Evaluation of Performance as Part of Managing Performance - Case Study Example

Effectiveness of Economy, Efficiency and Effectiveness as Performance Indicators in Government Agencies Name Course Name and Code Instructor’s Name Date Executive summary Evaluation of performance is part of managing performance. Public agencies use economy, effectiveness and efficiency to determine performance. All these three parameters relate to inputs and outputs of the agency (Cutler, Cutler, and Waine, 1997, p. 98). However, measurement of inputs and outputs presents some challenges (Chai, 2009, p. 45). Thus, during measurement of performance of a public agency one has to make a choice of what to measure among the three parameters in order for performance to be evaluated effectively. For instance, economy relate to cost and what service to be spent on, efficiency relate to input and output while effectiveness relate to input and political outcome. Thus, the effectiveness of these concepts in determination of performance depends largely on the methods adapted to measure indicators of these parameters. Table of Contents Introduction 4 Discussion 4 Research and development 5 Organisations approach towards efficiency 6 Conclusion 7 References 8 Introduction The process of managing performance involves setting social outcomes and strategic plans that entails focusing strategic plan on social outcomes, identifying value drivers, focusing managerial attention on activities, which contribute most to value and are easiest to influence, tying metrics to value drivers, and measuring progress across balanced scorecard (John et al, 1996 pp 114). It also involves defining and mobilizing meaningful performance targets that ensures that the entire organization is mobilized to deliver on the same priorities. It also entails assigning clear accountability for effecting change and setting targets, which can help the agency to achieve strategic objectives in addition to optimizing resource allocation with action-oriented plans (Chai, 2009, p. 55). Another aspect of managing performance entails driving value via strategic planning and budgeting. Economy is concerned with inputs and its elements are costs and quality. Finally, managing performance entails monitoring performance and progress. This calls for evaluation or measurement of management (Accenture, pp. 12-18). In public sector, economy, effectiveness and efficiency are used to measure performance. Thus, this essay critically analyses the effectiveness of these concepts in measurement of performance. Discussion Economy enables an agency to balance its need to acquire goods and services for carrying out its functions at a lower cost with appropriate level of quality. Accountability for economy enables the agency to know how much it has to spend and on what the money should be spent on (Funnell and Cooper, 1998, pp. 33). Efficiency is concerned with the relationship between input and output with the main aim of maximizing output for a certain amount of input or the relationship of minimizing inputs for a given output (Cutler, Cutler, and Waine, 1997, p. 99). On the other hand, effectiveness is the relationship between input and the final political outcome, which could be welfare, growth or other priorities of the national government. The term effectiveness is usually used in the context of statements about achievements of policy objectiveness. Thus, effectiveness is how well the outputs attain the stated objectives of that service (Economic Policy Committee, pp. 2). As mentioned above accountability for economy enables the agency to know how much it has to spend and on what the money should be spent. However, many governments in pursuit of economy are concerned with reducing expenditure in spite of the social costs brought about with such moves (Cutler, Cutler, and Waine, 1997, p. 108). Even though economy has of late become synonymous to cost cutting, many public agencies do not always favour the lowest price tender, service or item offered for sale (Pollitt and Talbot, 2004, p. 91). The agencies mostly go expenditure, which best meets the needs of the agency and the political objectives (Faustino, 2008, p. 71). Many managers have been found to spend disproportionately at the end of the financial years to consume all money, which they had for spending. Such moves undermine the use of economy as a measure of performance (Funnell and Cooper and Cooper, 1998, p. 33). Research and development Expenditure of any government institution on education and research and development (R&D) is vital for economic growth. Since public spending represents an important share of GDP, efficiency of public spending on education and R&D is an important subject of debate among policy makers in EU countries (Chai, 2009, p. 48). The debate about education revolves around the ability of the school system to ensure that student potential is maximized while responding effectively to changes in the demand for education. On the other hand, debate about R&D regards the strength the leverage effect of public expenditure on innovation. In order to use effectiveness as a measure of performance, policy objectives need to be stated in terms of outcomes to be attained. Effectiveness indicators focus on the impact of services on the community or client (Pollitt and Talbot, 2004, p. 78). The impacts are in terms of quality, accessibility and other impacts on the client. The quality of service delivered by a public agency can be measured in many ways. The first measure is the degree to which users of the service is satisfied. Another approach is the incidence of service failure. Quality can also be measured using accreditation and the quality of inputs. Since public agencies are concerned with provision of essential services such as education, health, housing and administration, the services ought to be accessible to its users (Cutler, Cutler, and Waine, 1997, p. 88). The assessment of accessibility can be done with reference to waiting periods to enter the service, the affordability of the service or physical accessibility. In some areas, accessibility of services to target groups is usually important. However, this has a limitation in that accessibility rarely take into account any variation in target groups’ demands for such services as compared with the rest of the community. Concerning other impacts on the client, many service areas focus on key objectives, which influence the lives of the