Managing PrograM PerforMance
in governMent
A Best Practices Approach
Managing PrograM PerforMance in governMent

Table of Contents

Executive summary .........................................
Managing PrograM PerforMance in governMent

      Gary Cokins is a manager with SAS. He is an internationally recognize...
Managing PrograM PerforMance in governMent

Executive summary

Departments and agencies at all levels are challenged to...
Managing PrograM PerforMance in governMent

With performance management, organizations can proactively manage their
Managing PrograM PerforMance in governMent

The role of a leader in the private sector is to define the organization’s ...
Managing PrograM PerforMance in governMent

Accountability and transparency: new expectations for

With the ex...
Managing PrograM PerforMance in governMent

Effectiveness and efficiency:
don’t have one without the other

It is possi...
Managing PrograM PerforMance in governMent

Time and frequency are critical factors for measuring performance. How freq...
Managing PrograM PerforMance in governMent

Reporting an agency’s cost center spending against its budget from its fund...
Managing PrograM PerforMance in governMent

In addition to ABM, analytics can be extremely valuable in optimizing perfo...
Managing PrograM PerforMance in governMent

Two of the more popular performance management methodologies focusing on
Managing PrograM PerforMance in governMent

Achieve results: technology enables

For the aforementioned methodologies t...
Managing PrograM PerforMance in governMent

Once data is integrated, business intelligence and analytics are of critica...
Managing PrograM PerforMance in governMent

Usability for consumers

Today, performance and cost applications are easie...
Managing PrograM PerforMance in governMent

With fact-based information from the performance and cost management system...
Managing PrograM PerforMance in governMent

The best way to negate this fear is through education. By communicating the...
Managing PrograM PerforMance in governMent

The ROI illusion: beyond compliance to priceless results

Quantitative numb...
Managing PrograM PerforMance in governMent

About SAS

SAS US Government Operations provides world-class solutions tail...
Managing PrograM PerforMance in governMent


Suggested reading

Gary Cokins, Performance Management: Finding ...
U.S.  CANADA SALES 800 727 0025 SAS INTERNATIONAL +49 6221 416-0       ...
Managing Program Performance in Government
Managing Program Performance in Government
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Managing Program Performance in Government

