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July 09, 2014

Australia to Enhance its Performance Management Framework

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Posted by Kris Kauffmann

Australia is widely recognized as a pioneer of the medium-term programmatic approach to budgeting but recent self-examination of these reforms indicates a need to strengthen the government’s approach. A strong performance management framework remains critical to the success of the Australian reforms. A range of recommendations to strengthen the framework have now been adopted that should be of interest to other jurisdictions intent on strengthening performance management in the public sector.

A system of medium-term budgeting that involves rolling multiyear forward estimates for outcome-focused expenditure programs has been in place in Australia for many years. The architects of this system recognized that ensuring an adequate focus on results, when most of the budget is locked into a baseline of forward (medium-term) estimates (of expenditures), requires a strong focus on performance. The medium-term framework builds in some risk of complacency, as allocations to departments seem to be assured over the medium-term. The performance management regime in Australia has therefore included mandatory key performance indicators (KPIs) for programs defined in budget documents and, at least initially, systematic program evaluation.

A dialogue within the public sector regarding the performance management regime in Australia — initiated in the context of a Financial Accountability Review and reflected in the recommendations of a recent National Commission of Audit (NCOA) — has highlighted several opportunities for improvement. The NCOA reported that, even after many years of practice, the quality of performance indicators is mixed, the use of performance evaluations has waned over time and there is a need to assess performance not only within but also across programs. Recent pilot audits of KPI’s conducted by the Auditor-General found that in many cases KPIs still focus on inputs and outputs rather than on outcomes achieved by the programs defined in the budget and there is not clear “line of sight” between the performance targets in the budget and published performance results.

In response to these findings, the NCOA recommended to the Government enhancing the performance management framework through the following actions:

• Improving the scope, depth and quality of performance information. More specific guidelines on the nature of required performance information will be provided under the auspices of the new Public Governance, Performance and Accountability Act, which took effect on 1 July this year.

• Re-introducing a system of rolling program evaluations and elevating the status of these by requiring reporting results to Cabinet in the context of the budget process (to avoid the tokenism perceived with earlier approaches). The evaluations will seek to address questions as to the appropriateness, efficiency and relative effectiveness of policies and programs (compared to alternatives), the answers to which are not always clear from KPIs.

• Performance evaluations are also to be undertaken at agency level — led by an independent agency such as MoF — which will examine the efficiency and effectiveness of each agency as a whole in achieving its mission.

• Cross-program strategic reviews are to be undertaken selectively by the MoF (addressing performance in policy areas that cut across existing programs).

These recommendations, which the government has endorsed, seek to strengthen the existing elements of the performance management system — that are mainly directed at improved financial management — but also seek to strengthen the link between performance management and broader public sector accountability. The NCOA recognized that transparent and robust performance reporting is essential in a decentralized approach to public administration that favors authority being devolved to managers within agencies. In this respect, the more qualitative approaches, such as program and agency evaluation, are important, as is the recent expansion in the role of the Auditor-General to include a mandate for external audit of agency performance reporting.

Australia’s experience in needing to re-focus its attention on performance information for the purposes of both fiscal management, accountability and effective public administration is a relevant case study for other jurisdictions embarking on reforms directed at achieving a medium term programmatic approach to budgeting.

Thanks go to Lewis Hawke, Stein Helgeby & Sandeep Saxena for their input in preparing this post.

Further reading: www.ncoa.gov.au; http://www.finance.gov.au/financial-framework/cfar.html;   http://www.anao.gov.au/Publications/Audit-Reports

 

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