Small Business Administration: Steps Taken to Better Manage Its Human
Capital, but More Needs to Be Done (Testimony, 07/20/2000,
GAO/T-GGD/AIMD-00-256).

The Small Business Administration (SBA) has developed a shared vision,
which includes transitioning its employees from making and servicing
loans to primarily reaching out to new markets and overseeing its
private-sector partners. SBA has also begun to take steps to better
manage its human capital activities, including workforce planning
efforts. More needs to be done, however, including (1) completing its
efforts to identify the knowledge, skills, abilities, and other
characteristics its employees will need to perform successfully in SBA's
new business environment; (2) estimating the number of employees with
those skills who will be needed; (3) developing a succession plan for
senior leaders and reinstating candidate development programs for these
leaders; and (4) ensuring that employees receive adequate training to
perform their jobs well. Although SBA plans to develop a workforce
transformation plan by October 2000, it could take years to fully
implement it.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD/AIMD-00-256
     TITLE:  Small Business Administration: Steps Taken to Better
	     Manage Its Human Capital, but More Needs to Be Done
      DATE:  07/20/2000
   SUBJECT:  Human resources training
	     Strategic planning
	     Agency missions
	     Personnel recruiting
	     Personnel management
	     Performance measures
	     Human resources utilization

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************
GAO/T-GGD/AIMD-00-256

United States General Accounting Office
GAO

Testimony

Before the Committee on Small Business
U.S. Senate

For Release on Delivery
Expected at 9:30 a.m. EDT
Thursday, July 20, 2000
GAO/T-GGD/AIMD-00-256

SMALL BUSINESS ADMINISTRATION
Steps Taken to Better Manage Its Human Capital,

but More Needs to Be Done

Statement of Michael Brostek, Associate Director
Federal Management and Workforce Issues
General Government Division

Viewing GAO Reports on the Internet
For information on how to access GAO reports on
the INTERNET, send e-mail message with "info" in
the body to:
[email protected]
or visit GAO's World Wide Web Home Page at:
http://www.gao.gov

Reporting Fraud, Waste, and Abuse in Federal
Programs
To contact GAO's Fraud Hotline use:
Web site:
http://www.gao.gov/fraudnet/fraudnet.htm
E-Mail: [email protected]
Telephone: 1-800-424-5454 (automated answering
system)

 (410481)

Small Business Administration: Steps Taken to
Better Manage Its Human Capital, but More Needs to
Be Done
Page 6
Mr. Chairman and Members of the Committee:

We are pleased to be here to contribute to the
Committee's monitoring and oversight of the Small
Business Administration (SBA). We will present our
observations on SBA's efforts to identify its
current and future workforce needs, budget for
them, and manage them strategically.1

Today, we want to make two points about SBA's
management of its human capital. First, SBA has
developed a shared vision, which includes
transitioning its employees from making and
servicing loans to primarily reaching out to new
markets and overseeing its private-sector
partners. Second, SBA has begun to take such steps
for better managing its human capital activities
as undertaking various workforce planning
activities, including developing competency models
and related training for some core functions2 and
realigning and deploying some staff. However, more
remains to be done, including

ï¿½    completing its efforts to identify the
knowledge, skills, abilities, and other
characteristics its employees will need to perform
successfully in SBA's new business environment;
ï¿½    estimating the number of employees with those
skills who will be needed;
ï¿½    developing a succession plan for senior
leaders and reinstating candidate development
programs for these leaders; and
ï¿½    ensuring that employees receive adequate
training to perform their jobs well.

SBA is currently developing an overall plan to
guide the agency's human capital efforts.

Background
SBA is responsible for several programs to assist
small businesses, the largest of which are its
loan programs. The manner in which SBA delivers
its loan programs has changed significantly during
the 1990s. SBA offices used to review the
creditworthiness of each loan application and
participate in the servicing and liquidation of
each loan that went into default. SBA has evolved
from directly delivering these types of services
to leveraging its resources through public-private
partnerships.3 Since 1992, SBA has deliberately
placed greater reliance on its private-sector
partners. The role of private lenders in approving
loans has grown from 14 percent of SBA's loan
dollar volume in 1993 to 52 percent in 1997. In
1999, SBA's Administrator stated that the agency
estimated that more than 75 percent of its loan
volume would occur in programs with very limited
up-front credit reviews done by SBA staff.
According to the Administrator, however, with the
outstanding portfolio and loan approvals more than
doubling, this shift of responsibility to the
private sector has increased SBA's need to oversee
its lending partners to protect the safety and
soundness of SBA's financial programs. At the same
time, since 1992, the size of SBA's workforce has
decreased by more than 20 percent. Figure 1 shows
the number of SBA employees for fiscal years 1992
through 2000.

Figure 1: The Number of SBA Employees for Fiscal
years 1992 Through 2000

Note: The employee data for years 1992 through
1999 were as of September 30 of each year. The
employee data for 2000 were as of February 29,
2000. These numbers exclude the number of
employees in the Offices of Inspector General and
Disaster Assistance and do not include contract
personnel.
Source: SBA Employment Summary, March 15, 2000.

As of February 2000, SBA had 3,024 employees,4 of
which 2,326, or 77 percent, were located in field
offices, and the remaining 698 were located in
headquarters.5

Although the number of SBA staff has been reduced,
personnel costs have remained a significant piece
of the amount budgeted for SBA's Salaries and
Expenses account. Of the $486.8 million in budget
authority in this account in fiscal year 2000,
after setting aside funds for various projects
specified by Congress, SBA had $285.7 million in
budget authority to manage its operations.6 Of
this amount, $216.5 million, or 76 percent, is for
employee compensation and benefits, as shown in
figure 2.

