PERFORMANCE
MEASUREMENT IN THE PUBLIC
SECTOR
Presentation by:
CPA Laurian, Vicent
Performance measurement
Governments around the world have implemented
various performance management concepts. These are
often known as results-based management or
performance based budgeting.
There have been mixed results for government
performance measurement initiatives
Performance measurement
“Current systems for measuring performance in the
public sector present some limitations because they are
based only on efficiency, effectiveness and economy
indicators, which are mainly financial that fail to
measure the fulfillment of environmental and social
objectives of the public organizations. (Mihaiu, 2014).”
Performance measurement
Originally developed to overcome performance
scheme challenges in business management (Kaplan,
2010), the balanced scorecard has been adapted in
public sector organizations.
“Although the Balanced Scorecard has initially been
applied to the for-profit (private) sector, its potential to
improve the management of public sector organizations
(PSOs) is even greater. (Kaplan, 1999)”
The Balanced Scorecard (BSC)
The “balanced” notion of the balanced scorecard that combines
financial, customer, internal process, learning and growth
perspectives provides a holistic performance framework
This approach can overcome many of the difficulties associated
with understanding and implementing performance management
in government.
It is through the exercise of balancing performance needs that
makes the balanced scorecard compelling for government and
other public sector organizations.
The Balanced Scorecard (BSC)
“A properly constructed scorecard is balanced
between short- and long-term measures; balanced
between financial and non-financial measures; and
balanced between internal and external performance
perspectives. The scorecard is a management system
that can be used as the central organising framework
for key managerial processes. (Mackie, 2008)”
The Balanced Scorecard (BSC)
The balanced scorecard is based on four core
perspectives:
1) Financial perspective – How will we look like to our
employees?
2) Users perspective – How do we look like to our
customers?
3) Internal processes perspective – Which internal
processes do we have to improve?
4) Learning and growth perspective – How can the
organization learn and improve?
The Balanced Scorecard (BSC)
The Balanced Scorecard (BSC)
In the case of a public organization, the balanced
scorecard reflects the measure of success in public
entities, which, however, is not a financial measure but a
customer’s perspective. In the case of business
organizations, the financial perspective is the primary
subject of analysis
The Balanced Scorecard (BSC)
The comparison of balanced scorecards in public organizations and in
businesses:
Feature Private sector Public sector
general strategic goals competitiveness, successful mission
uniqueness realisation
financial perspective profit, growth, market activity effectiveness,
share creating value
strategic followers of the shareholders, buyers, tax payers, beneficiaries,
organization managers regulators
(stakeholders)
demanded result customer satisfaction customer satisfaction
WHY IS PERFORMANCE MEASUREMENT
HARDER IN THE PUBLIC SECTOR?
Corporate, or business, performance management is
complicated. Many businesses fail to improve
performance. Others impose performance measures
that generate perverse incentives.
The balanced scorecard methodology is designed to
overcome many of the challenges in developing
performance management systems by aligning
performance incentives with organizational strategy.
WHY IS PERFORMANCE MEASUREMENT
HARDER IN THE PUBLIC SECTOR?
The balanced scorecard (BSC) turns the organization’s mission
and strategy into the comprehensive set of performance tools
and creates the strategic measurement system.
Traditionally the majority of organizations regard their
corporate activity through the analysis of financial aspects;
However the financial tools cannot generate the balanced
image about critical success factors of any organization
mainly because the financial measurements tend to measure
the past.
WHY IS PERFORMANCE MEASUREMENT
HARDER IN THE PUBLIC SECTOR?
Public sector organizations are more challenged to
develop effective performance measurements. The
balanced scorecard can help overcome these
performance management issues:
1) No bottom line validation
2) Organizational scope complexity
3) Outcome scope complexity
4) Accountability incentives
GOVERNMENTS HAVE NO BOTTOM LINE
GOVERNMENTS HAVE NO BOTTOM LINE
Business processes, funded by budgets, generates
outputs such as products manufactured or customers
contacted.
These outputs generate outcomes like customer
retention or market share. This provides a profit, or loss.
Businesses can validate the quality of any management
performance system based on this bottom line result. “In
the private sector the key financial objectives relate to
profitability and returns on investment.
There is no “bottom line” in the public sector.
