Performance Management: Is it a Priority?

On average, just 19 percent of Western European central and local government execs have adopted business performance management solutions.

by Massimiliano Claps, IDC

Over the past five years, the eEurope Action Plan and the various national eGovernment plans have generated strong investments in information technologies in central and local governments across Europe. Despite the significant progress realized by multiple countries, public administrations need to do much more to fully harness the power of IT as a tool to achieve higher efficiency, effectiveness and transparency. A critical area of this effort is creating decision support systems – beginning with financial analytic applications and including business performance management solutions – all of which require increased investments in information technologies.

From financial accounting to financial analytics
Traditional government financial accounting consists, globally, of providing an out-turn report, comparing the actual payments and receipts with those authorized in the budget by parliament. While this approach provides assurance that fraud and other irregularities have been minimized, it gives little information on the performance of public administrations.

The need to produce and analyze more comprehensive accounting data became pressing in the mid 1990s. Finance ministries had lost control of spending growth. At the same time, the European Union – in preparation of the introduction of the euro – imposed stricter limits, such as a deficit-to-GDP ratio below 3 percent, to harmonize the monetary and fiscal policies of member states. Responding to the need to provide more thorough surveillance on public expenditure, national parliaments introduced new regulations mandating the adoption of cost accounting. For instance, the Italian public sector accounting reform, which started in the early 1990s with the reform of administrative processes (Legge 241/90), was expanded in 1997 with the introduction of legislation that made cost and management accounting compulsory for all Italian government agencies (Dlgs. 7 agosto 1997, n° 279).

The introduction of those regulations kicked off investments in financial analytic applications. Technologies that progressively allowed spending to be measured at increasingly deeper levels of detail were implemented. In their annual departmental budgets, government executives now can drill down into activity-based costing, which guarantees higher transparency and provides better information for expenditure control.

Business performance management completes the set of critical tools
Cost accounting adds a vital element of knowledge compared to traditional financial accounting, but it only tells a piece of the story. Cost accounting provides more transparency on expenditure control, but the real objective of modern public administrations is not simply reducing costs, but releasing the resources necessary for delivering more and better services to citizens. In other words, government agencies need to become more productive when executing their tasks, so that more money is dedicated to the services that mean the most to taxpayers. To guide decisions on how to achieve higher productivity, public administrations have to continuously measure multiple key performance indicators (KPIs), which track the progress against short- and long-term objectives set in terms of cost, revenues, and quality of internal and external processes. To do so, governments must invest not only in financial accounting and financial analytic applications, but also in comprehensive business performance management (BPM) applications, such as the balanced scorecard.

A recent IDC survey shows that, on average, just 19 percent of Western European central and local government executives have already adopted business performance management solutions; nevertheless a mere 20 percent of government executives plan to invest in BPM in the course of 2005. The only exception to this trend is the UK, where 45 percent of central and 58 percent of local government executives plan to make this investment in 2005.

Why are UK executives so keen on BPM? Possibly because by setting clear efficiency and effectiveness objectives, the latent pain for KPIs measurement was converted in active pain. In mid 2004, an independent review of public sector efficiency, the Gershon Review, identified £20 billion of "auditable and transparent efficiency gains" to be achieved in 2007-08 across the public service. The study identified seven areas where the public sector should focus to gain this £20 billion: back-office functions; procurement; transactional services; policy, funding and regulation of devolved public services; policy, funding and regulation of the private sector; productive time; and relocation. This list gave the UK public administrations a clear target.

Governments must set clear goals to harness the full advantages of BPM
Public administrations need to achieve higher productivity to improve service delivery. As Sir Peter Gershon clearly indicated in the title of his study, the efficiency review is about "releasing resources to the front line."

The deployment of financial accounting applications and financial analytics tools will help track expenditure more thoroughly, but they are only one part of the puzzle. By using BPM applications instead, public administrations will have – at their fingertips – a complete set of tools to support the entire decision-making process. These applications will be essential to analyze KPIs in a structured and comprehensive way, so that better choices are made on resource allocation.

However, the definition of precise strategic objectives, which go beyond pure legislative compliance by embracing policy and business pain points, will be necessary to convert government executives' latent pain into active pain, thus harness the full potential of BPM. If they merely add layers of BPM technology to the status quo, government executives run a high risk of making processes more rigid.

Bio: Massimiliano Claps is a program manager of public sector research for IDC's European Vertical Markets Group.