  1. 1. WHITE PAPER Managing PrograM PerforMance in governMent A Best Practices Approach
  2. 2. Managing PrograM PerforMance in governMent Table of Contents Executive summary ..................................................................................... 1 Introduction: great leadership vs. good management ............................... 2 Accountability and transparency: new expectations for agencies ........... 4 Effectiveness and efficiency: don’t have one without the other ............... 5 Effectiveness: results? .......................................................................... 5 Efficiency: best cost? ............................................................................. 6 Performance and cost management methodologies ................................. 8 Achieve results: technology enables ........................................................ 10 Data driven information ....................................................................... 10 Analytics answers the questions ......................................................... 11 Usability for consumers ....................................................................... 12 Communication and execution ............................................................ 12 Budgeting for results ................................................................................. 12 Culture change: making it stick ............................................................... 13 What culture change requires ............................................................. 13 . The ROI illusion: beyond compliance to priceless results ...................... 15 About SAS .................................................................................................. 16 Appendix .................................................................................................... 17 Suggested reading ........................................................................... 17 i
  3. 3. Managing PrograM PerforMance in governMent Gary Cokins is a manager with SAS. He is an internationally recognized expert, speaker and author in advanced cost management and performance improvement systems. Gary received a bachelor’s degree with honors in industrial engineering/operations research from Cornell University in 1971. He received his MBA from Northwestern University’s Kellogg School of Management in 1974. Gary began with FMC Corporation as a financial controller and operations manager. In 1981 Gary began his management consulting career with Deloitte & Touche, KPMG Peat Marwick, and Electronic Data Systems (EDS). He has authored several books related to performance management. Gary can be reached at gary.cokins@sas.com. ii
  4. 4. Managing PrograM PerforMance in governMent Executive summary Departments and agencies at all levels are challenged to improve program and service performance. A snapshot of the performance-centric federal environment illustrates that program survival depends heavily on agency innovation and the ability to demonstrate value. The President’s Management Agenda, the Office of Management and Budget, the Government Accountability Office and Congress are demanding transparency and effectiveness accountability. Agencies not demonstrating results find themselves defending their program missions and budgets. Compliance now means a more stringent assessment of programs and the communication of performance. Furthermore, funding support relies on the continual improvement of programs. The bottom line is that funding is tied to clearly demonstrating and articulating results; agencies that cannot do so face the risk of having programs reformed, constrained or even terminated. Agencies also stand to lose their budgets and face negative publicity. State and local governments face similar performance pressures. Governors, legislatures and citizens demand that agencies and departments provide transparency of their spending and demonstrate the benefit achieved in relation to cost. State budget crises have prompted further scrutiny from lawmakers and the public for agencies to prove program effectiveness. Challenges for leaders now revolve around assessing costs, justifying budget requests and communicating expected and tangible results in the large context of driving performance. For example, the state of Washington passed bills to make state government more accountable to the governor and the general public. The proposed system would provide accountability from the budget process through implementation and performance audits with the goal of providing better service and response times to citizens.1 How can a government entity meet these pressures head-on? By defining meaningful outcome and output measures, it can understand and monitor program effectiveness. Many agencies are developing and incorporating performance management methodologies, such as balanced scorecard and activity-based management, to drive performance improvements. Performance management can optimize every aspect of an organization by aligning resources to achieve objectives, measuring results against targets and identifying the best opportunities for improvement. However, organizations that have been implementing improvement methodologies in isolation of each other miss the increased value from their synergy. Performance management initiatives should support integrating existing methodologies across an organization. 1 Press release, May 11, 2005, Washington State Governor’s Office, www.governor.wa.gov/news. 1
  5. 5. Managing PrograM PerforMance in governMent With performance management, organizations can proactively manage their processes and programs by monitoring performance and exploring problems or issues, and by calculating true costs of services and programs. This performance and cost information can be used in turn to develop and justify budgets. Agencies can expect to improve their processes and achieve overall program success by focusing on the following: communication of results, performance optimization, insight into prioritization and resource allocation, cost reduction through cost analysis and management, and collaboration to collectively improve performance. Distinguishing between leadership and management is essential to successfully implementing performance management. Management’s role is to cope with the complexity of a government environment, so they become experts in mastering “red tape,” organization charts, tools, and planning exercises. In contrast, leadership copes with constantly accelerating change. The leadership role is to set direction and answer the question, “Where do we want to go?” After