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Two: the principles of performance measurement
This section sets out seven key principles which it may be helpful to bear in mind in
designing an effective system of performance measurement. These are:
- Clarity of purpose
- Focus
- Balance
- Ownership
- Scrutiny
- On-going learning
- Continuous improvement.
Clarity of purpose
Performance measurement is not an end in itself. Rather, it is a means to generate
valuable management information, partly for on-going monitoring purposes but crucially to
focus management attention on areas where change is sought.
The measures may have a number of audiences, each with their own requirements. It is
important to understand who these audiences are, their information needs, and how they
intend to use the information (in particular, the decisions they will make), before
setting appropriate measures.
Taking the PSAs as an example, there are at least three audiences:
 | The general public is likely to be interested only in a limited number of top level
indicators – for example the proportion of pupils gaining top level GCSEs or the
number of people sleeping rough on the streets. They are also likely to be interested in
costs, usually through levels of general taxation. This information would be
‘used’ to inform which way they vote in an election. |
| The Treasury will be interested in a wider range of indicators, linking increased
resources arising from the CSR to the achievement of key outcomes. This information is
used to hold departments to account for their performance, to spur improvements in
productivity, and to help with future resource allocation decisions. |
| Permanent secretaries and departmental managers require much more detailed information,
reflecting performance across the full range of departmental activities, as well as
measures of ‘organisational health’ - such as staff turnover – for internal
management purposes. |
It may be valuable to consult each of these audiences in designing the measures that
are intended for their consumption. Thus, it would be appropriate for departments to
consult the Treasury on setting appropriate value for money indicators, but to consult
internally on setting a target for sickness absence.
Focus
Systems of performance measurement should be focused around the top objectives of the
organisation, reflecting both:
| the on-going ‘core business’ of the organisation; and |
| priority areas for improvement. |
Experience demonstrates that performance measures change behaviour. If managers are to
be held to account on the basis of their performance against a limited number of
objectives then, inevitably, they will make considerable efforts to ensure that those
objectives are met. The number of areas for improvement should be limited since managers
can only focus on a few priorities at any one time. In addition, it is relatively
expensive to collect accurate and reliable performance data.
It is crucial therefore that the performance targets are closely aligned with the top
objectives of the organisation.
Balance
The overall set of performance measures should aim to give a rounded picture of
performance across the organisation, reflecting the main areas of activity, which may be
broader and greater in number than the ‘top’ objectives for improvement. It may
be appropriate to set a number of key operational measures, in addition to the top
objectives, to ensure that all significant areas are covered.
This is important, as the measures will focus attention and scarce resources on those
areas that are being measured, with a potentially adverse effect on other areas.
A balance must be struck between setting too many measures, which would be expensive to
collect and potentially confusing in terms of priorities; and too few, which would
heighten the risk of distortion.
It is essential therefore to use a cascaded approach to performance measurement,
setting a limited number of top level measures and clustering further operational measures
beneath these. ‘Lower tier’ performance measures provide focus for intermediate
managers.
Ownership
Ownership is crucial if performance measurement is to be more than just a paper
exercise. Experience suggests that performance measures that are ‘imposed’ from
above (or perceived to be) are unlikely to be as helpful or accurate as those that are
‘owned’ and understood by the staff who will be responsible for collecting and
analysing the data.
It is therefore important to involve staff in setting the performance measures for
which they will be responsible. Their knowledge and insight will be valuable in selecting
the right measures; and they will be more motivated to achieve the targets if they feel
they are appropriate and relevant. Conversely, setting measures that staff consider to be
inappropriate or irrelevant may mean that although a lot of data is collected, it may bear
little relationship to reality and have little impact on behaviour.
Scrutiny
Scrutiny is an important element in any system of performance measurement, both to
challenge the focus of the system (are you measuring what matters or simply what can be
counted?) and to ensure the robustness of the data.
This is valuable both at the outset, when the system is being designed, and on an
on-going basis to ensure that the measures remain relevant and that the information
generated is reliable.
Scrutiny may be provided by a number of sources. Each tier within the organisation
should regularly review the performance of the level below it. Peer review can be a
helpful way to challenge people to do better, and to share learning. Internal or external
audit could look at the way the data is collected and perhaps undertake occasional
‘reality checks’ to ensure that the results on paper accurately reflect the
experience of, say, service users. Equally, it may be appropriate to bring in consultants
or other outside experts to review the systems periodically, in the light of best practice
elsewhere.
On-going learning
Systems of performance measurement must evolve over time and adapt to changing
circumstances.
Even the best designed performance measures will become outdated or irrelevant over
time. This could be due to any number of factors, some within the organisation’s
control, some not. For example, improved performance internally or elsewhere in the sector
could mean that a target was no longer challenging. Changing needs of the client group,
new government priorities, European legislation or advances in technology might render a
measure irrelevant.
Equally, measures may fail to have the desired impact on behaviour; or they may have a
distorting effect, with adverse consequences. In either case, the measures should be
improved or alternative measures developed.
Those in charge of the performance measures should be alert to such changes and
actively keep them under review to ensure that the measures remain appropriate, relevant
and challenging.
Whilst improvements in measurement systems in the light of experience are essential,
there is the danger that it will not be possible to identify meaningful trends over time
if definitions or measures keep changing. The maintenance of trend data is valuable, but
not a reason for keeping out-of-date or irrelevant performance measures.
Continuous improvement
Performance measures will be most useful if they are incorporated in a system of
continuous performance review that includes regular monitoring and action to address
under-performance.
Consideration therefore needs to be given to establishing on-going monitoring and
reporting arrangements within the organisation, so that clear lines of accountability are
put in place, and action taken should there be a risk of falling behind on a key target.
Responsibility for achieving the measures needs to be devolved to the appropriate
level. For example, unit managers should be held responsible for achieving the operational
targets that relate to their areas. Team objectives and individual targets should be
cascaded down from these. In this way, each individual’s performance may be assessed
in terms of their contribution to the organisation’s top level objectives.
It is important that this should be a two-way process. Information should be fed back
up to inform future reviews of the objectives, measures and targets – not least, to
identify any perverse incentives.
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