Figure 2: SBA's Fiscal year 2000 Personnel-Related
Costs

Source: SBA fiscal year budget data.

In response to demands for improved government
services and better stewardship of public
resources, the federal government is adopting the
principles of performance-based management. Such
management systematically integrates thinking
about organizational structures, program and
service delivery strategies, the use of
technology, and human capital practices into
decisions about the results the government wants
to achieve. As we have reported previously,7 there
is no single recipe for how an organization should
manage its most important asset-its people, or
human capital. However, we have identified a
number of human capital elements common to high-
performance organizations that fall within a five-
part framework. The framework and some of its
elements are as follows:

ï¿½    strategic planning, which includes
establishing a shared vision-that is, a mission,
vision for the future, core values, goals, and
strategies-and creating a coherent human capital
strategy-that is, a framework of human capital
policies, programs, and practices specifically
designed to steer an organization toward achieving
its shared vision;

ï¿½    organizational alignment, which includes
workforce planning-that is, managing the size,
composition, and deployment of the workforce;
ï¿½    leadership, which includes fostering a
committed leadership team and providing continuity
through succession planning;8
ï¿½    talent, which includes recruiting, hiring,
developing, and retaining employees with the
skills for mission accomplishment; and
ï¿½    performance culture, which includes
establishing an environment that enables and
motivates staff while ensuring accountability and
fairness to employees.
SBA Has Developed a Shared Vision
As we have previously reported, high-performance
organizations begin by defining what they want to
accomplish and what kind of organization they want
to be.9 They define a shared vision and
communicate that shared vision clearly and
consistently. An organization's shared vision is
to provide the standard for assessing the
appropriateness and effectiveness of everything
the organization does. An indication that an
organization has developed a shared vision is that
its strategic plan, annual performance plans, or
other guiding documents include a clear and
coherent portrayal of that vision.

SBA has communicated its shared vision in its
various strategic planning documents prepared in
accordance with the Government Performance and
Results Act of 1993 (GPRA).10 In its performance
plans, SBA has broadly defined its vision for the
future as "a modernized SBA, increasing
opportunities for all small businesses." SBA's
fiscal year 2001 performance plan states that the
agency must sharply increase the amount of
financial, business development, and procurement
assistance for "new markets"-that is, minorities,
women, veterans, Native Americans, small
exporters, and smaller businesses located in low
and moderate income urban and rural areas. The
fiscal year 2001 plan also states that SBA will
need to provide an expedited response to
disasters, maintain a high level of disaster loan
underwriting quality, and use electronic processes
to provide needed credit more quickly, widely, and
cost effectively. In addition, as part of an
internal management goal, SBA states that it must
modernize its operations and that these
modernization efforts will need to include (1)
changing core functions to include business
outreach, marketing, and improved partner
relationship management-relying more extensively
on outsourcing, privatization, streamlining, and
reengineering; (2) improving internal controls and
external program oversight; (3) upgrading and
modernizing its information systems; (4) using the
Internet and e-commerce to become more accessible
to more customers when and where they need
assistance; and (5) preparing its workforce for
the future, especially through training and
relocation, to put customers first, use
partnerships and technology, and achieve results.

SBA Has Begun Taking Steps to Better Manage Its
Human Capital Activities, but More Remains to be
Done
As we have previously reported, once an
organization has defined and communicated its
shared vision, the organization should design a
framework of human capital policies, programs, and
practices to steer the organization toward
achieving that vision.11 An underlying concept of
human capital management is that all major aspects
of a human capital policy are interrelated and
should be integrated into a coherent human capital
strategy.

In the past few years as SBA's business approach
has been changing, the agency has begun to take
steps for better managing its human capital
activities, including activities in workforce
planning, leadership, talent, and performance
culture, to meet this challenge. However, more
remains for SBA to do in each of these areas. For
example, SBA has not yet fully defined the
knowledge, skills, and abilities that its staff
will need to carry out its mission with the
service delivery strategies it has adopted. SBA
also does not know the number of staff with these
skills it will need. In addition, SBA may not have
the appropriate complement of leaders it will need
because it has not performed succession planning
or been able to follow through with investments
for its leadership candidate development programs.
Given SBA's decision to retrain its existing
employees, the agency is faced with the challenge
of improving on recent survey results concerning
whether employees believe they receive adequate
training to perform their jobs, and the agency has
struggled to fund the training it believes
necessary to transition its employees. Finally,
although SBA has plans for revising employee
performance standards to reflect changes in how it
is doing business, the effort cannot be completed
until SBA has finished defining the knowledge,
skills, and abilities employees will need.

