Performance Measurement Systems And Indicators In Public Sector Financial Management

Performance indicators are referred to as the indices that quantify and assess the outcomes of various organisations, that is, through performance measurement system entities can know whether they have achieved their goals and desired outcomes or not. Performance outcomes are essential in both external and internal stakeholders in an organisation; this means that performance indicators can be conducted externally by the relevant authorities or internally via self-evaluation. In classical organisations, the field of examining performance indicators among organisations mainly concentrated on assessing financial operations/statements, which at that time the relevant authorities thought that it provided a comprehensive understanding of operations, which provided the comprehension of processes, that are documented in various financial reports. The major deficiency, with this notion is that it neglected the non-financial indicators which are also fundamental in evaluating performance. Thus, in the modern set up, financial indicators are not the only indicator used to measure the operation of state bodies and one of the reasons is limited to, information capabilities of their financial statements, that is based on the accounting basis other than other accruals. Through a combination of both economic and non-economic indicators, one can get a holistic picture of a unit’s procedures. Therefore, this paper will analyse the effectiveness of various performance indicators in public sector financial management. In this regards the following performance indicators will be analysed.

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Quality

In any organisation or department quality is always key to the success of their performance. In the current corporate environment, stakeholders are always demanding for quality services, and departments that are able to produce quality services stand out in an organisations, and in terms of sales, record more sales than others. In the public financial sector, quality is ensured through three levels, which are output, input, and throughput, which is also referred to as process quality. Any department that aims at serving the public like in this case the public sector financial management ought to focus on quality due to the fact they are obliged to the public to do so. Rakowska, Valdes-Conca, and de Juana-Espinosa (2015) identified the dimensions of quality as reliability, aesthetics, serviceability, conformance, organisational features, durability, and the perceived quality. In all these dimensions identified, a study by Li et al. (2018) established that conformance had a direct relationship with quality. Other dimensions are yet to be concluded. Rakowska, Valdes-Conca, and de Juana-Espinosa (2015, p. 5) discussed the reliability of machines, especially in the financial sector where computers have developed to become a necessity, customer satisfaction, product reliability, input and outputs determine quality in an organisation. Therefore, in the case of the public financial sector, customer satisfaction means working towards the interests of the citizens. Yew Wong (2005) wrote that the best way a public agency can satisfy the interests of its clients is through being transparent to the public and the relevant authorities that would disseminate this information to the public.

Flexibility

Flexibility is the capability of any organisation to undertake various tasks at a given level of different resources, such as machines, and labour among other resources. …. Identified the indicators of flexibility as; the modification of new products, volume mix, resource mix and material quality. In the public sector financial management, flexibility improves the agency’s ability to be effective and efficient in case of uncertainty, which is very common when serving the public. Every governmental department has a distinct perspective on volume, mix and delivery flexibility, also they have various options of achieving these flexibilities. For the public finance sector, an inclusive and easily-quantifiable measure of flexibility involves sourcing flexibility, which simultaneously improves the volume, mix and flexibility and describes the flexibility with which different departments within various departments may achieve upstream materials and products.

Time

Time is an essential determinant when handling or directly dealing with public resources. Time based service delivery is an essential concern for manufacturing organisations everywhere to achieve competitive advantage. Li, A.Y. and Kennedy, A.I., (2018, p. 395) argued that delivery date, the frequency of delivery, the frequency of delivery and the rate of production couples up as key determinants of time when measuring performance. Time evaluation helps both the relevant authorised bodies to evaluate the overall competence and performance of individual employees. Quality Indicator Study Group, (1995) wrote that time is the key component to look for when analysing other aspects of performance measures. For example, when looking at input, and output, an evaluator is likely to concentrate on how long it took to achieve these processes and the people involved. Behn (2003) Used lead time cycle, time for client’s recognition of the necessity to deliver, paperwork throughput time, breakeven time, time lost when making decisions.

Verbeeten and Speklé (2015, p. 935) stated that through time evaluation the public financial sector can evaluate the strengths and weakness of their employees. By conducting such reviews, the agency is able to match the qualifications of employees to job assignments. The same process also provides the agency with the ability asses the collective talents of employees by department or as a team. It further enables the employers to identify the necessary areas that they should train their employees in and conduct the relevant seminars. For instance, evaluating an organisation via the lenses of time used in their process can reveal whether the employees have a vibrant proficiency in computer application in the finance field, and at the same time a weakness in the same application could call for more actions to be conducted. The essence of evaluating the employee’s time and skills, it is important for the sake of planning for the future.

Financial performance

Initially, financial measures have been known to be the best measure of measuring the performance of any entity. Financial performance is evaluated through physical values of sales, and profit or percentage outcome on assets and equity. Since external groups of stakeholders are strongly concerned with these kind of performance measures and they put pressure on entities to use financial measures for the sake of their internal performance measurement. Various entities and researchers use various measures for analysing and measuring their respective fiscal performance. Franco-Santos, and Doherty, (2017) suggested that a standard way of evaluating the analysing the financial performance of any organisation including the public financial sector involves looking at the total budget of the organisation versus its recurrent expenditure used on salaries, and wages among other expenditures, which would not be relevant to this case, since the study focuses on a public agency.

