Measurement and Performance Project

Performance measurement as a tool for modernising government

Using the PSAs to drive continuous improvement

Audit Commission
December 1999

Why has the AC written this paper?

This paper is written at the request of General Expenditure Policy, HMT, as a contribution to the current review of departmental PSAs. It draws on the learning and experience gained over the last decade within the Audit Commission, through devising systems of performance measurement and review for local government – including setting performance indicators for local authorities under the Citizen’s Charter initiative, and more recently, in the development of the best value regime.

Background to this exercise

One of the first actions of the new administration in 1997 was to launch a Comprehensive Spending Review, reviewing departmental budgets in light of the new government’s priorities and setting out public spending plans over the three years 1999-2002.

The new public expenditure plans were published in July 1998. At the same time, all government departments (with the exception of the intelligence and security agencies) were asked to develop their own set of targets to be encapsulated in new Public Service Agreements, published in December 1998. Where departments shared responsibility for a service, cross-cutting PSAs were developed – for example on Sure Start, a joint DoH-DfEE initiative, and Action against Illegal Drugs, involving multiple departments.

Each department’s PSA was in effect its contract with the Treasury: linking increased investment arising from the CSR to improved productivity and outcomes; and with the public: articulating departmental priorities and setting clear targets for improvement over the next three years.

The PSAs were to be part of an on-going process of review. Progress would be monitored internally by each department and overseen by a new Cabinet Committee, PSX. Progress against the targets would be reported on an annual basis to Parliament and to the public. The Public Services Productivity Panel was established to advise on improving the productivity of departments and their agencies, drawing on best practice in the public and private sectors.

Departmental PSAs 1999-2002

Statement of aims and objectives

Resources allocated in the CSR

Key performance targets

Any other key policy initiatives

Statement on improving departmental productivity, by:

	reducing fraud
	better quality services
	electronic government
	reducing sickness absence
	improving procurement
	innovation and responsive customer services
	asset sales

- involving some specific targets.

In March 1999, the Cabinet Office published the Modernising Government White Paper, which set the PSAs in the context of a wider programme to modernise government. Modernising Government set out three over-arching aims, namely:

	more joined up and strategic policy making
	user focused public services
	and high quality and efficient public services.

The next generation of PSAs

Departments are now being asked to produce draft PSAs by February 2000 to feed into the 2000 Spending Review. The intention is to publish these alongside the new departmental spending plans in July 2000, setting out projected expenditure and targets for the next three year period.

Draft guidance is currently being prepared to inform the next generation of PSAs. It is likely that they will be split into two halves:

	a new "slim-line PSA", setting out the strategic aims of the department, its key objectives and targets;
	a Service Delivery Agreement (SDA), focusing more on the operational side of the department, setting out productivity targets and other aspects of the Modernising Government agenda.

This paper

This paper seeks to contribute Audit Commission learning to the current review of PSAs.

Section One goes back to first principles, asking why do it: what are the aims of performance measurement?

Section Two examines the principles of performance measurement, setting out seven key considerations to bear in mind in developing a system of performance measurement.

Section Three asks what makes a good performance measure, setting out three over-arching considerations in setting the measures themselves.

Section Four looks at how to measure performance. How can raw data on the basic ‘inputs’ and ‘outputs’ of a service be translated into measures of economy, efficiency and effectiveness? How can we measure quality? What makes a good target?

The concluding section briefly considers the pressures on government departments to deliver continued improvements in productivity, making the importance of instituting effective systems of performance review more critical than ever.

Annex: Twelve Key Questions