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2  Explaining Key Concepts (continued)

Inputs, Outputs, Outcomes and Impact

Throughout this Explanatory Guide the terms 'inputs', 'outputs' and 'outcomes' are used. Impact refers to how much outputs contribute to outcomes.

Inputs are the resources (such as capital, personnel, accommodation, equipment, information and time) used to produce goods and services. For example, the time spent by a police officer or doctor, and the purchase and maintenance of motor vehicles, are 'inputs' into the production of ‘outputs'. Price ultimately depends on how economically inputs are used.

Outputs are the goods and services commissioned by Ministers from public, non-governmental and private sector producers. Outputs may include the supply of policy advice, enforcement of regulations (such as speed limits in transport), provision of a range of services (in health, education, etc), negotiation and management of contracts, and administration of benefits. For the purpose of measuring and reporting performance, government agencies and other providers must be able to define their outputs in terms of quantity, quality, delivery time and cost.

As far as possible, appropriations in New Zealand are defined in output terms (rather than in terms of inputs or outcomes). This supports accurate costing of goods and services, and constrains unauthorised activity while still allowing agencies freedom to produce goods and services efficiently.

Case Study: Separating base expenses from 'discretionary' expenses in the New Zealand Defence Force

In peace time, military forces operate at modest tempo and cost. But at any given time several forces are still deployed to an ever-changing mix of United Nations peacekeeping operations and deployments, creating activity and price spikes that mask the normal cost of maintaining defence forces.

The extra costs (output expenses) of deployments are met from a different appropriation from those used to maintain individual military forces, such as the Maritime Patrol or Land Combat Forces. This allows Ministers and Parliament to differentiate the costs of running a capable, deployable force, from the ‘extra' costs of the deployments themselves. It also allows marginal costing of every deployment and reporting of their costs.

Individual outputs are combined into groups or classes of outputs that form a common set of goods or services. Output classes[7] are the level atwhich Parliament authorises output purchase through the appropriation process. An output class is a grouping of similar outputs or a grouping of dissimilar outputs that contribute to one or more outcomes. For each output:

  • the performance dimensions (quality, quantity, time and cost) associated with each grouping must provide adequate information for government decision-making and Parliamentary scrutiny
  • the level of detail must be sufficient to make the activities of a department or other supplier properly accountable
  • expenses must be linked to the social, economic, environmental or administrative outcomes they are designed to achieve.

Careful specification of output classes allows expenses to be limited to a maximum level, and delivery and value for money to be reported on.

Outcomes are a state or condition of society, the economy or the environment, or a change in that state or condition. Outcomes, such as unemployment, can change without any action by the Government. Impact has a more specific meaning: impact is the change made to an outcome by a set of outputs, actions or both (section 2 of the Public Finance Act). Impact is a change in outcome attributed to government activity.

The Government decides what outcomes and impacts it wants to foster and achieve through its own endeavours. Information on these decisions is currently published in Statements of Intent. Ministers purchase outputs that they expect to deliver desired benefits ('impact') to the community. Departmental chief executives and other suppliers allocate resources ('inputs') to produce those outputs, and monitor delivery and impact.

The Government may decide that an outcome can be improved by purchasing outputs from several different suppliers or by better targeting of the outputs the Government already purchases. For example, to achieve the outcome 'a lowered rate of crime', the Government purchases outputs from Police, the Ministries of Justice and Social Development, the Department of Corrections, as well as other suppliers. The Government also decides who will benefit most from receiving services, and targets delivery or eligibility for services at those groups or individuals.

While attribution can be challenging, outputs are funded to achieve impact. When impacts are less than expected, agencies are expected to consider whether intervention is appropriate, a different approach is needed, and/or more selective targeting can be used to improve impact and lower cost.

Alternatively, the Government may use transfer payments (such as welfare benefits), regulation or legislation to achieve the desired impact. Welfare benefits, tax concessions, regulation and outputs all come with significant costs. While expensive intervention is needed on occasion, interventions that deliver the required impact at the lowest cost are always sought.

Purchase and Ownership Interests

The government has two different interests in the activities of departments and Crown entities - purchase and ownership interests. These purchase and ownership interests of the Government drive different approaches to managing performance.

The Government, as a purchaser of outputs (goods and services), is likely to require information along the lines of a private sector sales/services contract: provider, quantity, quality, time and place of delivery and cost.

To specify intended performance adequately, departments and Crown entities and other providers must be able to define (and report on) their outputs in terms of these performance indicators.

The Government ultimately owns the resources of departments and Crown entities. As owner, the Government wants to ensure that capital assets are used efficiently and that agencies maintain the capability to provide services efficiently and effectively in future years, in accordance with the Government's objectives. As owner, the Government requires the same kind of financial reporting that constitutes generally accepted accounting practice in the private sector.

Both as owner and purchaser, Ministers want to procure quality goods and services at the right cost, now and into the future. Pursuit of better outputs at lower cost drives the re-examination of how they are procured and, when procured from government agencies, how they are produced.

The financial management system allows Ministers to procure goods and services from public or private sector providers and to use fully competitive procurement processes. Open and competitive tenders, if used, provide assurance that price, quantity and delivery standards are appropriate.

Notes

  • [7]Or groups of output classes in the case of Multi-Class Output Appropriations (MCOA).
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