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The power of performance Measurement: a computer performance model and examples from Colorado cities.

Performance measures not only describe what has happened; they influence what will happen, as they provide information for decision makers and affect the behavior of employees.

In the popular book Reinventing Government, authors Osborne and Gaebler describe the power of performance measurement. In their words, "Organizations that measure the results of their work. . . find that the information transforms them." Research in developing performance measurement concepts and working with local governments to implement measurement systems suggests that Osborne and Gaebler are correct. Performance measures do indeed possess considerable power to help officials make better decisions and use resources effectively. How they do this is the subject of this article.

The goal of performance measurement is to improve the quality of management and policy decisions by providing a clear picture of the activities and accomplishments of the organization. This is done by providing information about the performance characteristics of the organization, usually in the form of trend and ratio data. These data typically describe where the entity has been in terms of performance, where it is today and how it compares with other, similar organizations. If it is done correctly, such an analysis results in a detailed picture of performance, painted in graphical and statistical terms. It is this picture that helps officials to make more informed policy choices and managers to make better decisions.

The use of modern performance measurement tools allows governmental officials to manage with much higher degrees of precision than has traditionally been the case. Through the consistent use of such instruments, it is possible to monitor changes, identify potential problems and take timely corrective action. Equally important, these tools allow officials to support activities that are successful, to allocate resources based on what works well and to build public credibility by being able to demonstrate the effective use of taxpayer dollars.

A Tool for Shaping Performance

Perhaps the most surprising thing about measurement is its ability to shape the future performance of organizations. Performance measures do not simply describe what has happened; they influence what will happen, as they provide information for decision makers and affect the behavior of employees. When an organization establishes an ongoing measurement program, performance and productivity almost inevitably improve. The reasons for this have to do with organizational focus, resource allocation and achievement recognition.

Scholars have long recognized the central role that focus plays in organizational performance. High performing organizations--be they public or private--have clear goals and a strong focus. The process of establishing departmental performance measures requires that department goals be clearly identified, because one cannot measure performance until desired results have been defined. This seemingly simple act of defining results to be achieved has enormous power to focus the organization. Because measures have great power to direct activity, it is important that departmental performance measures be consistent with broad organizational goals and policy.

Performance measures not only focus the organization's activity toward defined goals, they strongly influence employee behavior. The reasons, again, are straightforward: People react to what is measured. When goals are identified and employees know the basis on which they will be measured, they perform.

For elected officials and top managers, one of the most tangible benefits of performance measurement is its ability to help in resource-allocation decisions. Without the ability to measure accomplishment, the budget process can become a no-win game of slicing a shrinking fiscal pie into ever-smaller pieces. Performance measures provide officials with new tools for evaluating resource allocation decisions on the basis of demonstrated accomplishments rather than solely on the basis of traditional funding or political clout. Measures provide the foundation for a new approach to budgeting built around an investment-management philosophy.

Finally, performance measures have the ability to recognize the achievements of employees, departments and the government as a whole. For employees, recognition of demonstrated achievements provides motivation and builds self-esteem. At the departmental level, performance measures can help identify successful activities and encourage their further use while steering managers away from less effective approaches. For the government as a whole, performance recognition builds trust: Demonstrated achievements can enhance credibility with citizens, taxpayers, the press and potential new businesses.

A Measurement System

To be successful, a performance measurement program needs to be built around a common conceptual theme and continued over time. If the measurement is done on a one-time basis, it will neither highlight key trends nor identify important changes in performance over time. The performance program described in this article was designed around resource management concepts, since resource limitations constitute a serious problem for many governmental organizations. Thus, the system looks at where resources come from (the economic characteristics of the community), how they are allocated (the financial characteristics of the government), and how efficiently and effectively they are being used (the performance characteristics of departments).

This performance measurement system, developed by the author, employs a computer technology called performance analysis modeling (PAM), which is illustrated in schematic diagram in Exhibit 1. The local government provides the data for the model, items such as population, assessed value, building permit activity, department staffing levels and financial information from the annual audit. Simple data-input software designed for personal computers is used to enter the information into the performance model.

The computer model conducts analyses of the economic, financial and departmental performance characteristics of the local government. It provides an in-depth picture of performance trends which, if desired, can be expanded to include citizen satisfaction information and comparative data from other communities. The results of the analyses can be compiled into reports covering performance trends, citizen satisfaction information or comparative data. In terms of output format, the model can provide statistical data and graphical information.

