April 11, 2012Doug Hadden
Doug Hadden, VP Products
New governments talk about improving performance. The American federal government has experienced waves of performance management initiatives. Yet, there is the meme of “big inefficient government” in the United States. This seems to be a common theme in the press, among thinktanks and opposition politicians. It makes for good copy.
- Annual Teddy Awards in Canada for government waste
- Recent GAO spending scandal in the U.S.
- Call from the House of Lords in the UK to scrap the foreign aid target.
Should we be cynical?
Should “government performance” be added to the litany of oxymorons like “military intelligence”, “business ethics”, “British cuisine” or “Canadian culture”?
After all, if businesses can improve performance, why not government? It’s a popular sentiment – as this scene from the 1993 movie “Dave” shows.
Government isn’t business
Dave manages to cut the budget. But did these cuts improve effectiveness? That’s the rub: in business we have a bottom line: profit. Key Performance Indicators can align with this bottom line. And, you know that the KPIs are incorrect if the indicators are good but the business is showing a loss. (Or, vice versa.)
The performance calculation differs. Business: outcomes drive financials (profit). Government: financials (budget) drives outcomes. Government performance is more complex than business performance:
- Outcomes are much more difficult to validate in government because is not aligned to an objective bottom line like profit
- Budgets impose more controls on spending in government including restricted flexibility for managers to optimize performance whereas companies can increase spending to generate more revenue or cut costs to reduce expenditures
- Politics drives input-focused (i.e. spending in the politician’s district) decisions that are imposed on public servants
- Financials in the public sector is rarely operating on full accrual accounting, so standard private sector financial measurements like Return on Investment that could help determine effectiveness are difficult to calculate
Government Performance Tools
Corporate Performance Management (CPM) is a category of tools including reporting, dashboard, budget and data mining. These are useful tools. Yet, commercial CPM tools designed for the private sector are often missing needed government functionality:
- Budget preparation where performance information is directly tied to the creation of financial budgets and controls
- Forecasting where expenditures are compared with outcomes during the fiscal year to enable performance improvements while ensuring that budgets are not overspent
- Macroeconomic data where key economic information is aligned to the “macro-fiscal” framework and KPIs
- Transparency where government objectives and results are transparently provided to civil society – the kind of information that even publicly-held companies consider business secrets
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