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2 Contents 1 Foreword Signatory page Executive Summary Introduction Background Principles of implementation Business Operations Operations Analysis Baseline Analysis Needs Analysis & Requirement Analysis Cost Benefit Analysis (CBA) Identification of Monetary Costs & Benefits Identification of Labor Costs and Benefits Identification of Other Costs/Benefits Results Framework and Results Narrative Outcome 1: OMT Governance and Business Operating Strategy Common Procurement Common Human Resources Common ICT Common Transport UN Common Premises Common Finance Business Operations Monitoring, Evaluation and Reporting Business Operations Governance Mechanisms Business Operations Budgetary Framework Operationalsing the Business Operations Strategy Annexes Annex 1: Baseline Analysis Annex 2: Needs & Requirement Analysis Annex 3: Cost Benefit Analysis Annex 3a: One time Monetary Cost Annex 3b: Activity Based Costing of Procurement Process Annex 3c: LTA One time Cost (Development) and Recurring Cost (Renewal) Annex 3d: LTA Benefits Savings on Staff Time... 17
3 Annex 3e: Labor Cost (One Time & Recurring) and Labor Cost Savings (Recurring) Annex 3f: Cost Benefit Analysis for Common Procurement Annex 4: BOS Results Matrix and OMT Annual Workplan for Annex 5: BOS Budgetary Framework Annex 6: Terms of References for OMT and OMT Working Groups
4 1 Foreword 3
5 2 Signatory page 4
6 3 Executive Summary In 2016 United Nations in Sri Lanka has decided to adopt and implement the Business Operating Strategy (BOS) framework developed by the UNDG Business Operations Working Group. The following UN agencies took part in development of BOS in Sri Lanka: UNICEF, UNDP, UNHCR, UNOPS, IOM, ILO, UNFPA, WHO, FAO and WFP. The main objective was to help UN in Sri Lanka to sharpen operational efficiency, harness resource mobilization and strengthen implementation of UN programs by especially guiding the UNCT and operational teams in their business relations with key suppliers and vendors, implementing partners and other operational stakeholders. This will also enable UN Agencies in Sri Lanka to identify operational areas where convergences can be undertaken to maximize efficiency and reduce costs. In addition, the BOS will serve as a clear indication of the UNCT commitment to reduce its operating costs, enhance the quality of common operations and increase the efficiency of business operations. This document outlines all aspects of the process of development of BOS, including principles of implementation, details of operations analysis, results framework and budgetary requirements. UN Operations Management Team (OMT) in Sri Lanka with full enthusiasm and professional approach led the process of development of BOS in Through the data collection and various analysis, the OMT studied the existing UNCT business operations, and provided an overview of the costs and benefits of several proposed common services. As a results, the final result framework encompasses work on the following business operation areas: Procurement, Human Resources, ICT, Transport, Common Premises and Finance. Implementation of BOS has helped UN in Sri Lanka: To strengthen governance of OMT and its Working Groups To improve quality and efficiency of common long term agreements (11 common LTAs) To save/avoid annually around $100,000 from transaction cost procurement only from harmonized To understand and identify the potential for wider harmonization in other areas of business operations To enhance the ability to monitor and report on results 5
7 4 Introduction 4.1. Background The Quadrennial Comprehensive Policy Review (QCPR) and the subsequent Economic and Social Council (ECOSOC) resolution on Operational Activities of the United Nations for international development cooperation call for simplification and harmonization of the United Nation system. The UN resolution urges United Nations system organization to identify and accelerate the implementation of those business processes that promise the highest return from simplification and harmonization and encourages United Nations system organizations within their existing planning, budget and evaluation systems to report on their cost savings resulting from improvement of their business operations. 1 The UNDG Business Operations Working Group developed the Business Operations Strategy (BOS) guidance and instruments in 2012 to operationalize the UN resolution with the aim to reinforce the linkages between the UN programme strategy at country level (UNDAF) and UN operations. Its goal is to enhance operational monitoring, evaluation and reporting efforts of these harmonization initiatives and to advance the harmonization of business operations at the country level. The BOS is the strategic planning instrument of the Operating as One pillar of the Standard Operating Procedures for Delivering as One. It enhances the cost effectiveness and quality of operational support processes such as procurement, information technology, human resources, logistics, administration and finance in support of the UNDAF/One Programme Principles of implementation The United Nations is a reliable partner of Government of Sri Lanka and has supported the country in achieving Millennium Development