Performance measurement is a process for collecting and reporting information regarding the performance of an individual, group or organizations. It can involve looking at process/strategies in place, as well as whether outcomes are in line with what was intended or should have been achieved.
Performance measurement is the use of statistical evidence to determine progress toward specific defined organizational objectives. This includes both evidence of actual fact, such as measurement of pavement surface smoothness, and measurement of customer perception such as would be accomplished through a customer satisfaction survey. In a service industry such as transportation, the performance measurement process starts by defining precisely the services that the organization promises to provide, including the quality or level of service (e.g. timeliness, reliability, etc.) that is to be delivered. The performance measurement process starts by defining the services that the organization promises to provide. There are often good opportunities for collecting feedback from system users in "real time," since the transportation service is often "consumed" at the same time it is "produced." Performance measures provide information to managers about how well that bundle of services is being provided. Performance measures should reflect the satisfaction of the transportation service user, in addition to those concerns of the system owner or operator. (Source: NCHRP Project 8-32(02), Multimodal Transportation: Performance-Based Planning Process, 1998)
Feedback as a need for decision making
Good performance is the criterion whereby an organization determines its capability to prevail. Performance measurement estimates the parameters under which programs, investments, and acquisitions are reaching the targeted results. However, a model for performance set faulty may depict a disadvantageous situation which does not support the organization nor the thriving to the set aims.
All process of measuring performance requires the use of statistical modeling to determine results. A full scope copy of the performance of an organization can never be obtained, as generally some of the parameters cannot be measured directly but must be estimated via indirect observation and as a complete set of records never delivers an assessment without compression to key figures.
The extended rationale for measuring performance
Fundamental purpose behind measures is to improve performance. Measures that are not directly connected to improving performance (like measures that are directed at communicating better with the public to build trust) are measures that are means to achieving that ultimate purpose (Behn 2003).
Behn 2003 gives 8 reasons for adopting performance measurements:
1. To Evaluate how well a public agency is performing. To evaluate performance, managers need to determine what an agency is supposed to accomplish. (Kravchuk & Schack 1996). To formulate a clear, coherent mission, strategy, and objective. Then based on this information choose how you will measure those activities. (You first need to find out what are you looking for).
Evaluation processes consist of two variables: organizational performance data and a benchmark that creates a framework for analyzing that data. For organizational information, focus on the outcomes of the agency’s performance, but also including input/ environment/ process/ output- to have a comparative framework for analysis. It is helpful to ask 4 essential questions in determining organizational data:
- Outcomes should be directly related to the public purpose of the organization. Effectiveness Q: did they produce required results (determined by outcomes).
- Cost-effective: efficiency Q (outcome divided by input).
- Impact Q: what value organisation provides.
- Best-practice Q: evaluating internal operations (compare core process performance to most effective and efficient process in the industry).
As in order for organization to evaluate performance its requires standards (benchmark) to compare its actual performance against past performance/ from performance of similar agencies/ industry standard/political expectations.
2. To Control How can managers ensure their subordinates are doing the right thing.
Today managers do not control their workforce mechanically (measurement of time-and-motion for control as during Taylor) However managers still use measures to control, while allowing some space for freedom in the workforce. (Robert Kaplan & David Norton) Business has control bias. Because traditional measurement system sprung from finance function, the system has a control bias.
Organisations create measurement systems that specify particular actions they want execute- for branch employees to take a particular ways to execute what they want- branch to spend money. Then they want to measure to see whether the employees have in fact taken those actions. Need to measure input by individual into organisation and process. Officials need to measure behavior of individuals then compare this performance with requirements to check who has and has not complied.
Often such requirements are described only as guidelines. Do not be fooled. These guidelines are really requirements and those requirements are designed to control. The measurement of compliance with these requirements is the mechanism of control.
3. To Budget Budgets are crude tools in improving performance. Poor performance not always may change after applying budgets cuts as a disciplinary action. Sometimes budgets increase could be the answer to improving performance. Like purchasing better technology because the current ones are outdated and harm operational processes. So for decisions highly influenced by circumstance, you need measures to better understand the situation.
At the macro level, elected officials deciding which purpose of government actions are primary or secondary. Political priorities drive macro budgetory choices. Once elected officials have established macro political priorities, those responsible for micro decisions may seek to invest their limited allocation of resources in the most cost-effective units and activities.
In allocating budgets, managers, in response to macro budget allocations (driven by political objectives), determine allocations at the micro level by using measures of efficiency of various activities, which programs or organisations are more efficient at achieving the political objectives. Why spend limited funds on programs that do not guarantee exceptional performance?
Efficiency is determined by observing performance- output and outcome achieved considering number of people involved in the process (productivity per person) and cost-data (capturing direct cost as well as indirect)
4. To Motivate Giving people significant goals to achieve and then use performance measures- including interim targets- to focus people’s thinking and work, and to provide periodic sense of accomplishment.
Performance targets may also encourage creativity in developing better ways to achieve the goal (Behn) Thus measure to motivate improvements may also motivate learning.
Almost-real-time output (faster, the better) compared with production targets. Quick response required to provide fast feed-back so workforce could improve and adapt.
Also it is able to provide how workforce currently performing.
Primary aim behind the measures should be output, managers can not motivate people to affect something over which they have little or no influence.
Once an agency’s leaders have motivated significant improvements using output targets, they can create some outcomes targets.
- “output”- focuses on improving internal process.
- “outcome”- motivate people to look outside the agency (to seek way to collaborate with individuals & organisations may affect the outcome produced by the agency)
5. To Celebrate Organisations need to commemorate their accomplishments- such ritual tie their people together, give them a sense of their individual and collective relevance. More over, by achieving specific goals, people gain sense of personal accomplishment and selfworth (Locke & Latham 1984).
