INTRODUCTION 

Local authorities in the UK are responsible for a much wider and diverse range of services (as compared to Malaysia) such as the provision of education, health, transportation, policing, fire services, social work, public facilities, business and licensing, landscape and environment services, regulating housing policies and projects, and local tourism. Though in size and function English local authorities are different from their Malaysian counterparts, both operate with public funds and must steward the resources entrusted to them and accept the duty of seeing that resources are used carefully.  As accountability is apparently linked with performance it has become an acceptable management exercise where accountability could be appraised among local authorities via performance measurement.

In the UK, the first official effort to use performance measures was made in 1982 when the all government departments were introduced with performance indicators covering efficiency and productivity elements.  Then in 1986 the initiative was extended to local authorities.  The responsibility of overseeing the implementation and progress of performance measurement efforts was given to the Audit Commission, which has statutory powers to ensure that reform takes place with full support and assistance to all departments.  The reform nevertheless came with criticisms in which some claimed that ‘performance measurement’ was brought in as a politically judged issue disguised as management rhetoric.  Despite raising many challenging issues, the UK central government was very positive in its modernising agenda and there are a handful of milestones (see Appendix 1) and lessons which we could learn from them.

The targets set by each government department under the requirement of Public Service Agreements, introduced in1998 by UK government could be regarded as the bedrocks of the modernisation in the UK public sector.  It aims to encourage government departments to set achievable targets against government’s overarching themes and departmental objectives, while also underlining the resources allocated to government agencies.  This initiative is constantly been reviewed and these reviews in turn had led to improvements in its implementation.  For instance, focus was given to outcome orientation such as improved health and life expectancy, rather than output, such as number of operations (input and output indictors). And the Audit Office plays its role in integrating, communicating and publishing achievements made by the agencies. 

WHY PERFORMANCE INDICATORS 

Performance indicators are useful tools to assess organisational performance, as Jackson (1991) points out “without the information provided by performance indicators, managers are in danger of allocating resources in the dark”.  He further argues that it is important to know if resources are being allocated efficiently and if they are being employed in such a way that will have maximum effect. Therefore, information on performance such as efficiency and effectiveness are sought to indicate how well resources are being used to meet the goals and objectives of an organisation (Thompson 2001).   Well selected key performance indicators assist the process of determining how successful an organisation has been in attaining its objectives. Further performance data provide means and inform decision making.  It is not a matter of creating performance indicators but to embrace the need to measure with a purpose. 

Another advantage of assessing performance is that local authorities can monitor how one’s performance has changed over time and compare its performance to that of others.  Organisations that demonstrate significant achievement in performance measurements in their areas of work will be benchmarked by similar institutions. In the context of benchmarking, performance indicators allow weakest areas to be identified and compared to others that are more advanced, which is called “industry best practice” (see Kouzmin,  Loffler, Klages and Korac-Kakabadse, 1999).   For benchmarking purposes, the performance data are very helpful to compare one performance with other in similar size and function, hence to show what the best performing local authorities has achieved.   Thus a relatively high standard of performance by one organisation can become a model for another (Magd and Curry, 2003). In local government, it makes sense for local authority to look for leaders in the sector in order to improve methods and processes.  

THE CONCEPTS 

There are two common types of performance indicators - quantitative and qualitative which are produced for different needs and serve different purposes (Bovaird, 1991). Quantitative indicators refer to aspect of performance that can be measured and assigned number; e.g. the purchase cost of an item and time taken to undertake standard processes.  Qualitative on the other hand, measures abstract performance such as the quality of experience given by the activity to the person affected. Quantifiable indicators were more prone to be adopted due to easy access to information readily available in organisation.  The qualitative indictors are much challenging to be administered and require external accompanying data such as from experts and public (expert assessment and public opinion surveys are expensive to engage as well).

Commonly found quantifiable and non-quantifiable performance indicators are economy, efficiency, effectiveness and equity (Johnson in Pierce, 1991). From the economic perspective, Jackson (1991) points out that economy, efficiency and effectiveness criteria are among the main ways of evaluating the performance.  

