Promoting Results Based Management in the Public Sectors of Developing Countries

Paper by Cedric Saldanha, Sr. Director for Governance and Regional Cooperation, Asian Development Bank, Presented at the Roundtable on Better Measuring, Monitoring, and Managing for Results 5-6 June 2002, World Bank, Washington, D.C.

1.

Why Results Based Management?

While traditionally the private sector is seen as the driver of economic development, it is the public sector that enables this to happen. A results-focused public sector is keenly aware of its role in delivering critical outputs and outcomes such as the management and regulation of policy, the establishment and enforcement of legal frameworks, the provision of essential public services, the catalyzing of private investment. Public sector management capacity has therefore become a central indicator of a countrys development prowess. (Edralin 1997). Public sector organizations are daily coming under ever-greater scrutiny. In developed countries, public demand has increased transparency of operations, greater accountability for the dollar spent, and better services. Politicians realize that the most effective strategy to re-election is the delivery of tangible results to the electorate. In developing countries, besides the politicians and the public, donors also are becoming more demanding on good governance frameworks, and public sector performance against benchmarked results as the price for continued development investment support. (Schiavo-Campo and Sundaram 2000). Private sector investors, particularly consequent to the Asian financial crisis of 1997, want tangible evidence of institutional and public sector management capacity as a precondition for investment in a country. Good governance checklists and ratings are now common and integrated into financial market risk rating systems of developing countries. (Asian Development Bank, 1999). Despite these pressures, it is not easy for public sectors in developing countries to quickly and easily evolve into results-based institutions and organizations. Some typical factors, which constrain public sector performance in developing countries and the effective utilization of aid, are as follows: Policy frameworks, which influence the scope and nature of public sector results, are not easy to change. There is inadequate political discussion on strategic results for the state and how these should translate into ministry and departmental objectives and budget allocations. There is often a lack of clarity on the role of public sector organizations, exacerbated by the historical multiplication of such organizations with overlapping mandates. Organization mission statements are rarely available, and institutional objectives are often muddled, and in a confusing sequence of priority. Inadequate systems exist for performance specification, measurement and reporting. Outputs are not adequately specified, monitored and reported on. Systems of public accountability are weak or non-existent, with an emphasis on input and activity management as against output and outcome management.

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Often, there is a lack of a work ethic and an institutional value system which focuses on service and results. Human resources selection, compensation, and career management systems do not reward for merit or encourage a focus on results and productivity.

This paper examines how these constraints can be addressed through a results based management system. It also discusses issues related to the implementation of such a system in a developing country context. It cites examples of such applications in developing countries and lessons to be learned from these. 2. Key Elements of RBM

A results-based management system is, as the title suggests, an approach to public sector management with a focus on performance results. As compared to private sector for-profit organizations, this focus on performance results in public sector organizations continues to be a challenge. Private sector firms have clear and central profit making objectives, and relatively straightforward ancillary objectives, including those related to employees and society. The public sector organization, on the other hand, has to cope with deep complexity in objectives, widely differing stakeholder perspectives, and much less control over policy, strategy and incentive structures (Park 1997). The market and clients they service are also different. One is competitive, the other not inherently so. Human resource management systems also differ widely, with the public sector subject to more controls through civil service regulations. Public sector organizations having much less autonomy, particularly on financing, and internal structures are usually more hierarchical and rule bound. Proponents of RBM view a results based focus, measurement, evaluation and accountability as tools for achieving more efficient and effective resource utilization by the public sector. They see RBM as a mechanism for forcing politicians, bureaucrats and voting citizens to be clearer about the objectives of government programs and services. In contrast, opponents fear the consequences of performance measures that do not adequately reflect the complex intended purposes of public sector programs. (Nakamura et al 2000). Performance measurement enables a public sector organization to monitor its effectiveness in achieving its goals and objectives, managing its services, and ensuring customer/client satisfaction. Performance measurement systems have numerous uses: they help set and communicate priorities, formulate budgets, allocate resources, motivate employees, improve services, and facilitate information exchange between citizens and government. (Cook, Vansant, Stewart and Adrian 1995). In the UK, recent research which evaluated performance in 74 public sector organizations (Lawton et al 2000) indicates that performance measurement and reporting has often been imposed on these public organizations by external stakeholders. The Citizens Charter of the UK (OECD 1997) and the formal performance agreements between ministers and the chief executives of New Zealand public sector organizations (Boston et al 1991) are examples of RBM and a performance culture spreading through the public sector in the developed world. In the United States, performance measurement of public sector organizations has been enshrined in law in the Government Performance and Results Act of 1993 (Kravchuk and Schack 1996) as a basis for driving improvement efforts. In Australia, politicians who needed to demonstrate performance to their electorates could not wait for their public service to propose performance measurements. Instead, one reformist state government insisted on departments

