Measuring and Managing in Public Organisations

Abstract

All organizations measure their performance. In the public sector, managers determine the performance of their contractors and other collaborative stakeholders. Legislatures, Congress, and various city councils report their performance to different executive assemblies or committees in different nations. In the public sector organizations such as education and healthcare institutions, performance is imperative when it comes to determining the effectiveness and efficiency in the delivery of services. Public sector stakeholders, including the citizenry, are interested in performance measurement as the only available mechanism for ensuring that the government remains accountable.

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Although the measurement of performance in the public sector is important, it is incredibly difficult to do it. The purpose of this paper is to examine the difficulties of measuring performance in public sector organizations. It regards performance measurement as not constituting an end, but the means to achieving the required goals. However, the paper shows how it is important to measure performance for monitoring, control, improving, and evaluation purposes. Unfortunately, due to data distortion, measuring performance in the public sector organizations to yield dependable information has been a major challenge. Some uncontrollable factors such as tutoring differences in public schools may also influence the performance measurement process by producing inaccurate data. Inaccurate data presents the difficulties of comparing different institutions that operate in the public sector.

Despite the difficulties in measuring performance in the public sector organizations, the paper claims that organizations should look for mechanisms for ensuring that their performance measurement indicators are reliable. Besides, they (organizations) should respond to the emerging performance measurement challenges. For example, performance procedures should eliminate borderlines that are witnessed in continuous data. Performance measurement systems such as the classification of students’ performance should be transformed into achievement levels such as A, B, C, and D. The paper recommends the broadening of measurement systems, rather than compartmentalizing objectives or subdividing goals into easy-to-measure short-term goals and objectives.

Introduction

Performance measurement in the public sector constitutes an important issue to different governments across the globe since the early 1980s. For example, the American government developed the American Government and Performance Results Act in 1993. The Act required all federal governments and agencies to create a 5-year strategic plan that was based on measurable outcomes. Such outcomes had to be consistent with various performance plans. In 1982, the US government also developed the Job Training and Partnership Act. Indeed, this policy was the biggest ever a government-sponsored program that sought to enforce the use of performance measurements in various local and state programs (Jarrar & Schiuma, 2007). In all the programs, the public sector organizations are required to publish their performance indicators as a way of ensuring that they can be linked to payment systems. Amid the efforts by different governments to measure performance in the public sector, some of the energies have yielded little success. Others have failed temporarily or permanently. There exists a wide scholarly literature on performance measurement in the public sector. However, only limited scholarly research focuses on the operations of performance measurement in such organizations. Indeed, partial literature examines whether performance measures in the public sector achieve the goals, objectives, and mission of different agencies. Any failures of performance measurement to achieve these concerns may be linked to difficulties that are encountered while measuring performance in the public sector. From this hypothetical position, this paper examines why it is so difficult to measure performance in public sector organizations.

Performance Measurement Theory

In the current global economy, organizations strive to achieve an excellent status. Upon realizing this concern, they endeavor to look for various mechanisms for modeling their performance results. To this extent, various performance measurement models have become integral to their operations. For example, in the private sector, the balanced scorecard has been deployed in many organizations to achieve their performance goals and objectives. The goal of any performance model is to help in quantifying organizational performance. Dixit (2002) defines performance estimation as any method of computing the success and productivity of an organization. Effectiveness implies compliance with various customer requirements while efficiency implies the manner of utilizing organizational resources to realize customer satisfaction. In the public sector, customers are public services and users of goods. Quantifying the efficiency and effectiveness of any business requires the selection of a performance measurement instrument and the establishment of mechanisms for performance implementation and monitoring. For example, the performance of public organizations that provide essential services such as telecommunication services may be measured from operational parameters that include throughput, error rates, user rates, and response times as shown in graphs 1 and 2.

Measuring the Performance of a Public Telecommunication Network based on Output, Operator Band, and Service Consumption
Graph 1: Measuring the Performance of a Public Telecommunication Network based on Output, Operator Band, and Service Consumption
Measuring the Performance of a Public Telecommunication Network based on Error Rates and Response Degrees
Graph 2: Measuring the Performance of a Public Telecommunication Network based on Error Rates and Response Degrees

Performance measurement is a wide study area that draws its basics from accounting, operations management, and research in information systems (Neely, 2005). Performance measurement models have different merits and other underlying demerits, depending on issues such as the assumptions that are made during their implementation and monitoring and whether they are applied in the public or private sector settings. For example, the emerging business environment creates new challenges that influence the operations of organizations. Such challenges also influence the existing performance measurement systems. Performance measurement models that are deployed in organizations depend on the business structures that guide the organizations’ operations. Some of these models are identified in table 1.