In practice, the computer modeling approach has proven to be an effective and economical way to provide performance information in a format that officials can use to make decisions. The illustrations of performance measures in the sections that follow are drawn from actual reports of a group of Colorado cities that have been actively using performance measures for up to three years. Among the group are Fort Collins, Grand Junction, Loveland, Lakewood, Thornton and Westminster.

Economic Performance Measures

Economic performance measures monitor the tax base, business, employment, population, land-use and development characteristics of the community. Information on economic performance has many uses in local government. It can, for example, be used as a tool to develop economic strategy by tracking changes in the composition of the tax base. Economic data also can be used to monitor the success of an annexation program by using a measure called area revenue density, which tracks the relationship between revenue and the physical size of the community. By monitoring the average revenue per acre, the city can see the financial impact of its annexations. For example, an aggressive annexation program that initially reduced net revenue as undeveloped land was annexed was shown to be ultimately successful when revenue density was restored to earlier levels but based on a much larger and more diverse economic base.

Economic performance data also can be used to evaluate the success of economic development efforts. Exhibit 2 tracks the impacts of a policy decision by a Colorado city to expand its sales tax base while trying to maintain its strong manufacturing and nonretail business base. The success of this city's efforts is clearly shown, as the number of business licenses holds steady as that of sales tax licenses expands significantly. The magnitude of such an accomplishment should not be underestimated nor unrecognized, and one of the most important benefits of performance measurement is that it allows a local government to document its achievements.

These illustrations show just a few of the many ways that cities can use performance measures to develop economic strategy, track progress and evaluate the results. Some cities are using economic measures to evaluate development activity, project the long-term impacts of various land uses and monitor business activity.

Financial Performance Measures

The ability of a community to meet the needs of its citizens is directly related to its financial health. Financial performance measures allow local governments to monitor their fiscal condition and document responsible stewardship of taxpayer dollars. Where problems do exist, performance measures help provide early warning signals and suggest strategies for corrective action.

Analysis of the general fund revenue trend, for example, may indicate that, while nominal revenues exceed the inflation rate, real revenues in inflation-discounted (constant) dollars are barely keeping up with inflation. Where financial problems threaten to become acute, tracking and reporting performance measures can offer a clear picture of an issue and help convince citizens of its legitimacy. Exhibit 3 depicts just such a situation. In this case, a city's water fund revenues were unable to keep up with inflation, in spite of good departmental efficiency as documented in the department's productivity measures. Recognition of the problem by officials and citizens alike provided a basis for corrective action taken in 1990. The impact of the 1990 decisions concerning the financing policies for the water fund is seen clearly in the 1991 revenue data.

Performance measures not only help diagnose and correct problems, they also help to assess how well policy decisions are being implemented. Their ability to demonstrate superior performance can help build credibility with citizens and taxpayers. The use of performance measures enabled one Colorado city to improve fund balance through a program of contracting services in some areas and using job-sharing and part-time personnel in other areas. Performance measures aided in tracking the effectiveness of management decisions, as well.

Departmental Performance

Few measures are more important than those that track and compare departmental performance. It is in city departments that most money is spent, and it is departmental output that most directly affects citizens and their satisfaction with community services.

Because the measurement of departmental performance is not a simple matter, the performance model examines departmental activity in three dimensions. First, the model measures departmental inputs by tracking the costs and human resources associated with department operations. Second, for cities using the citizen satisfaction survey, the model trends both satisfaction and cost data to provide measures of effectiveness. Finally, the model measures efficiency by tracking specific departmental performance measures and relating those outputs to changes in costs. This provides an important index of departmental productivity.

These measures of departmental performance--costs, effectiveness and productivity--are indicators of value. The challenge for governments is demonstrating value, that is, letting citizens know that various public services are worth the tax dollars they pay. Performance measures are well suited to this task because they can identify the quality of departmental performance. The example that follows, drawn from actual measurement data, provides an illustration of the way in which measures can be used to monitor performance and to document the value being created by a city department.

A Police Department Case Study. Few departments elicit more interest among both officials and citizens than the local police department. Police departments are both important and expensive, sometimes consuming a significant portion of the entire city budget. As a result, police departments are often the subject of debate among council members, citizens and even within the administration itself. Is the department doing its job? Are costs under control? How does this police operation compare to those in other cities? Performance measurement helped answer these important questions.