SBA Has Recently Undertaken Some but Not All
Needed Workforce Planning Activities
As part of organizational alignment, workforce
planning is the process by which an organization
plans and manages the size, composition, and
deployment of its workforce. Workforce planning
involves "getting the right people with the right
skills into the right jobs at the right time."
Such planning assists organizations in forecasting
future conditions and developing programs and
strategies to meet future needs. Previous work has
shown that federal agencies have generally not
performed workforce planning. Since 1980, we have
identified the lack of workforce planning as a
long-standing problem among federal agencies.12 In
1999, the National Academy of Public
Administration (NAPA) issued a study that
discusses the importance of workforce planning,
stating that while most agencies do not practice
such planning, some agencies had begun workforce
planning programs in the past few years.13

Because workforce planning must be done
strategically, we and NAPA have stated that
workforce planning should be a long-term effort
related to an agency's strategic planning under
GPRA. Explicitly linking workforce planning to
agency strategic and program plans allows an
agency to justify expenditures for human capital
in relation to the accomplishment of long-term
goals and objectives. 14 Such a linkage requires
either a discussion of workforce planning in the
agency's strategic or annual performance plans or
a separate workforce planning document linked to
the agency's strategic and program planning.
Workforce planning should include (1) an
identification of the knowledge, skills, and
abilities and other characteristics (i.e.,
competencies) needed by the future workforce, the
competencies of the current workforce, and gaps
between the two; (2) the development of a
workforce action plan designed to address the
gaps; and (3) a monitoring and evaluation of the
workforce planning actions taken.

SBA has undertaken various workforce planning
activities over the past few years to begin
identifying the knowledge, skills, and abilities
its employees will need to carry out new or
changing functions and to help realign and deploy
staff to address its new and changing workforce
functions. However, although these activities
indicate a human capital focus, SBA has not yet
completed its efforts to define the knowledge,
skills, and abilities its staff will need in the
future or the number of staff that will be needed
with those skills in its various offices. As SBA
has undertaken workforce planning activities, it
has been constrained by cost pressures that
largely resulted from higher than planned
personnel costs, requiring the agency to take
actions to control and limit those costs. SBA has
recently hired a contractor, who, according to
agency officials, is to integrate ongoing SBA
workforce planning activities to help the agency
better coordinate these activities and determine
the number of staff with specific skills that need
to be located in each office.

SBA Has Developed Competency Models and Related
Training for Some but Not All Functions
SBA identified five core functions that it
believes are critical to transforming its
workforce. These include marketing and outreach,
leadership, business development, lender
oversight, and procurement. For each of these
functions, SBA determined that it needed to
develop competency models. Competency modeling, a
key part of workforce planning, is systematically
identifying the competencies-that is, the
knowledge, skills, abilities, and other
characteristics-that employees need to
successfully perform their jobs. Once identified,
competencies can form the basis for hiring new
staff with appropriate skill sets, identifying
training needs for current staff, establishing
performance standards for employees, and for
making decisions related to promoting and
rewarding staff. As part of this effort, SBA also
planned to develop related position descriptions
and performance standards. As of June 2000, the
agency has developed models and training for two
of the five functions.15

According to SBA officials, the agency worked to
develop the marketing and outreach competency
model early on, because it was a critical new
function into which SBA has been transitioning
many of its employees. With the help of a
contractor, SBA completed the identification of
skills for this competency model in September
1999. SBA defined the role of the marketing and
outreach specialist as identifying and locating
end-user customers, particularly "new markets;"
identifying lenders and resource partners;
identifying the needs of, and obtaining feedback
from, customers; and providing "best practices" in
customer service and satisfaction. SBA identified
a training curriculum to assist employees in
acquiring the skills to perform this function,
consisting of existing SBA training courses and a
newly developed marketing and outreach course. An
SBA official said that the agency has also
recently completed a position description and
related performance standards for a marketing and
outreach specialist position. Although the
official from the Office of Human Resources said
SBA has completed a position description for this
specialist position, an SBA official in the Office
of Field Operations said that only large district
offices would likely designate individuals to
actually become marketing and outreach
specialists. These officials said that most
district offices are too small to designate
individuals as marketing and outreach specialists
and that the more likely scenario would be that
marketing and outreach would be just one of
several functions for which individuals are
responsible.

SBA also contracted for a leadership competency
model. According to SBA, to achieve its mission,
it must continue to initiate new strategies for
achieving a high-performance environment, and one
of the strongest influencing factors for a
successful transformation is the effectiveness of
an organization's leaders. To identify the skills
needed by its senior managers, in fiscal year
1999, SBA adopted skills for a leadership
competency model developed by a well-known
leadership education organization. The agency
partnered with this organization to provide a
training course to enhance its senior managers'
abilities to direct the agency's transformation.
In addition, the agency contracted for development
of a similar course for its mid-level managers.
According to SBA officials, SBA modified the
position description of the district director
position to incorporate the new skills.

According to SBA officials, the agency does not
plan to contract for the development of competency
models for the remaining three core
functions-business development, lender oversight,
and procurement-until at least fiscal year 2001,
because of budgetary constraints. SBA's Office of
Human Resources estimated that for fiscal year
2000, it needed $200,000 to develop the business
development and lender oversight competency
models.16 When it received no specific funding in
its fiscal year 2000 appropriation for development
of competency models or transition skills
training-that is, competency-based training-SBA
decided to defer the development of these two
models. A senior SBA official said that SBA does
not consider the lack of competency models and
competency-based training for these remaining
functions a barrier to SBA's workforce transition.
SBA officials said that although the functions are
new to many of its employees, the agency has long
had a core group that performed these functions in
each district office. The agency plans to rely on
the core group staff to provide on-the-job
training until formal training can be provided.

SBA Has Taken Measures to Realign and Deploy Staff
but Has Not Determined Future Staffing Needs
Recognizing that in some geographic areas it had
too many or too few employees or employees that
lacked specific knowledge or skills, SBA
contracted for the development of a staffing and
resource model to realign and deploy its current
district office staff. Using the results of the
model, SBA recently initiated a relocation and
reassignment program to fill vacancies. However,
SBA officials said that the agency has not used
the model to project future staffing requirements
because it lacks information on the average time
it takes to perform certain tasks. As a result,
the agency's realignment efforts have been limited
to allocating staff to accomplish current
workload.

