This document discusses performance indicators for analyzing the financial condition of local governments. It defines key types of indicators such as inputs, outputs, outcomes, and efficiency/productivity ratios. The document provides examples of specific indicators that can be used to analyze revenues, expenditures, operating position, debt, unfunded liabilities, capital assets, and community needs and resources. Developing a set of indicators allows local governments to monitor financial trends, evaluate performance, and support strategic planning and policymaking. Challenges to indicator-based financial analysis include a lack of comparable data and resistance to change.
3. Conceptual Framework of
Performance Measurement
◼ Need to be based on a consistent and universally
accepted set of definitions of
◼ various resources that go into the process of service
delivery entities that are involved in the delivery process,
(input)
◼ the work that is to be done (workload)
◼ results that are generated (outputs)
◼ Impacts, consequences or effects that are generated by the
output of the program at the individual and societal level,
in the short run and in the long run, obviously including
side effects (outcomes)
4. Conceptual Framework of
Performance Measurement
◼ Broad Classification (input, workload, output,
outcome) differs from entity to entity, program
to program
◼ Output of one becomes input of others
◼ Ratio of input to output = efficiency
◼ Ratio of output to input = productivity
◼ But these ratios to be used with caution as they
can enhanced or reduced
5. Performance Indicators
Definition
◼ The word indicator means ‘pointer’ to a desirable
outcome.
◼ “Systems of quantifiable elements or numerical
ratios to measure certain aspects of the input of
public entities, their operation and their results”.
◼ Indicator is a way to measure, indicate, point out or
point with more or less exactness.
◼ Indicator is something used to visualize the condition
of the system.
6. Uses of Performance Indicator
Systems
◼ Respond to officials’ and public’s demand for accountability.
◼ Help to articulate and demand for budgetary allocations
◼ Allocate resources efficiently and raise funds
◼ Examine reasons for failures and successes and suggest
remedies
◼ Motivate personnel to continue improvement
◼ Monitor the role of contractors and other grantees
◼ Support strategic and other long term planning (by providing
initial information and later tracking the process)
◼ Evaluate programs
◼ Most importantly help to provide better services.
◼ Build public trust and communication
7. Types of Indicators
◼ Input-output level indicators – resources used to achieve
output
◼ Output-impact level indicators-effectiveness of the efforts put
in
◼ Condition-Stress-Response (CSR) indicators – ground
realities, challenges and systemic approach applied
◼ Integral Indicators – results of linkages between sectors
◼ Trend Indicators - processes
◼ Distributive Indicators – equity aspects
◼ Predictive Indicators – futuristic projections
◼ Conditional Indicators – assumed conditions or change
8. Amount of resources within the
program
Amount of goods and services
rendered
Direct results amount
Degree of accomplishment of the
objectives
Input ratio by output
produced
Out put ratio by results
unit
Results ratio by impact
unit
Measure of program benefits in
time
Tendency in the accomplishment of
objectives
Indicators < > Measures
Input
Efficiency
Output
Efficacy
Relevance
Impact
Substanciability
Significance
Results/Outcome
11. Indicators Financial Analysis
◼ Key Indicators include:
◼ Revenues
◼ Expenditures
◼ Operating Position
◼ Unfunded Liabilities
◼ Capital Assets
◼ Show by
◼ Graph illustrating
warning trend
◼ Formula
◼ Description
◼ Suggestions for
Analysis
Trend Worksheet
Line Descripti
on
Source 2001 2002 2003 2004 2005
1 Net
Operating
Revenue
Work
sheet 2
12. Examples-Revenues
“Revenues determine the capacity of a LG to provide services. Important
issues to consider in revenue analysis are growth, flexibility, elasticity,
dependability, diversity, and administration.”
Key Indicators Include:
Revenues per Capita Net Operating Revenue /
Population
Decrease indicates poor allocation to
population
Restricted Revenues Restricted Operating
Revenue/ Net Op Revenue
Increase indicates revenue allocation
for specific needs
Intergovernmental
Revenues
Intgov Op Revenue/ Gross
Op Revenue
Increase indicates dependence on
other governments
Elastic Tax Revenue Elastic Op Rev/ Net Op Rev Decrease indicates poor economy and
high inflation
One Time Revenues One time Op Rev/ Net Op
Rev
Increase/ Continuous use indicates
overdependence on onetime sources
Property Tax Revenue Property Tax
Revenue/Operating Revenue
Decrease indicates shortfall in LG
revenues
Uncollected Property
Taxes
Uncollected PT/ Total PT
Levy
Increase indicates decline in LG’s
economic health
User Charge Coverage User Charge Rev/ Related
Services Expenditure
Decrease indicates loss in service
charges
13. Examples-Expenditures
“Expenditures are a rough measure of a LG’s service output. Generally, the
more a LG spends in constant dollars, the more services it is providing.”
