG to discuss the functional reviewmethodology in greater detail.

Implementation and resultsof the functional review

Regardless of the fact that ten ministries wereactively involved in the process of the functionalreview, this process was limited in scope and depth.It constituted a vertical review of selected ministries,in which each ministry was part of a pilot projectconducted at the central level without affecting theregional activities of the ministry in question. While

the Ukraine Government approved the conceptualframework for the functional review process anddelegated authority to conduct the functionalreview to the CBEP Working Group, it neverintroduced a coherent procedure to monitor theresults. The functional review was slowed also dueto complex preconditions that existed prior to itslaunch. For instance, at the beginning of 1999, thestructure of the Ukrainian central government wasquite complex—it had 89 bodies with ministerialstatus. This complex administrative hierarchy thatplanned and controlled all spheres of economicactivity throughout the country was a legacy fromthe Soviet era.

The functional review in Ukraine was notcarried out under ideal conditions and wasinfluenced by frequent changes in the governmentand the government’s inconsistency of actions anddecisions. Just as the Ukrainian government failedto adequately monitor the conduct of the functionalreview, it also failed to introduce any effectiveprocedures to monitor implementation of theresults. The functional review programme inUkraine was weakened by the absence of a generalprocedure which could monitor theimplementation of agreed objectives and measureswith individual ministries. Ministries were thereforeleft to their own devices to try to implementmeasures agreed on in the report.

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ANNEX 2

Sample Questionnaire Forms

2.1 BULGARIA

General Information

Number of staff (total for the institution):By register Actually working

Links of rank and position:vertical - superior:

� with the next level of superiority:� with other superior bodies (please, attach a detailed list):

vertical - inferior:� with units under direct subordination, external to the institution: (please, attach a detailed list)� with other bodies, which are not under direct subordination, but have a lower rank in the hierarchy:

(please, attach a detailed list)horizontal:

� with bodies with a specific rank in the hierarchy: (please, attach a detailed list)

Functional relations:� Indicate with which bodies and how frequently you maintain contact on a monthly basis: (please, list

the names of the bodies and your reasons for seeking co-operation and/or information. In the last columnmark the correct answer with ×)

Administrative On what matters do you need assistance? Frequencyinstitution up to 4 4-10 more

1

2

…

� What is the most often used form of contact (please, use the numbers for the bodies as listed in the table above,as well as the same principle when filling in the information; in the column “through other means” describe, forinstance through a modem connection)

Administrative In what form do you How do you get the How do you adopt

institution ask for their assistance? information you demand? the decisions?

orally in in an through orally in in an through orally in an through

writing official other writing official other official other

paper means paper means paper means

1.

2.

…

78

Description of the Structures and Links in the Institution

Please, put down accurate addresses and telephone numbers of all buildings in which your administrativeinstitution is located.

Administrative structure by unit and sub-units (please, attach a chart - if available - and a description of theadministrative relationship)

Internal functional and operational links (please, attach a chart - if available - and a description of the functionby unit and sub-unit)

Describe the links of hierarchy between the units in your institution

Staff description by unit and sub-unit (Please, use additional sheets of paper or attach ready-made charts ormaterials on the topics above)

Do all members of staff have job descriptions? (please, attach them )� yes� no

Describe the logistics and organization in the performance of the main functions in your institution:

Are the job descriptions in accord with actual working functions?� yes� largely yes� no� I cannot tell

Do you use non-declared links of rank when doing your job? (please, describe them)

Describe the logistics and organization in the performance of the main functions in your institution:

What are the specific and unique characteristics of your institution:

What is the timetable of working hours in your institution? (hours per month )� public reception: ________� working with and processing documentation: ______� drafting documents :________� expert and technical activities ________

Describe the problems in performing your basic functions:

What is the system of control in fulfilling your tasks?

What is the organization of the information in your institution:� internally:� as concerns the relation with the public and the media:What in your opinion needs to be improved in the internal information environment in your institution:

79

Information System

Is there a written strategy for the development of an information system in your institution?(please, attach it)� yes� there are separate papers on the matter� no

What is the purpose of the computer information system currently in use in your institution?� there is none� processing of documentation� drafting of documents� expert and technical activities� others:__________________________________________________________

What kind of equipment do you use?

Description Type Quantity

� local network

� server- Pentium- 486- 386- other:

� working stations:- Pentium- 486- 386- 286

� peripheral equipment- printers- scanner- archives- E-mail- others

What kind of software do you use?

Type Kind, description

� programs with personal access � programs with group access (work flows, specialized data base) � specialized software for your institution � standard programs for Windows (word processing, electronic tables, etc.) � standard programs for DOS (word processing, electronic tables, etc.) � standard programs for other operation systems � others

80

How many people are using the information system officially?