SBA first hired a contractor in 1997 to review its
resource usage, develop a baseline staffing model
for field offices, and make recommendations so
that the agency could better match resources to
the agency's strategic planning goals.17 In August
1998, the contractor provided SBA with a staffing
model designed to redistribute staff using fiscal
year 1997 workload factors. The contractor made
several recommendations, which, he indicated, when
used in conjunction with the model, would provide
SBA with the basis for equitably distributing
staffing in accordance with its workload. One of
the recommendations, which the contractor said
would provide better information to update the
model, was for SBA to establish a method to
properly capture the time spent performing various
functions in various program areas. SBA officials
stated that subsequently, in 1998, the agency
established a procedure to collect data on where
SBA personnel spend their time by activity. SBA
then aggregates the data by office, including
headquarters. In 1999, SBA hired the contractor to
update the model using fiscal year 1998 data. SBA
shared the results of the updated model with its
district directors in October 1999.

SBA stated that the updated model was based on how
SBA previously performed functions and not on how
the agency had been changing its business
practices. As a result, in January 2000, SBA
contracted for the model to be updated using
fiscal year 1999 data and to take changed program
functions into consideration. The contractor
provided the results to SBA in April 2000. This
model allows SBA to allocate its existing staffing
resources across district offices.

According to field office officials, the agency
has not used the model to project future staffing
requirements because it lacks information on the
average time it takes to perform certain tasks.
These officials said that SBA plans to contract
for a study that would provide the agency with
standards for averages on how long it takes to
perform such tasks. According to these officials,
once this information is available, the agency
will be able to use the model to project the
number of staff needed to perform functions in the
future.

Using the results of the staffing model, adjusted
for such factors as the minimum staffing that SBA
officials believe is required to have a fully
functioning district office, SBA recently
initiated a relocation and reassignment program.
The program is comprised of three phases-phase I,
voluntary relocation; phase II, voluntary
relocation with relocation incentives; and phase
III, directed or involuntary reassignment. Under
phase I, which took place from January to May
2000, SBA advertised vacancies in several district
offices and selected 11 employees for transfer.
Under phase II, which took place from May to July
2000, according to SBA officials, the agency, with
union agreement, advertised vacancies and offered
one-time relocation bonuses of 10 percent of
salary to employees who would voluntarily transfer
to one of the understaffed district offices in
fiscal year 2000.18 An SBA official said the agency
selected four employees to transfer under phase
II, but only three accepted. Under phase III,
which SBA is currently implementing, the agency
plans to transfer involuntarily a limited number
of employees with required skills from overstaffed
offices to offices with critical shortages. SBA
officials said that employees who decline to
transfer would be subject to termination.
According to an SBA official, in accordance with
an agreement with its union, the agency will
direct the relocation of no more than 11
bargaining-unit employees in fiscal year 2000.19
SBA stated that the agency's approach of
advertising vacancies in phase I and II was a
fundamental step in redistributing the workforce
before taking further actions, such as management-
directed reassignments.

SBA Initiated Measures to Control Personnel Costs
SBA's efforts to transition its workforce have
been complicated by the need to control a surge in
personnel costs during fiscal year 1999. An agency
official said that SBA began hiring many new
employees during fiscal year 1998. According to an
SBA official, at the beginning of fiscal year
1999, the compensation and benefit model used to
project personnel costs forecasted a budget
shortfall by the end of fiscal year 1999 if
actions were not taken to bring hiring in line
with available funding. However, hiring continued
unabated in fiscal year 1999 until January 1999,
when SBA had to draw $5.4 million from reserved
funds to cover higher than planned compensation
and benefits costs. As a result, SBA could not
continue its rate of hiring and still support all
of its planned initiatives. Therefore, SBA
initiated a hiring freeze, centralized the hiring
process, and offered voluntary early retirement to
most of its employees. SBA also created a link
between hiring decisions and the budget for
compensation and benefits and revised the model
SBA used to project and manage compensation and
benefits costs.

As an immediate measure to control personnel
costs, in February 1999, the agency initiated a
hiring freeze. At the same time, SBA created a
committee to manage hiring for critical vacancies
that would be exceptions to the freeze. With the
creation of the freeze committee, SBA officials
said that the agency centralized its hiring
process in headquarters and only hired outside the
agency when necessary to fill critical vacancies,
such as those for district directors. According to
SBA officials, the agency filled 196 positions
with external hires between February 1999 and
February 2000, because these vacancies could not
be filled from within using existing staff
resources. 20 SBA officials said the agency also
used the freeze committee to reassign employees
between offices, convert temporary positions to
permanent status, and make promotion decisions.
Centralizing the hiring process created a logical
opportunity for SBA to further realign its
workforce. SBA officials agreed that this was an
unanticipated benefit of the freeze committee and
the centralized approach. According to SBA
officials, although the hiring freeze is scheduled
to continue through fiscal year 2000, SBA
disbanded the freeze committee in February 2000.
Nonetheless, the agency's external hiring
decisions, as well as its reassignments between
field offices, will continue to be centralized in
SBA headquarters.21 As part of this centralized
approach, all external hiring and relocation
requests must be certified by the Office of the
Chief Financial Officer (CFO) to ensure the
availability of funding.

