Balanced Scorecard
One of the hallmarks of leading-edge organizations—be they public or private—has been the successful application of performance measurement to gain insight into, and make judgments about, the organization and the effectiveness and efficiency of its programs, processes, and people. However, leading organizations do not stop at the gathering and analysis of performance data; rather, these organizations use performance measurement to drive improvements and successfully translate strategy into action. In other words, they use performance measurement for managing their organizations.For several decades, there has been interest in measuring government performance and using the results in the budget process. From the Hoover Commission of 1949, which proposed Performance Budgeting, to the efforts of President Johnson in the mid-1960s to implement a Program Planning Budgeting System, to the Carter Administration's attempts to employ a Zero-Based Budgeting System, there have been several efforts to better define government program objectives and link program results to the means of achieving them.
However, it was not until recently, with the Chief Financial Officer's Act of 1990, the Government Performance and Results Act of 1993, the Federal Acquisition Streamlining Act of 1994, the Government Management Reform Act of 1994, and the Information Technology Management Reform Act of 1996 (the Clinger-Cohen Act), that federal agencies were actually required to strategically plan how they will deliver high-quality supplies and services to their customers, and specifically measure their programs' performance in meeting these commitments.
Procurement Executives’ Association
Initiatives
Over the last few years, several Procurement Executives of
federal departments and agencies have been involved in addressing the challenge of both
measuring the performance of their acquisition systems and using performance results to
improve their processes and practices to better meet the expectations of their customers
for higher quality, lower cost, and improved service.
In 1993, the PEA created the Procurement Measurement Action
Team (PMAT) to assess the state of the federal acquisition system, to identify innovative
approaches for measuring performance, and to develop strategies and recommendations for
measuring the health of agency acquisition systems. At that time, most federal agencies
were using management reviews to determine compliance with established criteria and to
support certification of the adequacy of the system.
This method was found to lack a focus on the outcomes of
the processes used and largely ineffective in obtaining dramatic and sustained
improvements in the quality of the operations.
The PMAT, through research and site visits to leaders in
performance measurement, identified critical success factors for acquisition organizations
and developed a performance measurement approach known as the “PMAT Model.”
Several federal agencies adopted this model and, with data derived from customer surveys,
employee surveys, self assessments, and statistics (obtained from the Federal Procurement
Data System and other available data systems), were able to assess the overall health of
the acquisition organization and to determine how effectively their acquisition systems
met organizational performance goals.
In 1998, the PEA chartered an interagency working group
(the PEA Team) to create, document, and maintain a strategic performance measurement and
performance management framework for acquisition that builds upon the PMAT Model. The
framework was designed with sufficient flexibility to address individual agency special
needs and have sufficient cohesion and commonality to identify core performance measures
and appropriate benchmarks. The PEA Team researched, designed, produced, and will
facilitate implementation of the system, processes, and procedures necessary to meet the
PEA objectives of an effective purchasing performance measurement and management system in
an ever-changing acquisition environment.
Various groups including the National Partnership for
Reinventing Government and the Center for Advanced Purchasing Studies found that there
were certain attributes which set apart successful performance measurement and management
systems, including:
A conceptual framework is needed for the performance
measurement and management system. Every organization,
regardless of type, needs a clear and cohesive performance measurement framework that is
understood by all levels of the organization and that supports objectives and the
collection of results.
Effective internal and external communications are the
keys to successful performance measurement. Effective
communication with employees, process owners, customers, and stakeholders is vital to the
successful development and deployment of performance measurement and management systems.
Accountability for results must be clearly assigned
and well-understood. High-performance organizations
clearly identify what it takes to determine success and make sure that all managers and
employees understand what they are responsible for in achieving organizational goals.
Performance measurement systems must provide
intelligence for decision makers, not just compile data. Performance
measures should be limited to those that relate to strategic organizational goals and
objectives, and that provide timely, relevant, and concise information for use by decision
makers—at all levels—to assess progress toward achieving predetermined goals.
These measures should produce information on the efficiency with which resources are
transformed into goods and services, on how well results compare to a program’s
intended purpose, and on the effectiveness of organizational activities and operations in
terms of their specific contribution to program objectives.
Compensation, rewards, and recognition should be
linked to performance measurements. Performance
evaluations and rewards need to be tied to specific measures of success, by linking
financial and nonfinancial incentives directly to
performance. Such a linkage sends a clear and unambiguous message to the organization as
to what’s important.
Performance measurement systems should be positive,
not punitive. The most successful performance measurement
systems are not “gotcha” systems, but learning systems that help the
organization identify what works—and what does not—so as to continue with and
improve on what is working and repair or replace what is not working.
Results and progress toward program commitments should
be openly shared with employees, customers, and stakeholders. COLOR="black">Performance measurement system information should be openly and widely
shared with an organization’s employees, customers, stakeholders, vendors, and
suppliers.
The Balanced Scorecard Approach
Leading organizations agree on the need for a structured methodology for using performance measurement information to help set agreed-upon performance goals, allocate and prioritize resources, confirm or change current policy or program directions to meet those goals, and report on the success in meeting those goals.
The PEA has identified the “Balanced Scorecard” methodology as their chosen methodology for deploying strategic direction, communicating expectations, and measuring progress towards agreed-to objectives. A 1998 study by the Gartner Group found that “at least 40 % of Fortune 1000 companies will implement a new management philosophy...the Balanced Scorecard... by the year 2000.”