Goals (MDGs) through the United Nations Country Team (UNCT). Throughout the years the UNCT has established effective working environment for driving joint UN results at both national and sub national levels. The transition from the Millennium Development Goals to the Sustainable Development Goals will require more harmonized approach of UN programs in Sri Lanka over the coming years. It is anticipated that the UN is going to be an invaluable partner to Government of Sri Lanka in the post 2015 development agenda by particularly supporting Sri Lanka to achieve the Sustainable Development Goals (SDGs) over the next fifteen years. In this context, in 2016, UNCT in Sri Lanka has decided to go ahead with development of Business Operating Strategy (BOS) for UN in Sri Lanka. The main objectives of developing the BOS are: 1. Facilitate implementation of the UNDAF and support effective and cost efficient delivery of programme activities. 2. Increase harmonization and coherence within the UN system, and reduce transaction costs. 1 ECOSOC resolution E/2011/L.35, sections 11 and
8 3. Simplify procedures, and save costs by developing better relationships with key partners and suppliers, and the host government. 4. Improve the planning, implementation, monitoring and evaluation, and reporting of the UN s inter agency business operations through the use of measurable targets and indicators. With strategic support from the UNCT/RCO, the OMT formed a Task Force to work alongside to formulate the BOS. The team presented the BOS principles and analytical tools to OMT members, and conducted sharing sessions and trainings with members of each OMT Working group. The process of BOS development was participatory and inclusive. The following UN agencies in Sri Lanka provided input during preparation of the BOS: UNICEF, UNDP, UNHCR, UNOPS, IOM, ILO, UNFPA, WHO, FAO and WFP. Given Sri Lanka was already in the midst of current UNDAF cycle, it was agreed that a two year BOS ( ) would be most practical and appropriate. The BOS was structured around seven key Operations areas: OMT Governance and Business Operating Strategy, Procurement, Human Resources, ICT, Transport, Common UN Premises and Finance. The BOS development process commenced with a comprehensive desk review of BOS guidance note, templates and materials from other pilot countries for lessons learnt and for serving as an example. The following graph provides an overview of the BOS process. 7
9 5 Business Operations Operations Analysis The Operations Analysis is a critical element of BOS and aimed to identify which harmonization initiatives add value to the country offices and prioritize the different initiatives that are identified as adding value to country level Business Operations. The Operations Analysis includes the following analysis: 1. Baseline Analysis: Current Service Offering (Supply) Existing Business Operations Harmonization initiatives 2. Needs Analysis & Requirements Analysis (Demand) Programme related Needs (as per UNDAF) Non programme related Needs (corporate operational requirements) 3. Cost Benefit Analysis for potential Business Operations Harmonization initiatives; 4. Last, the OMT prioritizes the added value harmonization initiatives. Based on the results of the Operations Analysis, the UNCT/OMT prepares the Results Matrix and the M&E framework, which guide Business Operations harmonization for the coming programme cycle. As it was earlier mentioned, UN in Sri Lanka has decided to analyze the following key business operation areas: OMT Governance, Procurement, Human Resources, ICT, Transport, Common Premises and Finance Baseline Analysis Baseline Analysis includes a stock taking and assessment of the current Business Operations Harmonization initiatives. Based on the performance of each Common Service, the OMT in Sri Lanka assessed the added value of the Common Service to the UN System in Sri Lanka, which formed the basis for the results framework and any recommended actions. The OMT used the stock take to capture existing common services, establishing KPI, baseline and targets based on current performance, and ranking their performance prior to introducing the BOS. Thus, while the assessment was primarily a review of what was in place; it also made it clear that as a part of these analysis, there were initial assessment of the quality and necessity of the services in addition to idea of where the services might be expanded or changed. Findings from the Baseline Analysis Each area of common services was separately assessed based on data collected from Agencies. For collection of qualitative data surveys were very instrumental to capture the current situation with quality of the services and to identify the way forward. Additionally, collection of the quantitative data for years 2014 and 2015 about common procurement, number of common long term agreements and 8