this is answered, skills are used to provide a vision, inspire employees, and empower. Without leadership, especially in government, the full vision of performance management will not be realized. This paper will share how organizations like the US Coast Guard and South Dakota Department of Transportation are pursuing performance management initiatives and realizing substantial overall performance improvements, productivity increases and significant cost savings. Introduction: great leadership vs. good management Performance management methodologies and supporting systems enable good management. These methodologies and systems also enable good managers to become world-class leaders by ensuring that their organizations are focusing on the right things. As author Peter Drucker said, “Management is doing things right; leadership is doing the right things.” A result of not understanding the distinction between management and leadership is that most organizations are over-managed and under-led. What is the distinction? Managers cope with complexity, which is why they deal with budgets and organization charts. In contrast, leaders cope with rapidly increasing change. Leaders should not be risk-adverse but rather must be risk managers. Leaders do not view organizational power and influence on change as being hierarchical in the organization chart but rather more on who can get things done. Leaders rely on vision and inspiring people. Both leaders and managers are necessary for any government organization. The problem is that when managers are promoted to positions where they should be exhibiting leadership, many of them revert to managing more intensely – more spreadsheets, more status meetings, a greater emphasis on hierarchy, etc. 2
  6. 6. Managing PrograM PerforMance in governMent The role of a leader in the private sector is to define the organization’s mission and strategy. In the public sector, the mission is often clear but the strategy and measurements of achievement are not. The problem is that even when leaders have the ability to formulate a good strategy, they are often frustrated by the failure to successfully implement it. In fact, for all the strategic plans written that promise to modernize government and make it more efficient, the majority of strategies are never realized. One reason may be the lack of a clear linkage between strategy and goal attainment. Over the past decade, interest in and implementation of enterprise performance management (EPM) have increased. Some IT analyst groups and thought leaders refer to it as corporate performance management (CPM) or business performance management (BPM). Whatever the title, the approach stands for organizational performance management – strategically managing and improving an organization to accomplish its goals and objectives. The purpose of performance management is to make attaining the strategy everyone’s job. A driving force behind the interest in performance management is that managers and employees are stymied in their decision making. They are asked to increase service levels, improve process efficiencies and achieve performance targets – all in an environment of flat or shrinking budgets. Internal tension and conflict are natural in any organization because there will always be competing goals, but managers need the capabilities to evaluate trade-offs and analyze more deeply. Performance management provides these capabilities. In summary, performance management is much broader than just better budgeting, reporting and control. It encompasses the methodologies, processes, metrics, software tools and systems that help manage and improve an organization’s performance. As it relates to government, performance management involves improving the performance of an entire agency or unit within an agency. This might include managing the performance of contractors, programs and functional areas such as IT, finance/budget, personnel and procurement. The focus of this paper is performance management as it relates to programs. However, the principles of performance management can apply to any public sector agency and its department levels. 3
  7. 7. Managing PrograM PerforMance in governMent Accountability and transparency: new expectations for agencies With the expectation that government programs are in place because they serve a purpose and deliver necessary services or products to the public, it is troubling when a program’s purpose becomes unclear or its effectiveness appears to be lacking. Such instances often result in the program facing scrutiny and the possibility of funding cuts. By today’s standards, government must be accountable for the taxpayer dollars used to maintain the program. However, this implies that to hold an entity accountable means that the effectiveness and efficiency results and outcomes must not only be determined, but also measured and communicated. But accountability is not enough. With accountability must come consequences. Good performance should be rewarded, and poor performance should not. Accountability without consequences has no teeth or traction, and systems that drive false accountability will eventually be discarded. Performance management, as presented in this paper, enables the assignment of accountability and the means to monitor it. But performance management goes much further than displaying pretty dials on a reporting dashboard – it aids the organization in moving the dials in the right direction. Transparency means delivering the performance and financial results so that all stakeholders are aware of them. For instance, the US Department of Commerce – Office of Acquisition Management and Financial Assistance (OAMFA) has a department-wide performance management scorecard available on a Web site for key stakeholders within and outside of the department. The Web site enables stakeholders to monitor and manage the department’s procurement activities as they relate to customer and employee satisfaction across the entire agency. In many cases, government program stakeholders include the general public. The taxpayers have not only the right to know how their money is being spent, but they also have a vested interest in realizing the value that is delivered to them in the form of more and better outcomes. Without transparency, accountability cannot be monitored and enforced, leaving the demand for accountability unanswered. 4
