Performance indicators in public sector entities management.

Vasicek, Vesna ; Budimir, Verica ; Letinic, Svjetlana 等

1. INTRODUCTION

Today's public sector is characterized by constant changes, uncertainty and complexity. Citizen's demand for faster and better service gets greater, whereupon appears the need for public sector reform. The routine way of conduct of public sector managers is changing. Public expenditure management becomes a central issue when making economic policies at most countries. The need for responsible, appropriate and efficient state administration, which is better at performing their duties and costs less, imposes the need to monitor efficiency of plan performance, as well as the performance of public sector as a whole. Despite the above, public sector entities still mostly use information from external financial reports as a basis for decision-making. The intention of this work is to show on the example of a public sector entity, that the information obtained that way is not sufficient for quality decision--making.

2. SIGNIFICANCE OF ACCOUNTANCY DATA FOR DECISION--MAKING IN PUBLIC SECTOR ENTITIES

An indispensable basis for effective decision--making in all subjects, including the public sector entities, is appropriate information. The information needed for decision--making partly comes from the business environment, but some of its most significant part results from the organization itself, and this from the accounting information system.

Accountancy information presented in a standard format and form of financial reports are primarily intended for external users. The goal of external financial reports is to give information to users, about the financial position and cash flow of business entity and the performance in fulfilling the objectives of business activity.

Accountancy information presented that way includes most, but not all the necessary information to users when making quality management decisions. Therefore, public sector managers, in order to increase the quality of decision--making, reach for information from other sources. We are primarily thinking of internal financial reports, which content and form is adapted to their needs, i.e. they are not standardized. For the purposes of management decision--making it is necessary to process accountancy information in a way to get targeted focused information. Instrument for such data processing consists of cost and management accounting (Anthony & Young, 2003). Cost management and internal cost accounting exist in all forms of business activity, including the public sector, but are not formal and binding. They are implied as a "good practice". It is therefore important in reform processes of the public sector, to develop cost and management accounting which are becoming the tools of the new public management and enable performance measurement in the public sector. In this way they contribute to public liability of management (Vasicek, 2006).

3. PERFORMANCE INDICATORS AS BASIS FOR QUALITY DECISION--MAKING IN PUBLIC SECTOR ENTITIES

Considering that public services' users pay in funds as taxpayers to finance them, it is important for them to be satisfied with the quality and efficiency of the public sector. For quality and efficiency evaluation of the public sector is not possible to use methods of analysis appropriated to enterprises, and is essential to define the methods adjusted by its definition and structure. In most countries are defined, for the stated need, performance indicators that measure and value information on functionality and quality of the service provider and of the public sector itself. (Rowe, 2004).

Performance indicators put in relation different financial and/or nonfinancial data in order to collect information about the efficiency of business activity. If the performance indicators were to be significant basis for quality business activity management in public sector entities, it is necessary for the public sector management to define them. Public sector managers, when defining performance indicators, determine the volume of the desired financial and nonfinancial information, so that the results obtained by their use enable performance evaluation to users, in relation to:

* default goals,

* previously achieved performance and/or

* similar institution's performance.

Following the aforementioned, performance indicators represent the basis for making quality decisions since they enable public sector entities to (Bolton, 2003):

* make savings,

* use the insured assets in the most appropriate way,

* improve decision--making in planning and management process,

* increase transparency and reliability,

* increase efficiency, and ultimately

* increase the quality of services provided.

It is visible how information obtained through performance indicators can be used for quality management, as well as external or internal assessment and evaluation of public sector entities' business activity.

Economic, efficient and effective management in the public sector requires, alongside with performance indicators, clear definition of institution's mission and vision, as well as strategic and operative objectives and their connection with concrete measures and tasks. One of the high--quality models that would meet these needs is Balanced Scorecard model, as a balanced system of results measuring, which connects achieved business events with future planed quantities that are defined by strategy. BSC's importance in the function of public entities management will be the topic of future research.

4. PERFORMANCE INDICATORS IN FUNCTION OF HIGHER EDUCATION INSTITUTIONS' MANAGEMENT IN CROATIA

Among the programs that are funded as part of the public sector, are also programs in the field of higher education. Because of the level and significance of public funds invested in the specified programs, economic and rational spending and transparent public reporting on the achieved program's results is important (Drazic Lutilsky, 2006).