According to SBA officials, the agency knew that
it had to reduce staff by about 150 positions in
fiscal year 2000 to stay within budget even after
the staff reductions achieved through the hiring
freeze. SBA officials also recognized that not all
of their employees would be willing or able to be
trained for new or changed functions. As a result,
in April 1999, the Office of Personnel Management
(OPM) granted SBA's request for authority to offer
early retirement to its employees.22 The authority,
which was initially granted through the end of
fiscal year 1999, provided most SBA employees who
were employed continuously since February 1999, an
opportunity to retire if they met the age and
service requirements for voluntary early
retirement.23 SBA's offer to its employees did not
exclude any offices affected by the funding
shortfall, in spite of the fact that they would
potentially lose and have to replace employees in
some hard-to-fill or critical positions. In
October 1999, SBA received authority to extend the
voluntary early retirement offer through the end
of fiscal year 2000. 24 In March 2000, SBA amended
its earlier retirement offer to state that
requests from interested senior executives and
district directors would be evaluated
individually, based on the interests of the
agency. According to SBA, the agency felt it
needed to manage the potential loss of key
managers. At the same time, SBA also excluded the
agency's loan servicing centers from the early
retirement offer because, according to SBA, the
agency found that it had a difficult time filling
positions in those offices as a result of the
first voluntary early retirement offer. According
to SBA officials, the agency had processed 41
requests for early retirement in fiscal year 1999;
as of April 2000, it had processed 18 additional
requests; and it anticipates processing 30
additional requests before the authority expires
at the end of fiscal year 2000.

As an additional measure, SBA's CFO hired an
outside consulting firm to review SBA's model for
projecting and tracking compensation and benefit
costs and to suggest changes that would improve
the agency's ability to project, monitor, and
control these costs. According to the consulting
firm, SBA's existing model for projecting these
costs was complicated (i.e., not easily
interpreted or understood by senior management and
budget staff) and produced frequently changing
projections of SBA's annual requirements. In
addition, the model did not permit users to vary
assumptions about the costs of new hires and
separations projected for each month.

On the basis of a recommendation by the
consultant, later in fiscal year 1999, SBA
implemented an improved model, which more closely
tracked additions to and separations from the
workforce and used more timely and accurate
payroll data to project costs to the end of the
fiscal year. According to SBA officials, the
revised model provides better projections of
compensation and benefits costs. This, combined
with greater centralized control over hiring,
makes it more likely that other agency priorities,
including hiring and training, can be accomplished
within budget.

SBA Has Recently Contracted for a Workforce Plan
SBA recognizes that it has not completed all of
the needed workforce planning elements. The agency
also recognizes that it did not have the
capability to carry out all of the tasks
associated with workforce planning in-house. As a
result, the agency hired a contractor to perform
needed workforce planning activities and to
develop a plan.

According to a senior-level SBA official, until
fiscal year 2000, SBA's workforce planning efforts
did not follow a single model and were not
contained in a single planning document. Instead,
an official in the Office of Human Resources
performed workforce planning on an "as-needed"
basis. In addition, several offices within the
agency-including the Offices of Government
Contracting and Minority Enterprise Development
and Capital Access-were undertaking their own
workforce transformation efforts that were not
coordinated with agencywide transformation
efforts.

In February 1999, SBA assigned responsibility for
coordinating its workforce transition activities
to the Associate Deputy Administrator for
Management and Administration. The Associate
Deputy Administrator said that she visited other
agencies, such as the Internal Revenue Service and
the Department of Housing and Urban Development,
to see how they were doing long-range workforce
planning. The Associate Deputy Administrator also
said that SBA initially thought that it could
perform the needed workforce planning activities,
including skills assessments and position
descriptions, in-house. However, the Associate
Deputy Administrator added that SBA was not
documenting how positions were changing, such as
how loan processing was changing as a result of
asset sales. She realized that the agency did not
have the expertise in-house to pull together its
workforce planning activities into an agencywide
plan. As a result, according to the Associate
Deputy Administrator, in March 2000, SBA hired a
contractor to assist with the agency's workforce
transformation.

According to the contractor, he is to identify,
among other things, the "as is" and "to be" steps
in the transformation process, highlight where
"resource balancing" will have to occur, and
develop a workforce transformation plan that is to
guide the agency's activities. According to SBA
officials, the plan is to integrate the various
workforce planning activities SBA has already
initiated, such as the staffing and resource
model, with other needed actions, including an
inventory of employee skills. The contractor said
that as part of his effort he will describe where
SBA is currently, where it is going, the steps
necessary for getting there, the resources
required, and a schedule for achieving results. As
of June 2000, the contractor said that he has been
focusing on SBA headquarters offices. The
contractor estimated that the workforce
transformation plan will be completed by October
2000. However, SBA officials said that they
anticipate the agency's workforce transformation
will be completed in 2003.

SBA Has Not Identified Its Future Leadership Needs
We have been on record since 1980 about the
importance of succession planning as a good
management practice for any workforce planning
effort.25 Recently, we reported that although we
have not reviewed agencies' succession planning
efforts lately, available evidence suggests that
formal succession planning for members of the
senior executive service (SES) is not universally
being done.26 SBA has recognized the importance of
developing its leadership, as evidenced by its
attention to developing a leadership competency
model and providing its senior management with
training on how to manage change. In addition, as
discussed previously, to manage a potential loss
of its leaders, in March 2000, SBA amended its
voluntary early retirement offer by stating that
it would evaluate requests for early retirement by
its senior executives and district directors
individually, based on the interests of the
agency. However, the agency has not performed
succession planning to determine whether it will
have the continuity of leadership required to
achieve its vision or followed through with
appropriate investments to fund its leadership
candidate development programs. SBA officials have
stated that the agency must do more to identify
and develop future leaders.