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Table 1: Organisations’ Business Models

Excellence Models ISO Standards Models
1. Most famous BEM used as global reference models:
– EFQM Excellence Model in Europe
– Malcolm Baldrige National Quality Award in the USA
– Deming Prize in Japan
2. National Quality Awards (NQAs), e.g.:
– Polish Quality Award
– Requirements of standard ISO 9001
– Self-assessment according to ISO 9004
– Self-assessment according to ISO 10014

From table 1, the first group constitutes national and international performance measures. Organizations are required to complete various comprehensive assessments as an important requirement for the process of their application. The second group comprises models that are developed concerning the ISO standards. In addition to the models shown in table 1, various organizational management scholars and practitioners in organizational operations have developed other performance models. They include the balanced scorecard, ROI, and ROE among others. The evolution of performance measures is best described based on their chronological development process as shown in table 2.

Table 2: Chronological process of development of performance measures

Period of introduction Name of the model/framework
Before 1980s The ROI, ROE, ROCE, and derivates
1980 The Economic Value Added Model (EVA)
1988 The Activity Based Costing (ABC) – The Activity Based
Management (ABM)
1988 The Strategic Measurement Analysis and Reporting Technique (SMART)
1989 The Supportive Performance Measures (SPA)
1990 The Customer Value Analysis (CVA)
1990 The Performance Measurement Questionnaire (PMQ)
1991 The Results and Determinants Framework (RDF)
1992 The Balanced Scorecard (BSC)
1994 The Service-Profit Chain (SPC)
1995 The Return on Quality Approach (ROQ)
1996 The Cambridge Performance Measurement Framework (CPMF)
1996 The Consistent Performance Measurement System (CPMS)
1997 The Integrated Performance Measurement System (IPMS)
1998 The Comparative Business Scorecard (CBS)
1998 The Integrated Performance Measurement Framework (IPMF)
1999 The Business Excellence Model (BEM)
2000 The Dynamic Performance Measurement System (DPMS)
2001 The Action-Profit Linkage Model (APL)
2001 The Manufacturing System Design Decomposition (MSDD)
2001 The Performance Prism (PP)
2004 The Performance Planning Value Chain (PPVC)
2004 The Capability Economic Value of Intangible and Tangible Assets
Model (CEVITAe)
2006 The Performance, Development, Growth Benchmarking System
(PDGBS)
2007 The Unused Capacity Decomposition Framework (UCDF)
2010 The EFQM Excellence Model

Performance measurement scholars such as Taticchi et al. (2012) and Taticchi, Tonelli, and Cagnazzo (2010) claim that performance measures that were developed in the 1970-1980 period were dissatisfactory since they were accounting oriented. They included ROI, ROCE, and ROE. ROI measures organizational profitability. It was difficult to apply it in public organizations, considering that they provide public goods and services without the objective of making profits. Indeed, different performance measures as shown in table 2 are incredibly difficult to apply to public sector organizations. However, this observation does not suggest that efforts have not been put to measure public sector organizations’ performance.

Performance Measurement in the Public Sector Organisations

Public sector organizations measure performance for different reasons. Propper and Wilson (2003) identify issues such as performance upgrading, determining the best practices, the delivery of information to quasi-markets, and responsibility as the main four principal purposes of measuring performance in the public sector. To advance the performance, its measurement is necessary, especially when it is linked to various pointers, enticements, and targets. To this extent, organizations quantify performance based on the next period’s incentives and targets. Resources are then mobilized to ensure that the targets are met. This goal can be achieved by connecting administrative targets to monetary reward systems such as reimbursement based on results or through non-fiscal measures such as the ‘name to dishonor’ slogan.

