Performance management

What is performance management?

Performance management is the activity of tracking performance against targets and identifying opportunities for improvement - but not just looking back at past performance. The focus of performance management is the future - what do you need to be able to do and how can you do things better? Managing performance is about managing for results. Performance-based management at any level in the organisation should demonstrate that:

• you know what you are aiming for

• you know what you have to do to meet your objectives

• you know how to measure progress towards your objectives

• you can detect performance problems and remedy them.

Why is it important?

The Modernising Government agenda sets challenging new performance objectives for organisations, from the delivery of high quality services that meet the needs of their customers and stakeholders, to doing more within the constraints of available resources, through to continuous improvement in how the organisation itself operates. Performance management underpins the operations and processes within a strategic change programme framework. Sound practices and targets, which are both flexible and reactive to change, are needed to achieve performance improvement.

The effective performance of your organisation depends on the contributions of activities at all levels - from top management policy development through to efficiently run operations.

In response to the pressures and opportunities for improving organisational performance, you need to understand how to define and measure performance as part of a concerted strategy for relevant, successful and cost-effective operations.

Critical factors for success

Focusing on outcomes that meet business objectives, rather than outputs

Managing performance by cascading down from the top and building bottom-up

Defining and using measures that evolve over time

Using a mix of short and long term measures, and selecting measures that link cause and effect

Measuring effectiveness (doing the right things) and efficiency (doing things right) in parallel

Relating individuals' reward and remuneration with achievement of outcomes.

Who is involved?

Business managers are responsible for setting targets and managing performance against those targets; contract managers monitor service performance from the customer viewpoint; service providers supply performance information.

Principles

Performance management should be an integrated part of a business lifecycle helping an organisation to mature through evolving and changing performance measures, from their definition through to monitoring and review in addition, by including the IS/IT component throughout this lifecycle, rather than just considering it as a 'downstream' cost of provision, there should be enhanced benefits from an increased and more effective contribution from any investment made in IS/IT.

You will need to ensure that you have adopted sound practices in commissioning and acquiring IS/IT services to achieve performance improvement. Performance management identifies opportunities for maximising improvements in managing service delivery in the future. Performance management helps you to make decisions about investment routes, affordability and setting investment priorities in the face of competing demands for resources.

Managing for results

Managing for results requires the organisation to focus on the outputs of the processes and activities undertaken by the organisation at varying levels. Together these outputs will contribute to the achievement of the outcomes desired by the organisation and those of the government as a whole.

Levels of performance management

The effective performance of your organisation depends on the contribution of activities at all levels - from top management policy development through to efficiently run operations. There are three or four levels of performance management in the model framework below, some organisations may combine the strategic level with the organisation's priorities level.

1. Organisation's priorities: at the highest level performance management is rooted in the organisation's long term business strategy. Measures at this level are of impact, resource utilisation and public service improvement.

2. Strategic level performance management: at this level the management concern is from an "outside in" as well as an internal perspective. Measures are of outcome, such as volume and value of service take-up, upward trends for inclusion, staff and users' satisfaction.

3. Programme level performance management: performance management at this level is focused on the desired results of programmes of change, to demonstrate what has been accomplished. The measures used would include those stated in individual business cases. Benefits management would help to determine if these are achieved.

4. Tactical or operational service level performance management: here the management focus is concerned with service delivery and outputs, using conventional service level agreement approaches and related measures of aspects such as volumes and quality.

Although performance measures and indicators may be different at each level, they will need to be:

• directional - to confirm that you are on track to reach the goals,

• quantitative - to show what has been achieved and how much more is to be done

• worthwhile - adding more value to the business than they cost to collect and use.

Value for money

You must be able to demonstrate that you have achieved value for money in your operations. Value for money is taken to cover three measures of performance:

• economy - minimising the cost of resources used for an activity, having regard to appropriate quality

• efficiency - the relationship between outputs, in terms of goods, services or other results and the resources used to produce them

• effectiveness - the extent to which objectives have been achieved, and the relationship between the intended impacts and actual impacts of an activity.

Measures and metrics

You should use these evaluation criteria for measures and metrics:

• are you measuring the right thing?