Links from measurement to celebration to improvement is indirect, because it has to work through one of the likes- motivation, learning...
Celebration helps to improve performance because it brings attention to the agency, and thus promotes its competence- it attracts resources.
- Dedicated people who want to work for successful agency.
- Potential collaborators.
- Learning-sharing between people about their accomplishments and how they achieved it.
Significant performance targets that provide sense of personal and collective accomplishement. Targets could ones used to motivate. In order for celebration to be a success and benefits to be a reality managers need to ensure that celebration creates motivation and thus improvements.
- By leading the celebration.
6. To Promote How can public managers convince political superiors, legislators, stakeholders, journalists, and citizens that their agency is doing a good job.
(National Academy of Public Administration’s center for improving government performance- NAPA 1999) performance measures can be used to: validate success; justifing additional resources; earn customers, stakeholder, and staff loyalty by showing results; and win recognition inside and outside the organisation.
Indirectly promote, competence and value of goverement in general.
To convince citizens their agency is doing good, managers need easily understood measures of those aspects of performance about which many citizens personally care.
(“National Academy of Public Administration-NAPA” in its study of early performance- measurement plans under the government performance and results Act) most plans recognized the need to communicate performance evaluation results to higher level officials, but did not show clear recognition that the form and level of data for these needs would be different than that for operating managers. Different needs: Department head/ Executive Office of President/ Congress. NAPA suggested for those needs to be more explicitly defined- (Kaplan & Nortan 1994) stress that different customers have different concerns(1992).
7. To Learn Learning is involved with some process, of analysis information provided from evaluating corporate performance (identifying what works and what does not). By analysing that information, corporation able to learn resons behind its poor or good performance.
However if there is too many performance measures, managers might not be able to learn anything. (Neves of National Academy of Public Administration 1986)
- Because of rapid increase of performance measures there is more confusion or “noise” than useful data.
- Managers lack time or simply find it too difficult to try to identify good signals from mass of numbers.
Also there is an issue of “black box” enigma (data can reveal that organisation is performing well or poorly, but they don’t necessarily reveal why). Performance measures can describe what is coming out of “black box” as well as what is going in, but they do not reveal what is happening inside. How are various inputs interacting to produce the output. What more complex is outcome with “black box” being all value chain.
Benchmarking is a traditional form of performance measurement which facilitates learning by providing assessment of organisational performance and identifying possible solutions for improvements.
Benchmarking can facilitate transfer of knowhow from benchmarked organisations. (Kouzmin et al. 1999)
Identifying core process in organisation and measuring their performance is basic to benchmarking. Those actions probably provide answer to issue presented in purpose section of the learning.
Measurements that are used for learning act as indicators for managers to consider analysis of performance in measurement’s related areas by revealing irregularities and deviations from expected data results.
What to measure aiming at learning (the unexpected- what to aim for?)
Learning occurs when organisation meets problems in operations or failures. Then corporations improve by analysing those faults and looking for solutions. In public sector especially, failure usually punished severely- therefore corporations and individuals hide it.
8. To Improve What exactly should who- do differently to improve performance? In order for corporation to measure what it wants to improve it first need to identify what it will improve and develop processes to accomplish that.
Also you need to have a feedback loop to assess compliance with plans to achieve improvements and to determine if those processes created forecasted results (improvements).
Improvement process also related to learning process in identifying places that are need improvements.
Develop understanding of relationships inside the “black box” that connect changes in operations to changes in output and outcome.
Understanding “black box” processes and their interactions.
- How to influence/ control workforce that creates output.
- How to influence citizens/ customers that turn that output to outcome (and all related suppliers)
They need to observe how actions they can take will influence operations, environment, workforce and which eventually has an impact on outcome.
After that they need to identify actions they can take that will give them improvements they looking for and how organisation will react to those actions ex. How might various leadership activities ripple through the “black box”.
Principles of performance measurement
All significant work activity must be measured.
- Work that is not measured or assessed cannot be managed because there is no objective information to determine its value. Therefore it is assumed that this work is inherently valuable regardless of its outcomes. The best that can be accomplished with this type of activity is to supervise a level of effort.
- Unmeasured work should be minimized or eliminated.
- Desired performance outcomes must be established for all measured work.
- Outcomes provide the basis for establishing accountability for results rather than just requiring a level of effort.
- Desired outcomes are necessary for work evaluation and meaningful performance appraisal.
- Defining performance in terms of desired results is how managers and supervisors make their work assignments operational.
- Performance reporting and variance analyses must be accomplished frequently.
- Frequent reporting enables timely corrective action.
- Timely corrective action is needed for effective management control.
If we don’t measure ……
- How do you know where to improve?
- How do you know where to allocate or re-allocate money and people?
- How do you know how you compare with others?
- How do you know whether you are improving or declining?
- How do you know whether or which programs, methods, or employees are producing results that are cost effective and efficient?
Common problems with measurement systems that limit their usefulness:
- Heavy reliance on summary data that emphasizes averages and discounts outliers.
- Heavy reliance on historical patterns and reluctance to accept new structural changes (or re-design of processes) that are capable of generating different outcomes, like measuring the time it takes them to do a task.
- Heavy reliance on gross aggregates that tend to understate or ignore distributional contributions and consequences.
- Heavy reliance on static, e.g., equilibrium, analysis and slight attention to time-based and growth ones, such as value-added measures.
Good Performance Measures:
- Provide a way to see if our strategy is working
- Focus employees' attention on what matters most to success
- Allow measurement of accomplishments, not just of the work that is performed
- Provide a common language for communication
- Are explicitly defined in terms of owner, unit of measure, collection frequency, data quality, expected value(targets), and thresholds
- Are valid, to ensure measurement of the right things
- Are verifiable, to ensure data collection accuracy
It includes the following topics -