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Concepts of Performance – Economy and Efficiency. Concepts of Performance. What do we understand by the term “performance”?. Concepts of Performance. “the concept of performance requires a comparison of what was expected with what was achieved” (Mayne, 2003, p.1)

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concepts of performance
Concepts of Performance

What do we understand by the term “performance”?

concepts of performance1
Concepts of Performance

“the concept of performance requires a comparison of what was expected with what was achieved”

(Mayne, 2003, p.1)

But how are these expectations defined and understood? Turning to the literature of Generally Accepted Accounting Practice, that understanding is principally concerned with external accountability and the measurement of changes in the financial position of reporting entities. But is that how external stakeholders and internal managers explain performance?

measurement and management

Measurement and Management

What gets measured gets managed (or it certainly receives attention)

but

Does what gets managed, get measured?

slide5

Measuring the immeasurable

The theoretical approaches that shaped public sector reforms in the late 1980s and early 1990s reflect the measurement principles of scientific management whereby resources (inputs) and final goods and services (outputs) are viewed as being objectively defined and measured so as to control and optimise the economy and efficiency of each agency’s work.

slide6

Measuring the immeasurable

  • However, this instrumental approach to the measurement and management of performance has been criticised by those who perceive the work of public sector managers as being less concerned with rational decision making and more an exercise in:
  • “muddling through” (Lindblom, 1955) or
  • “management by groping along” (Behn 1988).
slide7

Measuring the immeasurable

“Nowadays, everything is measured, including highly ambiguous phenomena like well-being, social cohesion, crime and safety. In this world of measurement, phenomena are turned into crisp facts and figures, states of affairs can be assessed and comparisons with earlier, other, or imagined states of affairs can be made. By improving ‘numerical capture’, it is assumed, phenomena like well-being can be improved. “

(Noordegraaf, 2008).

slide8

Measuring the immeasurable

“Measurement in the public sector is less about precision and more about increasing understanding and knowledge”

[Mayne, 1999]

slide9

Concepts of Performance

  • The concept of performance requires a comparison of what was expected with what was achieved.
  • More specifically, public sector performance is understood and measured in terms of:
  • economy,
  • efficiency,
  • effectiveness
  • equity,
  • organisational capital, and
  • public capital.
slide11

The Government’s Fiscal Strategy

What are the Government’s fiscal priorities?

How is it Planning to achieve them?

What are the implications for state sector agencies?

slide12

The New Zealand Government’s Fiscal Strategy

In the aftermath of the global financial crisis and the 2011 Canterbury earthquake, New Zealand’s economy is in recession.

Previous patterns of increased government expenditure are no longer sustainable.

slide13

The New Zealand Government’s Fiscal Strategy

Nonetheless, to support a fragile economy, preserve jobs and protect the most vulnerable from the worst effects of the recession the New Zealand government has, in the short term, increased its levels of borrowing.

In the longer term, a path back to surplus and the repayment of debt has involved reining back expenses and getting on top of the longer term drivers of government spending.

slide14

The New Zealand Government’s Fiscal Strategy

  • Two key fiscal targets:
  • get back to surplus by 2014/15.
  • reduce government debt to 20 per cent of GDP by 2020.
  • 2013 budget forecasts show an operating surplus before gains and losses of $75 million in 2014/15.
  • This will be achieved while still spending $5.1 billion on new initiatives in the current year and over the next four years, funded, in part, by reprioritising existing spending.
slide15

The New Zealand Government’s Fiscal Strategy

A surplus is forecast because tax revenue is picking up and the Government is continuing to restrict growth in expenses. Core Crown expenses are forecast to drop below 31 per cent of GDP in 2014/15 – down from 35 per cent of GDP just two years ago – and then remain well under that level.

Budget forecasts also show net core Crown debt peaking at 28.7 per cent of GDP in 2014/15 and declining thereafter. Longer-term projections show net debt dropping to 17.6 per cent of GDP by 2020/21, in line with the Government’s target.

slide17

Responsibly managing the Government’s finances

Social security and welfare, health and education

costs will make up over two-thirds of core Crown

expenses in 2013/14.