• do you have the right measures?

• are the measures used in the right ways?

• do you determine the quality of a particular performance metric using the SMART test (Specific, Measurable, Attainable, Relevant, Timely)?

The procedures and measures used in performance management will depend, among other factors, on the type of business process which is being measured. A business process is assumed to be made up of a number of activities which transform inputs into outputs and contribute to the realisation of outcomes. The customers for a process may be external (for example, members of the public) or internal, within the same organisation or elsewhere in the public sector.

Business processes can be distinguished by:

• the extent to which the activities involved are people-oriented as opposed to automated

• whether the activities are primarily 'front-office' or 'back-office' - that is, the amount of direct contact which the staff have with the customers or recipients of the process

• whether the process itself is the important feature of the activity - for example, in delivering consultancy - or whether the activities are concerned primarily with the generation of defined outputs

• the extent to which the activity is customised or tailored to the needs of each customer, as opposed to being routine and procedural

• the amount of discretion which needs to be exercised in the activities

• the duration of the contact with the customer.

 

Processes

You will need to review the effectiveness of your procedures for:

• setting performance targets

• designing measures of performance relevant to the targets

• systematically and accurately measuring outcomes

• assessing the performance of external service providers

• using results for informed decision-making

• improving performance.

Research shows that most organisations have the components of performance management in place, but they are not always used to overall advantage. A possible five-step approach that could help organisations in improving the performance management of the IS/IT contribution is outlined below, with suggested techniques.

Step 1: Identify your level of maturity in performance management

• Look at how the organisation is performing in all its aspects of performance management - from direction setting through to review and measurable improvement.

• Do an assessment; this will help to identify your organisation's maturity and the strengths and weaknesses.

• Establish where you are now as a series of baselines, looking at performance management at strategic programme, tactical and operational levels.

Bottom-up measures of economy and efficiency are likely to be reasonably strong and have good management. This may not be so well developed for effectiveness measures - innovation, process improvement, customer satisfaction, and contribution to policy objectives. Most organisations have a good understanding of financial measure; this level of understanding needs to be developed for other measures.

Techniques: Assessment; baseline

Step 2: Identify where performance management is important to your organisation

• Is it in setting direction or ensuring the delivery of required benefits or improving the alignment, performance and contribution of the internal and external resources used by the organisation?

• Identify the values for your organisation.

Key values for safety critical operational services are speed and integrity of information. A different organisation might place high value on information flows or on single points of access to information at a contact/call centre.

Techniques: Value chain analysis; benchmarking with other organisations (which may identify things you had not thought of)

Step 3: Resolve any mismatch between steps 1 and 2

• Review performance management at each of the four levels - (organisation, strategic, programme and tactical). Are there weaknesses in areas that are important to your organisation?

• Techniques: to become more outward looking and customer-focused, use the well established balanced scorecard and EFQM® techniques.

• To answer questions about where IT makes a contribution, use Goals, Questions and Metrics (GQM) to identify and define measures.

Step 4: Establish where you want to be and begin to build performance management into business processes and into the culture

• The aim is to have target, measurement and review processes for those things that the business considers important such as product, process, service and staff.

• You will have lots of measures which need to be prioritised against your particular perspective on effectiveness, efficiency and economy and against your values.

Techniques: establish benefits management as a norm

Use databases to collect performance information and analyse trends

Include performance management in the business, programme and project lifecycle

Step 5: Feed information back into performance improvement

Monitor and take action on:

• Did we achieve what we set out to do?

• Where are the opportunities to improve?

• What can we do to improve? You are seeking answers to:

• What is achievable?

• What is important for our organisation?

• What was achieved?

Techniques: Process assessment; your own targets, looking at benchmarks from the outside world.

See the the Performance Management workbook (PDF) for a detailed step-by-step approach to the management of performance.

 

Further information

See the related briefings on business strategy and strategic management; see also the draft management briefing on achieving value for money and Gateway Workbook 5; for construction projects. See also the Achieving Excellence Guides.

OGC supports, co-ordinates and monitors the public sector in delivering the Government's target of achieving £21.5 billion efficiency gains a year by 2007/08.