Concepts of Performance – Economy and Efficiency

1. Concepts of Performance – Economy and Efficiency

2. Concepts of Performance What do we understand by the term “performance”?

3. Concepts of Performance “the concept of performance requires a comparison of what was expected with what was achieved” (Mayne, 2003, p.1) But how are these expectations defined and understood? Turning to the literature of Generally Accepted Accounting Practice, that understanding is principally concerned with external accountability and the measurement of changes in the financial position of reporting entities. But is that how external stakeholders and internal managers explain performance?

4. Measurement and Management What gets measured gets managed (or it certainly receives attention) but Does what gets managed, get measured?

5. Measuring the immeasurable The theoretical approaches that shaped public sector reforms in the late 1980s and early 1990s reflect the measurement principles of scientific management whereby resources (inputs) and final goods and services (outputs) are viewed as being objectively defined and measured so as to control and optimise the economy and efficiency of each agency’s work.

6. Measuring the immeasurable • However, this instrumental approach to the measurement and management of performance has been criticised by those who perceive the work of public sector managers as being less concerned with rational decision making and more an exercise in: • “muddling through” (Lindblom, 1955) or • “management by groping along” (Behn 1988).

7. Measuring the immeasurable “Nowadays, everything is measured, including highly ambiguous phenomena like well-being, social cohesion, crime and safety. In this world of measurement, phenomena are turned into crisp facts and figures, states of affairs can be assessed and comparisons with earlier, other, or imagined states of affairs can be made. By improving ‘numerical capture’, it is assumed, phenomena like well-being can be improved. “ (Noordegraaf, 2008).

8. Measuring the immeasurable “Measurement in the public sector is less about precision and more about increasing understanding and knowledge” [Mayne, 1999]

9. Concepts of Performance • The concept of performance requires a comparison of what was expected with what was achieved. • More specifically, public sector performance is understood and measured in terms of: • economy, • efficiency, • effectiveness • equity, • organisational capital, and • public capital.

10. Economy

11. The Government’s Fiscal Strategy What are the Government’s fiscal priorities? How is it Planning to achieve them? What are the implications for state sector agencies?

12. The New Zealand Government’s Fiscal Strategy In the aftermath of the global financial crisis and the 2011 Canterbury earthquake, New Zealand’s economy is in recession. Previous patterns of increased government expenditure are no longer sustainable.

13. The New Zealand Government’s Fiscal Strategy Nonetheless, to support a fragile economy, preserve jobs and protect the most vulnerable from the worst effects of the recession the New Zealand government has, in the short term, increased its levels of borrowing. In the longer term, a path back to surplus and the repayment of debt has involved reining back expenses and getting on top of the longer term drivers of government spending.

14. The New Zealand Government’s Fiscal Strategy • Two key fiscal targets: • get back to surplus by 2014/15. • reduce government debt to 20 per cent of GDP by 2020. • 2013 budget forecasts show an operating surplus before gains and losses of $75 million in 2014/15. • This will be achieved while still spending $5.1 billion on new initiatives in the current year and over the next four years, funded, in part, by reprioritising existing spending.

15. The New Zealand Government’s Fiscal Strategy A surplus is forecast because tax revenue is picking up and the Government is continuing to restrict growth in expenses. Core Crown expenses are forecast to drop below 31 per cent of GDP in 2014/15 – down from 35 per cent of GDP just two years ago – and then remain well under that level. Budget forecasts also show net core Crown debt peaking at 28.7 per cent of GDP in 2014/15 and declining thereafter. Longer-term projections show net debt dropping to 17.6 per cent of GDP by 2020/21, in line with the Government’s target.

16. Responsibly managing the Government’s finances

17. Responsibly managing the Government’s finances Social security and welfare, health and education costs will make up over two-thirds of core Crown expenses in 2013/14.

18. Responsibly managing the Government’s finances

19. Responsibly managing the Government’s finances

20. Government net financial liabilities

21. Fiscal Responsibility Provisions of New Zealand’s Public Finance Act 1989 • Purpose • To achieve consistent, good quality fiscal management over time • Mechanisms: • Requires governments to be explicit about their long-term fiscal objectives and short term intentions and to assess them against principles of responsible fiscal management • Requires governments to report on a range of economic and fiscal information

22. Fiscal Responsibility Provisions of New Zealand’s Public Finance Act 1989 • Focuses on long-term implications of fiscal policy through long-run scenarios • Establishes GAAP as the measurement basis

23. Fiscal Responsibility Principles • Reduce total debt to prudent levels to provide a buffer against adverse events, and run operating surpluses until prudent debt levels are achieved. • Maintain, on average, operating balance once prudent debt levels are reached. • Achieve and maintain levels of net worth to provide a buffer against future adverse events. • Manage prudently fiscal risks facing the Crown. • Pursue policies that are consistent with predictability about level and stability of future tax rates.