fiscal responsibility provisions of new zealand s public finance act 1989
Fiscal Responsibility Provisions of New Zealand’s Public Finance Act 1989
  • Purpose
    • To achieve consistent, good quality fiscal management over time
  • Mechanisms:
    • Requires governments to be explicit about their long-term fiscal objectives and short term intentions and to assess them against principles of responsible fiscal management
    • Requires governments to report on a range of economic and fiscal information
fiscal responsibility provisions of new zealand s public finance act 19891
Fiscal Responsibility Provisions of New Zealand’s Public Finance Act 1989
  • Focuses on long-term implications of fiscal policy through long-run scenarios
  • Establishes GAAP as the measurement basis
fiscal responsibility principles
Fiscal Responsibility Principles
  • Reduce total debt to prudent levels to provide a buffer against adverse events, and run operating surpluses until prudent debt levels are achieved.
  • Maintain, on average, operating balance once prudent debt levels are reached.
  • Achieve and maintain levels of net worth to provide a buffer against future adverse events.
  • Manage prudently fiscal risks facing the Crown.
  • Pursue policies that are consistent with predictability about level and stability of future tax rates.
strategic aspects of fiscal responsibility
Strategic Aspects of Fiscal Responsibility
  • Transparency
  • Long-term perspective
  • Stable budget process
  • Parliamentary scrutiny
  • Independence in financial reporting policy
strategic aspects of fiscal responsibility1
Strategic Aspects of Fiscal Responsibility
  • Specifies fiscal principles (targets) on an accrual basis
  • Aligns budgeting with financial reporting for Crown
  • Does notlegislate a balanced budget
                  • Why not?
fiscal responsibility documents
Fiscal Responsibility Documents
  • Fiscal Strategy Report
  • Budget Policy Statement
  • Long Term Fiscal Reporting
  • Economic and Fiscal Updates
  • Pre-Election Economic and Fiscal Update
  • Reporting on Tax Policy Changes
slide27

Economy in central government

What implications are there for the economy of individual government departments?

How can that be measured and reported?

slide29

The most basic goal of ‘good administration’?

The concept of ‘efficiency’ is often used in the context of “improved efficiency” which is particularly pertinent in an environment of constrained resources in which resource savings from improved efficiency can be employed to tackle the ever-present other problems and opportunities.

On the other hand, the unnecessary consumption of resources, because of inefficiencies, denies their use for those other problems and opportunities.

challenges and responses
Challenges and Responses
  • When funding does not match demand, how do we allocate the shortfall?
  • Different mixes of qualified and unqualified/support staff.
  • Differing availability of community providers
  • Different patterns of front line practice
  • Projects to develop new ways of working
public sector agencies need to
Public sector agencies need to:
  • Manage the resources that they have to ensure they are fully and optimally used.
  • Justify the retention of those resources.
  • Be able to clearly and logically demonstrate to ministers and their advisors the relationship between service provision and resource requirements.
  • Be able to provide ministers with practical options for changing the level and mix of services.
input based management and the coping organisation
Input-based Management and ‘the Coping Organisation’
  • Little or no understanding and active management of the links between service provision and resource requirements.
  • Budgeting independent of planning.
  • Resourcing and funding decisions based largely on historic practice.
  • Resource retention in silos.
  • Confused accountability.
resource based management
Resource-Based Management
  • For a required level of goods and services,
  • what resources will be required, and
  • what will they cost?
  • For a given level of funding,
  • what resources can be available, and
  • what services can those resources provide?
slide35

An Integrated Model

WHAT ARE WE GOING TO DO?

WHAT RESOURCES WILL THAT TAKE?

WHAT WILL THOSE RESOURCES COST?

slide36

An Integrated Model

PLAN

WHAT ARE WE GOING TO DO?

WHAT RESOURCES WILL THAT TAKE?

WHAT WILL THOSE RESOURCES COST?

BUDGET

slide37

An Integrated Model

PLAN

WHAT ARE WE GOING TO DO?

Units of Activity

WHAT RESOURCES WILL THAT TAKE?

Units of Resource

WHAT WILL THOSE RESOURCES COST?

Units of Funding ($)

BUDGET

slide38

An Integrated Model

PLAN

WHAT ARE WE GOING TO DO?

Units of Activity

Quantities of resource per unit of activity

WHAT RESOURCES WILL THAT TAKE?

Units of Resource

Cost per unit of resource

WHAT WILL THOSE RESOURCES COST?

Units of Funding ($)

BUDGET

slide39

An Integrated Model

PLAN

Demand

WHAT ARE WE GOING TO DO?

Units of Activity

Quantities of resource per unit of activity

WHAT RESOURCES WILL THAT TAKE?

Units of Resource

Cost per unit of resource

Constraints

WHAT WILL THOSE RESOURCES COST?

