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Common Objectives Performance Management System for Not-for-profit and Public Sector Organizations

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Designing Performance management system for government, public sector and not-for-profit organization is a daunting task. Many of these organizations pursue long-term programs and projects. Alignment of various groups, departments and individuals within each department is the need of the hour. However, many of these organizations suffer from functional silos and focus on financial measures only. Managing for results by directing right staff behaviour and initiative taking is not facilitated. In this paper Browne & Mohan consultants present a common objective approach that could be used to fix accountability, ownership and outcome based behaviour in public sector and non-profit organizations.

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Common Objectives Performance Management System for Not-for-profit and Public Sector Organizations

  1. 1. Browne & Mohan Board & CEO Advisors, Management consultants Common Objectives Performance Management System for Not- for-profit and Public Sector Organizations ** all logo images are the property of the original owners.
  2. 2. Browne & Mohan Board & CEO Advisors, Management consultants Introduction Performance management of not-profit and public sector organizations is a complex task. These organizations invest significant efforts to measure their performance. Most often they rely on financial metrics only. While the financial measurements are certainly important, measuring the organizational success based on their achievement of the mission becomes difficult. It is important for not-for-profits and public sector organizations to measure not just efficiency, but also their organizational effectiveness. While financial efficiency measures such as adequacy ratio, revenue concentration or operating margins are certainly insightful and required. However, these organizations need performance measurement system that help in addressing how the organization is delivering its mission, whether they are getting the maximum impact they from their expenditures and how effectively they are utilizing their budgets. Many aspects of not-for-profits and public sector organizations tasks and routines are less precise and far more difficult to measure. Many of these organizations may be chartered with missions that are long-term oriented and the outputs that could be captured at each financial year may not be completely represent the achievement towards the goals these organizations have set themselves with. Performance management in not-for-profits and public sector units using results-based management approach that not only captures the outputs, but outcomes and impacts also need performance systems that could evolve over the life-stages of the programs and projects these organizations are involved. Traditional performance measurement systems fail woefully to address the life-cycle evolution of departments and the individuals. Many have developed into bureaucratic entities that face multitudes of performance challenges. The performance dimensions within these organizations continue to expand with increased pressures from all stake holders including donors, government agencies, delivery partners and employees. In addition, the intensity of financial issues including transparency and accountability are placing new performance pressures on many of these entities (Liket and Mass 2013). There are several approaches to performance management development for not-for-profit organizations (Epstein & McFarlan, 2011, Eichler et al., 2007, Kaplan 2001, Mayne 2007, Fowler, 1996, The Urban Institute 2006). Underlying all these approaches three broad methods to design of performance management are used. The approach is dependent upon the maturity of NGO in deploying and managing systems and purpose. System theory based approaches that are typically used by mature NGO deploy Brown (1996) Inputs-Processing system-Outputs- Outcomes-Goals model or Lynch & Cross (1991) Performance pyramid approach: Vision-Market- Financial-customer satisfaction-Flexibility- productivity-Quality-Delivery-Waste model. NGO also use objective based approaches including BSC, especially if their processes are mature and functions are well integrated. NGOs also use European Foundation for Quality Model (EFQM) or Capability Maturity Model (CMM) approaches to benchmark their PMS, identify gaps and improvise. Sawhill and Williamson (2001) have developed a performance measurement framework for a non-profit organization (used in The Nature Conservancy). The proposed performance measurement framework assesses organizational performance in three areas: impact, activity, and capacity. Henderson et al. (2002) report on an international child care agency’s experience in developing a performance measurement system based on outcome and output-type metrics. Sowa et al. (2004) present a measurement framework on two dimensions of effectiveness: management effectiveness and program effectiveness. While each of these approaches their merits, there are certain challenges in adopting these frameworks for multi-program Non-profit
  3. 3. Browne & Mohan Board & CEO Advisors, Management consultants organizations. In these approaches, interlinking individual, departments and program level indicators becomes cumbersome and poses high cost of data collection and monitoring. Managing for results by directing right staff behavior and initiative taking is not facilitated. Some of these approaches do not support KPI for management learning and decision making, emphasizing more on reporting and fixing accountability (Henderson et al. 2002). Common Objective approach Common objective approach is quite similar to Balanced Score Card (BSC), and uses common measures (individuals, departments and organization are mapped on the same parameters). The common goals could be related to business aspects (profitability, project fee which everyone in the NGO must be working for), standard routines by which the NGO would work (use of systems to attract donors and manage the programs so that human errors are minimized, leakages are arrested and knowledge management is facilitated), focus areas/activities (activities for which the donations/grants would be raised, say healthcare, children education, correction and rehabilitation, etc), training and developing down lines (knowledge and skill transfer, succession planning). The common objectives may be identified based on research, or benchmarking other NGOs, or group discussions within the NGO or combinations of the above. Similar to BSC, it is a top down approach framework, wherein first the organizational objectives are determined. The departmental and individual responsibilities are later aligned to organizational objectives. The steps involved in using the common objective framework to KPI development are:- Figure 1: Common Objective approach to KRA/KPI development Multiple approaches exist to identify common objectives. Literature, benchmarking of other NGO’s and group decision models are commonly used to identify common objectives. United State Office of Personal Management (OPM, 2002) is an approach that be used