Economy 

Economy is concerned with spending less through minimizing the cost of resources acquired or used with regard to the quality of the inputs. Typical economy indicators are the purchase costs of a ‘basket of standard items’ of a given quality specification – stationery, desks, etc.  Clearly the ‘basket’ needs to be different for different types of organisations. However, this kind of indicator is usually neither as difficult nor contentious as efficiency and effectiveness indicators.  

Efficiency 

Efficiency is concerned with spending well, with emphasis on the relationship between the outputs and the resources used to produce them. Thus efficiency indicators significantly are comparable to outputs and products depending on the nature of services provided. Examples are productivity per member of staff (i.e., the level of output or activity per member of staff) and time taken to undertake standard processes. The unit cost measures are applicable and easy to be administered by local authority since costs and staff time inputs information are available to them.  

Effectiveness 

Effectiveness, for its part, is concerned with spending wisely and relates the actual results to the intended results of the project’s programmes and services. There are two common dimensions to effectiveness: the throughput (total services, clients’ level of satisfaction) and the impact (the quality of experience given by the activity to the person affected). 

In reviewing performance indicators, adequate consideration to the subjective nature of the assessment should be given by the management.  The use of quantitative indicators which could be derived from available data should not undermine the power of qualitative data to encapsulate and report real achievement, which can offer fairer objective comparisons. Therefore, the emphasis on quantitative and qualitative indicators in performance assessment should be valued for its merits.

Another classificatory scheme proposes performance indicators that sought to measure inputs, outputs and outcomes, which all are potentially complementary and mutually inclusive.   

Inputs 

Input indicators are performance indicators which measure the resources used to produce a particular output.  One example of input group indicators is fund indicators. PBT could look at the use of all types of revenues received - annual operating funds, all income from tax rates, licences,  income from market-generated activities and other various sources of income. The indicators used should be customised to reflect the PBT’s well-being.  Richard Larkin, Technical Director for the Not-for Profit Industry Services Group at the 1994 Wintergreen Conference (in Weils, 1994) asserts that in the area of fiscal management, where the for-profit organization has long accepted certain fixed ratios as desirable standards, organisation can find a personal comfort zone rather than adhering to some predetermined and externally generated fiscal ratio. Besides fund indicators, other feasible indicators can be found as well in the area of cost and non-financial elements. 

Outputs 

The second indicator is output. Output indicators are performance indicators measuring the targeted results produced by the use of particular resources. Local government could classify outputs as intermediate and final outputs (Johnson and Thomas 1991). Intermediate outputs are any products produced for the consumption of specific clients, such as the rates Structure Plans; and final outputs are in forms of general public consumption such as public transportation, rubbish collection and Local Plans. 

Outcomes 

In contrast to the above two indicators, outcome indicators are performance indicators which measure the ultimate direct and indirect impact of the outputs on identified domains. As cautioned by Wells and Johnson (2001), however, measuring the relevant outcomes of an organization is a difficult task because it involves value judgement. Some value judgements come from the customer and clients where De Toni and Tonchia (2001) in their examination of changing focus of performance measurement, customer-orientated is regarded as an innovative measurement.  However, if used appropriately, this indicator may support and increase the usefulness of the inputs and outputs indicators. The outcome indicators could also be used in comparisons.  For example, the characteristics or features can be compared before and after the implementation of a particular service; the outcomes achieved can be compared with those of another PBT producing a similar type of output; the performance of a service can be compared with the norms set by professional associations or a peer review; or the impact of a service in the area where it was implemented can be compared with areas where it was not implemented or where it was set up by other PBT.   In short, adopting outcome indicators creates both opportunities and challenges for PBT to shift from a process-orientated practice (as shown by input indicators) to an outcome-orientated one. 

