The Public Sector is usually defined to include traditional non-profit and social entrepreneurial organizations. Recently, many public organizations have been under great pressure to increase their productivity, efficiency and quality of service…
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Performance measurement (PM) hence is part of the new public management (NPM) model which can help the organization to reform by setting goals for improvements in efficiency and effectiveness (Kaplan, 2001). In this paper, the performance measurement system is reviewed in order to better understand the development of performance measurement system in public sector and to investigate the factors affect the improvement of organization performance that lead to a development of PM framework for public sector. To achieve this aim and objectives, a literature review of the performance measurement in private sector and the review on the performance measurement system (PMS) adoption in public organisations are conducted. Then, the review on related theories will be provided to explain the performance measurement system (PMS) problems that have occurred in the public sector. 2 LITERATURE REVIEW In implementing PMS, an organisation needs to be clear about the requirements of stakeholders, how it can improve organisation performance, and how to evaluate the effectiveness of PMSs. The main areas of research that may have a significant impact on the outcome of this study can be summarized by the following: (1) definition of PMSs; (2) the Development of PMSs; and (3) PMSs in Public Sector. However, in this paper, due to word constraint and limitation of time, the literature review will cover only a few selected areas of PMS and their impacts on public sector. However, in this paper, due to word constraint and limitation of time, the literature review will cover only a few selected areas of PMS and their impacts on public sector. 1 Performance Measurement System In order to gain in-depth understanding of performance measurement system (PMS) in public sector, an academic review of the definition of PMS and its related concepts will be critically discussed. Internationally, the general consensus of researchers in this field would define performance management as a process of evaluating efficiency and effectiveness of organization by comparing actual results with organizational setting goals. (Brignall et al., 1991; Simons, 2000; Neely et al., 2005). According to Ferreira and Otley, (2009), PMS definition includes the uses of both formal and informal process to manage and control organisational performance. The main objective of PMS is to create continuous improvement in the organisation (Brignall, 2007; Grunberg, 2004), to encourage performance management, to identify the effectiveness of existing strategies and to act as a basis for reward process (CIMA, 1993; Neely et al., 1994). Moreover, PMS is used to evaluate satisfactions of stakeholders’ expectations (Ferreira and Otley, 2009). For PMS to succeed, the following conditions should be satisfied: the coherent between PMS and business strategy; a feedback and review of PMS; and the PMS must be comprehensive and get supported and enforced by the whole organisation (Brignall et al., 1999). 2 The Development of Performance Measurement Systems An understanding of the background and development of PMS is essential to study and analyze the measurement system in the public sector. To begin with, PMS was first established in private sector business enterprises and mostly based on financial indicators to evaluate company performance. Then, according to Brignall (2007), the development of performance measures was adapted from single dimension, financial, to multi-dimension PMS, which will be discussed in the following section. 1 Performance measurements The financial dimension was considered as the most important aspect of PMS for decades as to
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