Number

What processes have been automized?� processing of documentation� drafting of documents� expert and technical activities� others:___________________________________________________________

What are the positions of civil servants whose work is automized?� administrative managing personnel� experts� technical personnel� others ___________________________________________________________

Is there document archive in your institution:� yes� no – the documents are stored in the archive of ___________________________

Describe the system you are using for the classification of the documentation in an archive(number the suggested options or describe your own system):___ by area;___ alphabetically;___ chronologically;___ other: _________________________________________________________

In order to solve the problems of your daily work you need:� additional essential information� systematic organization of available information� training� lessening of administrative procedures� better communication (with other bodies)� additional technical equipment� other: __________________________________________________________

What is your attitude to forthcoming reform in the structure of public administration?� definitely positive - it will make the work more effective� skeptical, although the idea is good� it is impossible in practice� it will not have an impact on the work

Please, suggest necessary changes in the regulations and structures which you believe would going toimprove the work of your institution.

81

2.2 UKRAINE

FORM 1. List of objectives

Name of Department:

# Department Objectives Activities to Achieve Objectives

1 2 3

Form 1A. Departmental structure

Name of Department:

Name of the Deputy Minister to whom the department reports:

Department Objectives:

Organizational Structure (Division/s, Number of staff per division)

Comments:

82

Form 2. Legal Definition of CBEP Functions

CBEP functions CBEP functions Functions that are in Organizational unitdefined by current defined by standard fact performed by responsible for

legislation regulations CBEP performing a function(provisions)

1 2 3 4

Form 3. List and Short Characteristics of Functions

Name of Department: Number of staff

Department objectives:

# Function Number Outputs Category Customers (tick relevant boxes)of staff of function

performingthe function

Type Quantity Internal External(if possibleto define)

Internal Other Privateministry sector

or public

1 2 3 4 5 6 7 8 9 10

Additional comments and notes:

Category of Functions

Direct Service Policy Design Policy Regulation Monitoring Standard Complaintsto Public Implementation Setting Consideration

83

Form 3A. List of People Responsible for Providing Information

# Function Responsible Person Position Tel.

1 2 3 4 5

Form 4. Characteristic of Function(to be filled out after the list of functions mentioned in Form 1 is agreed with consultants )

Short characteristic of function

Name of function Category of function

# Question Yes/No Justification

1. Is the function required to protect the public?• Is the function needed to protect the independence

of the state?• Is the function needed to protect public safety?• Is the function needed to protect state assets?• Is the function needed to stimulate or maintain

the economy?• Is the function needed to improve quality of life?• Is the function needed to provide social security?

2. Does the function support the ministry’s objectives?• Which objectives does the function contribute to?• Does the function contribute directly or indirectly?• What is the level of contribution (if measurable)?

3. Is there a demand for the function? Do membersof the public or private sector want the function?(If YES: identify who)

4. Does the function promote fair competition in thesector?

5. Can the function be abolished without harm topublic interests? (If YES: abolish the function)

6. Are there other government executive bodies thatmake contributions to the function?• Executive bodies in the sector regulation system?• Executive bodies in other sectors?

84

Name of function Category of function

# Question Yes/No Justification

7. Is the function required by constitution, internationalor national law?• What law or normative acts require the function?• What law or normative acts define the results and

procedure of the function?

8. Can the function be charged without inequalityof service?• Would political resistance emerge if the service

charge were introduced?• Would there be a demand for the function if it were

paid?• Would people with low incomes have barriers

to the function?

9. Is the public willing to pay?

10. Are there/ could there be suppliers?• Are there existing bodies that could perform the

function? What are they?• Could a private entity perform the function?

11. Would a private entity conducting the functioncreate unfair competition on the market?

12. Would the price or standard of function need to beregulated? (If YES: regulated private enterprise/othernon-government organization; if NO: privateenterprise/other non-government organization)• Is there a need to ensure minimum standards

of service/product?• Is there a need to keep price at a fixed low level?

13. Can the function be transferred to another centralexecutive institution? (If YES: identify whom)

14. Can an appropriate quality of function be achievedat lower cost? (If YES: transfer function)

15. Can the function be reduced in terms of qualityor quantity? (If YES: reduce scale of function)• Is there a severe risk in reducing the scale of the

function?• Is there a severe risk in limiting access to the function

output?

16. Can the function be merged with another withoutreducing the quality of service? (If YES: rationalizethe function within the sector)

17. Can charge cover the function’s costs?

18. Is the function profit oriented? (If YES: state enterprise;if NO: non-profit government organization)• Is the main purpose of the activity to make profit?• Is it expected that the activity make a profit?

19. Should the function be subsidized? (If YES: subsidizedstate enterprise)

20. Can the function be delegated to the lower leverof executive power?• Can the function be delegated to a lower level within

the sector regulation system?• Can the function be delegated to regional level?• Would an equal access to the function outputs

be secured if the function were transferred?• Could the number of customers be increased if

the access were expanded?