  8. 8. Managing PrograM PerforMance in governMent Effectiveness and efficiency: don’t have one without the other It is possible for a program to be very efficient, yet not effective. For example, program managers can be wise as to how they spend money on resources. In fact, they can optimize the business processes to be extremely cost-effective. However, doing so does not guarantee positive results and outcomes. Conversely, programs can be effective but not efficient. An agency can deliver strong results and outcomes that prove it is doing its job very well, but at the same time have wasteful activities and inefficient use of resources. These programs can optimize their business processes and activities, as well as improve their resource utilization to save money or deliver more or better services with the same level of resources. As programs strive to be more effective and efficient, their focus should be to achieve the best results at the best cost, striking an optimal balance between the two. Ultimately, programs achieve effectiveness and efficiency with a wide variety of approaches; one can gain more insight by exploring these separately. Effectiveness: results? The effectiveness of an agency and its programs can be best determined by developing outcome measures that are meaningful, high-level, holistic, easy to understand and targeted. Defining outcomes clearly spells out the results and value that an agency and its programs deliver to constituents – satisfying an organization’s need to have both transparency and accountability. First and foremost, an organization should establish outcomes that can serve as baselines, so it can track, manage and use improved outcomes in the goal-setting process. Specifically, outcomes should answer questions such as: Does the agency and its programs meet the needs and expectations of those served? Do the programs make a difference for the society? Outcomes also should be as quantitative as possible, since the measures can be calculated and derived from a set of inputs and outputs. For instance, inputs can be factors such as number of tax auditors hired, and outputs can be number of audits completed. Inputs yield outputs. Knowing and improving yield rates from inputs is basic to performance management. Measuring outputs leads to measuring outcomes. In the tax collection example, good input, output, and yield measures inevitably should lead to positive outcomes such as capturing tax evaders, preventing tax fraud or thwarting tax revenue increases. In most cases, the purpose of an agency and its programs is not in question; what is in question is the effectiveness in realizing its strategy. However, it is important to recognize that the results of an agency and any of its programs can be greatly improved and managed, but it will take time, monetary resources, and good leadership and management. 5
  9. 9. Managing PrograM PerforMance in governMent Time and frequency are critical factors for measuring performance. How frequently an outcome is calculated and updated directly affects accountability and the ability to proactively make improvements. For instance, an outcome calculated once a year is nowhere near as effective as an outcome that is calculated quarterly – or better yet, monthly. Frequently calculating outcomes enables program administrators to actively manage – understanding where they are currently and what direction they are headed in – and take action to address pinpointed problems. A proactive approach enables the program to get things back on track before problems escalate, thus fostering greater efficiency. Efficiency: best cost? Ask the question: Are we delivering a service or product at minimal cost and doing it effectively? A July 2005 federal government report from the President’s Management Council stated that “government-wide, a one-percent improvement in efficiency saves approximately US$20 billion.”2 Many organizations do not understand the level of efficiency – the input to output yield rate – at which they operate. In fact, they do not understand the true costs associated with their individual services because budget line items can only indicate how monies are being allocated. What if they could trace the expenses of the resources they spend (such as for salaries, supplies and contractor fees), into the process costs of outputs and outcomes that consume process work activities? Inefficiencies are much easier to pinpoint if resource consumption is understood according to which outputs and business processes use the resource spending, how much and why. One way to derive a solid understanding of resource spending consumption is through the increasingly popular cost assignment methodology of activity-based management (ABM) and by applying analytics for judgment. ABM is the practice of using calculated activity based costing (ABC) data and combining it with other components of performance management to influence decision making. Cost management must always be performed in the context of performance management. (More reading about ABC and ABM is available in the SAS white paper Activity- Based Cost Management in Government3, which can be downloaded from www.sas.com.) 2“Giving the American People More for Their Money,” A Report from The President’s Management Council, July 2005. 3Excerpted from Gary Cokins, Activity Based Cost Management in Government, (Management Concepts, 2nd edition 2006). 6
  10. 10. Managing PrograM PerforMance in governMent Reporting an agency’s cost center spending against its budget from its fund accounting system (which is the equivalent of a commercial company’s general ledger accounting system) is now recognized as structurally deficient. It does not report the costs of the business processes (or the activity costs that belong to them) or the costs of their outputs and outcomes. It does report budget variances, but this fact does not make managers any smarter about how to influence or control the costs. If they are using ABC, which computes the costs of processes, outputs and outcomes, then they have insight into cost drivers and unit costs of the outputs, which are valuable for benchmarking and tracking cost trends. Some government accountants may claim they already calculate output costs, but these costs are usually distorted and flawed by using broadly averaged cost allocation factors like the number of service units delivered. ABC resolves these error-causing cross subsidies by tracing the activity costs within each process to the outputs using cause-and-effect activity cost drivers. ABM provides an approach for organizations that enables them to recognize the work activities performed – by their employees, contractors and equipment – and see what resources (such as time, budget dollars, salary or materials) are consumed in conjunction with the activity. Further, ABM reveals who or what is driving