APPROACH TOWARD THE IMPLEMENTATION IN MALAYSIA

In Malaysia, the above criteria are the bedrock of the Modified Budgeting System, implemented in 1995.  In Malaysia, the implementation of a Modified Budgeting System (MBS) calls for performance assessment based on output and outcome indicators which are termed as programmes and activities. We are not behind in practice as compare to other countries, but the issue is our effort falls short on the persistence and commitment. During the early years when MBS was promoted, many departments found that development of performance indicators were not comprehensive (Gnaneswari, 1994).  Indicators on quantity of outputs produced are fairly readily available but performance data on  quality, timeliness and cost factors are not well used. The economy criteria is well accepted especially in procurement. However, the efficiency and effectiveness criteria are still lacking.

The implementation of performance indicators require several stages of refinement and support, evidenced by the level of development of key performance indicators in the UK. Since the introduction of performance indicators in local authorities, there have been some problems and concerns.  Many concluded that their existing management plans and reports failed to focus sufficiently on the performance issues. For instance the Ministry of Defence reported that neither their performance data are sufficiently timely nor robust enough to provide the basis for management decisions. At the Department of Health the existing approach is placing too much emphasis on efficiency measures, such as the number of patients treated.

Figure 1: Steps In Implementing Performance Measurement

In regards to PBT, the performance measurement should cover main areas of internal processes and public facilities provision- business and licensing, landscape and environment services, regulating housing policies and projects, property valuation.  These are the primary areas in which performance assessment should be given most attention.   Taken from the practice in the UK, there are few steps worth considering in implementing performance measurement in PBT case.  The steps are: 

1.      Agreeing on the operational targets

2.      Linking informed targets with measurement systems

3.      Establishing appropriate incentives and rewards for success

4.      Collecting good quality performance data

Agreeing On The Operational Targets 

PBT must establish clear and understandable operational targets for outputs or activities that define what is needed at a service delivery level.  PBT can utilise the Performance Assessment Framework used by the UK Department of Health.  The framework breaks performance down into six key interdependent areas which are easy to understand (see Figure 1). Each part of the framework is supported by a series of performance indicators.  The framework assists users to take a broad-based look at the performance and reduces the risk that behaviour is skewed to a particular aspect of performance, at the expense of other areas.   

The process of making this operational target requires involvement from other relevant authorities and a panel such as the KPKT officials, Health Service, local business operators, and audit office (bringing all stakeholders together in a single group). For example, to help achieve their target for increased hygiene and cleanliness at public areas such as streets, bus stations, business area, food markets and sewages. The group must develop a common view of best performance indicators which would best meet the differing needs of those managing, inspecting and setting the strategic direction for the target. The proposed package of performance indicators should draw data that it did not add an unnecessary extra burden for PBT. 

Linking Informed Targets With Measurement Systems 

Linking the targets into reliable and efficient monitoring systems is vital.  With commitment and assistance from KPKT, PBT must develop new systems for measuring targets and encourage local ownership of these processes to set target values which reflect local priorities.  A strategic monitoring at the organisational level must be supervised by the top management level and the panel.  The integration of various systems within PBT – planning, operation, accounting, enforcement, reporting and outside feedback is vital.  For instance, the UK Ministry of Defence sets out to transform their existing performing reporting systems into a coherent performance management framework, which would enable senior management to focus on key strategic issues, based on a coherent set of objectives and targets throughout the Ministry.  They new system was introduced based on the Balanced Scorecard technique developed by Kaplan and Norton at the Harvard Business School. The key success of the new system is that it must contain unified and integrated sets of objectives and indicators that measure the outputs and outcomes of the key processes.  It takes a complete view of departmental performance across not only the traditional “hard” financial measures but also across the “softer”, more difficult to quantify measures.  

Establishing Appropriate Incentives

And Rewards For Success 

Performance targets are one of the main mechanisms for influencing the direction and behaviour of PBT, other involved parties and the public. The results from good behaviour must be acknowledged and rewarded.  A close working co-operation between the central and local governments on improving service delivery is essential.  It will be a difficult task for PBT to maintain adequate leverage over performance indicators without this support especially in providing funding incentives. In the UK, targets that exceed the levels that authorities had set in return will receive additional funding of up to 2.5 percent of budget and they can apply for matching funding of up to £ 1 million and the government will relax a range of planning, operational and financial restrictions on the excellent local authorities. The reward system helps local authorities to raise performance by providing incentives that are effective and worthwhile.