85

Form 5. Reorganization Recommendations

# Function Decision Type of institution

Abolish Transfer Reduce Rationa- Decentra- Keep Regulated Private Subsidized Non-profit Central Super- RegionalScale lize lize unchan- private company/ govern- govern- Ministry vised Execu-

ged company/ /other ment ment Institu- tive/other non-go- enter- organiza- tion Institu-

non-go- vernment prise tion tionvernment organiza-organiza- tion

tion

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Name of function Category of function

# Question Yes/No Justification

21. Could the decentralization of function improvethe efficiency of budget allocation? (If YES: decentralizethe function, including delegation to a regional level)• What would be the approximate number of staff

needed (% increase/decrease)• What would be the approximate budget resources

required (% increase/decrease)

22. Would flexibility in budget resource allocationprovide a better function? (If YES: rationalizethe function within the central ministry; If NO: keepthe function unchanged)

Recommendations (to be filled out by the consultants)

Transfer the function to another governmentexecutive institution

Rationalize the function:• within the central ministry• within the sector

Reduce the scale of the function

Decentralize the function

Abolish the function

Transfer the function to regulated private enterprise//another non-government organization

Transfer the function to private enterprise/anothernon-government organization

Transfer the function to self-financing state enterprise

Transfer the function to subsidized state enterprise

Transfer the function to non-profitgovernment organization

Keep the function without change

86

Form 5. Reorganization Recommendations

# Function Decision Type of institution

Abolish Transfer Reduce Rationa- Decentra- Keep Regulated Private Subsidized Non-profit Central Super- RegionalScale lize lize unchan- private company/ govern- govern- Ministry vised Execu-

ged company/ /other ment ment Institu- tive/other non-go- enter- organiza- tion Institu-

non-go- vernment prise tion tionvernment organiza-organiza- tion

tion

1 2 3 4 5 6 7 8 9 10 11 12 13 14

87

2.3 LATVIA

Form 1. Structure of divisions

Name of Department (or subordinate institution) (1):

Position to which the department reports (2):

Interviewer: Interviewee (3):

Objectives of Department (4):

Type of entity(5):

Departmental Budget(6): Actual no. of staff (7): Authorised number of staff (8) Number ofauthorised staff (9)

Non Staff Revenue Total Specia- Support Total Specia- Support Total Civil OtherStaff list list Servants emplo-

yees

Structure of Department/Subordinate or Supervised Institution (10):

Comments (11)

no:Department/Institution:No Ref. of specialists:No. of support staff:Ref no/letter:

Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

Ref no/letter:Division:No. of specialists:No. of support staff:

88

Form 2. Characteristics of Functions

Name of Division(1):Ref: no/letter (2):

Purpose of Division (3):

Ref High Level Activities (5) % of Outputs Category Customers (tick relevant boxes)(4) staff (6) of func-

tion (9)

Type (7) Quanti- Inter- Externalty (8) nal (10)

Other State Privateministry establish- sector or

(11) ment or public (13)subordina-te institu-tion (12)

Suggestions & additional comments (14)

89

Summary of activity (1):

Activity reference no (2): Category of function (3):

Question (4) Y/N Justification (5)

Q1. Is the function required to protect the public?Is the function needed to protect the independence of the state? Is thefunction needed to protect public safety? Is the function needed toprotect state assets? Is the function needed to stimulate or maintain the economy? Is the function needed to improve quality of life? Is thefunction needed to provide social security?

Q2. Is there a demand for the function? (If no, abolish function)Do members of the public or private sector want the function?

Q3. Does the ministry support the objectives? Which objectives doesthe function contribute to? Does the function contribute directly orindirectly to the objectives? What is the level contribution (if measurable)?

Q4. Is the function required by law? Is the function required byinternational/EU law or agreement? Which? Is the function requiredby Latvian law or the constitution? Which? Is the law still valid in themarket economy?

Q5. Is the public willing to pay for the service? If charges wereintroduced would there be unacceptable political resistance? If chargeswere introduced would there still be a demand?

Q6. Are there/could there be suppliers? Are there existing bodies thatcould realistically provide the function? Who? Could a private institutionrealistically be created to perform the function? Is there sufficient profitlikely to attract suppliers?

Q7. Would an unacceptable anti-monopoly situation arise?Would there be a provider with unfair competition?

Q8. Would the price or function need to be regulated? (If Y: RegulatedProvate Company, if N: Private Company) Is there a need to ensureminimum standards of service/product? Is there a need to ensure pricesare kept below a certain level?

Q9. Can the function be transferred to another institution? (If Y:Transfer function) Is there duplication or overlap with other bodies?Is the function being conducted by the correct sector? Are there greatersynergies with other entities?

Q10. Can the function be reduced in terms of quality/quantity? (If Y:Reduce scale of function) Is there a significant risk in reducing thevolume of the function? Is there a significant risk in reducing the accessto the function? Can part of the function be abolished?

Q11. Can the function be merged with another to provide economiesof scale? (If Y: rationalise function) Is there another similar typeof function which could be merged under one management structure,without affecting the quality of the function?

Q12. Can the function be decentralised to improve effectiveness?Are customers dissatisfied currently with access? Is the function a servicefunction with public customers? Would customers interests be significantlyimproved by better access?

Q13. Would it be cost effective to de-centralise? (If Y: Rationalisefunction) Approximate the number of extra staff needed? (% increase?)Approximate the budget required (% increase)?

