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Measuring value with performance management

Aug. 26, 2014 - 03:26PM   |  
By HOWARD STEINMAN   |   Comments
Howard Steinman is a principal with A.T. Kearney and a leader in the firm's Public Sector, Aerospace and Defense practice in North America. He has almost 20 years of consulting experience, focusing on coaching and advising senior executives in the areas of strategy, policy, governance, organizational effectiveness, budgets, performance measures, and program and portfolio management for clients including Department of Homeland Security, various National Security Agencies, the Missile Defense Agency, and numerous commercial clients.
Howard Steinman is a principal with A.T. Kearney and a leader in the firm's Public Sector, Aerospace and Defense practice in North America. He has almost 20 years of consulting experience, focusing on coaching and advising senior executives in the areas of strategy, policy, governance, organizational effectiveness, budgets, performance measures, and program and portfolio management for clients including Department of Homeland Security, various National Security Agencies, the Missile Defense Agency, and numerous commercial clients. (Courtesy Photo)

(This is part one of a two-part blog entry. Part two will appear next month.)

Every public-sector agency wants to use its resources—time, people, and money—in a manner that produces value for the organization. And while they have some understanding that a performance management program can best do this, many do not know how to design a program to measure value; nor do they know that a specific set of laws provides guidance that most are not following.

The most relevant among these laws are the Government Performance and Results Act of 1993 (GPRA) and the Government Performance and Results Modernization Act of 2010 (GPRAMA). The first requires each agency to develop an annual performance plan to (1) identify annual goals and measures covering each of its program activities, (2) discuss the strategies and resources needed to achieve annual goals, and (3) validate its performance data. The second, in the relevant part, states that the agency should align goals and objectives in a “line of sight” to demonstrate how performance contributes to organizational objectives and goals in service of the mission. These laws have established the requirement to measure performance, but have led to some misconceptions.

Many agencies have implemented project management or compliance measurement programs, in lieu of performance management programs. Their programs do a good job of measuring milestones (e.g., an event or accomplishment) or adherence to policies. But regardless of the agencies’ intentions and expectations, they are not designed to measure performance management, and they fail at doing so and at gauging value. This is supported both by firsthand experience and countless U.S. Government Accountability Office (GAO) reports over the past twenty years.

Defining the performance measurement program

What then is a performance management program that would both comply with the laws, represent good management practice and good government, and measure value? What should such a program look like?

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The best way to begin thinking about a performance management program is to discard the complex, technical definitions often used and, instead, start with one that clearly and simply encapsulates the meaning of “performance management”: A performance management program provides leaders with data to make more informed decisions.

This “factbase” is established through a set of measures with four distinct attributes:

1. Measurable: It will be expressed in quantifiable values
2. Meaningful: It will be meaningful when it possesses targets or thresholds to track progress over time, defines precisely what is being measured, and links to organizational priorities, such as quality, timeliness, or best use of available resources
3. Repeatable and Consistent: It will be defensible and auditable, will use readily obtainable data, and can be easily reproduced
4. Actionable: It will support decision-making and drive the behavior of those responsible for the control activities reflected in the measures

These key attributes must be present in each measure of the performance measurement program, no matter what specific aspect of performance is being measured.

What to measure?

Although it is important to use all types of measures to assess a program’s performance fully, many organizations (public and private) shy away from using “outcome” measures. Therefore, the best approach is to gauge a program’s value through the measurement of efficiency and effectiveness. Both are important and both must be measured to get a clear picture of the program’s value.

Efficiency Measures. Efficiency is commonly measured through a set of input measures (such as the number of demands or requests for support or the resources committed to a project) and process measures (including the assessment of how efficiently inputs become outputs). Developing appropriate measures that gauge quality, cycle time, and cost as important indicators of internal process performance is critical to measure efficiencies.

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Effectiveness Measures. Effectiveness is typically measured through a set of output measures (which are the total type and number of products and services produced by the process) and outcome measures (which are the documented results of an activity compared to its intended purpose and/or the direct or indirect effects or consequences resulting from achieving the program goals). Developing appropriate measures that assess the direct or proximate linkage between the expenditure of resource and the result is critical to measure effectiveness.

Once efficiency and effectiveness measures are established, organizations need to invest the time to measure, establish a baseline of performance, and then set a target as part of their annual goal setting.

Developing and implementing appropriate efficiency and effectiveness measures is not easy. Because so many agencies have the wrong perspective of what a performance management program is (or find it less challenging to measure milestones or compliance), their efforts have been suboptimal. This leads to programs that have a difficult time using a non-existent factbase to report credible linkages between the expenditure of resources and value.

Even when properly designed, there have been many misguided attempts to build and roll out performance management programs. The next post in this series will highlight a number of pitfalls that have hindered the successful implementation of performance management programs.

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