costs. Using ABM methods, many agencies are recognizing the benefits and see a positive impact on the organization. For instance, by using a cost and performance system that includes ABM with its balanced scorecard, the South Dakota Department of Transportation saves $2 million annually and expects future cost savings and performance to increase dramatically. Now, the department is truly able to do more with less, a challenge faced by numerous agencies and departments throughout government. Another example of how ABM can assist with recognizing efficiency is illustrated by the US Navy. The Commander Navy Installations Command (CNIC) uses ABM methods and software to identify resource shortfalls, recognize opportunities for outsourcing, discover new areas for reimbursement and realign resources to focus on core missions. All CNIC program directors can log in to the system and explore their own costs to see exactly what was spent and how. More importantly, this information provides insights into why it was spent. “If something looks wrong, they can go in and start drilling down to make more informed decisions about where to focus efforts for change,” said Mike Akin, former deputy commander and chief operating officer, CNIC.4 4“A Shipshape Costing Structure: US Navy Improves Financial Visibility with Activity-Based Cost Management.” SAS Success Story, www.sas.com/success/navy_abm.html.
  11. 11. Managing PrograM PerforMance in governMent In addition to ABM, analytics can be extremely valuable in optimizing performance and reducing expenses; or alternatively, getting more results with the same level of spending. Analytical techniques such as operational analytics, logistics and predictive modeling can be used to enhance processes to make them as efficient as possible. Since analytics are based on algorithms and statistical models already developed by skilled and capable people, it can be helpful in recognizing substantial productivity improvements and potential cost savings if the proper data is available. For instance, analytics can predict future resource needs for planning and budgeting purposes. By using techniques such as “what-if” scenario analyses, which can calculate the optimal mix of resources and activities needed to realize results, analytics can be used to develop models that predict likely outcomes given certain influencing factors, including resources and environmental conditions. Overall, the ability to understand and determine the various levels of resources required in relation to expected results enables organizations to prepare accordingly. Performance and cost management methodologies Today public sector organizations are behaving more like businesses. They are converging with commercial companies in the ways they adopt business-like improvement methodologies, such as Six Sigma quality practices. Many case studies from the private sector cite that using improvement methodologies in the portfolio of the performance management framework has elevated a company’s industry rankings and provided increased profits, market share and customer satisfaction. Government agencies and departments can also expect improved service levels and financial performance. Some confusion exists about what performance management is. Performance n Performance management is a management is an umbrella concept that integrates multiple business improvement closed-loop integrated framework methodologies. Examples are Six Sigma, enterprise resource planning (ERP), that spans the complete performance-based budgeting, and activity-based costing. One of the greatest challenges of holistic performance management is that these initiatives and management planning and control methodologies are typically implemented in isolation of each other. However, the cycle, including the processes, good news is performance management is not a new methodology that everyone metrics, methodologies, systems, has to learn but rather it is the assemblage and integration of existing methodologies and software tools that collectively with which most managers are already familiar. manage implementing an Performance management is a closed-loop integrated framework that spans the organization’s strategy. complete management planning and control cycle, including the processes, metrics, methodologies, systems, and software tools that collectively manage implementing an organization’s strategy. Also, performance management frameworks have existed in organizations for decades, well before the term “performance management” was added to our business lexicon and arguably before there were even computer systems to support these methodologies. What is different in the 21st century is that IT can electronically link the methodologies comprising the suite of solutions for performance management to an integrated technology platform.
  12. 12. Managing PrograM PerforMance in governMent Two of the more popular performance management methodologies focusing on business value include the balanced scorecard5 and the Baldrige criteria (from the Malcolm Baldrige National Quality Award program). Both methodologies are gaining momentum in government and academic organizations. The balanced scorecard and Baldrige frameworks are intended to be holistic and drive overall organizational performance improvements by aligning work and priorities of managers and employee teams with an organization’s mission and strategy. This alignment is critical, since one must focus not only on developing a strategy, but also on implementing it successfully through key steps. As mentioned in this paper’s Introduction, research indicates that the majority of strategies fail to be executed effectively – a fact that is potentially the cause of increasing involuntary CEO turnover rates and validated by shorter CEO job tenures. One can conclude that developing a great strategy is not the problem; however, executing the strategy is. These strategy-focused performance management methodologies help to not only identify a strategy, but also to bring it to fruition. In contrast to these overall organizational approaches, earned value management (EVM) is becoming a popular method of managing performance at the program level. Like organizational strategies, there is a strategic purpose and defined outcome of a particular program and a strategy needs to be developed and executed to effectively and efficiently deliver the program outcome. Many agencies with large-scale programs are employing EVM to integrate technical performance requirements, resource planning and schedules. Since EVM focuses on performance, cost and schedules, it is used frequently for