According to SBA officials, as of March 2000, the
agency did not have a succession plan that
included an analysis of attrition rates,
retirement eligibility, and retirement rates for
its senior managers. Such a plan would help SBA
ensure that it had a well-prepared, qualified, and
diverse group of people available to fill SES
positions. An agency official said that he
recognized that SBA had not focused its leadership
development programs and succession planning, as
it needed to. Our analysis of the workforce data
provided by SBA shows that, as of March 2000, 24
percent of SBA's senior executives were eligible
for regular retirement, and 39 percent were
eligible for early retirement through fiscal year
2000. These percentages are lower than those for
the average regular and early retirement rates for
senior executives. 27 Our analysis of the SBA data
also showed that 39 percent of the district
directors were eligible for regular and 35 percent
for early retirement through fiscal year 2000.28
Not all of SBA's senior managers who are eligible
to retire by the end of fiscal year 2000 will do
so. However, a number of managers will retire, and
it is important for SBA to be ready to replace
them with well-prepared candidates.

When asked about succession planning, agency
officials said that SBA has candidate development
programs that collectively encompass all levels of
employees within the agency, and are designed to
prepare employees to move into any level of the
organization. These officials said, however, that
programs for SBA's SES and district directors had
not been used since 1995 because of budget
constraints. The officials anticipated that,
budget permitting, the agency would begin
recruiting for these programs in fiscal year 2001.

SBA's Training Efforts May Not be Meeting Its
Needs
As we have previously reported, a high-performance
organization must identify the best approach for
filling its needs for talented employees and
follow up with appropriate investments to ensure
that it has the best possible workforce.29 As
discussed previously, SBA's approach to filling
its talent needs is primarily to identify the
competencies needed to perform its core functions,
retrain existing employees, and limit hiring to
fill critical gaps in skills where existing staff
are not available or do not have the right skills.

Retraining existing employees to perform different
functions is key to SBA's strategy for
transforming its current workforce to support the
new business practices that SBA has adopted.
Recent survey results indicate, however, that a
smaller percentage of SBA employees reported that
they had received the training they needed to
perform their jobs than did federal employees
governmentwide. SBA has struggled to allocate
funds that it considers sufficient for providing
training to its workforce and has undertaken
various measures to provide as much training as
possible within available resources.

In both 1998 and 1999, a smaller percentage of SBA
staff indicated that they had received the
training they need to perform their jobs than did
federal employees governmentwide. In 1998 and
1999, 46 percent and 39 percent, respectively, of
SBA's employees responded favorably when asked on
a National Partnership for Reinventing
Government's (NPR) survey whether they received
the training they needed to perform their jobs.30
SBA's response rates to that question were below
the response rates of 54 and 53 percent of
employees who responded favorably governmentwide
for those years, respectively. In fact, the 1999
survey results indicate that of the 14 departments
and 8 independent agencies responding to the
survey, SBA had the lowest published percentage of
employees who responded favorably to this
question.31

To address the low ratings, the Administrator
plans to designate a specific pool of money in
SBA's fiscal years 2001 through 2003 centralized
training budgets for each district office and to
have district directors prioritize training on the
basis of employee needs. According to SBA's
Administrator, the low ratings are in direct
relationship to the lack of funding available to
support the changing functions of SBA.

SBA regularly provides for training costs within
its annual operating budget. However, in the
President's fiscal year 2000 budget, SBA requested
$3 million for training to enhance the skills of
employees in performing the new core functions,
such as marketing and outreach and lender
oversight. This money was not appropriated.
Therefore, according to SBA officials, as part of
its internal budget process for fiscal year 2000,
SBA's Office of Human Resources requested that SBA
provide $3 million for such training out of the
annual operating budget that was appropriated. The
agency allocated $1.25 million to cover all of the
agency's training needs for fiscal year 2000.
SBA's Office of Human Resources planned to use
about 95 percent of this amount to fund transition
skills training, with the remaining 5 percent
allocated to mandatory training. In March 2000,
the Office of Human Resources requested that SBA
provide an additional $700,000 for transition
skills training and $500,000 for other training.
SBA provided $300,000 to pay for the development
of its workforce transformation plan, $250,000 for
training in the district offices,32 and $48,000 for
other training. The development of competency
models for two core functions-lender oversight and
business development-and the development and
delivery of transition skills training remained
unfunded.

In order to cope with the resources available for
training, SBA has been pursuing several
strategies. For instance, according to SBA
officials, the agency has encouraged its managers
to use their office budgets to fund specific
training for their staff. Among the methods some
SBA district offices are using to train employees
in needed skills specific to those offices is
cross-training them in more than one functional
area. For example, according to SBA headquarters
officials, the district director of the Miami
office cross-trained employees in marketing and
outreach, lender oversight, and international
trade skills. SBA officials in the Dallas/Ft.
Worth district office told us that they began
cross-training employees in about 1997. These
officials also said that they use lunchtime
seminars to assist their employees to develop
their computer skills. In addition, Dallas
district officials said that they created a local
group in 1998 to help improve employees' oral
communication skills. They said that improving
such skills would allow SBA staff "to move from
pushing paper to doing marketing and outreach to
the public." According to a senior SBA official,
by having district directors discuss their cross-
training efforts in such forums as its quarterly
field management meetings, the Administrator has
communicated her expectation that SBA should cross-
train employees. Finally, SBA is using employees
currently knowledgeable about such functions as
lender oversight to train others who need to
acquire or update their skills in these areas.

