We believe there are five distinct specialties5 within the broad field of performance measurement: (1) Performance Measures (technical measure- ment issues); (2) Performance Reporting; (3) Performance Benchmarking;
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(4) Performance Management; and (5) Performance Budgeting. Many others have noted the lack of agreement on the boundaries of these different areas (Frank and D’Souza, 2004; Rivenbark, 2004; Behn, 2003). Our purpose here is to provide brief definitions of each and identify at least one current issue or problem for which an accounting specialty provides insight.
Performance Measurement in our framework involves the creation and refinement of the measures and is really the foundation for the other specialties, since reliable and relevant measures must be developed before they can be used in reporting, benchmarking, management, and budgeting. Issues in this arena include what should be measured and how to measure it. Practitioners and researchers alike have added to the current state of the art in performance measurement for state and local governments, starting with Ridley and Simon in 1938 and continuing with Harry Hatry (1999) and the Urban Institute, the GASB, the ICMA, various state and local governments, and many others. Throughout our discussion we will highlight some of these advancements and Table 21.1 provides the reader with an overview of service areas which have been measured.
Performance Reporting encompasses the communication of the measures once the measures have been defined and once the data has been collected and appropriately aggregated. Reporting can take many forms, dictated in large part by the intended audience. One sub-classification scheme distinguishes between reports that are intended for internal uses (management and budgeting) and reports that are intended for external users (citizens/taxpayers, creditors, bond rating analysts, regulators, etc.).
The appropriate format for the report (and concerns regarding the relevance, timeliness, and credibility of the reports) is driven by the intended audience. The internal use of performance measures for one purpose or another (Behn, 2003) appears to be widely accepted at this point. As discussed later, there is still much controversy over whether performance measures should be reported externally. The dichotomy here is similar to the split in accounting between financial and managerial accounting, where the information needs of managers are met through non- regulated internal reporting while the needs of external users are met through highly regulated and audited external reports.
Performance Benchmarking is similar to Performance Reporting, but there are a few subtle, but important differences. Ammons (1999) provides a summary of theory and practical guidance. Burke (2004) dis- cusses the benchmarking program in Ontario, Canada (discussed in detail in Section 21.4; see also PSBS (2004) for an effort in the United Kingdom).
One key difference is the tendency to share results privately with other benchmarkers, but not with the public. Another difference is that external reporting is usually motivated by accountability concerns, while bench- marking is motivated by the desire to improve services. Benchmarking is
also seen as more collaborative, while comparable external reporting often is competitive. Benchmarking operates on a voluntary basis whereas reporting is generally governed by some regulatory body (i.e., GASB or FASAB). Current benchmarking efforts are sponsored by several organiza- tions, including the University of North Carolina, ICMA, the United Kingdom, and Ontario. One of the concerns with current benchmarking efforts is the cost/benefit trade-off since several participants have dropped out of the ICMA project (Section 21.1) and the counties have dropped out of the NCBP (Section 21.2). The process of setting accounting standards with precisely defined and agreed upon terminology is a useful framework that is emulated by those doing benchmarking.
Performance Management is perhaps the broadest specialty.
We believe performance management encompasses all of the tools that leaders6 use in order to accomplish the goals of the organization. Consis- tent with Ridley and Simon, we do not believe performance measures can assist in the determination of objectives and values, these are policy or legislative problems. However, whenever reasonably clear objectives have been stated, performance-oriented managers must evaluate all of the tools at their disposal to execute a strategy to accomplish these goals. We agree with Behn (2005) that there is no magic ‘‘system’’ that can be created and then managers push the start button. Rather, performance management req- uires the skills of a human leader similar to the viewpoint of the accounting specialty of management controls (Anthony and Govindarajan, 2004;
Anthony and Young, 2003; Steiss, 1982).
Performance Budgeting is defined by Rivenbark (2004, p. 28) as ‘‘a process for budget preparation and adoption that emphasizes perfor- mance management, allowing decisions to be made in part on the efficiency and effectiveness of service delivery’’ (italics in original). Kelly and Rivenbark (2003) argue against the use of an Outcomes view of budgeting reform, where the reform is successful only if the amounts allocated change as a result of the reform. Smith and Cheng (2004) concur that the Process view of budgeting reform is superior to the Outcomes view and suggest that the theories of Signaling and Monitoring in government accounting reform (Zimmerman, 1977; Evans and Patton, 1987) are also candidates for determining the success of budgeting reforms.
Budgeting in government has traditionally been much more important than accounting (Martin et al., 1995). When viewed as a political process (Wildavsky, 1964), there is little that accounting can provide other than assistance in the four other specialties. Ridley and Simon note that there are a few ‘‘administrative problems’’ (1938, p. 60) in budgeting such as the accuracy of revenue estimates, the flexibility of expenditures, timeliness and accuracy; however, it appears that budgeting receives the majority of
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attention from academics and practitioners, with perhaps too little attention in the other four areas.