performance-based contracting, also known as performance-based service acquisition, particularly because contracts have a major impact on a program’s overall performance. Contracts with the Department of Defense require EVM for projects over $20 million, and the department even suggests EVM as an option for those under $20 million. The value of EVM is apparent as it relates to contract performance, but one point to consider is that it can be enhanced by introducing business intelligence and analytics. When these are applied, they enable data driven EVM information that is timely and accurate. For instance, the US Coast Guard, which administers a multibillion-dollar program called Deepwater, uses EVM metrics as one component of its performance management framework. It is important to note that activity-based costing and management are often used at both the program and organizational levels to help organizations minimize costs. ABC and ABM complement balanced scorecard and other performance management methodologies by linking costs of activities and operations to strategy. Organizations use a multitude of performance and cost methodologies, occasionally in conjunction with one another, to drive improvements and achieve results. However, every organization and program is unique and should evaluate what methodologies would work best for them. The Appendix lists some of the numerous books and articles written on performance management and cost methodologies for further reading. 5 Robert S. Kaplan and David P. Norton, The Balanced scorecard: Translating Strategy into Action (Boston: Harvard Business School Press, 1996).
  13. 13. Managing PrograM PerforMance in governMent Achieve results: technology enables For the aforementioned methodologies to work, an organization must have IT systems that can support them. Furthermore, in the context of performance and cost management, IT systems serve as enablers. Data driven information From a decision-making perspective, data driven information is key. After all, in the absence of facts, anybody’s opinion is a good one! Fact-based information n “You’re right not because others is trustworthy and useful only if it can be validated. IT systems provide such agree with you, but because your capabilities. A centralized system with data extraction, data cleansing and data facts are right.” management capabilities provides the type of reliability necessary for confident decision making. Warren Buffet CEO of Berkshire Hathaway Organizational leaders and management are empowered when they are armed with facts. Pair a process for handling the data, such as the one mentioned above, with performance and cost management, and the result is information that is more accurate, reliable and current than ever before. Only when these methods are employed can performance measures – inputs, outputs and outcomes – be calculated and automatically updated on a reliable and repeatable basis. It is true that most agencies and their programs have many systems containing useful data that support their needs. However, for performance management to be successful, the ability to extract data from a variety of disparate operational systems, all while managing the process, is paramount. That leads to a need for data integration, ideally on a single integrated information platform. Some organizations that have progressed down the performance and cost management road find themselves in a laborious process of having to manually collect data, calculate measures and refresh reports with new information. This can be very time-consuming and a poor use of resources. However, by automating these manual processes, work hours can be freed up so that employees can better use their time to focus on more strategic performance improvement activities. Automated data extraction and data management are needed to effectively provide data driven information. The automation capability allows reliable and current information to be surfaced. Ultimately, this enables users to proactively manage their areas of responsibility. Performance reports, applications, dashboards and scorecards can show users at a glance where performance is today, not yesterday. 10
  14. 14. Managing PrograM PerforMance in governMent Once data is integrated, business intelligence and analytics are of critical value to assess and report on performance and cost. Analytics allows a manager to peel back the layers and get to the heart of the performance matter. A dashboard is “thin” if it provides only metrics and performance against targets; this just tells you where you are at a glance. When you ask, “Why are we performing at that level?” analytics and business intelligence come into play. A dashboard or scorecard is “deep” if it can provide: • Business intelligence to drill down into data and reports to reveal causes of trends. • The ability to not just look at summarized data and records of information, but to analyze it as well. Most business intelligence software offerings allow you only to ascertain performance historically, by using queries and reporting. This is shortsighted, especially in the context of performance management. The objective is not to just monitor the dials but to move the dials. Analytics answers the questions Even simple historical analysis can be very powerful, but applying analytics to answer high-value questions about the future can enable organizations to predict performance, cost and resources required – and then prepare accordingly. Some software offerings provide simple predictive and forecasting capabilities to look ahead for a defined time interval, like headlights for driving a car at night. Due to these offerings’ simplicity, an organization can see only so far ahead in the dark with the headlights on. Strong analytical predictive capabilities are like driving on a clear day on flat terrain: one can see clearly for miles and miles ahead, which allows for planning and changing course for performance improvements. In private industry, forecasting sales and profits is a good example of planning for operational or resource improvements. In government, organizations desire to predict service level outputs and outcomes so they can plan appropriately for the demand and communicate to their constituents about what to expect. Predictive analysis can be especially helpful in budget formulation. The challenge is to predict what level and type of resources will be needed to ensure performance improvements or predict what is needed to maintain levels of service. How powerful would it be to have a statistical predictive model based on factual, real data and be able to plug in the expected budget from Congress and predict the outcome? Not only can predictive information be used to point out the consequences of expected budget cuts, but it can be used to argue and defend budget formulation and budget requests. 11
