Diagnosing Performance Management and Performance Budgeting Systems: A Case Study of the U.S. Navy
Webb, Natalie J., Candreva, Philip J., Public Finance and Management
We present here a case study of an organization within the U.S. Navy that created a new organizational construct and performance management system. We explore the issues faced by naval leaders as they attempt to use their performance information to make resource allocation decisions at the sub-organization level, and drive budgets at the organization and service (navy) level. We diagnose the practical problems a government organization encounters when implementing a performance management system, to include their influence on budgets, and make recommendations for public sector performance budgeting organizations. This case confirms challenges noted in the literature associated with performance management and performance budgeting systems. We offer recommendations for public officials considering such endeavors.
In a recent manuscript, Schick (2008, p. 2) states, "the literature and practices of performance budgeting have been too long on exhortation and too short on diagnosis". We present here a diagnostic case of a performance management system in the U.S. Navy, examined through the perspective of those exhortations. We assess the strengths and weaknesses of the system and the issues faced by naval leaders as they attempt to use their performance information to formulate budget requests and execute budgets. We diagnose many of the practical problems a government organization encounters in designing and using a performance management system, especially when it seeks to extend the system to performance budgeting. In so doing, we provide empirical evidence of many of the findings in the literature, contribute to the understanding of how a performance-based management system directs managers, and how such a system can (or cannot) be used to implement a performance-based budgeting system.
We examine the surface warfare enterprise (SWE), an organizational construct that is part of a larger "Navy Enterprise" initiative.1 Broadly, the SWE is a construct that seeks to link various organizations involved in policy decisions and implementation of policy, including defining needs for and constructing, operating, and employing naval surface ships. We concentrate on the Naval Surface Force and its role in manning, training, equipping, and sustaining the existing surface fleet of 162 ships. The ultimate outcome for navy ships is how they perform if and when they execute a mission for the nation. SWE leaders focus on preparing individual ships for these potential missions. For the SWE, the final measure of performance is a "warship ready for tasking" across multiple possible missions, an output with a quality measure (Robinson, 2007, p. 28; Hatry, 2001). The SWE designed its performance management system to support the process of making ships ready and it is the expectation of Navy leaders (which we refute) that the system can also drive the budgeting process.2
While a component of a navy may seem like an unusual subject for a case study if one hopes to generalize findings, there are attributes of this case germane to many public organizations that struggle with performance based management and budgeting. The surface force provides an outcome (readiness) that is difficult to define and measure like other societal goals such as justice or public health. It provides an outcome whose causal factors are not clearly understood, like crime or poverty. Work processes have both routine and non-routine components conditioned by externalities. The SWE depends on the support and cooperation of other organizations to attain desired outcomes. Its functions and levels of resources are determined by political processes and not solely through rational management. Given the drive towards performance-based budgeting, this study is not only timely but of interest to practitioners and policymakers alike.
In the next section, we review the performance management and performance budgeting literatures relevant to our case study. …