Analysis: Principles and Practices for DOF Analysts

What is Analysis?

Analysis is the process by which issues are separated into their component parts and each part and the interaction among the parts are systematically investigated. Later the components of an issue are put back together in a logical way to support a conclusion and recommendation.

You can also think of analysis as the process by which we attempt to answer such questions as follows, regarding a proposal, activity, program or process.

  • Who or what is affected?
  • What is/are the effects?
  • How and when does/will it operate?
  • How much does/will it cost?
  • Who is raising the issue or making the proposal, and why?
  • How might the problem/issue be resolved?

And the final question upon completing an analysis should always be: “Does this make sense?”

Typical Types of Finance Analyses

Finance uses the analytic process to develop recommendations on budget proposals, legislation, and other initiatives and issues that may financially impact the State. Preparing solid recommendations is the foundation for our advisory role to the Governor’s Office and our role in representing the Administration.

  • Fiscal – Finance’s primary role is to provide analyses of fiscal issues or problems. To that end, we review budget change proposals, legislation, initiatives, regulations, and reports to analyze fiscal impacts. Fiscal analyses answer such questions as: How much will (or should) this proposal or program cost (or save) the State? How much revenue will it generate?
  • Policy – While not our main role, Finance staff may also perform policy analysis such as when reviewing legislative proposals. Policy analysis is intended to help decision-makers make choices about governmental programs and governmental regulation of individuals and organizations. Policy analysis focuses on such questions as: What is the likely impact of this policy on the public in general, and on specific groups or organizations? Policy analysis can be done from the perspective of known priorities and policies, or without such political preconditions.

  • Policy combined with fiscal – Most often Finance’s analyses include a combination of fiscal and policy issues. For example, Finance analysts review a Budget Change Proposal to assess the reasonableness of the estimated fiscal impacts but also assess the proposed policy objective in relation to the Administration’s priorities. The resulting recommendation thus may indicate that the proposed funding augmentation (or reduction) should be modified depending on whether the policy objective is deemed to be of high or low priority by the Administration. The recommendation may also suggest an option that provides a lower (or higher) level of attainment of the policy objective, including arguments supporting that level.

    Sometimes the deadline for an analysis is so short that the analysis must be “quick and dirty” and largely based on assumptions since time is not available to gather more information. In these cases it is helpful if the assumptions can be based on historical information or on data from a similar program or activities. In other cases (such as when asked to prepare “Issue Memos”), Finance may have time to prepare a more expansive analysis.

For more details on some of the specific types of items analyzed at Finance, see Bill Analysis, and BCPs, Writing Effective.

Steps in Analysis

Academicians identify various analytical approaches, which can generally be summarized into six basic steps.

Define the Problem

  • Clearly identify the stated issue/problem. Is there really a problem? Sift through extraneous material to identify the real, underlying problem or need (which may not be the same as the stated issue or problem).
  • How big is the problem? Quantify, if possible.
  • How did the problem arise? When? What perpetuates it? Outline the history of the issue/problem.
  • Who and/or what does the problem impact? When? What are the current laws, regulations and/or programs addressing the problem?

Gather Information

  • Consider: What do you need to know to define and analyze the issue/problem, and to recommend a solution? How much time do you have?
  • Ask questions (repeatedly if necessary) to get the information needed. Also be conscious of and respect others’ time and workload constraints, however.
  • Be skeptical. Challenge the sources; don’t assume the information is correct. Try to verify it or test it against other information to determine its accuracy or reasonableness.
  • Think through varied viewpoints on the issue (not just the Administration’s current perspective). Talk to both proponents and opponents to gain additional political and programmatic insights.
  • Ask follow up questions. If you cannot get the information you want in the time (or from the sources) available, can you make assumptions to work around it or develop rough estimates? Document the basis for your assumptions.
  • Look at other previous analyses/studies of the issue.
  • Note that if the time is late (after 5 p.m.) or short (“quick and dirty” analyses) you still may be able to contact the Legislative Analysts’ staff, legislative committee staff, (or for bills, the author’s or sponsor’s office, too) for some information, even if the department staff are not available.

Consider Alternatives

  • What are all the feasible options? Consider for example, taking no action; altering an existing law, regulation, process, or program; creating a new law or program, etc.
  • What can government do (e.g., mandate, regulate, subsidize, create incentives, tax, provide information, privatize), and what might be effective in this situation?
  • What other programs (public or private) or laws (state or federal) address this problem?
  • What have other states done to address this problem?
  • What has Finance recommended on this type of issue in the past?
  • Should the State be involved at all?

