Quattro punti: four steps to budgeting and performance management--Part 1: start by creating a strategic hierarchy, setting targets, and defining measures.
Fortunately, there is such a tool--budgeting and performance management (B&PM). This article, the first of two on B&PM, introduces the tool and discusses the first half of the process: creating a strategic hierarchy and measures and targets for success. The second article will cover the other half of the process: determining the cost and the means of success.
Earlier versions of B&PM took on bureaucratic-sounding names--budget and performance integration, performance budgeting, strategic budgeting, performance improvement, and results budgeting--but B&PM actually concerns why government organizations exist (and whether they should continue to exist). That is, to render essential services to citizens to ensure their safety, health, and prosperity--their very lives. It concerns planning for government to do what it is supposed to do and then to do it effectively.
The author of this article once drafted fifty steps for developing a performance budget for a federal agency. Although comprehensive, it was not a bestseller. No one wants a fifty-step process for anything, let alone budgeting, so this article distills the fifty steps down to four. Assembling a toy takes more than four steps, so this approach should be doable for anyone. Admittedly, however, "four steps" does not have much panache, so this article uses the Italian quattro punti, which means four points, or steps. Like the Punto, a Fiat supermini, it has a sportier sound.
The article synthesizes existing concepts in a unifying framework. It offers examples (in box form) from agencies currently using their own versions of B&PM to ensure effective programs that serve their constituency.
Those who think of budgets usually think in numbers. However, government organizations exist for a reason, and the organization's budget is a statement of political intentions about that reason. Budgeting used to concern how much money an organization would spend: so much for this category of expense or for that program. B&PM is the evolution of political intention, which now focuses on results. B&PM identifies the results or outcomes to be bought with the budget: improvement in children's health, reduction in homelessness or hunger, increase in defense readiness, or opportunity for activity in national parks. These results are policy options for organizations. The budget should define, for example, how much the organization would improve children's health (the result).The money it spends on labor costs or health programs is only the means to that end.
B&PM can be distilled into these quattro punti (four steps) as a basic process you can use to help your organization achieve results:
1. What are you doing and how?
2. How do you measure success?
3. How much does it cost?
4. How are you going to achieve it?
Primo Punto: What are you doing and how?
A mission statement explains what an organization does or the results it expects to achieve: the reason for its existence. In the late 1990s, at the direction of Con gress, the Internal Revenue Service (IRS) changed its mission statement from "collect the proper amount of tax revenue at the least cost" to "provide America's taxpayers top quality service." Congress wanted the IRS to change what it was doing. The first step in B&PM is to understand what your organization is doing, its mission. You cannot properly budget unless you know what the organization is supposed to do.
Old-style, incremental budgeting started with the question: how much did we spend last year and what changes, plus or minus, are we making to our programs and resources? The problem with incremental budgeting is that it ignores performance. We need to know whether the organization accomplished what it was trying to do with last year's budget. Incrementing a budget that did not achieve results last year only creates a budget that will not achieve results this year.
If we assume your organization has a mission statement and it adequately identifies the results your organization expects to achieve, then you know the biggest part of what your organization does. The next part is determining the details. To do so, we need to build a strategic hierarchy, establishing a structure on which to build B&PM.
This strategic hierarchy is the alignment of basic building blocks of an organization's operation: mission, goals, objectives, and activities. If your organization al ready has a strategic plan, you can use it in building your strategic hierarchy.
In addition to mission (defined above), the elements of the strategic hierarchy are as follows:
* Goals. Broad, medium- to long-range general statements that, taken together, ensure accomplishment of the mission.
* Objectives. Specific, shorter-term statements that, taken together, ensure achievement of a goal.
* Activities. Operations an organization undertakes that, taken together, ensure meeting an objective.
Organizations typically have a single mission, multiple goals, multiple objectives related to each goal, and multiple activities, generally related to specific objectives (Figure 1).
[FIGURE 1 OMITTED]
Each organization needs to build its own strategic hierarchy, but here is a brief example.
If an organization's mission is to enhance the health of Americans, its goals might be to
* improve health care,
* prevent or control disease, and
* advance medical research.
The objectives of the "improve health care" goal might be to
* improve access to health care,
* increase health care services, and
* recruit and develop a health care workforce.
The activities related to the "increase health care services" objective might be to
* establish and run clinics for underserved populations,
* expand publicly funded health centers and substance abuse programs, and
* provide resource information and peer support to families with children who have special health care needs.
Logic Mode/Strategy Map
Assembling a strategic hierarchy means fitting the blocks (goals, objectives, and activities) into an arrangement that explains your organization's inputs, actions, and outputs. Next, you determine whether the arrangement or alignment can actually work to achieve the desired results. Some call this a logic model or strategy map (Figure 2).
[FIGURE 2 OMITTED]
Starting at the top of the strategic hierarchy, you determine whether achieving all of the goals you have listed will guarantee mission accomplishment. Using the example above, would improving health care, preventing and controlling disease, and advancing medical research be enough to ensure enhancing the health of Americans? Must you also achieve other goals to ensure mission accomplishment? If so, you need to identify those goals and their accompanying objectives and activities, and the organization must initiate these new activities.
As part of the development of a strategic plan and business framework, the Farm Service Agency (FSA) of the U.S. Department of Agriculture used a logic model to define and link agency resources, activities, programs, outputs/ outcomes, and measures for their five program areas. Ultimately, this model helped FSA with budget justification, resource allocation, and program evaluation.
Similarly, you have to determine whether any of the existing goals are not essential for mission accomplishment. This determination can be politically difficult be cause identifying activities the organization no longer needs and should abandon can be unpopular.
