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Measuring performance

Why measure performance?

Robust performance measurement is vital to effective asset management. It allows an organisation to assess how well it is meeting its expectations and objectives, at both an organisational and an asset level. It provides a method of comparing performance across entities, and a tool for identifying and assessing areas for improvement. This can lead to greater utilisation of Crown assets and helps ensure that assets meet needs more effectively. This in turn will allow governments to provide more services at lower cost.

Ideally, a single set of performance measures would allow for comparison across the different areas of government to enable better allocation of resources to the areas of highest need. Realistically this is difficult due to the diverse nature of Crown assets and liabilities and the different objectives they are used to meet. It is therefore more important to align performance measures with the asset or liability's purpose. ‘Good' performance will differ across asset and liability types and, even where assets may have similar characteristics, what may be important for an asset providing one type of service may be different for an asset providing an alternative service. For example, police cars are of little value unless in use while military equipment confers national security benefits whether usage is high or low.

This chapter focuses on how performance aligns with the purpose of ownership, and where possible draw links between asset usage and outcomes. These links can be difficult to determine due to assets often being held for the indirect purpose of enabling service provision - a means to an end - rather than being directly responsible for achieving outcomes.

The level of analysis in this chapter is restricted by the quality of agency asset management and the information that they are capable of providing. It may not necessarily reflect the analysis that would best serve better decision making.

Measuring performance

Performance measures broadly fall under three areas: Capacity, Capability and Financial Performance.

  • Capacity reflects the productive potential of an asset and can be assessed against current and expected demand needs. Indicators of asset availability and utilisation enable an organisation to determine how well an asset is being used compared to its potential use, while measures of economic life provide information around the expected useful lives for assets to provide services.
  • Capability represents the ability of an asset to provide a level of service. The main indicators for capability generally fall under classifications of functionality - whether the asset fits the purpose it is intended for - and condition - the physical state of the asset.
  • Financial Performance relates to the incomes and expenses directly associated with holding an asset or liability.
Figure 4.1 - Social asset reporting framework
Figure 4.1 - Social asset reporting framework   .
Source:  The Treasury

Measures and indicators should not necessarily be reviewed in isolation, and the interaction between different measures can provide a deeper understanding of asset performance.

How well do public sector agencies do?

Financial and commercial assets are assessed directly against their returns to the Crown. Social agency performance measurement has largely focused on operating expenditure and its relationship to government service provision. Measuring and understanding the performance of social assets has been a relatively weak area for the public sector.

While benchmarking against other countries could provide a useful indication of performance, difficulties arise due to a lower level of transparency from administrations in other countries. Where information is available it is not necessarily an accurate comparison due to differences in demographic and geographic conditions, or different policy settings. This in itself shows that New Zealand is not alone in finding this challenging.

Many measures are input based, meaning that the focus is placed on the effort that is put into using the assets. A lot of the measures outlined in this chapter reflect this. Output based measures focus on what is achieved as a result of using the assets, and provides a better understanding on the effectiveness of having particular assets. This allows for better decisions around prioritising and rationalising what is owned and how it is used.

Asset ageing and expected future replacement timeframes enable the government to adequately plan capital expenditure needs over the medium to long term. While many agencies currently have such an understanding of these aspects of their assets there are still a few who had some difficulty in providing this basic information.

There is some information around asset utilisation, but there is significant room for improvement. Without understanding utilisation, it is difficult to determine whether assets are surplus to requirements or whether additional expenditure is likely to meet demand effectively or create surplus stock.

The understanding of the functionality of the Crown's assets, and how well they fit their intended purpose, is weak. Functionality shows how well placed an item is to meet needs. With an ageing asset base there is a risk that assets may be out of date to meet current and future service requirements.

Future directions

At an agency level, there needs to be a much greater understanding of their assets, how they are currently being used, and how they are likely to be used in the future given changes in demand. This will require a higher level of information being collected at a detailed asset-specific level, with a stronger understanding of what metrics are suitable. This will then require a strategy on how to use that information to make more effective capital related decisions. A greater understanding of the impact that the capital base has on operating costs may also lead to greater cost savings in the long term.

Central agencies, and Ministers, need to improve their understanding of asset performance at a high level, through better monitoring and analysis of asset related information and an understanding of the implications for capital allocation across the wider state sector.

Future Investment Statements need to be able to provide a much richer view of balance sheet related performance. It is not until it is understood how the Crown's assets are contributing to meeting objectives that value for money can be assured.

Area of focus

  • Further develop and utilise metrics for the measurement and monitoring of the performance of Crown assets in meeting government objectives.
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