  15. 15. Managing PrograM PerforMance in governMent Usability for consumers Today, performance and cost applications are easier to use and bring more value to the table than their rudimentary predecessors. Executives do not need to be technology-savvy, as the systems are intuitive and provide a wealth of information with a few clicks of the mouse. In fact, information can also be within reach for the masses, as many applications are Web-enabled and allow not just a few key personnel to use the system, but rather hundreds or thousands of people to access the system and use the information in their jobs. Imagine having access to information that gets everyone on the same page. Performance and cost management applications can enable communication, alignment and focus because the supporting technology is scalable and available to the appropriate individuals in the organization. Communication and execution We’ve identified that for a strategy to work, it must be effectively implemented. However, for the implementation to be a success, the strategy needs to be communicated within the organization. Communication enables alignment so that participants in the strategy execution all share the same goals and a similar level of understanding of the desired outcome. Alignment means that everyone is working together to collectively and collaboratively drive performance and cost improvements. Goal alignment allows for experiences, best practices, ideas and knowledge that reside in the minds of employees to be shared; this is just as important as the information or data. Peter Drucker once said, “Efficiency is doing things right; effectiveness is doing the right things.” Thus, a performance management framework also ensures that the work force is focusing on the right things and is doing them well, as opposed to just doing things right. Budgeting for results Federal agencies are challenged with budget and performance integration as mandated by the President’s Management Agenda. Programs that do not prove their effectiveness face potential budget cuts. Some state agencies integrate performance information into the budgeting process. The basic premise is that once you have a good understanding of performance and cost, you can make much more intelligent budgeting decisions and budget for positive results. The job of formulating a budget will become more fact-based and less subjective. For example, rather than having funds allocated based on individual political relationships or tenure, they instead are allocated according to data driven, factual performance and cost evidence. 12
  16. 16. Managing PrograM PerforMance in governMent With fact-based information from the performance and cost management system, budget requests can be validated and defended to Congress or a state legislature. Moreover, the confidence in the information derived from data can be used to formulate budgets and ensure that agencies do not fall short of meeting their goals and objectives. One could equate falling short in programs to a car leading the race and running out of gas just before crossing the finish line. Having the performance and cost information to derive a budget that ensures adequate resources to do the job through the next fiscal year is critical to drive overall performance improvements. Culture change: making it stick Organizations and programs can reach new heights and make great improvements if they can make performance management part of the organization’s culture. Leadership qualities such as consensus and commitment are needed throughout the organization or program to best ensure success. Senior leaders who have been successful with performance management have a common trait – they are passionate about it. If program leaders are passionate about performance management, their passion will have a ripple effect across the organization. Culture change is about changing employees’ hearts and minds. If leadership demonstrates that it is committed to a performance management initiative, and if those involved reach a consensus about its value, then the likelihood of success is very high. Without these factors, the success of performance and cost management methodologies is at risk. What culture change requires Even with a compelling event such as a change in administration, culture change can take time. The change in direction must be owned, sponsored and driven from top management. A common major obstacle is a fear of performance reporting and accountability. Many employees see performance reporting and accountability as a report card. However, that is not the point of performance management. It is more about coaching and leading. 13
  17. 17. Managing PrograM PerforMance in governMent The best way to negate this fear is through education. By communicating the primary goals, which are to drive overall performance improvements and to execute strategy, a shared sense of responsibility can be created – everyone will understand that they have an important role in achieving success. By educating individuals on reasons for changes, management can get everyone on board to understand how they are doing on what is important. All in all, performance improvement is a team effort, and it requires tremendous support from employees, as they are the ones who will help to carry out the strategy. The presence of fearful attitudes will diminish as the employees realize that the scorecards and dashboards are to report how the team is doing – to track progress of the mission and not to scrutinize individuals. There may be areas of performance that are highlighted by the performance and cost solution, and some individuals might be held accountable and feel they are in the spotlight. However, the point is not to obtain evidence for disciplinary action, but rather to shed light on broken processes, ultimately creating an opportunity for improvement. An article from Federal Computer Week illustrates how an agency was able to make adjustments in training to narrow gaps and improve overall performance.6 OAMFA uses a balanced scorecard as part of its performance management solutions to track procurement-related activities across the entire department and its subagencies. OAMFA uses this system to track training gaps. In this case, the purpose of the system is not to criticize the skills and work ethic of those accountable, but rather to identify resource and training gaps and then take remedial actions to help those employees better accomplish their jobs. If both managers and their employees understand and execute this concept, then a collaborative environment is promoted, delays in progress are reduced, performance is optimized and costs are minimized. All of this enables the mission to be executed as effectively and efficiently as possible. In many cases, low or poor performance is not due to skill level, but rather a lack of resources or a lack of training. However, performance management with business intelligence and analytical capabilities can help identify those types of problems as well as training gaps. The information derived empowers managers and enables them to take action; for instance, to arrange for employee training courses. Actions, like training classes, result in improvements, creating a win-win situation for everyone. 6Alan Joch, “Measure of Success,” Federal Computer Week, Oct. 20, 2003, www.fcw.com/article81212-10-20-03-Print. 14
