Performance Managemnt and Accountability.pptx

Performance Management and Value for Money in the Public Sector

Learning Objectives

• _{It is expected that at the end of the session students will be able to:} • _{Explain the basic theories relating to performance measurement}

and performance management

• _{Distinguish between performance measurement in the private and}

public sectors

• _{Explain and apply the concept of value for money}

• _{Explain some contemporary performance management}

Performance Measurement and Management

reporting on performance.

• _{It is a monitoring mechanism that shows where change is required}

and which will in turn produce the desired behaviour that will produce improved performance.

• _{Performance management broadly include} • specifying which goals to achieve,

• _{allocating decision rights, and}

• _{measuring and evaluating performance}

• _{It is said to be an action, based on performance measures and reporting, which}

results in improvements in behaviour, motivation and processes and promotes innovation

• _{A crucial element of a performance management is performance measurement} • It covers all aspects of business,

• _{General management, operations management, marketing, finance, accounting,}

• _{Performance management in the public sector was first found at New}

York Council in the early 1900s, where performance measurement focused on financial performance measures.

• _{The concept became popular globally in the 1980s during the}

experimentation of the NPM.

• _{It has over the years been seen as fundamental to public services in}

ensuring accountability.

• _{Performance Management in the private and public sectors might be}

broadly the same

• _{However, two features tend to increase the complexity in the public}

sector:

• _{Public managers often have multiple principals to be accountable to}

• _{PSOs have several ends to achieve rather than the single goal of increasing}

The purpose of Performance Management

• _{There are many reasons why a public manager would be interested in}

measuring their performance

• _{The ultimate purpose is to improve performance.}

• _{There are other purposes (sub-purposes) which serve as means for}

achieving the ultimate purpose (Behn, 2003)

• _{To evaluate – how well is the PSO performing?}

• _{To control – how can the public manager be sure their staff or partners are doing}

the right thing?

• _{To budget – on what should the public manager spend public money?}

• _{To motivate – how can staff, partners, citizens and others be encouraged to do}

what it takes to improve performance?

• _{To promote – how can the public manager persuade politicians and external}

stakeholders that the PSO is doing a good job?

• _{To celebrate – what accomplishments are worthy of a celebration?}

• _{To learn – why is this working and that not working?}

• _{To improve – who should do what differently in order to improve performance?}

What to measure in Performance

Management?

• _{Decisions about what to measure flow from an awareness of the}

purpose of measuring performance in the first place.

• _{If the purpose is to control a process then the manager may require}

measures of demand for the product or service, efficiency, error rates and costs.

• _{If the purpose is to motivate then perhaps the manager wants}

measures of individual productivity and sales figures.

• _{Generally, performance is measured in terms of inputs, outputs and}

outcomes.

• _{For any given service or project of programme a public manager could}

measure performance by measuring inputs, activities, outputs, outcomes or a combination of them.

Inputs, Activities, Outputs and Outcomes

• _{These words are the basic language of performance measurement.}

• _{Traditionally, they have been used in connection with physical processes}

such as manufacturing rather than with public programs or public policy.

• _{As a result, they are mostly explained using the metaphor of a production}

process at a factory.

• _{Let’s consider the above elements from the perspective of the private sector.}

• _{Inputs are the raw material of the production process.}

• _{Example - If we were manufacturing a car, our inputs would include}

steel and glass and rubber, as well as the labor provided by people working on the assembly line.

• _{Activities include everything that is done in order to transform the raw}

materials into the final product.

• _{Example - In an automobile manufacturing plant, activities would}

include the assembly of the various components of the automobile.

• _{Outputs are the finished products that role off of our assembly line.} • _{In this case, the output is an automobile.}

• _{Outcomes are what happen outside of the production process as a}

direct or indirect consequence of our output.

• _{From the perspective of the owner of the automobile company, a}

key outcome is the financial success of the company.

• _{From the perspective of automobile users, a key outcome is}

transportation – people are able to move from place to place with relative ease.

• _{How about public programs?}

• _{Inputs are the resources used in the production of goods or services. Typically,}

they include employees, equipment and supplies, raw materials and components, technology and money.

• _{Activities comprise all of the things that people involved in the design and/or}

delivery of a public program do that are related to the program.

• _{Outputs are the products or services that the program ultimately makes}

available to a target group.

• _{Measuring service outputs may be more difficult to measure because of the intangible}

nature of them.

