In March 2008, the Board of

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1 PM 2 Co n n e c t i o n s p e r f o r m a n c e m e a s u r e m e n t & m a n a g e m e n t Linking Resource Allocation to Performance Measurement A Look at Chester County, Pennsylvania By Stephanie Phillips Chester County is now able to look at the services it offers, their cost in terms of time and funding, and how well the services meet its performance goals. In March 2008, the Board of Commissioners in Chester County, Pennsylvania, signed a resolution that committed the county to developing a strategic plan to help foster greater accountability and transparency in Chester County government. The commissioners aim was to build a dynamic management system that not only linked available resources to the services required by citizens, but also monitored and improved performance. In addition to authorizing the strategic plan, the board also adopted managing for results, a management system for all county departments that further addressed the twin goals of fostering accountability and transparency. As a result of these initiatives, the entire organization now focuses on the same six key priorities (see Exhibit 1). Officials can track resource allocations across these priorities and determine how the related services are performing. Government officials looking to implement and sustain a performancebased budgeting methodology or performance management system must answer basic questions and make decisions in several key areas: getting started, determining the finance officer s role, making the transition from one budgeting method to another, communicating progress to stakeholders, evaluating potential pitfalls, and identifying desired benefits. GETTING STARTED A variety of tools are available to help governments that are thinking about adopting a comprehensive performance management and/or performance budgeting system. These tools Exhibit 1: Strategic Priorities Health and Environment Public Safety Economy Transportation Growth Smart Financial Management Promote and protect the public health and environment of the community. Ensure safe and secure communities. Support the growth and development of a strong and vibrant economy for all residents. Enhance access to and use of transportation systems to reduce traffic congestion. Manage growth and land use to preserve and optimize the quality of life in the community. Continue to exercise smart financial management and maintain the county s financial strength while minimizing the property tax burden. August 2013 Government Finance Review 67

2 include consultants, surveys, model systems based on performance management books, and the teachings of performance technology gurus, to name a few. The crucial factor in successfully launching any performance management system, however, is obtaining the support of elected officials, department heads, and key departmental staff. Without the cooperation of these stakeholders, it will be difficult if not impossible to create a viable performance management system. Chester County s Board of Commissioners drove its strategic planning initiative. An outside agency conducted a citizen survey to help the board define the strategic priorities. The final selection of priorities was also influenced by the findings of a separate survey of department heads, who were approached as subject matter experts. While the resulting list of priorities did not contain surprises, the effort undertaken ensured that the board considered the opinions of citizens and department heads from the outset and that the final plan included areas important to stakeholders. After defining the key county priorities and underlying goals, the focus shifted to individual departments. To develop their own strategic plans, each department defined its formal activities, identified the customer services it provides, and set the departmental strategic goals. Each department then developed a set of performance measures supporting its specific activities and goals. All components of a department s strategic plan are focused on customer needs and the benefits the customer receives from the services provided. Staff then develops the departmental budgets around the Exhibit 2: Priorities, Goals, Activities, Results Customer Needs County Priorities County Goals Department Goals Activity Result Measures County Staff, Department Heads, and Elected Officials key activities defined in the plan (see Exhibit 2). THE ROLE OF THE FINANCE OFFICER The finance officer s role differs from organization to organization as performance-based budgeting is developed, implemented, and ultimately put into use. In jurisdictions where the budgeting or finance staff collect and analyze submitted departmental performance data, the finance officer may play an extensive role. Elsewhere, he or she may serve only in an advisory capacity at the initial goal-setting stage. Regardless, the finance officer has extensive knowledge of the organization s detailed financial policies and serves a vital role. Through departmental relationships built during the budgeting process, the finance officer is uniquely positioned to offer insight into organizational structure and culture and often has the leverage to shift mind-sets as well as processes. As elected officials are developing the overarching goals, the finance officer can maintain the focus on available resources, both current Alignment and future, and serve as a voice of reason while leadership and departments translate the strategic plan into an action plan that truly fits the jurisdiction s financial reality. In Chester County, the director of financial services is a member of the Managing for Results Executive Committee. Other committee members include the chief operating officer and the director of human resources and performance management. This committee advises the commissioners and department heads in matters related to strategic planning and managing for results. The committee reviewed the department plans when each was first created and continues to monitor all requested plan changes and updates. Department plans must first be reviewed and approved by this committee before becoming official. The finance office works closely with human resource s managing for results team to create a cohesive annual schedule. Performance management guidelines are included in the distributed budget guideline materials. The annual budget book contains basic strategic plan information for each department, 68 Government Finance Review August 2013