Q14. Can the function be charged without inequality of service? Is thefunction applicable to all people? Would people unable to pay be severelydisadvantaged? Are the ways of paying according to means?

Form 3. Analysis of Function

90

Abolish Transfer Reduce scale Rationalise Decentralise of activity

Private company Regulated private Self-financing Part funded Not for profit company state enterprise state institution state Part

(agency) funded institu- tion (agency)

Central Ministry Sub-ordinate institution Supervised institution

Summary of activity (1):

Activity reference no (2): Category of function (3):

Question (4) Y/N Justification (5)

Q15. Are the public willing to pay? If people are required to pay, willthey still want the function? If people refuse to pay will the social,economic and political security be threatened? Will public dissatisfactionbe unacceptable?

Q16. Can charges cover costs? (If Y: self financing state enterprise)How much is the income? What are the running costs? With efficiencysavings could the function be self financing?

Q17. Can a subsidy be granted? Is the government prepared tocontribute to the budget?

Q18. Is the function profit oriented? (If Y: State Institution, If N: NonProfit State Institution) Is the purpose of the activity to make profit?Is it expected that that the activity should make profit?

Q19. Can the function be delegated from the central ministry? (If N:Central Ministry function) Is the function a strategy, policy orco-ordination role requiring ministerial overview? To whom?

Q20. Is the function given to the ministry by law? (If Y:supervised institution) Is the function defined separately in legislation,allocating to the ministry?

Q21. Are the outcomes and procedures for performing the functiondefined in law? (If Y: Supervised institution) Are the outcomes clearlydefined in law? Is there little scope for interpretation of regulations?Are the processes simple, uniform or automated?

Q22. Should the director have freedom to manage resources or makedecisions? (If Y: Supervised institution) Should the function berelatively free from political interference? Is the function one in whichregulatory decisions are made? If the outcomes are clearly defined,should the director have freedom to make decisions about how theoutcomes are achieved?

Q23. Should the function be performed by civil servants? (If Y: CivilServants, If N: Non Civil Servants) Is there a need to have continuity ofstaff? if yes CS Is the function policy or performance co-ordination innature? if yes CS Is the function concerned with national security?if yes CS Is it beneficial to rotate staff to maintain skills? if yes CS

Conclusion (6)(tick boxes thatapply)

91

No. of staff required (7): Number of authorised staff required (8)

Specialist Support Total Civil Servants Other employees

Additional information (9)

Form 4. Decision Form

Abolish

Name of Division (1):Ref: no/letter (2):

Ref (3) Decisions (4) Type of institution (5) Employment type (6)

Transfer Reduce Rationa- Decen- Regula- Private Self-fi- State Non Central Sub- Super- Civil Non civilScale lize tralize ted com- nancing Insti- Profit Ministry ordinate vised Servant servant

private pany State tution State insti- insti-company Enter- Insti- tution tution

prise tution

Functional Review Guidance Notes

Form 1. Structure of Divisions

The aim of Form 1 is to define the structure of divisions or subordinate and supervised bodies.

1.Enter the name of the department if in the central ministry, or name of the subordinate institution,supervised institution, regional office or state establishment, state enterprise etc.

2.Name of the department supervisor: Enter the name and title.3.Enter the name of the interviewee (preferably the head of the department/subordinate/supervised

institution).4.Enter a brief description of the purpose of the department that summarizes its core objectives, and is

more detailed than the name of the department.5.Enter the type of organizational entity according to agreed classification.6.Enter the 1999 budget of the department or subordinate institution, if available in Lat1000. Enter the

staff budget i.e. wages and security payments; the remaining budget for the department: and anyincome generated.

7.Enter the actual number of staff for the department, broken down into support staff, and specialists(non-support staff). This should include any contract staff and be based upon 1999 (January 1) figuresif available.

8.Enter the authorized number of staff for the department, broken down into support staff, and specialists(non-support staff); for 1999 (January 1).

9.Enter the total numbers of authorized staff by employment type, according to the regulations of thedepartment/institution (1999, January 1).

10.Draw a chart of the organization down to divisional level drawing in the relevant reporting lines. Ifsections report directly to a department include these two, enter the reference numbers as follows: Alldivisions should be separately numbered between 1 and 200. Each division or section should beallocated a letter. Enter the name of the division/section and the authorized number of positions forspecialists and support staff (1999, January 1).

11.Enter any remarks that will enable analysis of the functions.

92

Form 2. Characteristics of Functions

The purpose of form 2 is to enable analysis of the functions in form 3, based upon knowledge of thepurpose of existing and new activities; and to make estimates of savings or additional costs that will berequired in restructuring. The approach must be pragmatic, and so estimates and judgements willinevitably be made in the completion of the form. This is to be expected, and only small judgementscompared to the over-riding political judgements which will be made later.

