Outcomes and Performance Measurement

By Mel Ingalls

Background

Government agencies are required to produce various accountability documents, such as the Statement of Intent, the Estimates, and the Annual Report. The purpose of these documents is to give the Government the opportunity to have input into the agency's strategy and then to be able to measure progress toward achieving strategic goals. These documents include an outcomes framework that defines what the agency seeks to achieve and a performance measurement framework that assesses the progress that the agency is making in achieving the outcomes. Ideally, the linkage between the performance measures and the outcomes is made transparent through explicit intervention logic.

Private Sector and the Balanced Scorecard

In the private sector, strategic goals typically relate to financial performance, such as profit, market share and return on capital employed (ROCE). Over the past 15 years or so, much of the private sector has formally recognised that achievement of financial goals is intimately linked to other aspects of performance, such as product quality, cycle times, customer satisfaction, customer service, and innovation (to name but a few).

It is axiomatic in the business world that behaviour is driven by measurement ('you get what you measure') and that if some aspect of business is not measured, it is difficult to manage that aspect of business ('if you don't measure it, you can't manage it').

The net result of all this is that many successful private-sector organisations now have a wide range of performance measures and indicators. The Balanced Scorecard is one attempt to provide a coherent, integrated framework for this wide range of measures. The Balanced Scorecard recommends measures in each of the following categories:

• Financial
• Customer
• Internal business processes
• Innovation/growth and learning

The Balanced Scorecard methodology suggests that performance indicators be developed in the order listed above, meaning financial first, then customer, etc. Customer measures should support the achievement of financial goals. Measures of internal business processes should support the achievement of customer and financial goals. And innovation, growth and learning measures should support business process, customer and financial goals. All of these should be driven by top-down strategy, which is often based on the stage of the organisation, e.g., growth (often, but not necessarily, an early-stage line of business competing for market share and not necessarily profitable), sustain (a more mature line of business seeking to maximise profit and competitive advantage), or harvest (fully mature line of business seeking to maximise cash flow and minimise new investment).

The Balanced Scorecard methodology is conceptually very similar to intervention logic in the public sector. 'Every measure selected for a Balanced Scorecard should be an element in a chain of cause-and-effect relationships that communicates the meaning of the business unit's strategy to the organisation.'[1]

Public Sector View

In the public sector, it is outcomes—not financial performance—that sit atop the performance hierarchy. The methodology proposed by the Balanced Scorecard, meaning a methodology of cascading performance measures, each level of which supports the levels above, is directly applicable in the public sector as well. The actual measures must be adapted to the outcomes framework, and the final result should be clearly defined cause-and-effect relationships that comprise intervention logic mapping from inputs to performance indicators, measures, and outcomes, explicitly mapping the linkages each step of the way. As central agency guidance on performance measurement says, 'the ultimate product sought through the measurement framework is a clear, evidence-based "performance story" that links resources and outputs to positive results.'[2]

Another element of the Balanced Scorecard methodology is that performance measures should be used not simply to measure the business, but also to manage the business. Development of the measures, when done well, highlights critical processes related to financial performance, customers, internal capabilities and innovation that must be executed extremely well if the business is to achieve its strategic goals. Moreover, there is a feedback loop from performance measurement both to the ongoing development of strategy and to the management of the business to deliver on the strategy.

This feedback loop is virtually identical to what the central agencies recommend in guidance for the SOI and performance measurement: 'Link the measurement process into the wider management processes of your agency, so that measures inform leaders' decisions about planning, capability and resource allocation.'

Implications for Public Agencies

There are two significant implications of the above analysis for public sector agencies. The first implication is that agencies' outcomes framework and performance measurement framework are intimately intertwined and in fact form a single, holistic framework. Performance measures and performance indicators map to intermediate and end outcomes through explicit intervention logic.

The second implication is that there will likely be a relatively small number of outcome measures with a rich set of performance indicators. The outcome measures themselves may be indirect, difficult to measure and difficult—in some cases—to attribute to the agency's activities. The indicators, however, should be easier to measure and to attribute. Intervention logic should map them to outcome measures or directly to intermediate or end outcomes. Because it is acceptable to have a rich set of indicators, each indicator can be relatively narrow in scope. Some indicators may be more important (meaning more heavily weighted) than others, but it is the collection of indicators, rather than any single indicator, that paints the entire picture of the agency's performance.

[1] The Balanced Scorecard - Translating Strategy into Action; Kaplan & Norton; Harvard Business School Press; 1996; p. 31.
[2] Performance Measurement - Advice and examples on how to develop effective frameworks; SSC and Treasury; August 2007; p. 16

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