SBA Has Taken Some Steps to Align Its Performance
Culture With Its Vision
As we have previously reported,33 high-performance
organizations foster a work environment in which
people are enabled and motivated to perform
according to the mission, goals, and strategies by
which the organization has defined its shared
vision. For example, such organizations align
employee performance expectations with the
organization's mission and hold employees
accountable for achieving organization objectives.

Under SBA's performance management system for SES
employees, SBA evaluates senior executives in
terms of their contribution to the goals of the
agency and uses the results of performance
appraisals as a basis for adjusting base pay,
training, rewarding, reassigning, retaining, and
removing senior executives.34 According to SBA's
SES performance management plan, the Administrator
sets the goals and priorities and establishes a
framework for specifying measurement criteria for
objectives. Specifically, each senior executive's
performance objectives, such as the implementation
of a specific program, are linked to at least one
of SBA's program goals and supporting objectives.

SBA's performance appraisal systems for lower
level employees can help reinforce the agency's
focus on achieving improved performance. In this
regard, as SBA moves forward with defining the
knowledge, skills, and abilities its employees
will need to perform well in the future, agency
officials have recognized that they will need to
reconsider whether current performance appraisal
standards and measures will need to be modified to
better capture these altered skill requirements.

Another contribution to its fostering a
performance culture has been SBA's improved
relations with its union. According to SBA and
union officials, in August 1999, the agency and
the union signed a new contract that placed
emphasis on promoting a cooperative relationship
between the parties and moving away from an
adversarial negotiating relationship. According to
an agency official, labor and management worked
together using interest-based negotiations to find
areas of mutual concern and interest before
focusing on disagreements. According to SBA and
union officials, since the signing of the
contract, the agency and the union have operated
in full partnership to help ensure the success of
the workforce transformation. For example, these
officials said that union representatives have
been involved in the development of the competency
models, the workforce transformation, and the
agency's relocation and reassignment program.

In summary, Mr. Chairman, designing, implementing,
and maintaining effective human capital strategies
will be critical for agencies to maximize their
performance. Agencies need a strategic approach to
managing their human capital activities to ensure
that they give the management of their most
important asset-their employees-the high priority
they deserve. This is especially important in
light of limited budgets. SBA, for example, which
is a fairly small agency with a limited budget,
has undertaken a number of initiatives for better
managing its human capital activities, including
developing competency models and related training
for some core functions and realigning and
deploying some staff. However, these initiatives
were not centrally coordinated until recently, and
SBA is just developing an overall plan to guide
the agency's human capital efforts. The human
capital initiatives SBA has undertaken, while
useful, are incomplete. Consequently, the success
of the agency's attempt to redesign its business
processes and transform its workforce is
potentially at risk. For example, the agency has
not finished identifying the knowledge, skills,
abilities, and other characteristics that its
staff will need to perform the core functions SBA
has identified as key to its new business
processes. In addition, SBA's lack of succession
planning could endanger the leadership continuity,
institutional knowledge, and expertise that are
critical for the successful transformation of the
agency's workforce. Further, a smaller percentage
of SBA staff report that they have been adequately
trained for their jobs than staff in the federal
government generally or any other agency
responding to recent surveys. While we recognize
that SBA currently has plans to develop a
workforce transformation plan by October 2000, the
full implementation of such a plan could be
several years away. Sustained attention to these
issues thus will be important as SBA continues to
implement its new business processes and realign
its human capital policies and practices to
support those new processes.

Mr. Chairman, this concludes my prepared
statement. I would be pleased to respond to any
questions that you or other Members of the
Committee may have.

Contacts and Acknowledgment

For further information regarding this testimony,
please contact Michael Brostek at (202) 512-8676.
For information regarding our work on budget
issues, please contact Paul Posner at (202) 512-
9573. Individuals making key contributions to this
testimony included Linda Libician, Tyra DiPalma-
Vigil, Kiki Theodoropoulos, Denise Fantone,
Elizabeth Curda, and Robert Yetvin.