Determine Criteria for Evaluating Alternatives

Examples of criteria:

  • Efficiency – Cost-benefit, cost effectiveness, productivity
  • Equity – Is it fair? Who gains, who loses? By how much?
  • Effectiveness – Will it solve the problem? How much will it solve?
  • Feasibility – Legal, administrative, political (e.g., the current political environment)
  • Uncertainty and risk – What could go wrong? How costly? How likely?
  • Priority for funding given current state fiscal constraints and Administration policies
  • Consistency with Administration goals and policies and expectations

Evaluate Alternatives

  • Measure each alternative against the criteria.
  • Weigh the trade-offs (e.g., better service vs. higher cost; lower cost vs. higher risk)

Make Recommendation

  • Pull the information together to form conclusions, and then make recommendations.
  • Be creative. Policy analysis affords opportunities to develop creative compromises and unique solutions to address problems. Although Finance is not a “think tank,” we can occasionally be the source of new policy ideas.
  • Anticipate the Administration. Try to recommend at least one option likely to be preferred by the Administration (based on what you know of the current policies and priorities).
  • Recommend more than one feasible alternative for the decision-makers to consider (e.g., in times of limited funds recommend the preferred activity and funding level, and some feasible lower level).
  • Review your analysis and ask if it all “makes sense.” Can a reader follow the logic from the problem identification through the alternatives to the recommendation?
  • Check to see how critical any information (both included and omitted) is to the recommendation.
  • Critique and supplement (or pare down) the information as needed.

Communicating Your Analysis

To be effective, an analysis must be clearly communicated to the decision-makers and other interested parties.

Types of Presentations:

  • Oral presentations in meetings
  • Budget change proposal (BCP) write-ups
  • Bill analyses
  • Legislative testimony
  • Press packets or contacts
  • Governor’s Budget Summary (“A-pages”) and other public reports
  • Issue Memos
  • One-on-one discussion/negotiation with LAO and departmental staff

Presentation Style

  • Narrow focus. Finance does not typically produce lengthy study reports that thoroughly analyze all aspects of major policy issues. Finance’s analyses tend to focus in on the fiscal impacts to state government and, in particular, to the General Fund.
  • Related to specific decisions. Our analyses tend to focus on information needed to make a specific decision, and normally will recommend a specific action on an issue.
  • Brief and clear. Finance does not get much time to speak its piece; often one or two lead sentences have to carry the presentation.
  • Unbiased/nonpartisan, but politically informed. Although we work for the Governor and do analysis in the context of known Administration policy and perspective, Finance staff should be prepared to argue all sides of an issue (e.g., in Administration decision-making meetings). Recommendations on issues should reflect a balance between what might be acceptable to the Administration, and other considerations, including other viewpoints relevant to a decision. (Finance staff should not expect to promote personal political views, however.)
  • Original and active. Use active (not passive) voice as much as possible, and state your thoughts without plagiarizing others’ analyses (e.g., departments’ analyses or documents).
  • Professional. Both oral and written presentations should be made professionally.

Traditional Biases of Finance

  • Low cost/high benefit
  • Proven effectiveness
  • High priority
  • Fundable by redirection of existing resources
  • Consistent with Administration goals

Other Considerations

  • Preparation. Finance staff are some of the main spokespersons for the Administration, and as such are expected to be able to explain and defend the Administration’s position (e.g., on budget proposals) before the Legislature and in answering press calls. Be sure your analysis is adequate to support and defend the recommendations.
  • Audience. Be aware of who reads and/or needs the information, and focus the presentation to address their level(s) of knowledge. Give adequate information to understand the issue and recommendation.
  • Timing. Be sensitive to whether a decision maker can be receptive to a proposed policy and whether the issue’s time has come. Often we are not the best organization to raise an issue; it may be better raised by agency/department staff or others with policy-making authority.
  • Respect for hierarchies. Finance staff should understand and respect the hierarchy of Finance and of other departments and agencies we work with. It is important to differentiate the positions that may be taken by various levels in a department and the degree to which top management has (or has not) approved a particular position.
  • Flexibility. The Administration may decide on a different option that you recommend. Be ready and willing to revise your analysis to further detail the selected option, and/or reframe the issue, if necessary.
  • Disassociation. Although it can be hard to do, Finance staff should not let themselves get too personally committed to policy recommendations they make or view nonacceptance as a “personal defeat.”

Developing Policy Analysis Skills/Knowledge

The foundation for any analysis is a thorough working knowledge of your program/subject areas; the issues; and State processes, priorities, and fiscal constraints. The following are some tips on the sources and types of information you should gather (an ongoing process), and how to manage your time to complete analyses.

Sources of Information

Following are some suggested sources and methods for developing your policy understanding and analytical skills. You will be engaged in many of these activities in the course of your work, but take advantage of slow moments for further research and discussion of policy issues in your area.