client group. However, this raises an issue with how such objectives can be arranged hierarchically. Thus, extend to which the outcomes fulfil the policy objectives can be said to be effectiveness of the agency. Based on this, effectiveness can to some extend provide a basis for measuring the performance of a public agency. (Government Service Provision, pp. 35-37) As seen in the definition of effectiveness it relates input to political outcome. However, measurement of inputs is not straightforward since it is not easy to cover all costs of public agency activities including utilization of government owned assets such as school buildings and hospitals (Faustino, 2008, p. 70). Furthermore, the definition of the terms involves outputs, which also present some difficulties in their measurement (Copley, 2004, p. 103). Given the difficulty, it is a challenge to measure effectiveness of a public agency and hence the use of effectiveness as a measure of performance of public agency is not effective to some extent. Organisations approach towards efficiency Governments intending to measure efficiency of its public agency need to develop comprehensive and comparable data on inputs, outputs and outcomes for it to use it as a basis for measuring performance of such agency (Copley, 2004, p. 103). Methods often used to measure efficiency of public spending have serious effect on the results and thus one need to be careful while using such efficiency measures to make general conclusions (Faustino, 2008, p. 68). Therefore, there is need to come up with a common understanding on sound principles and methods for efficiency measurement for them to be effectively used in determining g the performance of a public agency. Investigation of efficiency in individual spending areas of a public agency can provide informative data on its performance. Efficiency is usually divided into productive efficiency and allocative efficiency. Productive efficiency measures how the inputs are related to outputs. Productive efficiency can be measured in terms of quantity. It can further be measured using prices. However, measuring the optimum mix of the various factors of production, which affect prices, is a better measure of efficiency. Since most public agencies produce different outputs, measuring the relationships between variations in the mix of inputs and variations in the mix of outputs provides a more informative measure of efficiency. Allocative efficiency on the other hand, is the relationship between production of optimal mix of services and the budget constraints. Unit cost that refers to the cost per unit of service is the main indicator of productive efficiency (Copley, 2004, p. 98). Although unit costs are useful measure of efficiency, they may vary due to inefficiency, the mix of clients, differences in the environment of service delivery, scale of operations and costs of inputs (Dollery and Wallis, 2001). In spite this; unit cost information is limited by the incomplete usage of accrual systems and by the inadequacy of capital valuation and associated depreciation charges. This implies that efficiency, as a basis of determining performance of public agencies is not effective. Other measures of efficiency such as Data Envelopment Analysis (DEA) that has been found to overcome the shortcomings associated with unit cost in measuring efficiency of delivery services by the public agency (Pollitt and Talbot, 2004, p. 78). DEA identify performers based on input use and output production. However, it requires that data used be accurate on all relevant input and output levels (Faustino, 2008, p. 66). In addition, efficiency is measured on basis of observed instead of actual best practice. Since DEA has been used international to successful measure performance of service providers successful, adoption of such method in Australia can improve effectiveness of efficiency in determining performance of public agencies (Government Service Provision, pp. 37-39). Conclusion Performance of public agencies needs to be measured to know how services are being delivered to the public. Evaluation of performance is an important aspect of managing performance. Public institutions use economy, effectiveness and efficiency to measure performance. Accountability for economy enables the agency to know how much it has to spend and on what the money should be spent. However, many managers on finding out that they have not spend all that they have at their disposal at the end of financial year-end up spending the balance disproportionately making economy to be ineffective at measuring the performance of a public agency. There are also challenges in measurement of effectiveness hence presenting difficulties in the measurement of performance based on effectiveness. However, with proper adoption of best methods such as DEA, efficiency can be used successful to determine performance. References Accenture. Accenture Health and Public Safety Performance Management in the Public Sector. Available at http://www.accenture.com/NR/rdonlyres/14DC12E0-097E-4E53-B679-EB604AA002DA/0/Accenture_Health_and_Public_Safety_Performance_Management_in_Public_Sector.pdf Economic Policy Committee. Efficiency Effect Public Spend. Available at http://europa.eu/epc/pdf/efficiency_effect_public_spend_en.pdf Funnell, W. and Cooper, K. 1998. Public Sector Accounting and Accountability in Australia, pages 33,101,183 Government Service Provision. Report on government service provision. Available at http://www.pc.gov.au/__data/assets/pdf_file/0003/61374/03-chapter2.pdf pp35-37 John, W., Ciaran, O., and Patrick, W. 1996. Public Sector Management in Australia, pp. 13, 80, 108, 114, 177, 182 Cutler, T., Cutler, A., and Waine, B. 1997. Managing the welfare state: text and sourcebook, 2nd Ed. London: Berg Publishers. Pollitt, C., and Talbot, C. 2004. Unbundled government: a critical analysis of the global trend to agencies, quangos and contractualisation. London: Routledge. Chai, N. 2009. Sustainability performance evaluation system in government: A balanced scorecard approach towards sustainable development. New York: New York Publishers. Faustino, S. 2008. Implementing reforms in public sector accounting. Paris: Imprensa da Univ. de Coimbra. Copley, P. 2004. Research in governmental and nonprofit accounting, volume 11. London: Emerald Group Publishing. Dollery, B., and Wallis, J. 2001. The political economy of local government. London: Edward Elgar Publishing. Read More