3 including departmental goals, activities, and result measures. MAKING THE SHIFT Moving to a performance-based budgeting method can be accomplished in several ways. Some jurisdictions may prefer to migrate one department or program area at a time. In instances where the elected officials and/or department and agency heads are cooperative, but have not completely bought into the concept, this may be an effective way to get started and to build confidence in the idea. Under the leadership of commissioners committed to making a positive change, Chester County shifted to activity-based budgeting across all departments in Activity-based budgeting Exhibit 3: Managing for Results was the first component of managing for results to be established, and was followed by activity-based purchasing, performance measurement, timekeeping, and employee evaluations (see Exhibit 3). It can be challenging to capture all of the data generated in a way that offers easy analysis. Existing systems may not have the capability to mesh with new ones. More than one system will probably be required to capture the necessary financial resource, human resource, and performance data components. Several applications were used in Chester County, but a citizen reviewing the annual Managing for Results Citizen Report or county budget book would find the data presentation to be seamless. COMMUNICATING PROGRESS Chester County s annual budget book is the prime method for presenting the government s resource information and performance data to the public. The budget book contains each department s mission statement, goals, activities, and result measures. The actual results achieved in the prior year are detailed along with the estimated performance for the current year and the projected performance for the coming year. The report is made available on the county s website. The county s Managing for Results Annual Report is available each June and provides detail on the Board of Commissioners goal achievement and an in-depth look at the performance of departmental activities as they are aligned with the board s goals. The report is made available on the county s website (see Exhibit 4). Cost Accounting Each month, the managing for results team reviews county performance measurement data and follows up with departments whose results vary greatly from set performance targets. Employee Evaluations Performance Reporting MFR in Chester County Timekeeping Purchasing Quarterly, the managing for results team prepares an analysis for the chief operating officer, using current budget information provided by the finance office, current hours worked as entered by employees, and current result measurement data as reported by the departments. The analysis details current net cost, personnel cost, and result performance versus set performance targets. The managing for results team meets with department heads and key staff to review and discuss performance measurement results, along with overall strategies for county priority and goal achievement. August 2013 Government Finance Review 69

4 Exhibit 4: Managing for Results 2012 Cumulative Current 1Q 2Q Services Resources - Financial Resources - Human Performance Department/Activity Priority Expenditure Revenue Net Cost Personnel Hours FTEs MFR Status to County Cost Worked Archives and Record Services 227, ,053 55,513 3, Records Life Cycle Management S 123, ,129 30,076 1, Information Access G S 103, ,924 25,438 1, Assessment/Tax Claim 1,344,385 1,228, , ,478 22, Real Estate Valuation S 410,164 3, , ,374 7, Assessment Appeals S 233,802 28, ,852 80,159 2, Customer Service/Data Maintenance S 360,627 39, , ,273 7, Real Estate Tax Collection S 339,793 1,156,417 (816,624) 118,673 5, PITFALLS Setbacks are inevitable, but with advance planning, some commonly encountered problems can be managed to minimize disruption. A change in technology or an application upgrade could leave a performance data collection tool in the dust. It is important to build a strong relationship with the information technology department and to communicate in detail the specifics in bringing together performance, finance, and human resource data pieces. The county s finance, controller, human resources, and department of computer and information services departments worked closely from the start in implementing the performance data collection tool, the employee evaluation tool, and the timekeeping system. A workgroup with members from these departments met regularly to review the progress as each component was implemented. Each member of this core group knows their own role, how it interrelates with the other components, and thus, how a decision to enact any change would impact the others. Departments might be tempted to game the system by setting low targets that can be achieved easily, creating overly optimistic targets in order to secure more funding, or delaying tasks to boost numbers in the next report. These and other ploys may affect the viability of entered performance data and could ultimately influence funding decisions. As officials begin to rely more regularly on performance data, the temptation to find ways around the system may grow. Chester County has enacted processes to prevent and deter gaming. Each plan was developed with a facilitator, reviewed by the executive committee, and then reviewed by the commissioners. This multi-layered review process can reveal some gaming attempts before the plan becomes official. A prescribed set of performance measures are used to support each activity, and unusual targets must be accompanied by a written explanation. This ensures that no area of the activity is neglected and that no single type of measure is emphasized. In the coming year, a regular audit of departmental performance data will become part of the annual process. There is always a risk when reporting performance information; data may show a department or program in an unflattering light. It is important to always present the data, good or bad, with a clear and concise narrative. This practice will help to allay fears about reporting data to the public. A change in elected leadership is one of the greatest pitfalls to implementing an organization-wide strategic planning initiative. A newly elected leader may not understand the concept, may not be interested in what it provides, or may just disagree that it is necessary. It is essential to clearly communicate with newly elected officials or new department leaders about what strategic planning is, what managing for results entails, and the benefits of linking resources to performance. BENEFITS The main benefit recognized in implementing a strategic plan and/or performance management in government is the focus it brings. The entire organization is able to work toward the same defined priorities and goals. This singular vision creates efficiencies and promotes creative solutions among departments. Working to accomplish the same overall outcomes can go a long way toward breaking down the silo mentality that sometimes exists in government entities. 70 Government Finance Review August 2013