GOVERNMENTS HAVE NO BOTTOM LINE
GOVERNMENTS HAVE NO BOTTOM LINE
“Outcomes are much more difficult to validate in
government because is not aligned to an objective
bottom line like profit
Budgets impose more controls on spending in
government including restricted flexibility for managers
to optimize performance whereas companies can
increase spending to generate more revenue or cut
costs to reduce expenditures
GOVERNMENTS HAVE NO BOTTOM LINE
Politics drives input-focused (i.e. spending in the
politician’s district) decisions that are imposed on public
servants
Financials in the public sector is rarely operating on full
accrual accounting, so standard private sector financial
measurements like Return on Investment that could help
determine effectiveness are difficult to calculate
The balanced scorecard helps governments align
outputs to outcomes and to strategy. This enables
governments to select and test outcome measurements.
ORGANIZATIONAL SCOPE AND
COMPLEXITY
Businesses operate fewer “lines of business” than
governments. “Challenges for government performance
management include:
i. Scope and Scale: Governments run more “lines of
business” than any business…
ii. Scope: Budgets must be tied to performance because
governments run commitment accounting
iii. Scale: Cascading complex objectives to individual
public servants is complex because there are so many
staff members
ORGANIZATIONAL SCOPE AND
COMPLEXITY
The many government “lines of business”, compared to
even the largest business conglomerates, makes whole-
of-government performance management difficult.
Departmental and program related performance can
also be challenging. This can create the problem “of
information overload. For any given programme, a huge
array of possible measures and evaluative information
can be created, easily swamping the ability of users to
deal with the information
ORGANIZATIONAL SCOPE AND
COMPLEXITY
Public sector organizations are budget driven. “As
compared to commercial institutions, government
agencies face a unique set of challenges when trying to
manage performance and achieve their strategic goals
and initiatives.
Their mission and budgets are often decided externally
…. Additionally, agencies face the uphill task of meeting
their goals without direct control of shrinking budgets
and resources. This furthers the need for managing
performance at every step along the way.
ORGANIZATIONAL SCOPE AND
COMPLEXITY
The balanced scorecard enables governments to align
ministry, departmental, agency and personal goals with
strategy. This eliminates many potential performance
indicators that are not material to meeting government
goals.
OUTCOME SCOPE COMPLEXITY
Businesses operate within well-understood domains.
Outcomes that drive profit are also well-understood.
Public sector performance or results-based systems suffer
from “practical measurement problems. Often,
outcomes are difficult to measure directly (e.g., greater
national security) or they are complex, for example, in
the case where there are inter-linkages between a
number of different programs and subprograms (e.g.,
lower morbidity rates).
This makes it difficult to identify outcomes that are
relevant to government strategy.
OUTCOME SCOPE COMPLEXITY
It is also true that “outcomes are by definition results over
which organizations do not have complete control.
This lack of control often encourages organizations to
measure outputs. These outputs may not be correlated
to improved outcomes.
OUTCOME SCOPE COMPLEXITY
OUTCOME SCOPE COMPLEXITY
Governments also have a more complicated
performance lifecycle than the private sector because
of the link to the budget process and the need for
transparency.
The balanced scorecard enables government
organizations to add context to performance results.
Extraordinary events can be described with impacts to
outputs and outcomes described.
ACCOUNTABILITY INCENTIVES
Businesses often offer significant performance incentives
for business units and employees. Accountability in the
private sector can result in rewards for good
performance.
Government incentives that are tied to outcomes are
difficult. “On practical grounds, output is generally what
the agency can exert control over, but the ultimate
outcome is often determined by external factors, usually
of an unpredictable nature.
ACCOUNTABILITY INCENTIVES
Government organizations are typically managed
based on compliance to statutory and budget rules.
The introduction of management by outcomes can
generate the “fear of unintended consequences. This
element seemed to rank higher in instances where
governments considered linking performance measures
with incentives or sanctions.
ACCOUNTABILITY INCENTIVES
Performance management using “an evidence- based
outcome focus can require significant and often
fundamental changes in how an organization is
managed; in how public sector and non-profit
organizations go about their business of delivering
programmes and services
ACCOUNTABILITY INCENTIVES
The balanced scorecard enables governments to better
communicate goals for performance alignment. The
exercise of developing and implementing a balanced
scorecard, when accomplished properly, acts as the
nexus for organizational change management.
ADVANTAGES OF THE BALANCED
SCORECARD IN GOVERNMENT?
The balanced scorecard provides governments with a
more holistic performance measurement methodology
Important differences from the private sector includes
the replacement of the customer perspective with
the citizen perspective. Public sector organizations focus
on the citizen perspective as result, rather than financial
perspective.
ADVANTAGES OF THE BALANCED
SCORECARD IN GOVERNMENT?
Public sector organizations are budget driven. The
balanced scorecard enables tying long-term
government goals to annual and medium-term budget
proposals. It improves program evaluation.
The balanced scorecard is an effective transparency
mechanism for citizen and employee communications.
It provides evidence of progress towards goals and
validates policy.