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being judged in terms of outputs while at a community level, they also imposed a set of indicators on local governments that included citizen satisfaction ratings.

2.1 Clarifies Customers and Mandate of Organization Public sector organizations sometimes lose sight of their purpose. They sometimes even forget they exist to serve the public. RBM ensures that the client focus remains the key guiding force of operations. The clarification of customers and their relative hierarchy of priority is critical to public sector organizations, and particularly for those which do not have an evident service function. Central agencies such as ministries of finance and planning provide core control and support functions to the rest of government. They therefore serve a wide variety of clients the executive, parliament, service departments and agencies, the public. Clarification of mandates allows the agency to establish priorities and relationships among its clientele. Instituting a results based management system begins with an analysis and specification of the mandate of the organization, its customers, and the benefits and impacts it is expected to deliver for them. To assist this process the public sector organization undertakes some rather basic questioning. Key questions asked are: Why does this organization exist? What would be lost if it did not exist? Who does it serve? What is it supposed to deliver for them?

In management terms, this questioning generally results in a succinct mission statement for the organization, and the identification of key result areas (KRAs). These are the operating spheres within which the organization will deliver concrete outputs and outcomes.

2.2 Specifies Results and Performance Expectations of Clients RBM requires that once KRAs are established, these must be translated into targeted and benchmarked results. Not infrequently, it is difficult to obtain a clear and consolidated statement of performance results for a particular public sector organization. (Polidano 2000). On being asked for one, invariably a statement of intentions or activities or budgetary expenditures is produced to demonstrate the scope and extent of the institutions operations. Public sector organizations are notorious for their budgetfocus and the supply-driven emphasis of their operations. This makes it extremely difficult to assess organizational performance, and introduce actions for performance improvement. 2.2.1. Output-Outcome Indicators

The school of new public management, born in the UK in the early 80s and then widely adopted in New Zealand and Australia, first introduced in a systematic and cohesive manner, the application of the concepts of outputs and outcomes to the public sector as an integral part of RBM. For the first time, public sector organizations were being held accountable for the delivery of tangible and measurable results, and budget approvals became contingent on costing outputs and justifying budgets on output delivery. (Boston et al 1996).

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The concepts of outputs and outcomes were defined in legislation in New Zealand since the distinction between them was made critical to financial appropriation and accountability. Outputs were defined as the goods and services produced by departments or third party suppliers. Outcomes were the consequences for the public resulting from the outputs and activities of government. The purpose of government is of course to produce desired outcomes. (Scott 1996). The linchpin of the UK, New Zealand and Australian public accountability regimes is outputs, which is a strong common interest of both ministers and managers. Ministers purchase outputs, while departments are paid a negotiated price (their budgets) to deliver those outputs. However, this accountability arrangement is most effective when the market for the services concerned is contestable and buyers and sellers can establish an arms-length relationship. This is not the case for the majority of government outputs, where for various reasons, government remains the sole supplier. However, the creation of output contracts for financial appropriation and performance monitoring has created better information on what the public service does than existed before. Previously, only financial information was subjected to strict standards of verification. (Matheson 1995). There are however, significant transaction costs incurred in maintaining an accountability arrangement based on detailed ex ante specifications. (Schick 1996) While outputs are important to plan for and monitor, they cannot, by definition, be used as the sole criteria for judging organizational effectiveness. An organization's performance must be judged based on "why" it was established. It must be evaluated for the outcomes or impacts (client-benefit and satisfaction) it achieves. An education agency should be evaluated not just by how many schools it builds, but by the resulting increase in literacy and school graduates; a health agency, not simply by the number of clinics built, but by improvements in key health indicators such as morbidity and mortality rates. (Saldanha and Whittle 1998). These are the raison dtre of the organization and government. They are the benefits the organization is expected to provide to its stakeholders. And if these impacts are not being achieved, there is no clearer sign that the organization concerned has become ineffective or irrelevant. A much debated issue is the extent of influence an organization can claim on impacts. (Schick 1996) the issue of causation and attribution. After all, the health status of people is contingent on factors that go beyond the control and influence of a health service agency. Should then the agency be accountable for a performance indicator over which it does not have full control? In New Zealand, the government has taken the position that achievement of impacts are beyond the accountability of public sector delivery agencies; these remain accountable only for the delivery of outputs. The concerned minister, however, as a representative of the government in power, takes accountability (vis--vis the public) for the delivery of impacts/outcomes. (Matheson 1995). It is however arguable, whether the service agency should not also take some degree of accountability for impacts. While it is true that the health service agency does not have complete control over all of the external variables influencing public health, it is accountable however, for noting these other factors, attempting to influence them, and taking account of them in the delivery of its service The application of the concepts of outputs and outcomes has become widespread in developing countries over the last few years, assisted by donor efforts to introduce RBM. Their effective and productive use however remains questionable. RBM systems using such performance indicators have been generally introduced with the assistance of developed country consultants more anxious to demonstrate to donors the potential of the system to be adapted to a developing country context, than to ensure the tailoring of the system to the skills and capacities of the client country.