• _{Outcomes in the context of public programs are normally intended to be}

changes for the better in a particular society.

• _{For public sector goods and services it can be argued that it is not the outputs that}

•

_{Comparing the two sectors, inputs and outputs are}

identifiable, quantifiable and measurable, hence they can

be priced in the private sector.

•

_{For public sector organizations, input are measurable, but}

output can not be measured easily.

•

_{So, in an attempt to measure the performance of most}

public sector organizations, intermediary output measures

are often used as yardsticks for such measures.

•

_{These are referred to as}

_Surrogates

• _{For instance, the educational policy of a country the following}

intermediary output can be used:

• _{Number of students passing a certain examination} • Number of graduates coming out of university

• Number of students/pupils per lecturer/teachers etc

• _{For the health policy of a nation, some of the following variables can be}

used as surrogates:

• _{The reduced number of cases of some disease} • _{The number of doctors/nurses per hospital}

• _{The number of trained doctors passing out each year} • _{The number of paramedical being trained.}

Examples of Performance Measures

Measures/Public sector areas Public Library Fire Service

Input Measures  Number of staff

 Number of registered members

 Number of books  Number of public PC

terminals

 Annual total budget  Annual spend on books

 Number of fire fighters  Number of fire appliances  Number of fire stations  Annual budget

 Number of reported fires per 1,000 population per year

Activity Measures  Average waiting time for borrowers book request

 Average time to check out a book

 Average queuing time

 Average time to despatch a fire tender

 Percentage of incidents reached by an appliance within minutes

Examples of Performance Measures

Measures/Public sector areas Public Library Fire Service Output Measures  Number of books issued

 Number of users of PC”s

 Percentage of Users satisfied with the service

 Number of visitors to library

 Number of incidents attended

 Percentage of incidents where fire contained to room of origin

Outcome Measures  Percentage of citizens satisfied with the service  Percentage of citizens

accessing the internet  Percentage of population

functionally literate

 Number of people saved per 1,000 population per year  Number of deaths per 1,000

fires

 Value of building and content saved

 Percentage of citizens

satisfied with the service

Relationships Between Performance Measures

• _{Activity measures tend to be easier to count than inputs, outputs and}

outcomes

• _{Input and output measures are often linked together in a ratio:}

1) book issues per registered member; 2) book issues per 1,000 population; and 3) cost per library visitor.

• _{The first two ratios are output/input ratios,} • _{The third is an input/output ratio.}

• _{Whereas input measures can often be expressed in financial terms, outputs}

from PSOs are primarily expressed in non-financial terms

• _{Outcomes may take many, many years after the service is delivered to}

be realized

• _{Measuring outcomes tends to be more difficult than measuring}

outputs

• _{The notion of an outcome is more complicated for some public}

services because

• _{they are consumed collectively (such as defence)}

• _{the multiple beneficiaries of a public service might each value different} characteristics of the service

Activity

• _{Choose a public programme and identify the following:} • _Inputs

• _Activities • _Outputs • _outcomes

Problems of performance management

• _{A performance management system might not give public managers}

exactly what they are looking for

• _{Some challenges includes:}

• _{measuring costs – distinguishing between when full costs are required and} when only relevant costs are required;

• _{reliability of output measures – especially non-financial measures unless they} are produced from a tightly controlled, validated and audited database akin to an accounting database;

• _{the causal relationship between inputs and outputs/outcomes is profoundly} difficult to determine;

• _{the narrowness of output measures limits comparability – for}

example, the performances of two schools are not strictly comparable because the pupils in the school are not the same;

• _{the comprehensiveness of measures – a balance is needed to avoid}

having too few or too many measures; and

• _{controllability of performance – if the purpose of performance}

measurement is to improve performance there is little point measuring things that the manager cannot control.

• _{The past does not predict the future} • _{Understanding the limits of the data}

Dysfunctional effects of PMS

• _{Dysfunctional behaviour can manifest itself in a performance management}

regime.

• _{Tunnel vision-}

• _{focusing attention on what is being measured, managers lose sight of the big picture and}

may not pay enough attention to other important aspects of their work.

• _{Sub-optimization}

• _{managers pursuing their narrow objectives rather than what is best for the organization}

as a whole

• _Myopia

• _{a manager to focus on how to achieve performance targets in the short term and neglect}

• _Convergence

• _{result in managers seeking to perform at a similar level to other managers or} organizations.

