The case for measuring performance

In general, the importance of measuring organisational performance has been emphasised by Shand (1997:22) who says that ‘if we do not measure performance we do not know what we are doing’ and by Scott (1994:15) who notes that ‘without it [performance measurement] we do not know where the organisation is’. More systematically, Carter et al. (1992:49) identify three main measures of organisational performance; namely prescriptive, descriptive, and proscriptive measures. Prescriptive performance measurement is undertaken in order to assess how an organisation has achieved its objectives or targets. Prescriptive performance measurement is like a dial which precisely evaluates inputs, outputs, and outcomes based on definite standards. Thus, prescriptive performance measurement can assess whether an organisation has succeeded or failed to achieve its objectives or targets, and can separate good performers from bad performers.

Because organisational objectives are sometimes contested or ambiguous, absolute measures of performance are difficult or impossible to obtain. In this kind of situation, descriptive rather than prescriptive performance measurement is more applicable. Descriptive performance measurement gives information about trends in organisational performance by, for example, ‘comparing relative performance over time rather than performance against normative standards or precise targets’ (Carter et al. 1992:50). Finally, performance measurement may also function like an alarm-bell which

warns if undesirable and intolerable circumstances exist in an organization, without relating these circumstances to specific targets or objectives. Carter et al. (1992:49) name this type of measurement as proscriptive or negative performance measurement.

Table 3.1 Values, benefits and improvements of performance

measurement

Type of Improvement

Achieved

Form of Benefit

Produced Form of Value Received

Policy decisions Reallocation of resources Shifted resources increase in value to public, as needs are better met by public tax Service

performance (effectiveness)

More responsive services

Services increase in value to the public, as needs are better met by public tax Service

performance (efficiency)

Increased services per a unit cost or decrease cost per unit service

Value of increased efficiency may be calculated,

representing actual saving, cost avoidance or both.

Organisations Managers and

employees become more creative as well as more efficient and effective (human development benefits)

Public organisations increase in value to the public as their ability to change and

improve is enhanced

Source: Epstein, P.D., 1986. 'The value of measuring and improving

performance' in M. Holzer and A. Halachmi Strategic Issues in Public

Sector Productivity, San Francisco, Jossey-Bass:65-71.

Whether performance measurement is undertaken to assess achievements against goals, identify trends, or as an early warning system, helping managers to make appropriate decisions has to be the prime objective of measuring organisational performance (Mark 1981:74). Epstein's tabulation of

performance measurement (set out in Table 3.1) shows that in public sector organisations better decision-making has the potential to improve policy decisions, organisational effectiveness, efficiency, and overall performance. As a result, benefits may be produced, such as a more responsive public service as well as an increase in services per unit cost, and the public organization’s value to the public may be improved (Epstein 1986:71). In addition, indicators applied in performance measurement may also guide managers ‘to set specific goals, facilitate budget justification, reduce cost, permit control of operations and improve motivation and accountability’ (Jowett and Rothwell 1988:4).

Setting standardised and absolute indicators to assess performance of multiple objective public organisations is not always easy because the process involves a complex mix of political, financial, social and technical considerations. Therefore, the performance of public organisations sometimes is not assessed in absolute measures but by comparison and by which four types of comparisons are arguably the most common strategy used (Carter et al. 1992:46-8; Boyle 1989:23-4). Firstly, the performance of an organisation can be evaluated by a time-series comparison; that is, measuring the performance of the same organisation over time (Carter et al. 1992:46-7; Boyle 1989:23). For instance, the annual records of an organisation can be utilised to assess whether the performance of an organisation in a particular year improves, decreases, or remains stable compared to previous years. Although this type

of comparison theoretically measures the same organisation, changes of technology as well as demographic and social circumstances may influence the performance of an organisation over time (Carter et al. 1992:47).

Secondly, the performance of an organisation can be assessed by comparing its achievement against projected targets or standards (Carter et al. 1992:46; Boyle 1989:23). However, a number of questions may arise concerning who is the best person to set the targets, whether the targets should be prescribed from the top or created from below, and whether the targets are achievable or not. Thirdly, the performance of an organisation can be assessed by using internal organisational comparisons (Carter et al. 1992:47; Boyle 1989:24). This is done either by comparing the performances of different units within the organisation or by comparing the performance of the same organisation operating in different regions of the country. Lastly, although it is rarely applied, performance measurements can also be undertaken by comparing one organisation with other different organisations (Carter et al. 1992:48; Boyle 1989:24).

After discussing the importance of measuring organisational performance, it is also relevant to discuss the two approaches most frequently used to measure performance of public organisations. First, the objective performance measurement assesses the performance of government agencies using objective indicators such as effectiveness and efficiency. Second, the subjective

performance measurement evaluates the performance of public sector organisations using subjective indicators such as citizen satisfaction towards the quality of public services they receive. As shown in the following sections, both objective and subjective performance measurements have their own strengths and weaknesses.