Key Indicators Include:
Expenditures
per Capita
Net Operating Exp /
Population
Increase indicates higher service
costs to service charge on population
Employees per
Capita
No of LG Employees
/Population
Increase indicates LG is becoming
more labour intensive
Fixed Costs Fixed Costs/ Net Op
Costs
Increase indicates less flexibility to
respond to economic changes
Fringe Benefits Fringe Ben Exp/
Salaries and Wages
Increase indicates unhealthy LG
finances
14. Examples-Operating Position
“During a typical year, a LG generates either an operating surplus or an
operating deficit. An operating surplus develops when current revenues
exceed current expenditures, an operating deficit when the reverse occurs.”
Key Indicators Include:
Operating Ratio
Surplus Deficit
Op Expenditure /Op Revenue Increase indicates unbalanced
budget, deteriorating finances
Fiscal
Surplus/Deficit
Total expenditure/total revenue
Fund Balances Unreserved Fund Balance/ Net
Op Revenue
Unplanned decline indicates lack of
funds for future needs of LG
Liquidity Cash- short-term invest/ current
liabilities
Decrease indicates poor state of LG
Current
Liabilities
Current Liabilities/ Net Op Rev Increase indicates lack of flexibility
in allocation of funds
15. Examples- Debt
“Debt is an effective way to finance capital investments to even out short-term
revenue flows, but its misuse can cause serious financial problems. Even a
temporary inability to repay debt can damage a LG’s credit rating, which
can in turn increase the cost of future borrowing”
Key Indicators Include:
Long term
Debt
Net direct bonded long term
debt / Assessed valuation
Increase indicates
diminished ability to repay
debt
Debt Service Net direct debt service / Net
Op Rev
Increase indicates excessive
fiscal strain on LG
Overlapping
Debt
Long-term overlapping
bonded debt / Assessed
valuation
Increase indicates
dependence on other
repayment sources
16. Examples- Unfunded Liabilities
“An unfunded liability is one that has been incurred during the current or a
prior year, that does not have to be paid until a future year, and for which
reserves, or funds, have not been set aside.”
Key Indicators Include:
Unfunded Pension
Liabilities
Unfunded Pension
Liability/ Assessed
Valuation
Increase indicates
increased burden on tax
base
Pension Assets Pension plan assets/ annual
pension benefits paid
Decline indicates problems
in the management of the
plan
Accumulated
Employee Leave
Total unused- sick leave/
Total employees
Increase indicates large
termination costs
17. Examples-Capital Assets
“Most of a LG’s wealth is invested in its physical assets or capital plant
streets, buildings, utility networks, and equipment. If these assets are not
properly maintained or are allowed to become obsolete, the results are
often (1) decreasing usefulness of the assets, (2) increasing cost of
maintaining and replacing them, and (3) decreasing attractiveness of the
LG as a place to live or do business.”
Key Indicators Include:
Maintenance
Effort
Exp of repair &
maintenance of cap assets/
Quantity of assets
Decrease indicates low
maintenance
Capital
Outlay
Cap Outlay from Op funds/
Net Op Exp
Decline over 2-3 years indicates
capital outlay needs being
deferred
Depreciation
Expense
Depreciation Expense/ Cost
of depreciable assets
Decrease indicates assets being
used beyond estimated life
18. Examples-Community Needs &
Resources
“The community needs and resources indicators encompass economic and
demographic characteristics including population, personal income,
property value, employment, and business activity.”
Key Indicators Include:
Population Population Rapid change in population size
Median Age Median Age Increasing median age of population indicates greater
expenditure
Personal Income per Capita Personal Income/ Population Decline indicates drop in purchasing power
Poverty Households Poverty Households/ Households in
thousands
Increase indicates greater public assistance receipts
Property Value Change in property value/ property value
in prior year
Decline indicates drop in market value
Residential Development Market Val of new residential dev/ Mkt
val of total new dvpt
Increase indicates greater expenditure demands
Vacancy Rates Vacancy Rates Increase indicates sluggish economy
Employment Base Local unemployment rate Increase indicates overall economic decline
Business Activity Decrease indicates sluggish economy
19. Benefits of EFC Indicators
◼ Can not explain specifically why a problem is
occurring? Or a single number or index to
measure financial health
◼ It provides flags for identifying problems,
clues about their causes, time to take
anticipatory actions
◼ Provides for better planning and policy making
◼ Puts already existing information in context of
other economic, demographic data and creates
new meaning
20. Obstacles In Indicators based
Financial Analysis
◼ Resistance to change
◼ Lack of necessary financial and performance
data
◼ Nature of LG
◼ Limitation of LG accounting practices
◼ LG financial analysis – lack of world wide
normative standards for LG