Another system of reward established in relation to performance is a system for rewarding performers and to incentivise people who are responsible for delivery key objectives of performance. However, some challenges are expected in this effort because of the difficulties encountered in designing and resourcing equitable systems that effectively reward good performance, support team work, deliver sustainable improvements in performance and avoid perverse behaviour.

The study carried out by the UK Public Service Productivity on performance management concluded that:

This [reinforcement] is probably the area of performance management which the public sector has found most difficulty in developing to date.  The link between pay and performance, in particular, tends to be extremely weak, although performance-related pay has the potential to be a critical factor in improving performance (National Audit Office, 2001, Part 3, p 46).

A panel of study on the performance based incentives for staff  (the Benefits Agency, Employment Service, the Inland Revenue and Customs and Excise) proposed that “team bonuses should be paid to reward and encourage achievement of Public Service Agreement objectives and government should use part of the savings from productivity improvement to fund bonuses. A wider package of reward could also include flexible working hours, development opportunities and non-financial rewards and prizes. 

Collecting good quality performance data 

The link between service provision and performance monitoring is where data requirements is important. The importance of performance data for local authorities is that they must secure common understanding of key concepts and criteria across local authorities as a whole.  It is suggested that local authorities must build effective information systems and criteria to create good individual performance measures. Quality performance data must have characteristics such as reliability, comparability, timeliness, the ability to verify data and cost of collection.

In the UK, the management information systems has shifted the emphasis away from inputs, processes and outputs onto sources of data, tracking the impact of service provision on the population overall. The Department of National Statistics plays a pivotal role in setting the standards of professionalism and quality assurance associated with national statistics collected by government departments. For local authorities that do not form part of national statistics or data collected by parties outside of government, the Statistics Department and other agency such as the Audit Office can oversee the collection of data to ensure the accuracy and relevance of the data.

One excellent example to present the case of developing a central source of information to improve the availability of information throughout the organisation is the UK Department of Social Security. This department has a large number of stand-alone systems which collect a range of data on the timeliness, cost, accuracy and value of the claims from 400 offices nationwide. However, the data source was too dispersed, difficult to use, inefficient to produce and can give inconsistent results.  The information database system was changed to organise present different types of information in a format that will support analysis by client group, geographical area and will enable managers to track progress over time.  Managers at local office can now access information which previously was not available or was difficult to use.

Performance measurement is now an integral part of UK government.  It stands behind the creation of targets, contracts and agreements that control service delivery.  Good performance information can help agencies to develop policy, to manage their resources cost effectively, to improve programme effectiveness and to promote accountability for public resources.  In Malaysia, the Ministry of Housing and Local Government is setting up the performance indictors, we all hope lessons from MBS will give impetus to the implementation at national and PBT level.

CONCLUSION 

This paper discusses criteria of good indicators that are commonly used – economy, efficiency, effectiveness, inputs, outputs and outcomes. As part of modernising agendas in public sector, many countries have seriously adopted good practices in performance measurement.  Some countries like the UK had move from input and output indicator to outcome indicator signifies level of progress and sophistication achieved by government departments in the UK. To implement the use of performance indicators in local government, few steps must be taken and the processes involve commitment from the highest authority in setting the initiative toward the modernisation efforts. A framework must be set to encourage operational targets suitable for the nature of service provision of PBT.  A management or a panel to  monitor the achievement of indicators and organisation targets level must be set up to unified objectives, targets and indicators. A reward system should be established in relation to performance to provide incentives to performers responsible for delivery key objectives of performance. Least but not last, quality performance data must be adequately exist to support the efforts. The advantage of this is that once the organisation responds to performance data it can modify its goal in an attempt to ensure positive outcome for the following course of action.