10 transactions/contracts, and procurement volumes of UN Agencies allowed to effectively assess the performance of common UN LTAs and to understand the baselines for common procurement. As part of common premises, information about location of offices, number of staff and vehicles was obtained. Moreover, Agencies actively provided information about current Greening initiatives and enthusiastically participated in collection of data for assessment of Environmental Footprint on UN in Sri Lanka. These all allowed to understand the current situation with services provided in common premises. The baseline analysis showed that most of UN agencies in Sri Lanka were already involved and were using certain common services like travel agency services, stationery/supplies, security guard services, provision of internet, etc. However, findings also showed that some agencies were unaware of existing UN Common LTAs, were underutilizing some of the existing LTAs and were not monitoring usage of existing LTAs to ensure that the UN was getting value for money and that vendors/suppliers were adhering to terms and conditions agreed in such LTAs. Please see attached Annex 1 for more information on Baseline analysis for each outcome area Needs Analysis & Requirement Analysis The Needs and Requirements Analysis identifies the need for operational support at the country level (demand). The Needs Analysis identifies and describes the need for desired (new) joint operational support services. In Sri Lanka, the needs for Business Operations derived from the baseline assessment of the existing common services and the need for new common services. OMT had a number of discussions where a new common services were emerged from ongoing business operations in the area of procurement, human resources, ICT and transport. Specifically, in the area of procurement in order to enhance efficiency across the UN system in Sri Lanka, the OMT has identified new services and goods for which establishment of LTAs will allow to reduce the internal transaction costs, to save in potential reduced prices for goods and service, and to improve the quality of services and goods. Additionally, the OMT identified that there was a need to conduct a feasibility studies on common help desk and common fleet management concepts which would allow to understand the potential for cost savings and operational efficiency. Further, the Requirement analysis took place. The requirements outlined the parameters which the service needs to meet in terms of quality, timeliness, or cost effectiveness, expressed in the form of Key performance Indicators (KPI s). In identification of KPIs, the OMT tried to ensure that KPIs are realistic and measurable in the first place, and that the cost of measurement and data collection are acceptable. The Requirements Analysis/KPIs for each need were included into the same table as the Needs Analysis. Please see attached Annex 2 for more information on Needs &Requirement analysis for each outcome area Cost Benefit Analysis (CBA) 9
11 Cost Benefit Analysis (CBA), a last step before developing the result matrix, provides the analytical basis for the OMT/UNCT to make informed decisions which initiatives are prioritized, based on either avoided costs or enhanced quality of proposed business operations process and/or product/service. Cost benefit analysis considers the overall impact of proposed new services identified at the needs analysis stage and ranks them accordingly. It compares benefits to costs in a ratio. As some harmonization initiatives may require investment up front in order to implement the initiative, the cost benefit analysis provide details on the level of the required investment cost (both time and financial cost) which may influence the prioritization of each initiative. As such, the cost benefit analysis aims to assess the cost avoidance ( money not spent ) of a proposed solution. Cost avoidance is when an action is taken to avoid future costs. Such actions may cost more in the short term, but will reduce overall costs in the long term. Avoided costs make more resources available to implement programme initiatives. The CBA therefore analyses three types of costs and benefits associated with each suggested Business Operations harmonization initiative: 1. Monetary Costs/Benefits 2. Labor Costs/Benefits 3. Other Costs/Benefits Cost Benefit Analysis reflected in Annex 3 considered all aspects of Cost and Benefits associated with an existing or new business solutions Identification of Monetary Costs & Benefits Monetary costs and benefits are cost that are either upfront investments to establish the common service or recurring costs to maintain the established common service, and are benefits resulting from a reduction in prices (in the case of procurement) or reduction in operating costs. In case of UN in Sri Lanka, the baseline analysis showed that some of the common UN LTAs will expire in 2015 and 2016, and therefore, there will be monetary costs mainly associated with advertising for establishing LTAs (Annex 3a). The monetary benefits/saving from procurement perspective is mainly based on the bargaining power of going for tenders as One UN, which could bring to the possibility of reductions on costs of goods or services. However, in the current context of LTAs it is assumed that no monetary benefits will be gained Identification of Labor Costs and Benefits The OMT in Sri Lanka used Activity Based Costing (ABC) and Business Process Mapping (BPM) tool to assess the labour costs and benefits associated with implementation of Harmonized business operations in the area of Procurement. A standard/generic corporate business process map of one of the agencies which reflects the current process for each agency was used for this purposes, which significantly reduced time investment for analysis. As you can see from the Annex 3b and 3c, BPM maps out a detailed overview of each step in the procurement process, including the time required to finish each step. This was subsequently used to calculate the cost of a process by identifying the time required to execute each step and applying the real labor cost rate (based on standard UN salary scales) to each of the steps/activities. This 10