Units of Funding ($)

BUDGET

slide40

An Integrated Model

PLAN

Demand

WHAT ARE WE GOING TO DO?

Units of Activity

Quantities of resource per unit of activity

Balance

WHAT RESOURCES WILL THAT TAKE?

Units of Resource

Cost per unit of resource

Constraints

WHAT WILL THOSE RESOURCES COST?

Units of Funding ($)

BUDGET

child youth and family services
Child, Youth and Family Services
  • Care & Protection services
  • Youth Justice services
  • Adoption services
  • Development & funding of community services
  • Prevention services
  • Policy Advice
volume based services
Volume–Based Services

Volume-based Services are those that we are able to plan in quantifiable terms and subsequently monitor or count.

capacity based services
Capacity-Based Services

Capacity-based Services encompass those groups of work that we are (at least currently) not able to plan and monitor in quantifiable terms. Rather it is necessary to assign a given amount of resource on the basis that it will undertake a generic, or undefined, group of activities.

projects
Projects

Project-based Services are more discrete or non-recurring pieces of work that have some specific deliverables, a beginning and ending and to which we will assign particular resources.

balancing costs funding
Balancing Costs & Funding
  • It is necessary to consider:
    • Reviewing the plan against last year.
    • Revisit major cost categories.
    • Review the standard resource requirements.
    • Prioritising the services and costs.
    • Look at the resources required for efficiency.
    • Escalation.
lessons
Lessons

Sound planning is based on a consistently understood and applied set of definitions in respect of what the organisation does and what it uses to do it.

Organisations tend to comprise of a range of different functions that work in different ways; accounting and management models need to be flexible enough to take account of this.

slide50

Passing thoughts:

The measurement of efficiency implies that we have a means of determining the minimum resources necessary to produce a given effect”

(Emmanuel, Otley & Merchant, 1995)

Or at least it does imply that the inputs and the outputs involved can be clearly identified and measured (as in the case of a doctor who is able to place a thermometer under your tongue and read the exact temperature).

slide51

How robust are the processes in place to test for efficiency and make improvements?

Lines of Enquiry

Evidence - do reports on performance use appropriate evidence that demonstrates achievement of results and value for money?

Specification - are outputs clearly specified in terms of both quantity and standards?

Funding- do funding changes relate to changes in volumes or standards?

Documentation - are the business models documented?

slide52

How robust are the processes in place to test for efficiency and make improvements?

Lines of Enquiry

Value - how does the agency ensure it gets the best value for money for inputs it purchases, from both the agency and whole of government perspective? Are inputs acquired through contestable processes?

Benchmarking - does the agency use meaningful benchmarks for improving efficiency?

Review - does the agency have a process for reviewing and improving efficiency?

Innovation - does the agency actively self-test and innovate?

slide53

How robust are the processes in place to test for efficiency and make improvements?

  • Best practice Indicators
  • The agency demonstrates improved quality, price and quantity tradeoffs.
  • The agency uses benchmarks to improve efficiency and describes these in accountability documents.
  • The agency has clear documentation that shows the logical progression from inputs to outputs and then to impacts.
slide54

How robust are the processes in place to test for efficiency and make improvements?

Lines of Enquiry

Trade-offs – when policy or service delivery options are considered, are cost, quality and price trade-offs identified?

Capacity – what is the capacity of the agency to analyse cost, quantity and quality trade-offs (e.g. the people with the appropriate skills and time to use them or other suitable resources that undertake this analysis)?

Improvement – How does the agency identify the cost of additional quality improvements?

Cost-benefit analysis – does the agency appropriately include cost-benefit analysis in decision making? How well does it do that?

Ministers – does the agency provide high quality advice to Ministers on these issues?

slide55

How robust are the processes in place to test for efficiency and make improvements?

  • Best practice Indicators
  • Trade-offs are exp[licitly documented and inform decision making.
  • The agency demonstrates rigour of discussion on quality, price and quantity trade-offs during planning.
  • The agency conducts regular funding reviews to continuously improve performance.
  • Inefficient programmes are identified and improved or discontinued.
slide56

Your Organisation

What information is provided to explain the efficiency with which services (outputs) are provided?

slide57

Public sector efficiency

“Plugging numbers into ready-set equations does not produce a social program’s costs and benefits. Their determination is an intensely political activity. Every bit as fraught with controversy as defining equity or community responsiveness. Public sector efficiency – like all public matters – cannot be separated from politics.”

(Lauer Schachter, 2007)