Data analytics improving CFOs’ lines of sight for program execution

Federal chief financial officers have more foresight, insight and hindsight than ever before to make better decisions. But just as important as having these wid...

Data is driving much of the technology innovation across government. But it’s also giving agency financial managers new lines of sight into how money impacts performance.

Federal chief financial officers have more foresight, insight and hindsight than ever before to make better decisions. But just as important as having these wide-ranging sight lines is how they are being translated down to the program level.

The value of the data and how CFOs analyze it is quickly becoming the key to discovering and uncovering solutions to the agency money problems.

“Financial analytics presents federal agencies a business model or capability to use fact-based decisions and provide real context and transparency,” said Vincent Dennis, a principal with Deloitte Consulting and a former federal official who worked in the financial management offices at the CIA and the National Reconnaissance Office. “And, in turn, this can allow them to make increasing confident, responsive and repeatable means to explain why something happened, and to model and predict why something may happen across various time dimensions, historically, current and into the future.”

He said increasingly agencies are using information for planning and budgeting, to make investment or disinvestment decisions, around workforce issues and, of course, to measure the effectiveness of their internal controls.

As part of our week-long multimedia series, the Rise of the Money People: Financial management moves front and center as agencies make final assault on wasted billions, Federal News Radio explores the growing challenges and opportunities for CFOs to use data more effectively and how it is impacting their decision making.

Pockets of progress

Experts say the government is behind the private sector in how it uses financial data, but there are some pockets of progress.

Danny Werfel, the controller of the Office of Management and Budget, said the General Services Administration’s management of federal real property is one such example.

Danny Werfel, controller, Office of Management and Budget
He said GSA is using data to look “at co-location and consolidation opportunities, pulling data from a given geographic region or a type of real estate asset such as warehouses or office space and starting to understand where our under-utilization of those assets might lead to consolidation opportunities and then feeding that information back to the agencies or through the Federal Real Property Council in a way that says here’s what we are seeing and here are the trends in our real estate and here’s where our opportunities are. That’s all data driven.”

Under these efforts, OMB reported agencies saved $3.5 billion by disposing of real property or from consolidating leases by the end of fiscal 2012.

The second example Werfel pointed out is happening within the Treasury Department.

“More so than I’ve seen ever before, I see the Treasury Department is analyzing trends in debt collection, isolating agencies that may be on a slower pace versus agencies that at are on a quicker pace, and trying to understand what are the factors that drive an agency to be a top performer in debt collection versus others,” he said. “Then they have their own debt they collect on behalf of the federal government. They analyze their own performance as well.”

In 2012, Treasury collected more than $3 trillion in debt to the government, and data played a huge role in overseeing that effort.

Finally, a third example Werfel points out is FEMA, and how it uses data to ensure proper funding levels are available after a disaster.

He said FEMA looks for “opportunities to make sure they are using accounting data to resolve any gaps in funding that they might need to deal with a particular crisis. They understand where their cash is, how it’s being executed and analyzing data to make sure money is in the right spot, at the right time to meet an emerging priority.”

A growing trend across government

Werfel’s three illustrations are material proof that data analytics is a growing trend across government.

A recent survey of CFOs and deputy CFOs by Federal News Radio takes the trend further. It finds about two-thirds of the respondents are using financial data to make budget decisions first and foremost. And at about the same rate, though ranked lower in the survey question, respondents said financial information is also helping them make program and personnel decisions.

Doug Criscitello, a managing director with Grant Thornton and former CFO at the Department of Housing and Urban Development, said despite real progress in using data analytics, there are several obstacles agencies need to overcome.

Doug Criscitello, managing director, Grant Thornton
“We know the budget of everything, but the cost of nothing,” he said. “We like to talk about the state of activity-based costing and managerial cost accounting hasn’t evolved to the point that we’d like. But a significant contributor to that problem in my view is that the budget and appropriations accounts are structured in such as way to obfuscate to some extent what it costs to achieve public policy goals.”

He said despite the Government Performance and Results Act (GPRA) requirement to fully integrate performance and budget, appropriations accounts haven’t evolved to the point where lawmakers understand the cost of achieving objectives.

And because those appropriators haven’t changed their view, agencies have been slower to do the same.

Criscitello said often agencies have focused too much on complying with data collection requirements and not enough on how data can help program performance.

Deloitte’s Dennis agreed with Criscitello. He said there has to be a recognition by the program people that they have to move into a cost-based environment.

Dennis said financial analytics helps with that change.

Groundwork set for data-driven decisions

Pushing data beyond CFOs and toward program managers is the next step in this financial evolution.

Werfel said previously data needed to reside with the CFOs. This was the point of the CFO Act of 1990 — to strengthen internal controls and improve overall financial management processes.

Over the last few years, however, Werfel said agencies have started to build on the CFO Act’s foundation through the use of data analytics.

Now, before the next layer of the foundation can be cemented into place, there are a few data issues that need to be resolved.

“There’s a lot of standardization in the data right now. It’s not like we are completely non-standard in every aspect. But there are opportunities to standardize more,” Werfel said. “What we are trying to do now is come up with a roadmap to standardize in the near and medium term.”

He said the goal is to improve the value of the data for agencies and the public.

One of the first areas OMB will focus on is around procurement data. The goal is to make sure the information in is the same as that in agency financial statements. Werfel said improper payments and real property data also need more attention.

“Federal agencies need to and want to come together to build data analytics, sharing information more effectively and in real time around where they are seeing success, where they are spending money, what we own, where we can share,” he said. “I think a great example of the future is the prices paid portal.”

Tissue rejection a concern

The Office of Federal Procurement Policy is leading the effort to collect data about what agencies are buying, for how much and under what terms and conditions. Agencies then share that information so everyone can take advantage the data to make better buying decisions.

“The key thing we can do is things like the prices paid portal where we are building information sources so that we are smarter about where these opportunities lay for the highest return on investment,” Werfel said.

Before that can happen, however, Deloitte’s Dennis warns against what he called tissue rejection — the idea that the agency’s culture isn’t quite ready for this change.

He said agencies need to update their current business processes to use data more effectively.

“We advise agencies to make determination, or at least an initial assessment, about who or which activity within the agency would be responsible for performing the analysis and integrating that in to the decision processes, and don’t lead with the technology,” Dennis said. “We encourage agencies to recognize and appreciate technology is an enabler but they should get the functional or core part of the performance analysis, data analysis, right and then incorporate technology to enable that.”

Dennis added agencies should start small and achieve a few successes before expanding to something like a data warehouse.

The other challenge he points out is communicating the results of the data analysis in a way secretaries and deputy secretaries understand so they can make decisions.

Grant Thornton’s Criscitello said next generation of financial managers will overcome two hurdles to help tip those the scales toward better analysis and communications, and survive this time of budget reductions.

“Program offices beyond controlling their budgetary resources typically don’t have access to the type of financial information that resides in CFO offices,” he said. “Program offices need to develop those relationships with their CFO offices. Also, moving toward real time data is a real differentiator, and the need not only for data, but real-time data-information that matters right now.”


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