12 consequently yields a monetary cost of the current process. This way, the cost of a proposed solution was compared to the costs of an existing process. LTA Development and Renewal Costs and LTA Benefits Cost Benefit Analysis show that one of the anticipated benefits of developing and implementing a harmonized Business Operations initiative will be a reduction in the time required to execute a process. This reduction materializes due to the elimination of duplication of functions and activities of a process that otherwise is executed by each agency individually. This is explicitly evident in the area of procurement where if agencies procure jointly, they can benefit from the advantages arising from economies of scale. Specifically, Annex 3b provides a comparison between the potential costs that can be saved if agencies procure using LTAs. The with/without LTA analysis shows the potential benefits/costs that agencies can save/incur when they procure using outside/existing LTAs. Analysis show that UN Agencies can save as high as 66.2% and 76.6% on transaction cost and staff time respectively through the use of LTAs. Development and renewal of LTAs will involve a labour cost. The standard process of developing of an LTA by UN in Sri Lanka (Annex 3c) will take a total of 46 hours of staff time and cost of $1,547. The process of renewal of LTA costs $455 and requires 8.5 hours of staff time. From the analysis in Annex 3d and 3e, when 10 agencies develop 11 LTAs on an individual basis, the total cost amount to $170,187 (in development) and $50, 005 (in renewal). However, if one agency leads the process of development and renewal of LTAs on behalf of the other agencies, the total saving on transaction cost amounts to $198,172. This means that if the UN agencies in Sri Lanka develop 11 LTAs, they will save staff time amounting to $ over the two years period per each common service/lta. Annex 3f consolidates all costs and benefits and shows cost benefit analysis for common procurement specifically. Additionally, the BOS analysis assumes that there will be a dedicated staff for coordination of implementation of BOS activities. This includes full time UNV OMT Associate and Chair of OMT at P3 level with assumption of 5% involvement into coordination of OMT activities. According to the Sri Lanka staff proforma cost, the total coordination labour cost (one time and recurring) will be $20, Identification of Other Costs/Benefits Costs/benefits for some of existing and new solutions were not expressed in monetary values, nor were they associated with reductions of transaction times. However, qualitative characteristics of those solutions may be significant, even if they cannot be monetized. This included enhanced supplier relations, enhanced reputation for the UN System and enhanced quality of the services. This type of costs/benefits were reflected in a narrative format under "Significant Other Costs/Benefits" for the areas of OMT Governance, HR, ICT, Transport, Common Premises and Finance. 3. Results Framework and Results Narrative The BOS Results Framework is the basis for monitoring and evaluation of the Business Operations Strategy, ensuring accountability in accordance with standard principles of UN Results Based 11
13 Management (RBM). The Results Framework translates the business solutions identified in the Cost Benefit Analysis into result statements (outcomes, outputs). The OMT/UNCT in Sri Lanka, based on results of Operations Analysis decided that the Business Operations Strategy would have the following Pillars for each thematic area in Business Operations: Pillar 1: OMT Governance and Business Operating Strategy Pillar 2: Common Procurement Pillar 3: Common Human Resources Pillar 4: Common ICT Pillar 5: Common Transport Pillar 6: UN Common Premises Pillar 7: Common Finance Each pillar has one high level outcome statement that reflects the intended result of that operational support services over the two year period. Each outcome statement is supported by outputs that are needed to make that outcome achieved. The Business Operations results framework is the basis for the OMT Annual Work Plans. It provides the basis for structured and result oriented work of OMT, and allows to focus on interventions and on effective monitoring and evaluating the results achieved. Please refer to Annex 4 for BOS Results Matrix and OMT Annual Work Plans Outcome 1: OMT Governance and Business Operating Strategy As a result of extensive analysis of the Governance, structure and capacity of OMT, and in order to effectively develop BOS and implement OMT work plan activities, it was agreed to formulate Outcome 1: OMT Governance and Business Operating