An analysis of the cost history of the police department over five years indicated that costs of the department's operations had risen moderately during the period, increasing slightly faster than the rate of inflation. Cost relationships, such as internal personnel demand (personnel costs as a percentage of total department costs) and total department demand (total department costs as a percentage of total general fund expenditures), were also tracked. These types of cost relationships depict the overall pattern of resource consumption and show the degree to which resource allocation decisions are consistent with community goals. In this case, the police department's personnel costs were holding steady at about 80 percent of total department expenditures and 37 percent of total general fund personnel expenditures. In addition, the police department's share of total general fund expenditures was holding steady at less than 20 percent of total general fund expenditures, a comparatively moderate level of resource consumption.

Although the police department's cost relationships had been maintained at generally stable levels, departmental performance had been anything but static. Productivity measures showed that arrests had increased significantly during the five years. Analysis of the relationship between the change in departmental costs and the change in the number of arrests revealed that the relative cost of this output actually had declined slightly, indicating that output was rising faster than cost. Another measure showed similar performance in the area of serious offenses cleared, showing that output was up, while the relationship between costs and outputs was stable. The same pattern was reflected in a measurement that showed total calls for service rising while relative costs remained steady over the five-year period.

All of the performance indicators cited above demonstrated that technical performance in this police department was on the rise. They also showed that improved performance in the department had not been achieved simply by throwing money at the problem, but rather that department productivity had remained solid as outputs rose as fast as, or faster, than department costs.

While technical performance in this police department was clearly improving, there still remained the issue of effectiveness. Did the public recognize the value being created through superior performance in this police department? Five years of citizen satisfaction surveys showed steady-to-rising citizen satisfaction levels with police service. Not only were satisfaction levels stable within the community but they were above the national average.

As impressive as this department's performance was from productivity and citizen-satisfaction perspectives, the real "bottom line" for value is shown in Exhibit 4. This measure, called satisfaction cost, compares changes in the level of satisfaction with changes in the cost of department operations. Satisfaction cost, an effectiveness measure developed by the author, is the per capita cost of departmental operations divided by the satisfaction rating. It technically expresses the per capita cost of each 1 percent of satisfaction. It is particularly useful for trend analysis since it shows the relationship between inputs, discounted for growth, and effectiveness as measured by citizen satisfaction. In this case, the result from an effectiveness point of view is that the department's costs of operations had remained consistent with its satisfaction rating. From a cost-effectiveness viewpoint, this police department continued to create value for citizens of the community.

Information from departmental performance measures, such as those used in this case, can have a powerful influence not only on decision makers but on the community at large. At the community level, performance measures can help governments affirm value by showing the costs and results of operations, by examining performance trends and by comparing performance with similar jurisdictions.

Focusing Organizational Effort

This article has taken an introductory look at the use of performance measurement in local government. Today's new measurement tools are a direct result of modern computer technology that makes possible the production of easy-to-understand performance analyses at low cost. This information, in turn, makes it possible for officials to make management and policy decisions at much higher levels of precision than was possible in the past. The low cost of modern computers extends these benefits to even the smallest local governments, which encounter many of the same resource limitations faced by larger cities.

Performance measures do much more than simply record what has happened. The picture they paint influences the future by shaping decisions and directing activity. Measures have the ability to clarify goals, focus organizational effort, guide resource allocation, evaluate performance and recognize achievements. They are powerful tools that have the ability to transform local governments in very positive ways.

As officials continue to work with performance management tools, they are constantly finding new uses for the information that measures produce. These uses include applications as concrete as evaluating performance and allocating resources and as diverse as supporting a community visioning program, monitoring the effectiveness of an economic development effort, measuring the results of a total quality management program, reexamining proposed land-use patterns and much more. As public officials and managers find new ways to use these new tools, they not only are discovering the power of performance measurement, they are creating it.

JAMES R. GRIESEMER, former city manager of Aurora, Colorado, is currently vice chancellor of the University of Denver. Dr. Griesemer teaches public management at the University of Colorado, where he specializes in government performance analysis and fiscal strategy.
COPYRIGHT 1993 Government Finance Officers Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Griesemer, James R.
Publication:Government Finance Review
Date:Oct 1, 1993
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