Download ACCY 404 - Public Sector Accounting 2011 Measuring performance

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)
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
What gets measured gets managed (or it certainly
receives attention)
but
Does what gets managed, get measured?
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.
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).
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).
Measuring the immeasurable
“Measurement in the public sector is less about
precision and more about increasing understanding
and knowledge”
[Mayne, 1999]
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.
Economy
The Government’s Fiscal Strategy
1. What are the Government’s fiscal priorities?
2. How is it Planning to achieve them?
3. What are the implications for state sector
agencies?
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.
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.
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.
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.
Responsibly managing the Government’s
finances
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.
Responsibly managing the Government’s
finances
Responsibly managing the Government’s
finances
Government net financial liabilities
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 1989
•
•
Focuses on long-term implications of fiscal policy
through long-run scenarios
Establishes GAAP as the measurement basis
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
• Transparency
• Long-term perspective
• Stable budget process
• Parliamentary scrutiny
• Independence in financial reporting policy
Strategic Aspects of Fiscal Responsibility
• Specifies fiscal principles (targets) on an accrual
basis
• Aligns budgeting with financial reporting for Crown
• Does not legislate a balanced budget
•
Why not?
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
Economy in central government
What implications are there for the economy of
individual government departments?
How can that be measured and reported?
Efficiency
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
• 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:
• 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’
•
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
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?
THE QUANTITY/QUALITY TRADE OFF
Resources
Quality
Goods &
Services
An Integrated Model
WHAT ARE WE
GOING TO DO?
WHAT RESOURCES WILL
THAT TAKE?
WHAT WILL THOSE
RESOURCES COST?
An Integrated Model
PLAN
WHAT ARE WE
GOING TO DO?
WHAT RESOURCES WILL
THAT TAKE?
WHAT WILL THOSE
RESOURCES COST?
BUDGET
An Integrated Model
PLAN
WHAT ARE WE
GOING TO DO?
WHAT RESOURCES WILL
THAT TAKE?
WHAT WILL THOSE
RESOURCES COST?
BUDGET
Units of Activity
Units of Resource
Units of Funding ($)
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?
BUDGET
Units of Funding ($)
An Integrated Model
PLAN
Demand
WHAT ARE WE
GOING TO DO?
Units of Activity
Quantities of resource
per unit of activity
WHAT RESOURCES WILL
THAT TAKE?
Units of Resource
Cost per unit of
resource
Constraints
WHAT WILL THOSE
RESOURCES COST?
BUDGET
Units of Funding ($)
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?
BUDGET
Units of Funding ($)
Child, Youth and Family Services
• Care & Protection services
• Youth Justice services
• Adoption services
• Development & funding of community services
• Prevention services
• Policy Advice
CARE AND
PROTECTION
SERVICES
ENGAGEMENT & ASSESSMENT
SAFETY AND BELONGING
STABILITY AND WELLBEING
No Further Action
Refer to
Service
Informal
Resolution
**
Report of
Concern
Contact
Centre & Site
Assessments
Safety
Assessment
***
Family Group
Conference
Investigation
Family Court
Order
Child &
Family
Assessment
Partnered Response (Services Provided in the Community)
Care of the Chief Executive
**
Strengthening Family Coordinator
***
Differential Response Coordinator
Plans &
Orders
Resolution
Services
Volume–Based Services
Volume-based Services are those that we are able to
plan in quantifiable terms and subsequently monitor
or count.
A “Master Schedule”
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
Project-based Services are more discrete or nonrecurring pieces of work that have some specific
deliverables, a beginning and ending and to which we
will assign particular resources.
Resource Balancing
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
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.
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).
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?
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?
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.
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?
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.
Your Organisation
What information is provided to explain the efficiency
with which services (outputs) are provided?
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)