Strategy. This outcome outlines necessity for streamlining the work of OMT and its working groups, including adoption and approval of respective terms of references for OMT and its working groups. This outcome will be supported by a number of activities associated with the rationalization of the work of OMT and development of BOS. The outcome will allow for quality results to be achieved throughout , and will set a strong foundation for long term sustainability in the work of OMT Common Procurement Simplifying and harmonizing UN procurement activities for greater efficiency and effectiveness is the main idea behind the Outcome on Common Procurement. It is proved that cooperation in procurement can deliver monetary and non monetary benefits. It can result in benefits of economies of scale, reduced repetition of work and improved relations with suppliers. 12
14 Therefore, as result of Operational analysis, UN in Sri Lanka identified new common services where benefits from transaction cost, specifically can be enjoyed. Based on this, UN agencies will continue to cooperate in a joint solicitation process which will allow to leverage market power to achieve rates and prices that no single organization could obtain on its own. Further, this approach can help reduce inefficiencies and reduce workload in the long run for all participating agencies. It is estimated that joint procurement will generate around $100,000 per year in transaction cost Common Human Resources Human Resources is another area where harmonization of business processes could bring economies of scale. However, the progress in harmonizing HR related business practices has been very slow. The successful harmonization of HR relevant business practices requires the inter agency harmonization of policies and procedures at higher level which is not the current case. Therefore, HR colleagues in Sri Lanka considered outputs which via joint work could enhance the quality of HR services. Specifically, establishment of roster for editors and translators will provide UN Agencies in Sri Lanka with the data they need to make efficient roster decisions, make communication easier and put comprehensive employee information right at fingertips. At the same time, UN agencies will work together in conducting a number of surveys (salary, hardship, DSA, place to place) which will potentially save time, allow for quality results and for harmonization in rates Common ICT This Outcome concentrates on effective and efficient provision of ICT Help Desk services. As a result at this stage, it is intended to prepare an analysis of current ICT help Desk concept and propose costeffective solution for common ICT Helpdesk. This information will serve as a basis for decision on establishment of common ICT Help Desk during next UDAF cycle Common Transport Currently, there is no much done in harmonization and streamlining of provision of efficient transport services in Sri Lanka. The Outcome is supported by conducting a feasibility study on adoption of common fleet management system by UN in Sri Lanka. This analysis will help to understand the pattern of usage of office vehicles, the cost associated with fuel consumption and maintenance and whether implementation of fleet management system in Sri Lanka is cost effective given capital investment and recurring cost required UN Common Premises The main element behind this Outcome is to understand the issues of UN Common Premises and how it can be made sure that services provided are effective and efficient. This covers improvement of services provided in UN Common compound in order to create a safe, secure and productive environment for UN staff to perform their duties. At the same time, the Outcome calls for activities navigated to UN Greening Initiatives. Specifically, understanding and assessment of the current situation of the UN premises in terms of greening initiatives and overall contribution as part of social responsibility. 13
15 3.7. Common Finance This outcome mainly concentrates on improvement of current situation with regards to provision of banking services. Operational analysis allowed to understand the commonalities in the issues. UN Agencies will work together with bank to improve quality in provision of corporate and individual banking services. 4. Business Operations Monitoring, Evaluation and Reporting The OMT reports to the UNCT and is responsible for the monitoring, evaluation and reporting on the progress of implementation for each outcome. Specifically, Chait of OMT is focal point and lead of the process of M&E for the Business Operations results. The OMT group is responsible for regular reviews of progress of the BOS using the results matrices. 5. Business Operations Governance Mechanisms The graph below reflects a governance structure for Business Operations in Sri Lanka, with an Operations Management Team in charge of the day to day management of Business Operations, on behalf of the UNCT, supported by functional Working Groups that deal with specific specialist areas. UNCT Operations Management Team (OMT) Resident Coordinator s Office Joint Procurement Team Human Resources Working Group ICT Working Group Finance Working Group 14