• _Ossification

• _{This is connected with myopia and convergence. Performance targets can act as a} disincentive for managers to take risks and innovate

• _Gaming

• _{Using PMS as an elaborate game to manipulate targets and performance to get a} strategic advantage

• _{Misrepresentation}

• _{Managers may cheat the performance management system by submitting} misleading or outright false performance data

The Value for Money Concept

• _{Scholars posit that the value for money (VFM) concept offers a broader way of}

measuring government performance and guiding policy decisions (see e.g., Kelly et al., 2002).

• _{The value for money concepts has to do with the use of resources (money)}

to achieve the organizational objectives, plans and policies (i.e. value).

• _{The optimal use of resources to achieve the intended outcomes (UK’s NAO,}

• _{Conventionally, VFM has been characterized by the three Es: economy,}

efficiency and effectiveness:

• _{minimizing the cost of inputs (economy);}

• _{maximizing the ratio of outputs delivered from the inputs (efficiency);}

and

• _{achieving the intended results of the service/project (effectiveness).} • _{The NAO (2014b) summarize these three as meaning spend less, spend}

well, spend wisely, thus, the tag, “3Es”

• _{In recent past, the NAO (2014b) suggest that there is a fourth E, equity,}

which might be appropriate in the assessment of value for money in some circumstances.

• _{Thus, VFM means a public manager should spend less, spend well, spend}

wisely and spend fairly, thus, 4Es

• _{The VFM assessment could also involve a fifth E, ethics; an assessment}

about the integrity, openness and transparency of the subject under review, hence 5Es.

Relationship between inputs, activities, outputs and

outcomes to the 3 E’s

• _{The flow diagram shows that}

• _{Resources depend on the objectives of commissioners/service providers.}

• _{The acquisition of resources as inputs to processes determines economy: minimising} the cost of resources used while having regard to quality.

• _{The use of inputs in a process to produce outputs determines efficiency: the}

relationship between outputs, e.g. services, and the resources used to produce them. • _{The extent to which intended and unintended outcomes are achieved by outputs}

from a process determines effectiveness: the extent to which objectives are achieved and the relationship between intended and actual impacts of a service.

• _{Outcomes are subject to other influences besides the action of outputs.}

• _{The relationship between resources and outcomes determines cost-effectiveness or} value for money: the optimal use of resources to achieve the intended outcomes.

Activity

• _{The test of police efficiency is the visible evidence of police action in}

dealing with it. True or False.

• _{The test of police efficiency is the absence of crime. True or False.}

Economy

•

_{This refers to the acquisition of resources of an appropriate quantity}

for the minimum cost.

•

_{It has to do with the value of inputs used by an organization and it}

has the implication of the cost impact of resources.

•

_{It stresses the cost saving of an activity not considering the outcome}

of using the resources.

•

_{Selection is always made of the resources that give the least total}

Economy

• _{This concepts is applied often in the public sector due to the difficulty in}

measuring output.

• _{It is achieved when:}

• _{Due procurement process is followed}

• _{Due recruitment process and practices are followed} • _{Cost control systems are effective}

• _Limitations

• _{Economy does not consider the final achievement of an activity}

(output/outcome). In effect, it does not compare input with output.

• _{It does not provide any basis of guidelines for managers of organizations}

to plan towards the achievement of organizational objectives or goals.

• _{It has no motivational element to compel the managers to achieve the}

final goals.

Effectiveness

• _{This is concerned with how well a programme or activity is}

achieving its stated objectives, its defined goals or other intended effects.

• _{Basically, effectiveness involves an examination of relationship}

between outputs achieved and the objectives of the organization.

• _{A key factor in measuring or evaluating the effectiveness of an}

organization’s operations is to determine the desired objectives or goals that are being contemplated and the output achieved.

• _{So, an organization is seen to be effective and therefore successful}

if their output is the same or more than the originally stated objectives or goals.

• _{It is achieved when}

• _{Goals are set and communicated.}

• _Limitations

• _{It has a basic limitation by considering only output and objectives. It does not}

consider the cost of input or how much it cost to achieve the desired objectives.

• The measurement of effectiveness has to do with only output and objectives. It indicates the results achieved irrespective of the resources used to achieve these results.

• _{The other problem is the measurement of the output achieved. Measuring}

output achievement in most public sector organization is also not easy.