From the previous consideration in the framework of this work, is evident how public sector entities' financial reports, and thus financial reports of institutions of higher education as well, represent adequate, but not sufficient basis for making quality management decisions. It is therefore necessary, alongside with the existing financial reports, to design sets of performance indicators and thus to significantly improve business activity management in institutions of higher education. Information obtained from performance indicators could contribute to the development of higher education institution's policies, as well as to their responsibility for received public funds.

Considering the structure and functioning of higher education institutions in Croatia, as part of the scientific research conducted for the period 2002.-2004., there has been suggested a model of measuring and reporting through four groups of indicators (Budimir, 2006):

a. Students performance indicators,

b. Finance performance indicators,

c. Research performance indicators and

d. Staff performance indicators.

The intention of this work is to identify the significance of performance indicator measurement in public sector entities management. For the purpose of argumentation on significance of performance indicators for making quality decisions in higher education institutions, the measurements results of individual indicators within the above groups will be shown in the continuation of this work. Indicators will be based on financial and nonfinancial data of a higher education institution, monitored through three years.

The results obtained through the above indicators provide quality information necessary for analyzing business activity, and efficient public sector entity's business management. Based on the analysis performed, it is visible how information from basic financial reports constitutes only a part of data necessary to calculate performance indicator. Thus confirms that the external financial reports are not sufficient basis for making quality management decisions, and they need to supplement with qualitative data as a part of notes.

In institutions of higher education, as well as in the rest of the public sector in Croatia, legal acts do not regulate obligation of reporting on performance indicators. The specified indicators do not officially exist as an analytical tool of public sector's business activity analysis. However, with regard to all the previously mentioned reasons and facts, their forming is required and necessary.

The principle that is stressed out is public sector efficiency, because it concerns disposal and expenditure of public funds. However, the methodology of monitoring the effectiveness and efficiency is still not sufficiently developed and is reduced only to financial data displays and comparison with results achieved in previous periods or with the set plans, or to financial monitoring of accomplished results (Kaplan & Norton, 1996).

5. CONCLUSION

Based on the analysis carried out, the increase in business activity performance of public sector entity is visible through period. By comparing peer indicators on business activities of other institutions of higher education, we could rate their performance monitored in their interaction. By comparing performance indicators and set goals, it is possible to evaluate public entities' business activity in relation to the adopted plans. Through conducted research and analysis, it can be concluded that measurement and reporting on performance are significant for decision--making, or for quality management and leadership in public sector entities.

6. REFERENCES

Anthony, R. N. & Young, D. W. (2003). Management Control in Nonprofit Organizations, McGraw-Hill Higher Education, ISBN 0-07-250825-6, New York

Bolton, M. (2003). Public sector performance measurement: delivering greater accountability. Work Study, Vol. 52, No. 1, pp. 20-24, ISSN 0043-8022

Budimir, V. (2006). Significance of accounting information for performance analysis of higher education institutions in the Republic of Croatia, master thesis, Faculty of Economics and Business, Zagreb, title retained on 2006-07-04

Drazic Lutilsky, I. (2006). Cost information in the function of public sector management, doctoral thesis, Faculty of Economics and Business, Zagreb, title retained on 2006-1221

Kaplan, R. S. & Norton, D. P. (1996). The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, ISBN 0-87584-651-3, Boston

Rowe, K. J. (2004). Analysing and Reporting Performance Indicator Data : "Caress" the data and user beware!, Available from: http://acer.edu.au/ Accessed 2008-08-01

Vasicek, V. (2006). Status and directions of cost-accounting application in the public sector, Accounting and Finance, Treasury, Vol. 52, No. 4, pp. 2-7, ISSN 1845-8696

Tab. 1. Students performance indicator

1. The ratio of enrolled and graduated students (the number
of graduated students / the number of enrolled students)

Year 2004/2005 2005/2006 2006/2007
Ratio 15,1 % 18,5 % 16,6 %

Tab. 2. Finance performance indicator

2. The share of tuition income in the total income
(tuition income and enrolment income / total income)

Year 2005 2006 2007

Ratio 38,9 % 42,8 % 44,2 %

Tab. 3. Research performance indicator

3. The number of published scientific and
expert papers per teaching staff employed
(the number of published scientific and
expert papers and projects / total number
of employed teaching staff)

Year 2005 2006 2007
Number 1,47 1,95 2,50

Tab. 4. Staff performance indicator

4. The ratio of the institution's own
staff and total staff number (the number
of employed staff / total staff number)

Year 2005 2006 2007

Ratio 30,9 % 38,8 % 45,5 %