1.Enter the division being analyzed.2.Enter the division’s unique reference number from Form 1.3.Summarize the purpose of the division.4.Enter the reference of the activity as follows: Each activity should be allocated a number which should

be added to the unique divisional reference number. Thus, for activity one of division one ofdepartment one enter: 1A1. For newly identified functions not yet performed, enter ‘N’ after thereference e.g. 1A7N means the seventh function of Division 1A is new.

5.Summarize the existing main activities or new required activities of the division. Attempt to ensure thatthe activity can be described as only one functional category. If many functions are present, break downthe activity into smaller activities if this is possible.

6.Estimate through interviewing the average staff time projected to be spent in 1999 on each activity (use1998 figures where these are not available). It will be also necessary to estimate an additional % of timerequired for new activities

7.Describe the main output of each activity, such as a regulation, letter, certificate, payment, visits,lectures, advice, complaint etc.

8.Try to estimate the average forecast/expected number of outputs in 1999, eg number of laws, letters,transactions, complaints dealt with. (Use 1998 is these are not available).

9.Enter the category of function: P for policy; C for Co-ordination, supervision & performance review; Rfor regulation; D for service delivery; S for Support.

10.Tick a box if the output is for an internal customer within the same sector.11.Tick a box if the output is for parliament, another central ministry or cabinet.12.Tick a box if the output is for a state establishment or sub-ordinate/supervised institution.13.Tick a box if the output is directly provided to a private organization, interest group, NGO, or member

of the public, including farmers etc.14.Enter any remarks that will enable analysis of functions.

Form 3. Analysis of Function

1. Enter a brief summary of the activity from form 2.2. Enter the activity reference number from form 2.3. Enter the function category from form 24. Interview using the questions and sub-questions if required. Refer to the analytical framework.5. Enter the justification, giving the names of relevant decrees and statistics where required.6. Tick all those decisions which apply.

Form 4. Divisional Decision Summary Form

1. Indicate the name of the department2. Indicate the division’s unique reference number3. Indicate the reference number of the divisions’ activities4. Indicate the decision on the treatment of functions, tick all those boxes that apply5. Indicate the type of entity that will perform the function, tick only one box.6. Indicate whether employees should be civil servants or other, tick only one box7. Estimate the change in authorized establishment required resulting from any changes, for specialists

and support staff.8. Estimate the number of civil servants or other employees required.9. Indicate any additional information.

93

THE TERMS OF REFERENCE FORFUNCTIONAL AND ORGANIZATIONREVIEW, PREPARED BY THESECRETARIAT FOR THE PUBLICADMINISTRATION REFORMIN LATVIA, JUNE 2001

BackgroundSince regaining independence in 1991, Latvia

has been developing governmental structures tomeet the demands of a modern democratic state.However, institutional structures do not alwaysmatch government objectives: public functions insome cases are outdated, management andcoordination structures as well as reporting andfinancial accountability mechanisms areinadequate, pay and incentive systems are non-transparent and inefficient and performancemeasurement and evaluation are lacking. Despiteconsiderable progress since the re-establishment ofthe Latvian Republic, reforms in the public sectorremain a top priority for Latvia’s accession to theEuropean Union.

In 1999, with the assistance of World Bankthrough IDF grant, Latvian administration starteddeveloping and piloting functional reviews in orderto streamline its administration, improverationality, transparency and accountability inseparate sectors: agriculture, economy, justice. Themethodology of functional review was developedand piloted in three ministries (Agriculture,Economy and Justice), which assisted in identifyingeach ministry’s mission, strategic objectives andfunctions to be retained, devolved, discontinued orundertaken in light of emerging priorities. Themethodology was based on a logical decision-making tree, which allowed decisions on what levelof governance functions could be allocated andwhat would be the most appropriate structure tocarry out the function. Although the methodologyincluded assessment of resources that should be re-allocated or saved with the transfer of structures, itrarely matched real financial allocation andmanagement reality. There was a lack ofinformation available linked to concrete tasks and

functions and budget management was input-oriented.

In spring 2000, the Ministry of Finance followedwith a review of financial management. The reviewwas performed in the Ministry of Justice and theMinistry of Agriculture to help these ministriesbring together structural setting and financialmanagement issues. The report elicited a numberof valuable recommendations: improvement ofpublic expenditure management should be basedon linking policy, planning and budgeting.Ministries do not currently have adequate data foranalysis of efficiency and effectiveness of spending,few programmes had meaningful performanceindicators to measure the use of resources.Ministries planned their activities withoutestablishing priorities. Therefore, despite a formalprogramme budget structure, programmes aresimply either input categories or groups ofinstitutions. Thus there are few meaningfulperformance indicators related to outputs oroutcomes of programmes. Without outcome andoutput indicators it becomes impossible to developconcepts of efficiency and effectiveness ofgovernment spending. Budget planningemphasizes the incremental approach, in whichthings are adjusted at the margins and neglectmedium term priorities. A centralized budget isalso a product of centralized and inflexible budgetcontrol.