• _{It can be another means for wasteful expenditure since the input variable is not}

considered in the effectiveness measure.

• _{Thus, a lot of resources can be wasted in an attempt to bring out an output so as}

to achieve the objectives of the organization.

Efficiency

• _{This is concerned with the relationship between the cost of inputs used in an}

activity and the final output that is achieved.

• _{It aims at deriving maximum benefits (outputs) from the resources (inputs) used; or}

ensures that minimum or least resources (inputs) are used to achieve a level of benefits (outputs).

• _{Thus, an operation could be said to increase efficiency either if fewer input were}

used to produce a given amount of output or a given level of input resulted in increased output.

• _{The measure of Efficiency = output}

• _{Efficiency results when:}

• _{Right quality of material is procured}

• _{Right competences and skills are engaged} • _{Right technologies are used}

• _{Right storages and warehousing system are used} • _{Quality control procedures are put in place}

Rationale For Developing Efficiency

Measures

• _{Comparing the three traditional components of the value for money concept,}

efficiency appears to have gain popularity over the years.

• _{Thus, most efforts have targeted developing efficiency measures.} • _Why?

• _{It demonstrates how result has been achieved by comparing performance data to}

standards, targets and goals.

• _{It supports planning for future operations and resource requirements.}

• _{It provides a rational basis for pricing goods and services in the public sector}

where charges are made for user services.

Equity

• _{This is concerned with ensuring fairness in every aspect of the performance measurement}

processes.

• _{The extent to which services are available to and reach all people that they are intended to – spending}

fairly.

• _{Some people may receive differing levels of service for reasons other than differences in their levels of} need.

• _{For example:}

• _{The cost and level of provision of a service is more for one group of people than that for another} group of people with similar needs;

• _{some people cannot reach, see, hear or use a service;}

• _{the service may be unsuitable for some people’s specific needs;}

• _{a service is provided in a language that some people do not speak or terms they do not understand; or} • _{some people are unaware that the service is available to them.}

• _{The element requires that:}

• _{There is no discrimination with respect to gender, ethnicity,}

geographical location, physical infirmity etc.

• _{There is horizontal equity in the sense that as practically as possible,}

grades within classes located in different public service organisations should be accessed through the same process

• _{There should be vertical equity in the sense that as practical as possible}

the assessment process and its outcomes should be

complementary/consistent with the ladders in each class; and lastly

• _{The frequency and use of assessment outcomes should as practical as}

Some Contemporary Performance Management

Frameworks

• _{In an attempt to provide a broad picture of an}

organisation’s activity through its measures, a number of authors have proposed other frameworks

• _{the Balanced Scorecard (Kaplan and Norton, 1996)} • _{the Performance Prism (Neely et al., 2001)}

• _{Competing values framework (Talbot (2008)}

Overview of the Balanced Scorecard

 Is a report that provides a multidimensional perspective of

organizational performance

 Reflecting four perspectives of the organization

Financial

Customer

Internal operations

Innovation and learning

 Showing goals and measures

Targets

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Perspectives Financial Customers Internal business process

Innovation, learning and Growth

Themes Focuses on shareholders

Customers Day to day – management

Value creation issues

Indicators profitability ratios customer satisfaction

lead time for procurements

productivity ratios liquidity ratios market share Product

development

employee cost to revenue ratios

change in revenues growth

waiting time between order

and delivery

labour cost control employee commitment

Change in expenses customer retention

internal governance sales of new products and services

solvency ratios No. of new products

Overview of Performance Prism

46



This is a thinking aid which seeks to integrate five

related perspectives.



It provide a structure that allows executives to think

through the answers to five fundamental questions:

Stakeholder Satisfaction: Who are our stakeholders and what

do they want and need?

Stakeholder Contribution: What do we want and need from our

stakeholders?

Strategies: What strategies do we need to put in place to

Overview of Performance Prism

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47

Processes: What processes do we need to put in place to

satisfy these sets of wants and needs?

Capabilities: What capabilities – bundles of people,

practices, technology and infrastructure – do we need to put in place to allow us to operate our processes more effectively and efficiently?

Together the above five viewpoints provide a

comprehensive and integrated framework for managing organisational performance, known as PP

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The CVF

50

 The CVF asserts that human organizations are shaped by just two

fundamental contradictions – the desire for flexibility and autonomy versus the need for control and stability; and the focus on internal concerns and needs versus responsiveness to the external environment.