to aligning performance with organizational goals. OPM approach uses three stages to determine the common objectives and cascade organizational goals to individual member performance measures. Common objectives are identified based on an iterative procedure starts with the goals and objectives of organization, identify what must be done available to reach goals at organizational level. Next the organizational goals are cascaded down to department or wok unit level and each unit is evaluated to see how it contributes to organizational goals and what must it be focusing on to deliver the outcomes. Finally, each individual role in the work unit is evaluated on the contribution to goal and therefore what this role must focus on and be measured. At all three levels, causal linkage analysis approach are used to link to elicit what actions or activities must be done to reach goals. Individual roles, its KRA and KPI may be evaluated based on:  External Business Results (what is the outcome from this role),  Systems and Processes (what standard operating procedures,  Intra-Functional joint areas of activities (how does this function interact with others)  People and Team matters (how the role helps in identifying, developing and sustaining talent), and  Organizational aspects (how can this role help in de-risking the organization from changes in market, technology,
  4. 4. Browne & Mohan Board & CEO Advisors, Management consultants work, etc., what sense and respond activities can this role take) Figure 2: Process for Identification of the common objectives. Initially, an exhaustive list of common goals is identified and the list narrowed down to 5-6 common goals so that roll out can be easy. Iterative process like Delphi would be used to arrive at a condensed list of objectives. Initially all key stake holders would be asked to provide their inputs independently and the inputs are collated. In the second round the common elements based on clustering would be presented to identify common clusters. It is also possible to triangulate the Delphi results with benchmarked organization so that NGO would benefit from highly customized best practice based objectives. These objectives are selected to help improved alignment in strategy and implementation. The objectives are selected based on group discussions within an organization, or by benchmarking objectives used by other organizations. Identification of common objectives at department and individual level Once the common goals are identified these goals are cascaded down to department or work unit level and each unit is evaluated to see how it contributes to organizational goals and what must it be focusing on to deliver the outcomes. Each function is evaluated to see what common objective does it primarily impact or contribute, how does it contribute (direct or working with others), and what would be the resources in that department focusing on (broadly manage or control, use of system, etc). The departmental KPI’s consistent with the organization’s common objectives was designed based on triangulation of a) benchmarking against other NGO’s, b) discussions with head of the department on their expectations and focus, c) role definition of the head of the function as enunciated in the non-profit’s documents. Figure 3 presents the process followed for departmental KPI enumeration. Figure 3: Defining departmental KPI’s Individual KPI’s may be developed based on a) existing JD for the role, 2) JD’s from other NGO to compare and enrich the job content, where ever required, c) face to face meetings with individuals to understand their role and how they perceive the outcomes and outputs of the role be measured. All the dimensions from JD and other inputs, KRA were assigned into the common objectives based on an iterative process. Considering several roles and departments are realigning their investments and focus we have suggested short-term KPIs that can be used for couple of years and long- term years that may be used once the department matures. Figure 4: Process for defining Individual KRA/ KPI
  5. 5. Browne & Mohan Board & CEO Advisors, Management consultants Advantages of Common Objective approach  By linking individuals, departments and organization as a whole on common parameters, it facilitates interdepartmental working and co- ownership of outcomes.  Is flexible like BSC, objectives are based on desired strategy and linked to long- term vision  Aligns corporate strategy with performance measures and is non- prescriptive  With common objectives, but different weightages across departments and individuals within, the rationale for the department/individual role can be explicit and the review and measurement be better aligned.  Since the objectives are common, it brings a “process view of the organization” so that the strategy and actions across the complete organization can be aligned effectively.  It helps in breaking down functional silos and fostering interconnected working as goals and outcomes are shared actions.  Common objectives could include task, managerial and program responsibilities, thus it emerges as a comprehensive organizational management system. Bibliography Brown, M. (1996), Keeping Score: Using the Right Metrics to Drive World Class Performance, Quality Resources, New York, NY. Eichler, R. Auxila,P. Antoine,U, Desmangles, B (2007) Performance-Based Incentives for Health: Six Years of Results from Supply-Side Programs in Haiti, Centre for Global Development Working Paper April. Epstein, M.J and McFarlan, F.W. (2011), Measuring the efficiency and effectiveness of a Nonprofit’s Performance, Strategic Finance, October, 27-34. Fowler, A. (1996) Demonstrating NGO performance: problems and possibilities' Development in Practice, Vol. 6, No. 1, pp. 58-65 Henderson, D.A., Chase, B.W. and Woodson, B.M. (2002), “Performance measures for NPOs”, Journal of Accountancy, Vol. 193 No. 1, pp. 63-8. Kaplan, R. S. (2001). Strategic performance measurement and management in nonprofit organizations. Nonprofit Management and Leadership, 11, 353-370. Kohli, A. & Deb, T. (2008). Performance Management. New Delhi: Oxford University Press. Lynch, R.L. and Cross, K.F. (1991), Measure Up ± the Essential Guide to Measuring Busines, Performance, Mandarin, London. Sawhill, J.C. and Williamson, D. (2001), “Mission impossible? Measuring success in non-profit organizations”, Nonprofit Management and Leadership, Vol. 11 No. 3, pp. 371-86. Sowa, J.E., Selden, S.C. and Sandfort, J.R. (2004), “No longer unmeasurable? A multidimensional integrated model of nonprofit organizational effectiveness”, Nonprofit and Voluntary Sector Quarterly, Vol. 33 No. 4, pp. 711-28. The Urban Institute (2006), Building a Common Outcome Framework to measure Nonprofit Performance, Working Paper, Washington. United States Office of Personal Management (OPM), A Handbook for measuring Employee performance: Aligning Employee Performance plans with Organizational goals, http://www.opm.gov/perform/wppdf/2002/handbook.pdf Browne & Mohan insight are general in nature and are not refereed papers. Open Universities and other academic institutions may use the content but with prior approval of Browne & Mohan. © Browne & Mohan 2014. All rights reserved Printed in India

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