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Ascertaining the best practices in a given sector involves the collection of data in a professionally oriented manner for internal use. This process ensures that the public sector acquires data that can facilitate self-analysis in a bid to improve its performance. Providing quasi-markets with information constitutes a market-oriented approach to measuring the performance of public sector organizations. Its goals include facilitating the distribution of capital via customer selections. Although this process is important in the UK, through the new labor law, evidence from Marshall, Shekelle, Brook, and Leatherman (2000) suggests that citizens utilize such information sparingly. In a bid to enhance efficiency in the public sector, organizations link measurement to finance. This link underlines the importance of ensuring that measurement systems are accurate to eliminate or reduce the chances of distortion during the resource allocation process.

Propper and Wilson (2003) say that performance in the public sector can be measured through organizational figures, qualitative documents, and user reports as shown in graph 1. Administrative figures involve measuring performance based on gross outputs within a particular period. For example, the education sector can measure its performance based on the number of students who pass through grades A to C in their examinations in a given year. Secondly, it can also be measured using the outputs to determine the extent of variation of services in the public sector upon executing various processes. For instance, in the UK, value-added scores in high schools are used to predict pupils’ grades based on SATs Scores. This process facilitates the calculations of differences that occur between the real and predicted scores.

Performance can also be measured from the context of inputs and processes. For example, in the healthcare sector, performance can be measured based on the number of people who wait for services such as treatment. Based on this approach, in the education sector, for example, in a university, performance can be measured based on the ratio of students and staff members. Dubai’s Roads and Transport Authority has one of the best examples of measuring performance systems in the public sector organizations (Roads and Transport Authority, 2014). The employee-oriented system measures workers’ performance based on the SMART approach that is consistent with the organization’s strategic goals and vision. The employees’ objectives constitute the largest portion of the measured performance (70%). Competencies account for 30% of the individual performance plans (IPP).

Difficulties in Measuring Performance in Public Sector Organisations

Measuring the performance of any organization is important when it comes to influencing the process of policy development. However, this process faces difficulties. Fundamentally, performance measurement in the public sector has a key role to play. Compared to the situation in the private sector, no market mechanisms can provide performance data. Jarrar and Schiuma (2007) amplify this position by claiming that even though the data may be available in some sectors, it may be distorted so that its reliability and dependability in providing accurate information becomes problematic. O’Mahony (2005) adds that consumer benefits in private sectors are engulfed within market prices, but such information is not available in the case of public goods and services. This claim suggests that any benefits can only be determined from the marginal contributions of the provided public goods and services based on the desired outcomes. The benefits may include a reduction in service waiting times in the case of public healthcare and telecommunication network or academic success of students in the case of education.

Difficulties in measuring performance in public sector organizations may emanate from inaccuracies. For instance, Wilson (2003) exemplifies this difficulty by considering the case of shifting the ranking of schools in a local school league table ranking. According to him, the former system may be capable of “producing drastic fluctuations such that it appears sensible to focus on improving the accuracy of the system, rather than expanding it to involve resource allocation” (Wilson, 2003, p.22). Nonetheless, this concern of measuring performance in public sector organizations is crucial in the development of policies that guide resource allocation.

Performance in the public sector is prone to uncontrollable external factors. For example, in the education sector, measuring performance based on the number of students who pass through a given grade may be affected by tutoring differences in different schools. Hence, the standardization of service delivery across all institutions under a given public sector may be problematic. Such inconsistencies underline the necessity of using different measurement systems that depend on individual circumstances and the likely external outcomes. This situation poses a challenge since the consistency of a performance measurement system and the mechanisms for delivering the service is important when it comes to comparing performance between different institutions to yield reliable data.

Measuring performance in the public sector from the context of inputs and processes is difficult. The performance measurement figures only indicate input levels. They fail to indicate policy effectiveness (Wilson, 2003). This situation is especially the case where the process does not comprise an important facet of the required outcomes such as the highest or average waiting time in an operating room in a hospital. To encourage public organizations to increase their efficiency, different departments set different targets, which can indicate their performance. Unfortunately, the public sector’s aims and objectives are complex. Hence, simple targets cannot capture multi-dimensional work that is available in such organizations. Dixit (2002) posits that activities that are done in the public sector may be difficult to measure theoretically.