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Figure 1: Typical Sectoral Outputs and 0utcomes in a Developing Country Context

OUTPUTS
- area irrigated - irrig. systems operated & maintained - ag.extension services - research - roads constructed - roads operated & maintained - traffic management - driver education - health care services - clinics & hospitals - drug availability - health care education

OUTCOMES
- farmer income - ag production/prodty - share of workforce - ag. Share of GDP

Agriculture

Transport

- road usage/density - journey times - safety - transport share of GDP

Health

- life expectancy - population control - health status - productivity - literacy - education level of workforce - labor absorption rate - productivity

Education

- education facilities - cirriculum: scope/quality - enrollments/graduations - teacher education/quality

Energy

- installed capacity - distribution coverage - energy mix - revenues/surplus

- capacity utilized - access to electricity - consumption - average cost to customer

2.2.2.

Efficiency Effectiveness Indicators

In the USA, besides the use of descriptive, financial and input-output-outcome indicators, the Governmental Accounting Standards Board (GASB) issued, in 1992, guidelines of the measurement and reporting of service efforts and accomplishments (SEA) which cover measures of efficiency and effectiveness as well. (James and Roob 1994). Efficiency indicators reflect the level of outputs (the actual products/services delivered) of the organization in the context of available resources. They therefore represent the ratio of inputs to

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outputs; for example, the extent of budget or staff resources required for every unit of electricity generated or every unit of health care service offered. Effectiveness indicators represent the expected impact of the organization on customers through its products and services. Thus, they are indicators which represent the ratio of inputs to outcomes such as the level of client coverage and client satisfaction. They can also represent the ratio of outputs to outcomes/impacts achieved; for example, the extent to which electricity generated is accessed and used to improve productivity and quality of life; or the extent to which improved or increased health services have improved the health of the target population.

In addition to efficiency and effectiveness indicators of performance, the issue of equity and sustainability are also pertinent, and especially so in the context of developing countries where resources are usually severely constrained. Equity indicators are important for public sector organizations, since they reflect the distribution profile of outputs (public access to products and services) and related equity of impact; for example, the extent of rural versus urban areas which have access to electricity or to health services. Sustainability indicators reflect the ability of the organization to ensure self-sustaining and consistent performance and, thus, the continuity of institutional effectiveness and efficiency; for example, the level of revenues and surplus generated by the power utility and therefore the financial capacity of the utility to sustain and expand service; or the ability of health care agencies to recover revenue from clients based on improvements in service, and thus depend less on government subsidy for continued operation.
Box 1: Sample of Expected Results of a Power Utility (Outcomes / Outputs) KRA 1- Ability To Meet Demand (Effectiveness and Equity) - % of rural households covered - % of urban households covered - % of industrial requirements met - capacity utilization - matches between capacity and demand KRA 2 - Technical Performance (Efficiency) - installed capacity - capacity to maintain (breakdowns) - reliability (service interruptions) - response time to requests for new connections KRA 3 - Financial Performance (Efficiency and Sustainability) - revenues - MWh sales per employee - operating income/net income - rate of return on fixed assets