The balanced scorecard is a conceptual framework for translating an organization's strategic objectives into a set of performance indicators distributed among four perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth. Some indicators are maintained to measure an organization's progress toward achieving its vision; other indicators are maintained to measure the long-term drivers of success. Through the balanced scorecard, an organization monitors both its current performance (finance, customer satisfaction, and business process results) and its efforts to improve processes, motivate and educate employees, and enhance information systems—its ability to learn and improve.
Core Objectives and Measures:
The PEA Team identified several performance objectives common to world-class purchasing systems, both public and private. These performance objectives, and the supporting performance measures associated with them, are considered the score for assessing system health and strategic performance. They are listed below within each of the four perspectives:
| Customer Perspective Customer Satisfaction Effective Service Partnership | Internal Business Processes Perspective Acquisition Excellence: Effective Quality Control System Acquisition Excellence: Effective use of Alternative Procurement Practices Fulfilling Public Policy Objectives |
| Learning and Growth Perspective
| Financial Perspective Minimizing Administrative Costs  - Cost to spend ratio Maximizing Contract Cost Avoidance  - Cost avoidance through use of purchase cards  - % of prompt payment interest paid of total $ disbursed |
The member
agencies of the PEA have committed to use, deploy, track, and share results on the core
objectives and the associated measures identified for each in Chapter Three, as part of
any acquisition performance management system. These common objectives and measures will
facilitate comparative analysis and benchmarking, as well as assist agencies in more
effectively and efficiently leveraging knowledge. This does not mean that agencies are not
free to employ additional objectives and measures which make sense within their individual
agencies, merely that all participating agencies have agreed to utilize these core
objectives and measures as the mainstay of their performance management framework.
| ERROR. Unbalanced Paragraph Marks. Do not forget to terminate <P> with </P> |
Implementing the Balanced Scorecard: COLOR="black">
To realize the full benefits of the BSC,
the PEA encourages the adoption of the BSC for all key agency functions.
Implementing the BSC agency-wide will provide a common methodology and
coordinated framework for all agency performance measurement efforts.
While implementing the acquisition BSC is an important first step,
helping agencies to develop balanced scorecards for additional functions (e.g., program,
human resources, finance, IT) will strengthen the link among the acquisition system, those
additional functions, and agency missions and goals. This will promote cross-functional
coordination of improvement efforts and break down “stovepipes” in the agency.
Acquisition executives may serve as advocates to promote the benefits of
the BSC methodology agency-wide.
The BSC will provide sound data on which to base business decisions,
from allocation of available resources to future direction.
While we believe the Procurement Executive should
promote the BSC’s benefits and encourage its adoption beyond the acquisition realm,
an agency can benefit even if it ultimately decides to adopt the BSC only for its
acquisition function. The four perspectives provide a useful framework for assessing how
its acquisition system is performing, whether it is meeting its objectives, and whether it
is moving in the direction envisioned in the FAR guiding principles. As the key leader for
the acquisition BSC, the Procurement Executive is responsible for setting into motion the
steps recommended in this Guide.
Procurement Executives’
Performance Management Methodology Guide:
The results of the PEA Team analysis are
contained in the following Guide, which includes: (1) a summary of the challenge facing
senior managers to design and deploy a strategic performance management system; (2) a
discussion of how the PEA proposes to address that challenge; (3) a discussion of what the
balanced scorecard methodology is and how it can be employed; (4) identification of which
“core measures” are important in assessing the health and success of an
acquisition system, and why they are important; (5) a discussion of data collection
standards and techniques; (6) an explanation of how the Guide will be maintained and
shared throughout the
acquisition community, and beyond; and (7) inclusion of several appendices
with useful references, resources, tips on survey administration, and a set of optional
performance measures that may be appropriate for your organization.
Since agency approaches to performance measurement and management vary
greatly in their sophistication, this Guide may be used differently by different agencies.
For some agencies that have developed and implemented performance measurement systems, the
Guide may be useful for validating the processes and actions currently underway, while at
others, it may serve as an impetus for improvement and represent a possible roadmap to
follow.
Maintaining a Positive Momentum .
. .
This Guide is not the end of the PEA’s involvement and interest in
performance measurement and performance management, but rather it creates a platform for a
wide range of beginnings. One of the consistent themes from a recent performance
measurement benchmarking study was that effective performance measurement systems take
time: time to design, time to implement, and time to perfect. A performance measurement
system must be approached as an iterative process in which continuous improvement is a
critical and constant objective.
The PEA has created a web site on the Internet, known as “BSC
Central,” found at “http://www.statebuy.inter.net/bsc.htm”. This site
includes copies of this Guide, other useful performance measurement tools (including
several survey instruments), links to each PEA member’s Homepage, as well as links to
other web sites on performance management. As part of the PEA commitment to continuously
improve this product, we anticipate further expansions of “BSC Central,”
including hypertext links in the Guide which will take the reader to more fully developed
and detailed examples and templates useful for implementing, or expanding, performance
management in any organization.
The PEA is committed to maintaining a working group to ensure that this
Guide is kept current, and that it includes the latest in performance measurement and
performance management thinking, approaches, and successful practices. The BSC Central web
site will serve as an electronic platform for continuously improving the Guide, and for
disseminating future performance management information, tools, and resources.
| ERROR. Unbalanced Paragraph Marks. Do not forget to terminate <P> with </P> |