Strategic performance management in the public sector


1. Public sectors across the globe, despite their diversity, share common challenges. The need for sustainable and stable public finances. The need to gain the public’s confidence that tax revenues are being used cost-efficiently. Most of all, the need to achieve objectives. It is irresponsible to current and future generations for any government to spend resources unsustainably or ineffectively.

2. Public sector performance is judged by the expectations of its citizens. In many countries the public increasingly expect a more customer led (personalised) model of public services, due to experiencing better service or customisation in the private sector. These expectations often conflict with public sector reforms or cost-cutting strategies based on the commoditisation or standardisation of services.

3. Current financial constraints mean that many public bodies must meet increased demand with fewer resources. More than ever, there is a need for good performance management and cost control. Performance management is inherently more difficult in the public sector but effective performance management is crucial to achieve sustainable and stable public finances and to gain public confidence that tax revenues are being used effectively.

4. Performance management is a key element of public sector reform. Either explicitly with the introduction of new performance management frameworks, or because of an increased emphasis on measureable results and instilling cost consciousness. New Zealand found that implementation of best practice financial reporting (accrual accounting) also improved performance management. Performance management crosses the boundaries of both management and financial accounting, since performance management information is used both by management for decision-making – and in external reports to stakeholders for accountability.

5. The public sector suffers from poorer quality management information than the private sector. Decision makers are often provided with significant volumes of data, including too many KPIs or targets and unreliable and late information. Decision support is consequently poor, making it difficult to sustain (or sometimes create) a culture of evidence-based decision making. Tools common in the private sector such as dashboards can help stakeholders navigate both the complexity and volume of performance information.

6. There is no ‘one size fits all’ performance management system. There are, however, some key principles – performance management is about allowing the user to understand where effort is being invested and whether the organisation is achieving its objectives. Fundamental to the achievement of effective performance management is intelligent application (and adaptation) of performance management tools to the specific circumstances of the organisation together with top-level leadership and commitment.

7. Successfully achieving change in public sector bodies, as in any other entities, requires the organisational culture to adapt. There are significant cultural challenges – some public sector policy makers may be reluctant to introduce transparent, evidence-based decision making. Other challenges include staff cuts risking the loss of key skills, utilising the experience and different perspectives of staff coming from the private sector, having greater acceptance of risk and its management and managing those resistant to change. The public sector needs innovators and entrepreneurs and those skills need to be sought, grown, or encouraged.

8. The public sector needs pressure from outside to convince it of the value of good management information and evidence-based decision making. Governments may suffer from a shortage of high quality finance professionals and/or finance functions that lack strategic influence, because historically they have focussed on transactional reporting and obtaining financial resources rather than on identifying and costing policy options; or driving financial effectiveness and performance improvement.

9. Finance professionals are key players in performance management initiatives in the public sector, because of their role in gathering and analysing data. The management accountant’s professional qualification is particularly relevant to performance management. Finance staff may need to convince decision makers that they can do more than just account for expenditure after the event and ensure it is charged correctly to the appropriate activity. Finance professionals in the public sector can and should:

• provide support for strategic decision making
• identify and manage commercial and financial risks
• analyse strategic challenges and opportunities
• provide appraisal and costing of strategic options.

They must promote evidence-based decision making as the key plank of good governance.

Louise Ross is Head of Corporate Performance Management within the Knowledge Unit in the CIMA
Profile and Communications Department

Full Report can be accessed from the CGMA website


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