Next, you determine whether meeting all the objectives guarantees that a goal will be achieved or whether another objective needs to be met to ensure goal achievement. If so, you need to identify that objective and the accompanying activities that the organization must initiate. Similarly, you determine whether any of the existing objectives are not essential for goal achievement, leading to activities that the organization no longer needs to do and should abandon.
Finally, you determine whether performing all of the activities guarantees meeting an objective. Is something missing? Is something superfluous?
Applying a logic model is also an excellent opportunity for considering alternative methods of attaining the mission, goals, and objectives. Even if current objectives are accurate, different activities may meet these objectives more effectively or more cheaply. For example, rather than running public health clinics, the organization could choose to obtain health insurance for the target population so it could obtain services from private health care providers.
Agencies that use a planning, programming, budgeting, and execution (PPBE) process--such as the U.S. Departments of Defense and Homeland Security, the National Oceanic and Atmospheric Administration, and NASA--already employ a formal step (programming) to consider alternatives. Agencies that do not use PPBE can still build consideration of alternatives into their planning and budgeting processes.
Building the strategic hierarchy is the key to B&PM, and it requires critical thinking skills not always needed in a more quantitative budgeting environment. Once you have constructed a thoroughly logical strategic hierarchy, you are ready for the second step.
Secondo Punto: How do you measure success?
A critical aspect of creating any new government program--or organization--is determining upfront how you will know later that it was a success. Organizations are created for a purpose, and we need a way to determine whether they are achieving their purpose (mission).The strategic hierarchy lays out what you are doing and how you are doing it; the next step is laying out how you determine your success, that is, measuring how well you achieve the desired results.
We determine the success of programs with performance measures (Figure 3). The creation of performance measures for each level of your strategic hierarchy is as necessary as it is logical. You wouldn't exercise and diet to lose pounds and then never weigh yourself, and you don't establish goals and objectives and then never determine whether you achieved them. The basic purpose of performance measures is to define success: how we know whether the objectives have been met, goals achieved, and mission accomplished.
[FIGURE 3 OMITTED]
Performance measures are also useful on the journey to success. They can affirm that you are on the right path or indicate that you need to change direction. Regular performance measurement tells you whether you are making progress. If you lost two pounds this week, you are on the right path. If you did not lose anything, you may need to make some adjustments.
There are various types of performance measures: outcome, output, input, and efficiency. All have a role, but outcome measures are the most important for B&PM because they measure results. In a public health clinic, you might want to know the number of doctors, nurses, and patients (input); the number of patients seen each day (efficiency); and the number of vaccinations given (output). However, the only way to know whether the clinic is successful is to measure the incidence of serious disease or the overall health of the target population (outcome).
Performance measures for the mission and goals should be outcome measures; at these levels of the strategic hierarchy, you are closest to measuring results. Performance measures for objectives tend to be output measures; think of these as strides toward results. Performance measures for activities include a mix of output, input, and efficiency measures, depending on which aspects of the activity you are checking. Every item in your strategic hierarchy needs at least one performance measure.
Although an organization has many performance measures, no one person in the organization uses all of them. Senior leadership focuses on mission and goal measures, whether it is achieving the desired outcomes and results. Management focuses on objective and activity measures, whether it is doing the things needed to build up to mission accomplishment.
The U.S. Army's Installation Management Command, which oversees garrison operations at 154 installations worldwide, initiated a performance management review to measure and improve performance through common levels of support. These common levels provide definitive performance guidance and metrics for the uniform delivery of services at an affordable level at every Army installation. The success of this program has led other branches of the military to explore this approach.
Sources of information on creating performance measures abound, so we do not review them here except to note that the creation of good performance measures is not an easy process. The difficulty or inability to measure precisely is sometimes a legitimate reason for not measuring. However, we must measure performance to know whether our programs are working, and we must know whether our programs are working to justify our organization's existence.
The number of performance measures for each goal, objective, and activity depends on your characterization of success. If you are on an exercise and diet plan, you may want to lose thirty pounds or just drop one clothing size. Especially at the activity level, multiple measures are often needed to respond to multiple constituencies.
"If you don't know where you're going, you'll wind up somewhere else."
A performance target is the level of success you expect to achieve. Performance measures without targets only indicate whether you are getting better or worse than before, usually not sufficient for successful B&PM. You could do better than before but still not achieve real results, such as just losing some weight in the next twelve months, rather than thirty pounds.
Interim targets break a long journey into manageable parts. It might take four years to achieve a desired program result, so you need to determine what you should be achieving at the end of each quarter in one, two, and three years to ensure that you are on the right path. You cannot wait years to determine this. You also need to know what you need to do to get back on track if you are not meeting your interim targets. For example, you can have a target to lose five pounds after one month and nine pounds after two months. Then you can check your progress each month and make any needed adjustments to ensure that you still reach your goal of thirty pounds in twelve months.
The Transportation Security Administration (TSA) in the U.S. Department of Homeland Security employs numerous performance measures, ranging from a limited number of strategic measures to hundreds of workload and security effectiveness measures. Data are collected daily from 450 airports throughout the country, and focused reporting comes from the largest 150 airports. TSA reports that the effective use of these performance data allowed it to take actions that saved more than $150 million in 2007-08.
The article covers the first half of the B&PM process. We discuss how to create a strategic hierarchy and ensure that it can work. We describe how to create measures and targets of success. In the next issue, we will look at the final two steps: how much does it cost and how are you going to get there?
To set the cause above renown, To love the game above the prize.
--Sir Henry John Newbolt
Thad Juszczak is a director with Grant Thornton LLP. He is a retired federal budget official, who now consults on budgeting and performance management issues with organizations like the U.S. Departments of Homeland Security and Agriculture, NASA, and Yale University. He can be reached at Thad email@example.com.
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|Publication:||The Public Manager|
|Date:||Jun 22, 2009|
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