Module 3B Managing Resources

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• Plan. The cycle is initiated through a planning process. Depending on the scale and scope of the activity, planning may include situational analysis (e.g., SWOT, PESTEL), objective and target setting, risk assessment, budgeting, and related activities. • Do. For clarity, it is helpful to distinguish between the two stage “Do” and “Act” which sound similar. The Do stage is intended to reflect project implementation. This may include a testing or trial phase before full roll-out. • Check. This is a key characteristic of the PDCA approach. Rather than waiting until implementation is complete, monitoring needs to be fully integrated from the beginning. Monitoring can be accomplished by a mix of approaches, such as direct observation, supervision, automated processes, client feedback, staff feedback, vendor feedback, financial reporting, and tracking budget utilization. Such approaches link closely with internal control. (Performance management is integral to internal control.) • Act. This stage uses the intelligence gathered through monitoring to make improvements. Errors, control weaknesses, inefficiencies, and defective outputs can be addressed by improving processes leading to better future results. • Plan. Improvements inform planning for the next cycle. The PDCA approach is implicitly or explicitly part of most organizational activity, including risk management and the quality assurance and improvement program (QAIP) for the internal audit function. Budget-Driven Performance Management Budget-driven performance management relies heavily on financial planning and monitoring. The budget establishes goals or limits for incomes and expenditure and becomes a proxy for objectives. Actual results can be compared with the budget and communicated in a financial report, as discussed in section 3A.2. Variances can be calculated and analyzed, as discussed in section 3A.3. Satisfying or exceeding the budget is considered the primary measure of success. Actual performance information is then used to determine future budgets. Sometimes this approach is referred to as performance budgeting. While this approach has merits, it can skew management’s focus and exclude other important considerations. Pros and cons of budget-driven performance management Cons Pros • The budget is developed to support organizational objectives and therefore there is naturally a close alignment between the budget and objectives. • Checking income and expenditure against a budget is relatively easy, assuming there is a robust financial reporting system. 48 • Budget-driven performance management focuses only on financial goals, ignoring other types of value. • Meeting or exceeding budgetary goals does not guarantee successful performance against organizational objectives and purpose. It is possible to improve upon a budget, for example, by
• Variance analysis provides useful under-performing and doing less work quantitative measures of performance. than planned, thus saving costs. Management by Objectives (MBO) Management by objectives places emphasis on defining objectives as the primary means of coordinating activity and optimizing outcomes. Agreement by staff and managers to objectives creates greater commitment together with efforts to motivate and incentivize performance through appropriate rewards. However, incentivization in the public sector is less common, largely because individual and team performance are often evaluated based on conformance with budgetary and other formal requirements rather than outcomes. It is also hard to isolate contributions to performance and attribute outcomes to specific individuals. Most results are achieved through collaboration. Pros and cons of management by objectives (MBO) Cons Pros • Activity across the organization is closely aligned. • Teams and individuals are driven to meet and exceed targets. 49 • Performance can be skewed toward the achievement of incentives. Staff may be tempted to take shortcuts causing a reduction of quality. Other goals and activities may also be ignored. It is hard to measure desirable qualitative outcomes, such as client satisfaction. Goals can be measured and achieved in ways that are not always of greatest benefit to the organization. Once targets for incentives have been achieved, motivation may diminish.
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Module 3B Managing Resources

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