Analysis of budget planning, implementationand control in two ministries revealed that thereform of public expenditure management willrequire a major revision of the programmebudgeting system in all ministries, which willrequire a medium term expenditure planningframework to be put in place and establishment ofsectoral priorities. Referring to the functionalreviews, the public expenditure review recommendslinking functional reviews, expenditure management andstrategic planning. Strategic plans should addresssector objectives, priorities, structures, programmesand annual plans. The strategic planning exerciseshould develop a greater congruence betweenproposed structures from the functional reviews,

ANNEX 3

Terms of Referencefor a Functional Review in Latvia

94

the priorities and programmes and the associatedbudgets for programmes.

The report concludes that the separation offunctional and expenditure reviews has proveninefficient for managing the process of change inthe ministries.

Latest developments in Latvian publicadministration linked to strengthening policycoordination function at the center of governmentby establishing a department of Strategic Planningand Policy Coordination at the State Chancellery,call for additional attention to be paid to thestructures of government. Integrated policy asviewed from the central government perspectivewarrants better understanding of the effectivenessof interaction of various structures involved inpolicy implementation. The central position helpsto observe and identify inconsistency of allocationof functions and competencies across theadministration. To ensure effective governmentwork and consequently effective and efficient publicexpenditure management a coherent allocation ofresponsibilities is key. An instrument to ensureintra-ministerial structural and functionalcoherence is a horizontal functional review withincertain government policies.

With the assistance of the World Bank throughPHRD grant the methodology for fundamentalpublic administration review is designed to coverboth a ‘vertical’ and ‘horizontal’ review. It will be‘vertical’ in the sense that it will cover the strategicaims, functions, organization, funding andperformance arrangements of a particular sector(or particular public policy) in the ministry, itsagencies and any subordinate bodies or offices at alocal level. It will also be ‘horizontal’ in that it willexamine other ministries, agencies and bodiesundertaking activities that are relevant to theimplementation of the policy priorities of the sectorconcerned.

Regional development and planning is one ofthe emerging priority policies for Latvianadministration due to a number of affecting factors.European integration offers considerableopportunities for economic and social developmentof the country by providing pre-structural fundsand structural funds after accession to the EU.Strategic planning of regional development,designing programmes and projects, and buildinga proper administrative structure for managementof structural instruments becomes a key issue foreffective and efficient utilization of EU structuralfunds and as a result economic and social growth ofthe country and its regions.

Earlier in 2001 cabinet adopted a resolutionproviding strengthening the institutional capacityof the current Secretariat of Minister of SpecialAssignment on Cooperation with InternationalFinancial Institutions and extending the currentmandate of the Secretariat to include regionaldevelopment and planning. This should result inestablishing a central government institutionresponsible for elaborating regional developmentpolicy, coordinating its implementation with theuse of various instruments, including EU structuralassistance instruments.

Currently more than one central institution isresponsible for regional development: Ministry ofEnvironment and Regional Development, Ministryof Economy and Secretariat of the Minister forSpecial Assignment for Cooperation withInternational Financial Agencies (SMSACIFA).Fragmentation of tasks related to regionaldevelopment in Latvian administration leads toinappropriate spread of personnel resources, whichseriously diminishes efficiency and dilutesresponsibility for design and implementation ofcomprehensive policies. The review of the presentand future challenges of regional developmentpolicy should provide the government with a clearoption document for defining strategic objectives,competencies of the institutions that can effectivelydesign and implement regional developmentpolicies and required financial resources adequateto the tasks.

The present administrative territorial division inLatvia does not ensure effective economic andsocial development and cohesion. A big number ofmunicipalities (552) in a country with a totalpopulation of less than 2.4 million inhabitants doesnot ensure the necessary scope for coherenteconomic and social development. A system of fiveplanning regions is emerging, which will beunderpinned in forthcoming legislation.

The fundamental review in this pilotshould focus on� clarifying the scope of regional policy with

clearly measurable objectives;

� developing institutional frameworks for policydevelopment, strategic planning and program-ming;

� reviewing instruments for implementation ofthis policy (including funds); and

� designing an institutional structure which meetsimplementation and accountability requirements.

95

Objectives

Technical assistance is sought to achieve thefollowing objectives:

1. Undertake a pilot Fundamental PublicAdministration Review of regionaldevelopment policy and institutional structures(functions and programmes) and budgetaryallocations, in order to ensure that strategicpolicy goals are achieved in the most effectiveand efficient way. The sector must be reviewedalong two major dimensions of regionaldevelopment policy in Latvia:

(1) achieving internal cohesion (reduction ofdevelopment disparities) among differentterritories within the country, and

(2) achieving convergence (reduction ofdevelopment disparities) between Latvia(one of the smallest European Unioncandidate states regarded as a single regionin EU Regional Policy) and the EU.

2. Test the methodology for fundamental review,which builds on functional review methodologyand expenditure review methodology andmodify the former as needed to achieve thegoals of development of a public administrationsystem capable of effective and efficientdelivering of policies.

3. Provide recommendations on rationalizingsystems and structures within the sector, with aview to improving the accountability, effectivenessand efficiency of public administration.