Measuring performance in the public sector faces the difficulty of focusing so much on parameters under measurement, contrary to an organization’s overall performance. For instance, determining the educational sector’s performance using pupils who attain excellent ratings may result in the focusing of funds on learners who attain poor grades. The introduction of performance measurement systems in education based on different levels of educational attainment creates distinctions in otherwise continuous data. This situation compels tutors to focus so much on the borderline (the cut-off point) while ignoring the fact that all students are equally important. Targets are essential components of measuring performance in the public sector. However, they are designed to serve short-term purposes in a bid to make them usable in the formulation of policies. O’Mahony (2005) reveals how they lead to the focusing of resources on measurable short-term objectives and goals as opposed to long-term and/or immeasurable outcomes. This scenario is detrimental in sectors that deal with issues of human capital. For instance, in the education sector, people may be distracted from carrying out their training and education matters, which are important and valuable to them on a long-term basis, when people are highly pressured to ensure they raise the number of citizens who can access job opportunities within a stipulated period.

Some performance measures are inappropriate in the public sector, although they are highly effective in the private sector and highly reliable as performance indicators. For example, financial measures indicate consequences, as opposed to causes. Therefore, they are less or even non-actionable. The public sector performance focuses on fixing various problems that influence the citizenry. Since non-actionable measures do not spell out the necessary actions to fix specific problems, measuring the effectiveness and efficiency of public sector organizations becomes problematic.

Conclusion

Measuring organizations’ performance is important in guiding policy directions in both the private and public sectors. However, measuring performance in the public sector is incredibly difficult because of the associated complexities in both its measurement and the overlapping goals that the sector must meet. Using targets as an outcome mechanism for measuring performance in the organization leads to distorted behaviors. Any measurement has many inaccuracies that are witnessed in the process of delivering public utilities to the citizenry. The application of financial measures such as ROE and ROI in the public sector is also difficult due to the non-profitability nature of organizations that operate in the sector. Any measures that are necessary for the development of policies serve short-term goals. Therefore, no reliable and error-free performance measurement mechanism has been established to focus on measuring long-term goals in public organizations.

Recommendations

Dubai’s RTA performance measurement system is target-oriented based on the input from the individual employee. This claim suggests that the system is outcome-based. Setting targets for individual employees using Dubai’s RTA or asking workers to create their IPPs is important in increasing the organization’s output. However, developing and measuring goal pass marks for the workers can make them emphasize extremely different disputed performance cases. While they may achieve their IPP targets, they can fail to improve Dubai’s RTA overall welfare mandate. Nothing wrong appears in the organization’s effort to incentivize employees based on targets. However, it should broaden its measurement system in its effort to compartmentalize its objectives or subdivide its goals into easy-to-measure employee-oriented elements. Similarly, other public sector organization needs to adopt broad performance measurement systems. Such systems can bypass various challenges that relate to perverse incentives considering that any goals can be broadened to discourage poor performance. Rather, the system should focus on real welfare, which can help to eliminate the difficulty of setting arbitrary distinctions in the performance measurement framework.

Reference

Dixit, A. (2002). Incentives and Organisations in the Public Sector: An Interpretive Review. Journal of Human Resources, 37(4), 696-772.

Jarrar, Y., & Schiuma, G. (2007). Measuring performance in the public sector: challenges and trends. Measuring Business Excellence, 11(4), 4-8.

Marshall, M., Shekelle, P., Brook, R., & Leatherman, S. (2000). Dying to Know: Public Release of Information about Quality of Health Care. London: Nuffield Trust.

Neely, A. (2005). The evolution of performance measurement research: Developments in the last decade and a research agenda for the next. International Journal of Operations & Production Management, 25(12), 1264-1277.

O’Mahony, M. (2005). Public Services: Metrics for Service Delivery. London: ESRC.

Propper, C., & Wilson, D. (2003). The Use and Usefulness of Performance Measures in the Public Sector. Oxford Review of Economic Policy, 19(2), 251-265.

Roads and Transport Authority. (2014) Employees’ Performance Management A Systems Manual for Band 3 and Above. Dubai: The Government of Dubai.

Taticchi, P., Balachandran, K., & Tonelli, F. (2012). Performance measurement and management systems: state of the art, guidelines for design and challenges. Measuring Business Performance, 16(2), 140-154.

Taticchi, P., Tonelli, F., & Cagnazzo, L. (2010). Performance measurement and management: a literature review and a research agenda. Measuring Business Excellence, 14(1), 4-18.

Wilson, D. (2003). Which Ranking? The Use of Alternative Performance Indicators in the English Secondary Education Market. CMPO: University of Bristol.

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