16 United Nations Country Team The United Nations Country Team (UNCT), which brings together the representatives of the UN organizations working in Sri Lanka, is the ultimate decision making body for all issues in the field of common/inter agency operations. Under the leadership of the UN Resident Coordinator, the UNCT works to ensure the successful adoption, implementation, and monitoring and evaluation of the BOS. With this approach, the UNCT will review and endorse the OMT annual work plans, and mobilize the resources required for their achievement. Operations Management Team The Operations Management Team (OMT), comprised of the Operations Managers and/or Senior Administrative Officers of the UN agencies, is responsible for the day to day management of the UNCT s business operations, including the adoption and implementation of the BOS. It provides the UNCT with recommendations to improve the quality, timeliness and cost effectiveness of the operational support to programme delivery. To facilitate its implementation, the OMT will translate the BOS into annual work plans and budgets. The OMT Chairperson serve as the lead for the adoption and implementation of the BOS, as well as OMT annual work plans. Hence, he/she will organize meetings for discussions, and coordinate with member agencies to ensure smooth running of the OMT, and successful implementation of its work plan. The OMT will establish Working Groups comprised of technical area experts (such as procurement or human resources managers) to enable the completion of the relevant activities of the OMT annual work plan. The Chairpersons will also be appointed to help coordinate the contributions of these Working Groups. The BOS designates lead agencies for each proposed inter agency activity and initiative. These lead agencies are accountable for the successful and timely implementation of these activities, and achievement of the BOS outcome and outputs. Thus, lead agencies are expected to make the necessary arrangements for the implementation of the BOS, and hold discussions with Working Groups to finalize these. If funding is available from the UNCT budget, they will liaise with the OMT Chairpersons and RCO for the procurement of the necessary goods and services, including technical consultants. For more details on the OMT s working methods, please see Annex 6 for the OMT Terms of Reference (ToR). Resident Coordinator s Office The UN Resident Coordinator s Office (RCO) provides coordination support to the OMT. This includes assistance with the preparation and monitoring of the BOS, and associated OMT annual work plans. A repository of all OMT and Working Group documents will also be maintained by the RCO for knowledge management and audit purposes. 6. Business Operations Budgetary Framework 15
17 Table below outlines budgetary requirements for each BOS outcome area. The total resource requirements for BOS period is US$ 19,000, out of which US$ 11,000 was mobilized through UN Agencies in the country. Total resource gap is US$8,000, which UNCT/OMT plans to mobilize via internal resources by UN Agencies using cost sharing arrangements. These are estimated amounts mentioned in the table, and actual amounts will depend on availability of UN system agencies' resources: Common Services Lines (outcome areas) Cost per Outcome, USD Total Resources Committed, Budget Gap, USD OMT Governance/Management 15,000 10,000 5,000 Common Procurement 1,000 1,000 0 Common Human Resources 3, ,000 Common ICT Common Transport Common Finance Common UN Premises TOTAL 19,000 11,000 8, Operationalsing the Business Operations Strategy The OMT consists of professional operations and administrative managers who possess sufficient technical skills in the business operations areas. Additionally, during 2016 while conducting BOS operations analysis the OMT and its working groups were trained in fundamentals of BOS and its elements. Moreover, the Chair of OMT along with one colleague from OMT participated in Training of Trainers workshops organized by UNSSC. All above mentioned should be sufficient with operationalization and successful implementation of BOS. As an effective instruments to facilitate the operationalisation of the Business Operations Strategy, OMT will use Annual Work Plans. On an annual basis, the OMT will develop a costed Work Plan which identifies the prioritized activities for that year, including the budget estimates required to deliver on the results outlined in the Annual Work Plan. The OMT/UNCT in Sri Lanka believes that this set of expertise within OMT and the structure and result oriented approach to business processes will allow for successful operationalization of BOS. 16
18 8. Annexes Annex 1: Baseline Analysis Annex 2: Needs & Requirement Analysis Annex 3: Cost Benefit Analysis Annex 3a: One time Monetary Cost Annex 3b: Activity Based Costing of Procurement Process Annex 3c: LTA One time Cost (Development) and Recurring Cost (Renewal) Annex 3d: LTA Benefits Savings on Staff Time Annex 3e: Labor Cost (One Time & Recurring) and Labor Cost Savings (Recurring) Annex 3f: Cost Benefit Analysis for Common Procurement Annex 4: BOS Results Matrix and OMT Annual Workplan for Annex 5: BOS Budgetary Framework Annex 6: Terms of References for OMT and OMT Working Groups 17
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