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

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

Statement

Small Business Administration: Steps Taken

to Better Manage Its Human Capital, but More

Needs to Be Done

Page 1

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

• 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;

• estimating the number of employees with those skills who will be needed;

• developing a succession plan for senior leaders and reinstating candidate

development programs for these leaders; and

• 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.

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,

1

These 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.

2

Competencies are descriptions of knowledge, skills, and abilities and other characteristics.

3

Under a public-private partnership, a contractual arrangement is formed between public- and privatesector 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,

Background
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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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.

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.

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.

Figure 1: The Number of SBA

Employees for Fiscal years 1992

Through 2000
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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As of February 2000, SBA had 3,024 employees,4of 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.

4

This 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.

5

SBA’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.

6

This 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.
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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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:

• 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

7 See Human Capital: A Self-Assessment Checklist for Agency Leaders (GAO/GGD-99-179, Sept. 1999).

Figure 2: SBA’s Fiscal year 2000

Personnel-Related Costs
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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capital policies, programs, and practices specifically designed to steer an

organization toward achieving its shared vision;

• organizational alignment, which includes workforce planning—that is,

managing the size, composition, and deployment of the workforce;

• leadership, which includes fostering a committed leadership team and

providing continuity through succession planning;8

• talent, which includes recruiting, hiring, developing, and retaining

employees with the skills for mission accomplishment; and

• performance culture, which includes establishing an environment that

enables and motivates staff while ensuring accountability and fairness to

employees.

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”—

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.

SBA Has Developed a

Shared Vision
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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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 ecommerce 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.

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

11See GAO/GGD-99-179, September 1999.

SBA Has Begun Taking

Steps to Better Manage

Its Human Capital

Activities, but More

Remains to be Done
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 7

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.

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 longterm 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

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.

SBA Has Recently

Undertaken Some but Not

All Needed Workforce

Planning Activities
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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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 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

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).

SBA Has Developed Competency

Models and Related Training for

Some but Not All Functions
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 9

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

16The development of the procurement model was scheduled for fiscal year 2001.
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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group staff to provide on-the-job training until formal training can be

provided.

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.

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.

SBA Has Taken Measures to

Realign and Deploy Staff but Has

Not Determined Future Staffing

Needs
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

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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’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

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.

SBA Initiated Measures to

Control Personnel Costs
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

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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

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.
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

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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,

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.
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

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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 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

SBA Has Recently Contracted

for a Workforce Plan
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 15

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.

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

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).

SBA Has Not Identified Its

Future Leadership Needs
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 16

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.

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

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/GGD00-113BR, 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.

SBA’s Training Efforts May

Not be Meeting Its Needs
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 17

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.

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.
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 18

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

32The district offices must present a proposal for how they plan to spend these funds before these funds

are made available to them.
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 19

functions as lender oversight to train others who need to acquire or update

their skills in these areas.

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 interestbased 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.

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).

SBA Has Taken Some Steps

to Align Its Performance

Culture With Its Vision
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 20

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
Small Business Administration: Steps Taken to Better Manage Its Human Capital, but More

Needs to Be Done

Page 21

key contributions to this testimony included Linda Libician, Tyra DiPalmaVigil, Kiki Theodoropoulos, Denise Fantone, Elizabeth Curda, and Robert

Yetvin.
Page 22 GAO/T-GGD/AIMD-00-256
Page 23 GAO/T-GGD/AIMD-00-256
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