Leveraging Technology to Improve Forecasting and Monitoring of Local Government Budgets

3 mins read

Guest blog written by Ruth Huette

Public budget uncertainty is a defining characteristic of the COVID-19 pandemic

Last week, governments of France and Germany announced that their countries would enter yet another phase of lockdown as new cases of COVID-19 were on a steep rise again. As Europe is grappling with a second COVID wave, other governments around the world are expected to make similar announcements soon. 

Although long expected by epidemiologists, the announcement took many smaller and medium sized companies by surprise. To help ease the impact on businesses forced to close during the lockdown, Germany’s finance minister, Olaf Scholz, promised that the government would compensate small firms with up to 75% of their revenue for the same time last year, thereby tearing yet another hole into already diminished public budgets. Not only in Germany but around the world have local governments taken a massive doublet hit in their budgets since the start of the COVID-19 pandemic, as tax revenues went down and social spending and economic support increased. Until a vaccine will be developed and widely distributed, this uncertainty on future public budgets will persist.

Data analytics can improve local government budgeting processes

To prepare for future phases of budget uncertainty local governments should take advantage of technology and replace manual processes and basic tools with specialized analytics systems. This will help them enhance prediction accuracy, improve data exchange between different government units, facilitate budget-related decision making through visualization and increase citizen participation in budgeting.

Enhancing the accuracy of forecasts

Already in normal times, local budgeting requires bringing together many moving parts – during a global pandemic even more so. In a time of unprecedented uncertainty, both short- and long-term local financial management has become ever more complex. Public health and safety predictions, complex economic scenarios, and accompanying public social spending forecasts are new sources of information, among others, that must now be incorporated into robust budget planning analyses. With increased complexity, manual manipulation of spreadsheets is even more prone to errors and can be difficult to replicate. Advanced data analytics tools offer the potential to improve government’s ability to extract value from various sources and large volumes of data.

Breaking up siloed data and coordinating systems

Data silos in budgeting can be the result of limited insights which the various institutions that help inform the budget planning process gain from their traditional Excel spreadsheets and ERP reports. During crisis times, even more and potentially unusual data sources from various sources need to be taken into account – including for example forecasts of future COVID-19 cases, of required government measures to curb the spread and of the measures’ expected impact on small businesses. This further complicates data transmission and analysis and increases the risk of loss of relevant information.

Through the introduction of cloud-based reporting software solutions governments can facilitate the process of standardized data collection and subsequent analysis of trends, and enable better budget planning for the future. Furthermore, data analytics system that are capable of automated data consolidation, integration, and restructuring cannot only improve the accuracy of forecasts, but also the efficiency of data collection and updating.

Facilitating decision-making through visualization

Relevant and up-to-date data, even with the right analysis, can lose significant potential to inform government decisions, if it is not presented in an intuitive and adaptable format. Fortunately, there exist low cost and user-friendly analytics tools that facilitate the creation of dashboards or interactive websites and thus allow for easy visualization of time trends or pattern analysis.

Improve public trust in government through improved transparency

Lastly, the use of data analytics tools and the presentation of budget plans in intuitive formats can change the way governments communicate with citizens about the budgeting process and outcomes. This transparency is even more relevant in crisis times when governments need to get approval for potentially more drastic measures. Interactive websites can show how taxpayer money is spent, explain the decision making process of government in budgeting, and provide a format to engage citizens in government budget priority setting.

How to move towards the use of more advanced data analytics tools?

It will be an iterative process. Start moving to more advanced analytics tools now, test out different processes and metrics and learn from what worked and what didn’t. Also, build the internal capability to customize, operate and iterate the tool rather than purchase off the shelve solutions.

Do not reinvent the wheel. As is the case with other digitalization efforts on the municipal and state level, governments should take advantage of what other governments have already successfully implemented. If available, it is advisable to benefit from platform technologies provided at a higher administrative level or by peers, while maintaining the ability to adapt these tools to own requirements.

Lastly, take advantage of the transformative potential of crisis times. The COVID-19 pandemic has fast forwarded digital transformation efforts all across many private and public sector institutions. Government budget units should now follow suit.

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