Trends in Public Financial Management: Government Performance Management
This is section 3.2.3 of a series of blog entries creating a Government IFMIS Technology Evaluation Guide. This includes information to assist in evaluating IFMIS options and the technology requirements for FreeBalance IFMIS implementations. These series will be combined with feedback to produce a comprehensive Technology Evaluation Guide to be published on our web site.
To paraphrase Lily Tomlin, ”I’m concerned that the person who invented the term ‘performance management” thought that if you didn’t manage it, performance would just get out of hand.” Many today think that “government performance management” is an oxymoron like “military intelligence” or “business ethics”.
Why Government Performance Management?
Government Performance Management has been a topic of concern in the public sector for many years. Some view it as a fad – soon to be replaced with something else. Yet, the move to improve government results has taken hold. There are compelling drivers for improving results:
- Globalization has created competition among countries. Businesses want to operate in countries that provide efficient and effective services to citizens.
- Inefficiencies in government have been exposed thanks to improved accountability. Citizens are demanding more effective and efficient government services.
- Tight budgets require governments to do more with less.
- Results from government activities can improve development outcomes in health, education and economic development. Civil servants recognize that the government mandate can only be effectively achieved through improved performance.
- Citizen and business confidence increases as governments improve results.
Public and Private Sector Differences
Organizations in both the public and private sector are attempting to improve results. Both public and private sector organizations attempt to increase performance by selecting Key Performance Indicators (KPI) and using techniques such as the Balanced Scorecard. Nevertheless there are important differences in performance management that distinguish government from private sector organizations:
- Profit: All outcomes in the private sector map to corporate profit. Companies can determine the effect of measurements to achieve profit. Outcomes like customer satisfaction are leveraged in that they can improve profit. In government, outcomes like citizen satisfaction, are the end goals. This makes it much more difficult to map inputs, outputs and outcomes in the public sector.
- Budget: Budgets are guidelines in the private sector. The budget is the law in government. Government activities need to be linked to the budget.
- Consequences: Companies tend to operate in finite markets where the major consequences of any performance initiative such as reducing price operate within a narrow band of possibilities. Governments can realize broad unplanned positive or negative consequences of any initiative.
Learning from Corporate Performance Management
The software category for reporting and analytical tools was primarily known as “Business Intelligence” (BI). This market has matured further to become known as Corporate Performance Management (CPM). CPM is distinguished from BI in that tools focus on KPIs and exception reporting. Many of the CPM techniques are useful for governments including:
- Development of logic models that describe the interaction between inputs (money invested and items acquired), outputs (items or people affected) and outcomes (non-financial measurements).
- Continuous improvement of outcome measurements to determine effectiveness and efficiency. Governments can determine the net cost to improve a unit of output (such the cost to add a student) or unit of outcome (such as the cost to increase mathematics test scores by 1% per student).
- Use of visual tools like the balanced scorecard to enable improved results during budget execution.
- Use of different types of measurements. Many governments focus on efficiency measurements. This may not always provide insight into effectiveness.
Sequencing Government Performance Management
Many government organizations wish to adopt performance management quickly. There are no “short-cuts” to effective Government Performance Management. Civil servants can develop methods and structures to improve performance management through a series of steps. The phases of Government Performance Management include:
- Standardized budget preparation to develop the structure of justifying expenditures based on government plans.
- Multiple year budget preparation, often called “medium term”. Outcomes often require years to develop. Credible budgets require this medium term view.
- Program budgeting where budgets are associated programs and goals. Viewing programs within the Chart of Accounts enables accounting for inputs and expenditures.
- Objectives added to the Chart of Accounts. Government financial management is all about spending to the budget. Government objectives can be mapped from a logic model against programs and projects. This enables governments to associate expenditures against objectives.
- Development of input and output measurements. Inputs and outputs are easier to articulate and measure than outcomes.
- Development of outcome measurements.
Government performance management will continue to change over time because:
- Developments in the country macro-economic conditions will change objectives and measurements.
- Changes in governments will bring in new mandates.
- Civil servants will develop more effective measurements over time and be better prepared to identify additional consequences from government programs.