Tasks1. Using the prepared fundamental public

administration review methodology, undertakea fundamental public administration review ofthe regional development sector, focusing onthe following key issues:

� review the existing policy on regionaldevelopment, analyze the external andinternal factors shaping future regionaldevelopment policy in a country, acceding tothe EU between 2003-2004, and formulateproposals for medium and if possible longterm policy goals and advise on reallocationof budget programs to the identified publicbodies in the light of the government’s policystance;

� review the existing institutionalarrangements designed for developing andimplementing the policy on regionaldevelopment and propose optimal

structures for implementing policy goals andeffectively using the available implementinginstruments, including Phare, ISPAassistance;

� based on policy goals, available instrumentsand proposed institutional structure, designoutput oriented budget programmes (definethe programmes, their structure of theprogrammes and expected outputs) withinexisting budget constraints and makeprojections for medium term budgetrequirements for implementation of policygoals.

2. In cooperation with the State Chancellery,SMSACIFA, other institutions (national andregional) deal with the issues of regionaldevelopment, and build on any previousstrategic work undertaken in publicadministration, draw up and agree a strategic setof aims and objectives for the sector as a wholewith the relevant parties.

3. Examine the policies (both national policies ofregional development presently functioningand future needs for Latvia’s participation inprocesses of EU regional policy), structures andfunctions in key ministries within the sector todetermine which are involved in delivering thesector’s policies and the relevant functions thatare being carried out by these ministries. Thiswork should build on the functional reviewmethodology used in Latvia.

4. Based on agreed strategic goals and objectives,assess whether existing functions are correctlyallocated against these strategic aims andpriorities and whether all necessary functionsare performed to a sufficient level to achieve setaims and priorities. On the basis of thisinvestigation, draw up a desirable programstructure, identifying missing programs,unperformed and redundant functions as wellas programs and functions that are duplicatedbetween ministries. Taking into account thespecificity of regional development sector theassessment also should focus on issues of clearallocation of responsibilities, role of the leadinstitution, and co-ordination mechanisms.

5. Identify resources devoted to existing functionsand map these resources into the newrecommended program structure, determiningareas where resources are wastefully deployedand the extent of unfounded mandates.

6. Consult with the Ministry of Finance, providesuggestions for performance measures tomonitor the new program structure.

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7. Write a report with recommendations to thegovernment on the proposed policy frameworkon regional development and institutionalstructures to deliver policies and budgetprograms that are compatible with policyoutcomes. Suggestions on redeployment offunctions and funds across ministerialboundaries to create a sustainable institutionalsystem for developing and implementingpolicies should be included in the report.Include proposals for amendments andimprovements in the methodology forperforming a fundamental publicadministration review, based on experiencegained during the pilot review.

8. Implementing arrangements

This fundamental review will be conducted by ateam of experts working in a close relation withthe Steering Committee. The team of expertswill include:

� A leading external consultant who shouldundertake a planning, oversight, guidanceand assistance role in the project. Theleading external consultant will act as theoverall supervisor of the project and ensurethat international best practice in publicadministration reviews is available andutilized. The principal role of the leadingexternal consultant will be to provide adviceand guidance to local consultants.

� The external policy advisor should use EUpolicies and procedures and experience inregional development policies in memberstates and candidate countries to reviewexisting policy on regional development inLatvian administration and makeappropriate policy proposals. Should it bepossible, he/she will advise on reallocation ofbudget programs to identified public bodiesin the light of the government’s policystance. The advisor should identify the keystrategic objectives for medium termregional development policy and suggest aframework for policy implementation basedon the best practice and suited to the Latvianadministrative and political environment.

� A team of local consultants is responsible forconducting the fundamental review undersupervision and detailed guidance of theleading external consultant and for

preparation of the final report. They shouldreview organizational mandates, carry out astakeholders’ analysis, review institutionalfunctions of bodies currently involved in thedesign and implementation of regionalpolicies and institutional arrangements.Local consultants should produce outlineinstitutional arrangements and aprogramme structure. They should alsoprovide an indication of the main results thisprogramme structure would deliver. Localconsultants would also produce a provisionalmap of existing resources onto the proposedprogramme structure.

In order to ensure coordination of multiplestakeholder interests, this project will beundertaken by the experts in coordination with asteering committee, including the majorstakeholders: Secretariat of Public AdministrationReform, Ministry of Finance, State Chancellery,SMSACIFA, Ministry of Economy and Ministry ofEnvironment and Regional Development. TheSteering Committee should review and agree theimplementation plan of the fundamental review,review and comment on the strategic objectives ofregional development policy, review thepreliminary analysis of the situation in the field ofregional development policy, consult experts ongovernment general priorities and commitmentsthat impose a restricted framework on the designof the new institutional structures and theirrespective allocations. The Steering Committeeshould approve the final report prepared by theconsulting team.

To ensure that the output of the fundamentalreview will facilitate the rationalization of theregional development sector, high levelcommitment from the leading stakeholder –SMSACIFA should be developed through severalmeans: Signing the Memorandum ofUnderstanding on objectives of the review,commitment of both parties (SMSACIFA and PARSecretariat) to deploy necessary resources for thesuccessful implementation of the review andcommitment of SMSACIFA to implementingproposed recommendations.