Ljungholm (2015) wrote that stakeholders are more concerned with the cost based measures of performance. Therefore, even if an entity strives to deliver in terms the best services, but does this at the expense of high cost. Most external stakeholders of public agencies, which comprises of the larger public are concerned with the cost-based measures of performance. This is the same reason that organisations use cost-accounting measures, which involves systems that would ensure efficacy. Giff and Crompvoets (2008, p. 368) identified ratio of recurring expenses versus the total output as the main elements that determine the cost efficacy performance of an organisation.

Customer Satisfaction

The higher the clientele satisfaction enhances the financial performance of any organisation by increasing the loyalty of clients, which in this form is shown through public support, which subsequently lowers other costs, and enhances the reputation of an organisation. van der Kolk, ter Bogt, and van Veen-Dirks (2015, p. 935) reports that customer satisfaction in the public finance sector, leads to a continued public support, which gives the agency the legitimacy to work in the interest of the citizens. Besides, it is only through public support that the entity can have the legitimacy to ask for more money in a financial year during budgetary planning. Frey, Homberg, and Osterloh (2013, p. 951) added that a public organisation can only achieve the public support/ customer satisfaction if they meet the expectations of their relevant stakeholders, deliver timely service, and guarantee the public of continued quality services.

In reference to the delivery of reliable service Huang, and Feeney (2016, p. 201) wrote that one way in which public institutions can ensure that they satisfy the interests of their stakeholders and clients is to adhere the constitutional stipulation of their respective government. Ljungholm (2015, p. 205) proposed that the perceived relative reliability is a comparison of how efficient other similar agencies offer their services. The percentage of reports with incorrect information, delays in reports, compromised service delivery and unconstitutional actions compromise the type of services given by any public office/ agency. Therefore, public offices, especially those dealing with monetary issues should at all time strive to reduce any time of discrepancies.

Conclusion

The main challenge in the productivity measurement system is the fact that researchers and academicians in this field have not yet established a consistent and clear framework on how performance ought to be measured, offer a comprehensive productivity measurement scale, grid, or system. Such clear and distinct frameworks can help various organisations or practitioners to determine whether they will be able to achieve or manage resources efficiently so that they can achieve an improved performance index. It could also assist the respective entities to regain industrial leadership that they lost, and understand the apparent paradoxes that would help them attain their objectives. Such a framework would also help the performance measurement practitioners to speak one language when analysing the performance of any organisation. For public institutions, following their respective constitutional stipulation is among the best way in which they could attain a higher performance index, among other facets discussed in the sections above

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References

  • Behn, R.D., 2003. Why measure performance? Different purposes require different measures. Public administration reviewBarnabè, F. and Riccaboni, A., 2007. Which role for performance measurement systems in higher education? Focus on quality assurance in Italy. Studies in Educational Evaluation, 33(3-4), pp.302-319., 63(5), pp.586-606.
  • Franco-Santos, M. and Doherty, N., 2017. Performance management and well-being: a close look at the changing nature of the UK higher education workplace. The International Journal of Human Resource Management, 28(16), pp.2319-2350.
  • Frey, B.S., Homberg, F. and Osterloh, M., 2013. Organizational control systems and pay-for-performance in the public service. Organization studies, 34(7), pp.949-972.
  • Giff, G.A. and Crompvoets, J., 2008. Performance indicators a tool to support spatial data infrastructure assessment. Computers, Environment and Urban Systems, 32(5), pp.365-376.
  • Huang, W.L. and Feeney, M.K., 2016. Citizen participation in local government decision making: The role of manager motivation. Review of Public Personnel Administration, 36(2), pp.188-209.
  • Li, A.Y. and Kennedy, A.I., 2018. Performance funding policy effects on community college outcomes: Are short-term certificates on the rise?. Community College Review, 46(1), pp.3-39.
  • Ljungholm, D.P., 2015. Pay-for-performance in the Public Sector. Geopolitics, History, and International Relations, 7(1), pp.90-95.
  • Ljungholm, D.P., 2015. Pay-for-performance in the Public Sector. Geopolitics, History, and International Relations, 7(1), pp.90-95.
  • Quality Indicator Study Group, 1995. An approach to the evaluation of quality indicators of the outcome of care in hospitalized patients, with a focus on nosocomial infection indicators. Infection Control & Hospital Epidemiology, 16(5), pp.308-316.
  • Rakowska, A., Valdes-Conca, J. and de Juana-Espinosa, S., 2015. Affecting factors of public employees’ organizational commitment. International Journal of Synergy and Research, 3, p.5.
  • van der Kolk, B., ter Bogt, H.J. and van Veen-Dirks, P.M., 2015. Constraining and facilitating management control in times of austerity: Case studies in four municipal departments. Accounting, Auditing & Accountability Journal, 28(6), pp.934-965.
  • Verbeeten, F.H. and Speklé, R.F., 2015. Management control, results-oriented culture and public sector performance: Empirical evidence on new public management. Organization studies, 36(7), pp.953-978.
  • Yew Wong, K., 2005. Critical success factors for implementing knowledge management in small and medium enterprises. Industrial management & Data systems, 105(3), pp.261-279.

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