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5   Efficient, Effective Management

Financial management tools that improve performance in the state sector


This chapter outlines how the financial management system can be tuned to boost efficiency and value-for-money. While not specified in legislation, the mechanisms described below are important features of the system that help governments manage efficiently and deliver results to the public.

The chapter is structured around three core principles:

  • priorities drive performance expectations and spending decisions
  • expectations of fiscal prudence and value-for-money
  • agencies and assets are managed strategically to ensure that value is delivered over the long term and across the state sector as a whole.

The Government expects the state sector to deliver better results from the funding made available[19] and to make those gains visible to the public.

This is especially important for agencies that received additional funding. Outputs that grow in cost are expected to show matching increases in quantity and quality. Increased quantity or quality should, after a lag, also be seen in improved outcomes. If this does not happen, funding levels and/or the mix of goods and services should be reviewed and revised.

Ministers receive independent advice on cost, productivity, risk and value-for-money through monitoring agents, benchmarking studies and reviews.

Priorities Drive Performance Expectations and Spending

Priority Areas and Outcome Objectives

Every government has a set of key results it expects the state sector to deliver on. The process of developing and defining government-wide priorities is coordinated by the Department of the Prime Minister and Cabinet. Outcome objectives are laid out in Statements of Intent.

Outcome objectives and delivery priorities are used to link the budgets and actions of Ministers and government agencies, and performance expectations of boards and chief executives, to the Government's goals.

To realign existing expenditure to priorities and outcome objectives, Ministers review their baseline expenditure against government priorities. Ministers generally look for initiatives that no longer fit priorities (eg, initiatives of previous governments) and programmes that have under-delivered against what was expected at the time they were funded.

Ministers are normally supported in this work by departmental chief executives and boards. During a budget round, the Minister of Finance may ask the Treasury to identify options for savings.

Business cases seeking additional funding must make good contributions to the Government's outcome objectives and delivery priorities. Robust business cases are submitted in support of significant capital proposals and significant changes in policy or operational practice. Monitoring agents and the Treasury review these, and advise Ministers.

Once priorities are set, and funding has been made available, departmental chief executives and Crown entity boards are responsible for delivering on priorities in their area, prudent use of resources and long-run stewardship.

Ministers set policy and allocate funding. Boards and chief executives have the freedom to manage operational issues, and to control the production of outputs and performance information. They are expected to deliver on priorities, lift efficiency and demonstrate tangible results.

Chief Executive Performance Expectations

The State Services Commissioner sets performance expectations with departmental chief executives,[20] and reviews progress throughout the year.

Departmental chief executives are employed on fixed term contracts, which can be renewed. The State Services Commissioner recommends departmental chief executive appointments (and reappointments) and is responsible for their employment and performance assessment where the department is listed in the First Schedule to the State Sector Act.[21]

For Crown entities and SOEs, boards appoint the Chief Executive, set expectations and review his or her performance. Ministers appoint boards, set expectations[22] and review boards' performance.

In all cases, renewal of contracts is dependent on performance.


  • [19]Compared to results achieved using funding received in previous years.
  • [20]The Minister responsible for the agency is consulted during the process.
  • [21]There are a few exceptions, eg, the Police Commissioner, the Chief of New Zealand Defence Force and the Solicitor-General, where special circumstances apply.
  • [22]Subject to limitations stated in the Crown Entity Act or State-Owned Enterprises Act.
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