Draw up a clear timetable for the review itselfand for implementation of the reviewrecommendations, in consultation with the PARSecretariat, the State Chancellery, and SMSACIFA.

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Deliverables

1. A ‘Memorandum of Understanding’ betweenthe parties concerned with the review coveringthe aims, conduct, and presentationarrangements for the review.

2. A working paper containing the review of theexisting policy on regional development andappropriate policy proposals, and identificationof the current medium term budget provisionand comments on the adequacy of this provisionin the light of the government’s policy.

3. A statement of strategic goals and objectives forthe sector as a whole.

4. Recommendations for eliminating redundantor overlapping functions of institutions withinthe regional development policy sector andaddressing the functional areas neglected untilnow within the sector.

5. A program structure for the lead institution linkingthis proposed structure to existing budgetaryallocations, including the proposed transfer offunds from institutions with the policy sector.

6. A set of suggested performance measures tomonitor program results.

7. A final report summarizing work done andincluding any recommendations for improvingthe accountability, effectiveness and efficiency ofthe sector agreed with the stakeholders andapproved by the Steering Committee. Thecontents of the report should feature:

� A description of methodology used,including the indications where the existingmethodology was amended;

� A statement of strategic goals and objectiveswith identified program outputs;

� Analysis of the current situation in the sector,including the objectives pursued,institutional arrangements currently in placeand existing funding levels;

� Proposals for a new institutional systemmatching the strategic objectives and thechallenges of EU integration, transfer,change and undertaking of new functionsmeeting strategic objectives;

� Proposals for the budget programmestructure linked with strategic objectives andrequired outputs;

� Recommendations on the short-term andmedium term action to implement therequired reorganization.

Reporting

On contractual matters consultants will report tothe Deputy Head of Secretariat of PublicAdministration ReformsMs. Svetlana Proskurovska.Address; Raina bulvaris 4, LV 1050 Riga, Latvia.Phone 371 7223109, Fax 371 7223148.e-mail svetlana.proskurovska@vprb.lvsvetlana.proskurovska@vrm.lv

Mr. Normunds Malnaès will be the contact personat the World Bank Latvia Mission.Phone 7507056,e-mail nmalnacs@worldbank.org

Consultants’ profile1) Leading external consultant:

a) At least five years experience in the public sector

b) Proven record of designing and implementingmanagement system in public sector institutions

c) Good knowledge and experience with modernpublic expenditure management systems

d) Good knowledge and experience with governingprinciples of public sector management

e) Record of management of institutional reforman advantage

f) Fluent English

g) Excellent communication and presentationskills

2) External policy advisor:

a) At least five years experience in regionaldevelopment policy planning

b) Good knowledge and experience in strategicplanning

c) Fluent English

d) Knowledge of Latvian situation in regionalplanning will be an advantage

e) Excellent communication and presentationskills

3) Local consultant(s):

a) Experience in functional reviews in publicadministration

b) Good knowledge of public management issues(in Latvia)

c) General understanding of program budgetingissues

d) Fluent English

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Schedule and technical detailsThe project must be implemented within a two

week period, starting on July 2, 2001. The threecopies of the final report in Latvian and Englishshould be submitted to the PAR Secretariat togetherwith the approval of the Steering Committee.

Payment according to contracts signedindividually with the lead consultant, advisor onregional policy and local consultants, and based onthe submitted invoices and supporting documentswill be made to contractors within one month fromthe date of submission of the invoice to the specifiedbank accounts, but not later than three months afterthe end of the project.

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1) Develops projects for the implementation ofgovernment strategy for the formation of amodern administrative system of the Republicof Bulgaria;

2) Analyses the organizational status of executivepower administrations, of staff and theirqualifications and of administrative services;

3) Supports the State Administrative Commissionof the Cabinet in the application of the CivilService Act and in the development of thenormative order for a state institution;

4) Participates in the development of projects ofnormative acts and prepares opinions on theprojects of acts presented by the Cabinet inconnection with the administrative bodies andtheir personnel;

5) Maintains an electronic Register ofadministrative bodies;

6) Analyses working methods and procedures inadministrations and develops project programsfor their optimization and upgrade;

7) Provides methodology for the implementationhuman resources management policy in theexecutive power system;

8) Develops project programs for improvement ofthe professional qualification of state officials,analyses and assesses the necessities ofadditional human resources in administration,analyses the pension system and social care oradministration personnel;

9) Develops suggestions for a general system forpayment of administration personnel;

10) Develops programs for administrative co-operation.

ANNEX 4

Functions of the Directorate“State Administration” in Bulgaria

THE DIRECTORATE “STATE ADMINISTRATION” – A SPECIALIZED UNITIN THE ADMINISTRATION OF THE CABINET IN BULGARIA, APPROVED BYDECREE #209, ON 25 NOVEMBER, 1999

Art. 101. Department “State Administration”:

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