  • Read texts, articles, books, and analyses done by others (e.g., scholars, advocates, the Legislative Analyst, Bureau of State Audits)
  • Learn the history (e.g., talk to or review written work of your predecessors on the assignment)
  • Listen to others who already know the programs and issues well (e.g., talk with department staff when reviewing various documents)
  • Discuss issues with advocates and constituents
  • Take field trips to visit program staff and projects in the field
  • Learn by doing (jump into your assignment!)

Areas of Knowledge

Program Knowledge. The foundation for any analysis is a thorough working knowledge of the program being addressed. No analytical technique can replace basic information about how the program works. Such knowledge typically includes: the program’s purpose, who and how many it serves, what it provides, how services are delivered, the current costs, criteria for expending the funds, how the program evolved (e.g., what were key decision points in program’s history), and the trends in terms of revenues, expenditures, staffing, and workload data.

Knowledge of the State’s current fiscal situation and constitutional constraints. Less than ten percent of the budget is discretionary. Some of the key factors limiting State expenditures are: the State Appropriations Limit (SAL), Proposition 98, other Constitutional requirements, entitlement programs, statutory COLAs, and legal obligations. Other constraints not set in the Constitution or statute but which are as, or nearly as, restraining, include: General Fund revenues, General Fund reserves, federal budget actions directly affecting the State’s budget, tax expenditures, public safety expenditures, revenue-producing activities, and budget agreements.

In analyzing budget issues, it is important to keep these factors in mind and know where we are relative to the major constraints. This will tell you whether we have some flexibility and can entertain discretionary proposals, or whether we’re going to have to recommend reductions.

Knowledge of other Administration and Department of Finance Priorities. Current State policies and priorities (such as those outlined in the Governor’s Budget Summary or Budget Highlights, or the State of the State Address) need to be taken into account when analyzing an issue. Examples of recent State priorities include: (1) reducing personnel years (PYs); (2) reducing General Fund expenditures; (3) attempting to help the federal government reduce the federal deficit; (4) reforming welfare; and (5) making the State more competitive.

Awareness of these policies helps analysts to frame questions and recommendations.

Knowledge of the Issue. Besides general program knowledge, specific information about the issue being addressed is important to understanding proposed changes. For example, analysts may prepare by researching the history of issues in their program area, why the issues are (re)emerging, views of proponents and opponents, and what this and other states are doing to address the issues.

Managing Your Analytical Time and Effort

Get started early. Size things up. Decide when you need to start each task in order to meet your deadline. Set a mental schedule (allowing for slippage).

Tell the department what information you need right away. Put requests in writing (e.g., by email) when possible to confirm conversations and avoid misunderstandings later. Set a deadline for receipt of this information which is early enough so that you can ask for clarification, or request other information if this raises additional questions.

Follow up. Think about the information as it’s being presented to you. Is it filling in the gaps? What gaps remain? Take the initiative to ask follow-up questions and probe when talking to department staff. It is relatively rare that your first set of questions will elicit all of the information necessary for an analysis. Keep thinking of what you need to resolve the issue.

Stay on Course. Don’t lose sight of your objective and deadline, or get sidetracked. Make sure you understand what’s central to the issue, and that you’re getting the information you need from department staff (i.e., what’s relevant, not what’s easy for them to give you).

Periodically, review where you are relative to your objectives and schedule. Make mid-course corrections as necessary. Raise problems to a higher level in DOF or the line department, as appropriate. Stop when you have what you need or you have all you can get in the time available. In the latter case, qualify your analysis by indicating the conclusions are based on the limited information available and noting any assumptions made.

Get feedback. Brainstorm ideas with your supervisor and peers. Discuss your findings and conclusions with your managers and with the department. Run drafts of your analysis and recommendations by your managers in advance of the deadline to get their input early.

Critique your own work. Check and double check your calculations. Review your analysis to see if there are further logical gaps that need to be filled in. See if your factual information is correct, and if your argument holds up to criticism. Revise your analysis if necessary.

Keep records. Keep your notes, supporting data obtained, and calculations made in a file for reference. (You’d be surprised how quickly people forget how they arrived at certain numbers!)

Be sensitive to other workload demands on staff with whom you are working. You will likely need their assistance and cooperation in the future. Nevertheless, if they won’t give you the information for any of the following reasons:

  • Because they’ve been appointed by the Governor
  • They told the last analyst they had
  • The last analyst they had didn’t ask for this type of information
  • It’s not Finance’s role
  • They wouldn’t ask for funding if they didn’t need it
  • They’re stalling
  • The Governor wants this done
  • You don’t have the professional qualifications
  • The Director already agreed to this you’ll have to recommend disapproval of their request for lack of justification. Tell your supervisor of the situation and discuss how to resolve it.