_______________________________
1These observations are based on interviews with
officials from SBA headquarters and field offices
and information and documents provided by these
officials as we did our work from August 1999 to
July 2000.
2Competencies are descriptions of knowledge,
skills, and abilities and other characteristics.
3Under a public-private partnership, a contractual
arrangement is formed between public- and private-
sector partners that can include a variety of
activities that involve the private sector in the
development, financing, ownership, and operation
of a public facility or service. Such a
partnership, while a contractual arrangement,
differs from a typical service contract in that
the private-sector partner usually makes a
substantial, at-risk, equity investment in the
project, and the public sector gains access to new
revenue or service delivery capacity without
having to pay the private-sector partner.
4This number excludes 109 employees in the Office
of the Inspector General and 1,147 employees in
the Disaster Assistance Program and does not
include contract personnel. SBA does not track the
number of consultants or contract workers.
5SBA's field office structure consists of 70
district offices, 10 regional offices, and 9 loan
processing and servicing centers located
throughout the United States, Puerto Rico, Guam,
and the Pacific Trust territories.
6This authority excludes funding for
administration of SBA's disaster loan programs and
the Office of the Inspector General. In addition,
this excludes budget authority for SBA's business
and disaster loan credit subsidies, Surety Bond
Guarantees Revolving Fund, and Pollution Control
Equipment Fund Liquidating Account.
7 See Human Capital: A Self-Assessment Checklist
for Agency Leaders (GAO/GGD-99-179, Sept. 1999).
8 Succession planning is a comprehensive, ongoing
strategic process that provides for forecasting an
organization's executive resource needs;
identifying and developing potential SES
candidates; and selecting individuals from among a
pool of qualified, diverse candidates to meet
executive resource needs.
9 See GAO/GGD-99-179, September 1999.
10GPRA is designed to improve the efficiency and
effectiveness of federal programs by establishing
a system to set goals for program performance,
measure performance, and report on
accomplishments. Among individual agencies,
effective implementation of performance
management, as envisioned in GPRA, hinges on an
agency's ability to strategically manage all of
its resources-financial, information technology,
and people-to carry out its organizational mission
and achieve its goals.
11See GAO/GGD-99-179, September 1999.
12See Federal Workforce Planning: Time for Renewed
Emphasis (FPCD-81-4, Dec. 30, 1980) and U.S.
Department of Agriculture: Need for Improved
Workforce Planning (RCED-90-97, Mar. 6, 1990).
13See Building the Workforce of the Future to
Achieve Organizational Success, NAPA, a compendium
of focus papers (Washington, D.C.: Dec. 1999).
14See GAO/GGD-99-179, September 1999.
15In addition, we recently reported that SBA had
not performed a human capital assessment to
identify short- and long-term information
technology knowledge and skills requirements.
Information Technology Management: SBA Needs to
Establish Policies and Procedures for Key IT
Processes (GAO/AIMD-00-170, May 31, 2000).
16The development of the procurement model was
scheduled for fiscal year 2001.
17A senior SBA official said that the agency plans
to contract for similar staffing and resource
allocation models for its headquarters program
offices and its servicing/processing centers.
18As an additional incentive, after these
volunteers complete 1 year of satisfactory service
in the new location, SBA is to grant them a 40-
hour time-off award.
19According to an SBA official, the agency may
determine that some non-bargaining-unit employees
will need to be directed to transfer. As a result,
the total number of employees directed to transfer
may exceed the limit of 11 bargaining-unit
employees.
20Of the 196 external hires, SBA reported that only
81 affected the agency's regular operating budget.
They reported that the remaining 115 external
hires did not affect the regular operating budget.
For example, SBA said these hires (1) were funded
from sources other than regular SBA funds, such as
Small and Disadvantaged Businesses reimbursements,
(2) involved existing welfare-to-work positions or
disabled veterans, (3) were offset by reductions
in current contract employees, or (4) were for
staff that would generate income for SBA from
sources such as asset sales.
21SBA has allowed district directors, with the
concurrence of the appropriate regional
administrator, to advertise positions at or below
the GS-12 level that are open to their district
office employees.
22The initial authority provided by OPM excluded
the Offices of Inspector General and Disaster
Assistance Program because they are under
different funding. Subsequently, later in April
1999, OPM amended SBA's authority to include loan
servicing employees in the Disaster Assistance
Program in the early retirement offer because of
an anticipated gradual reduction of funding in
that program.
23The age and service requirements for early
retirement are age 50 with at least 20 years of
service or any age with at least 25 years of
service.
24The authority excluded the Offices of Inspector
General and Disaster Assistance.
25See FPCD-81-4, December 30, 1980, and Managing
Human Resources: Greater OPM Leadership Needed to
Address Critical Challenges (GAO/GGD-89-19, Jan.
19, 1989).
26See Senior Executive Service: Retirement Trends
Underscore the Importance of Succession Planning
(GAO/GGD-00-113BR, May 12, 2000).
27Using projected fiscal year 2000 data for 14
selected agencies, 37 percent of career SES
members were eligible for regular retirement, and
41 percent were eligible for early retirement. See
GAO/GGD-00-113BR, May 12, 2000.
28The district director percentage includes a small
number of employees cited in the senior executive
calculation because 8 of SBA's 70 district offices
have district directors who are in the SES.
29See GAO/GGD-99-179, September 1999.
30In 1998 and 1999, SBA was one of over 40
government agencies that participated in the NPR
survey. One purpose of the 1998 survey was to
create a baseline for measuring selected
reinvention initiatives. In addition, both the
1998 and 1999 surveys were to (1) assess and
benchmark organizational change on key items, with
the 1999 survey comparing its data to the 1998
survey's baseline data, (2) build on OPM's
Performance America database, and (3) support
collection of a set of balanced measures for
federal agencies.
31For the 14 departments, the published NPR survey
results for 1999 provide aggregated statistics for
several components. It is possible that at least
one of these components could have had a lower
response to this question, but that response was
included in the average for its respective
department. Favorable SBA employee responses to
other 1999 NPR survey questions were much higher,
such as one on whether managers communicate the
organization's mission, vision, and skills to
which 67 percent of SBA respondents agreed or
strongly agreed.
32The district offices must present a proposal for
how they plan to spend these funds before these
funds are made available to them.
33See GAO/GGD-99-179, September 1999.
34 Performance Management: Aligning Employee
Performance With Agency Goals at Six Results Act
Pilots (GAO/GGD-98-162, Sept. 4, 1998).

*** End of document ***