  18. 18. Managing PrograM PerforMance in governMent The ROI illusion: beyond compliance to priceless results Quantitative numbers can be calculated to demonstrate realizable (not just potential) cost savings and performance improvements. This information can justify procuring a software solution to enable a performance and cost management initiative. The same information can also be used to justify resource requests. Such justifications can be made with the type of results that the South Dakota Department of Transportation demonstrated in saving $2 million in a year and the productivity gains realized at the Coast Guard’s Deepwater program. For example, Deepwater’s Greg Cohen, the Deepwater Performance Measurement Lead, states that “easily, hundreds of work hours a month are being saved” through the implementation of its performance management solution. Is it possible to measure the true value of freeing up work hours so time can be used for other productivity gains? Can you calculate a measure to truly reflect holistic success? In reality, you cannot truly measure, in a quantitative way, the success of performance and cost improvements as a whole. There are simply too many factors involved and too many direct and indirect benefits that make it impossible to measure the value of performance management with numbers alone. In other words, the term “priceless” is a more accurate description of results. Some private industry companies can cite performance and cost improvements for saving themselves from bankruptcy, let alone improving profit margins, etc. In government, the welfare and prosperity of our country is an intangible which is also priceless. These are extreme examples, but they make a valid point. How do you measure the total value that a country’s citizens would place on being satisfied with disease prevention initiatives? How do you measure satisfaction with safe roads? Moreover, how do you measure the quantitative value of prevention of automobile accidents? Another example in the military is redeployment of resources that are now available due to the application of performance and cost methodologies. Cost savings and productivity gains could lead to releasing armed service members from duties that are not mission-critical so they can be repositioned to a more critical area. Hundreds or thousands of additional front-line soldiers could be provided, but not one would be a new recruit. This benefit is hard to measure in terms of numbers. There are many outcomes that can be established to reflect, as best as one can, the levels of service provided by government. But the entire value and ROI cannot be measured, because the bottom line is not profit margins, stock prices, market share, etc. The bottom line for government is a service that is provided to the public citizenship and the stewardship of public trust. Government agencies must comply with pressures and mandates that demand accountability and transparency of their organizations and the effectiveness of their programs. A balance between effectiveness and efficiency should be sought. However, to truly reap the full benefits of a performance management framework, organizational managers need to embrace it not just to comply, but to effectively lead their organizations to achieve their mission to protect and enrich the lives of citizens. 15
  19. 19. Managing PrograM PerforMance in governMent About SAS SAS US Government Operations provides world-class solutions tailor-made for civilian, defense, state, and local government organizations. SAS software is used at all 15 US federal departments, within all 50 states and at many local governments. SAS is the leader in business intelligence software and services. Customers at 40,000 sites use SAS® software to improve performance through insight into vast amounts of data, resulting in faster, more accurate business decisions; more profitable relationships with customers and suppliers; compliance with governmental regulations; research breakthroughs; and better products. Only SAS offers leading data integration, intelligence storage, advanced analytics and business intelligence applications within a comprehensive enterprise intelligence platform. Since 1976, SAS has been giving customers around the world THE POWER TO KNOW®. 16
  20. 20. Managing PrograM PerforMance in governMent Appendix Suggested reading Gary Cokins, Performance Management: Finding the Missing Pieces (to Close the Intelligence Gap). Cokins is a SAS manager and an internationally recognized expert and author on activity-based costing and performance management. Gary Cokins, Activity-Based Cost Management in Government. Revised and updated edition, 2006. Robert Kaplan and David Norton, The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Kaplan and Norton are the creators of the balanced scorecard. This book is a sequel to their first book, The Balanced Scorecard. Robert Kaplan and David Norton, Strategy Mapping. This is the third book in the series and the sequel to The Strategy-Focused Organization. Paul Niven, Balanced Scorecard, Step-By-Step for Government and Nonprofit Agencies. James B. Whittaker, Balanced Scorecard in the Federal Government. www.bettermanagement.com. Peter B. B. Turney, Common Cents: How To Succeed with Activity-Based Costing and Activity Based Management. Revised and updated edition, 2005. Other useful information, including Web seminars, Webcasts, articles, books, etc. on management concepts, performance management and cost management can be found at www.bettermanagement.com, an organization devoted to thought leadership on these subjects. 1
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