Magazine article Government Finance Review

Rethinking the Costs and Benefits of Performance Management

Magazine article Government Finance Review

Rethinking the Costs and Benefits of Performance Management

Article excerpt

Many organizations assume that performance management is basically a stand-alone program. In reality, performance management is a crucial element within many best practice standard government processes.

In organizations that aren't using performance management, finance officers are often asked to demonstrate the benefits of such a system relative to the costs. It isn't especially difficult to estimate the costs of establishing and maintaining a system. TtT is would include the cost of training employees and managers to build necessary .skills: staff time to collect. analyze. and report on measures; and the costs of technology such as a business intelligence or dashboard system to help collect, analyze, and report on those measures. Additional costs could include the price of a Web site or printed reports to communicate information gathered by the program, or perhaps an additional employee or external consultants to coordinate the use of performance information.

Identifying benefits is more difficult, however, because it is almost impossible to place a dollar value on having better information for decision making and a better understanding of citizens' needs and preferences. Or a method of allocating budget dollars to effective programs, based on evidence, accountability, and transparency. Or the ability to understand the strategic link between programs and goals.

Even benefits that do result in savings, like greater efficiencies within a program, are usually mitigated somewhat by the likely increase in service level. If you take a hypothetical program and use performance management to cut transaction and processing costs in half, the actual budgetary savings might not be 50 percent. That's because once staff time is freed up, employees are also able to provide better service that wasn't possible before, and your organization might be able to provide a better service more efficiently, at, say, 33 percent less than before. The end result is a better benefit for citizens, but quantifying that improvement into return on investment (ROl) calculations isn't easy.


In fact, doing an ROl calculation assumes that performance management is basically a stand-alone program, or perhaps an add-on program - a discrete investment, similar to a new capital project or technology initiative. In reality, performance management is a crucial element within many best practice standard government processes. It is misleading to ask if your organization does performance management. The best systems treat performance management as an integrated piece of an overall management approach. Performance management by itself accomplishes little, and many organizations have discovered that collecting and reporting on measures just creates a lot of extra work if those measures aren't usefuJ for decision making or planning. To be successful and achieve real benefits, performance needs to be introduced as a means of improving existing processes, rather than as an entirely new process.

The National Performance Management Advisory Commission established seven principles that can be integrated with common processes to create benefits for your organization. For example, every government has a budget process. Decisions are made within that process, and each government has different approaches to making those decisions. The budget process can be improved by the following principles from the commission's report on performance management, A Performance Management Framework for State and Local Government: From Measurement and Reporting to Management and Improving:^

* Information needs to be transparent, easy to access, use, and understand.

* Goals, programs, activities, and resources need to be aligned with priorities.

* Decisions need to be driven by accurate and meaningful data.

To demonstrate how important these principles are to the budget cycle, one only need consider doing the opposite * keeping the budget process secret, not considering whether spending is coordinated with the community's interest, and making decisions based on assumption or intuition. …

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