24. Strategic Aspects of Fiscal Responsibility • Transparency • Long-term perspective • Stable budget process • Parliamentary scrutiny • Independence in financial reporting policy

25. Strategic Aspects of Fiscal Responsibility • Specifies fiscal principles (targets) on an accrual basis • Aligns budgeting with financial reporting for Crown • Does notlegislate a balanced budget • Why not?

26. Fiscal Responsibility Documents • Fiscal Strategy Report • Budget Policy Statement • Long Term Fiscal Reporting • Economic and Fiscal Updates • Pre-Election Economic and Fiscal Update • Reporting on Tax Policy Changes

27. Economy in central government What implications are there for the economy of individual government departments? How can that be measured and reported?

28. Efficiency

29. The most basic goal of ‘good administration’? The concept of ‘efficiency’ is often used in the context of “improved efficiency” which is particularly pertinent in an environment of constrained resources in which resource savings from improved efficiency can be employed to tackle the ever-present other problems and opportunities. On the other hand, the unnecessary consumption of resources, because of inefficiencies, denies their use for those other problems and opportunities.

30. Challenges and Responses • When funding does not match demand, how do we allocate the shortfall? • Different mixes of qualified and unqualified/support staff. • Differing availability of community providers • Different patterns of front line practice • Projects to develop new ways of working

31. Public sector agencies need to: • Manage the resources that they have to ensure they are fully and optimally used. • Justify the retention of those resources. • Be able to clearly and logically demonstrate to ministers and their advisors the relationship between service provision and resource requirements. • Be able to provide ministers with practical options for changing the level and mix of services.

32. Input-based Management and ‘the Coping Organisation’ • Little or no understanding and active management of the links between service provision and resource requirements. • Budgeting independent of planning. • Resourcing and funding decisions based largely on historic practice. • Resource retention in silos. • Confused accountability.

33. Resource-Based Management • For a required level of goods and services, • what resources will be required, and • what will they cost? • For a given level of funding, • what resources can be available, and • what services can those resources provide?

35. An Integrated Model WHAT ARE WE GOING TO DO? WHAT RESOURCES WILL THAT TAKE? WHAT WILL THOSE RESOURCES COST?

36. An Integrated Model PLAN WHAT ARE WE GOING TO DO? WHAT RESOURCES WILL THAT TAKE? WHAT WILL THOSE RESOURCES COST? BUDGET

37. An Integrated Model PLAN WHAT ARE WE GOING TO DO? Units of Activity WHAT RESOURCES WILL THAT TAKE? Units of Resource WHAT WILL THOSE RESOURCES COST? Units of Funding ($) BUDGET

38. An Integrated Model PLAN WHAT ARE WE GOING TO DO? Units of Activity Quantities of resource per unit of activity WHAT RESOURCES WILL THAT TAKE? Units of Resource Cost per unit of resource WHAT WILL THOSE RESOURCES COST? Units of Funding ($) BUDGET

39. An Integrated Model PLAN Demand WHAT ARE WE GOING TO DO? Units of Activity Quantities of resource per unit of activity WHAT RESOURCES WILL THAT TAKE? Units of Resource Cost per unit of resource Constraints WHAT WILL THOSE RESOURCES COST? Units of Funding ($) BUDGET

40. An Integrated Model PLAN Demand WHAT ARE WE GOING TO DO? Units of Activity Quantities of resource per unit of activity Balance WHAT RESOURCES WILL THAT TAKE? Units of Resource Cost per unit of resource Constraints WHAT WILL THOSE RESOURCES COST? Units of Funding ($) BUDGET

41. Child, Youth and Family Services • Care & Protection services • Youth Justice services • Adoption services • Development & funding of community services • Prevention services • Policy Advice

43. Volume–Based Services Volume-based Services are those that we are able to plan in quantifiable terms and subsequently monitor or count.

44. A “Master Schedule”

45. Capacity-Based Services Capacity-based Services encompass those groups of work that we are (at least currently) not able to plan and monitor in quantifiable terms. Rather it is necessary to assign a given amount of resource on the basis that it will undertake a generic, or undefined, group of activities.

46. Projects Project-based Services are more discrete or non-recurring pieces of work that have some specific deliverables, a beginning and ending and to which we will assign particular resources.

47. Resource Balancing

48. Balancing Costs & Funding • It is necessary to consider: • Reviewing the plan against last year. • Revisit major cost categories. • Review the standard resource requirements. • Prioritising the services and costs. • Look at the resources required for efficiency. • Escalation.

49. Lessons Sound planning is based on a consistently understood and applied set of definitions in respect of what the organisation does and what it uses to do it. Organisations tend to comprise of a range of different functions that work in different ways; accounting and management models need to be flexible enough to take account of this.

50. Passing thoughts: The measurement of efficiency implies that we have a means of determining the minimum resources necessary to produce a given effect” (Emmanuel, Otley & Merchant, 1995) Or at least it does imply that the inputs and the outputs involved can be clearly identified and measured (as in the case of a doctor who is able to place a thermometer under your tongue and read the exact temperature).