5 Linking resource allocation to performance results offers elected officials the data necessary to make evidence-based budgeting decisions. They are able to review what services are being performed, how well, how many employee hours were used, and how much it cost. Funding decisions can be made based on actual information. Ultimately, the public is able to look at what it costs to provide a specific service and how well that service is being performed. This can lead to an informed discussion with elected officials on what the county government should or should not continue to provide. Chester County has realized a significant monetary benefit by establishing a comprehensive strategic plan and linking resources to performance. Three bond ratings agencies have awarded the county their highest ratings. The county s planning strategies and policies are weighed as these agencies look at the organization s overall financial management, and have helped the county to maintain those three triple-a ratings over the past four years. These favorable ratings ensure that when the county borrows money, it is at the lowest possible cost to taxpayers. A more intangible benefit can be seen in the shift in departmental focus from completion of daily business processes to serving and satisfying the customer. In time, this customer-centric focus might permeate the entire organization. CONCLUSIONS The age-old budgeting question posed by political and behavioral scientist V. O. Key in 1940 is relevant today: On what basis shall it be decided to allocate X dollars to activity A instead of activity B? Jurisdictions must approach that basic question from many angles; this is even more important in jurisdictions where resources are limited. Elected officials need evidence-based information in order to make sound budgeting decisions. Citizens expect accountability and transparency. They expect to have easy access to details on how jurisdictions are using funds and how well departments and agencies are performing. Linking data on available financial and human resources to the current performance level of services gives citizens a multi-faceted view of services and performance, while providing elected officials with an evidence-based budgeting tool. Chester County is now able to look at the services it offers, their cost in terms of time and funding, and how well the services meet their performance goals. Officials scrutinize high-cost services that are not closely aligned to the commissioners priorities. Any performance result that is not meeting its expected target undergoes careful review. Decisions on future funding can be based on current data rather than past funding trends. Arriving at this point was not a quick or easy journey, and the county still has more to accomplish to fully realize the impact of linking resource allocation and performance. But thus far, the benefits for the county and those it serves have outweighed the effort and the risk. y STEPHANIE PHILLIPS is the managing for results project manager for Chester County, Pennsylvania. She can be reached at sphillips@chesco.org. Government Finance Officers Association 2 3 IT S AS EASY AS GFOA Yi e l dad v a n t a g e The Fast Efficient Transparent Way to Streamline the Investment Process With GFOA YieldAdvantage you can save time, save effort, and invest efficiently with complete transparency. 3 Log in and state the terms of your solicitation Watch as banks and broker/ dealers submit quotes Choose the quote(s) you want to accept and exchange settlement instructions For more information visit August 2013 Government Finance Review 71