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The use of such performance measures indicates an increasing sophistication in the approach of government to making public agencies more accountable. However, their use assumes a high level of organization capacity with regard to management skills and the existence of suitable accountability mechanisms and incentives to support performance. Unless the latter are in place, such indicators of performance will remain difficult to use on a day to day basis, and will have little impact on performance. This has been demonstrated by Knapman and Saldanha (1999) in their study of the public sector reforms being implemented among Pacific countries with the assistance of the ADB and the World Bank.

2.2.3

Client Satisfaction Surveys

Members of the International City Management Association (ICMA) of the USA have recognized that cities, towns, counties and villages are government entities that have the greatest interface with people through the basic services they provide. Local government monitoring of people satisfaction with such services is not only a challenge, but increasingly a necessity. (Kopcynski and Lombardo, 1999). Thus, ICMA has developed the Comparative Performance Measurement Consortium which not only works on developing performance measures for such services, but also sharing information on results. A similar and increasingly popular approach to making public sector organizations more accountable for performance in developing countries is the introduction of the report card on public services. This has been attempted, for instance, in India and the Philippines. (Filipino Report Card on ProPoor Services, 2001). In the cities of Bangalore (Paul 1995), and Madras (Anjana 1996) in India, periodic surveys on customer satisfaction with public services began in the mid 1990s through the initiative of the Public Affairs Centers in these cities. This initiative has been expanded to cover five cities all over India. (Paul and Sekhar 1997). The assessment of public service performance covered essential services such as telephones, electricity, water, health services, postal services, bus transport, public sector banks and the police. Public satisfaction with these services was assessed using sample surveys. The dimensions of performance assessed included: staff helpfulness, quality and timeliness of service, and time taken to resolve problems. The report cards were not designed to provide an in depth assessment of what was wrong with public service agencies. They were intended, however, to put these agencies on call in terms of their accountability for better performance and service to the public.

Box 2: Bangalore Garbage Disposal Program

In 2000, the state government set up the Bangalore Agenda Task Force. It was established as a public/private partnership with the private sector bringing in capital, knowledge, materials and additional training capacity. It was also set up to be a kind of generator of ideas for the development of the city. The task force conducted a survey of citizens to establish what their major concerns were in a number of areas including telephones, security, water, and the work of the Municipal Corporation. Garbage removal was apparently the most pressing concern of citizens. A telephone handling complaints center was established. The telephone number was widely publicized and people were asked to telephone in if their house was not visited on any particular day for garbage removal. Identified citizens were nominated as on each street to inform the center if the garbage truck or the collectors did not come. A private/public task force was set up to supervise the program. It agreed that each garbage inspector would be provided with a two way radio and the complaints center would inform him of a problem if any, and he would attend to it immediately. Inspectors were given uniforms which they wear proudly; it and the two way radio seemed to become a badge of office. Latterly, the inspectors have been given loans to purchase scooters which could also be used for personal work. An annual award is given to the most efficient inspector a gold watch with the corporation crest on it. The popular garbage disposal slogan is one time, on time, each

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An important caution from Hatry et al (1994) is what is measured and reported gets attention! Hence, misuse and counterproductive use can occur if the performance indicators are not chosen and implemented with care. For example, solely focusing on the time it takes to provide a service is likely to cause employees to push for speed of service delivery at the expense of the quality of service. 2.2.4 Balanced Scorecard

In the 1980s, the multiple-constituency approach was widely espoused for measuring organizational performance particularly for not-for-profit-organizations. (A S. Tsui 1990; Connolly et al

1980). The approach suggested that the interests of all stakeholders in an organization must be
taken account of in assessing its effectiveness. This approach contributed to organization management literature by broadening measure of organizational performance and was in many ways the predecessor of the currently popular Balanced Scorecard approach. The Balanced Scorecard is a comprehensive approach to measuring performance and building capacity in both the private and public sector. First proposed in 1992 (Kaplan and Norton 1992), it proposes the use of a holistic group of measures, not just to assess performance, but to drive it. It recognizes the power of concrete goals on performance, and seeks to enlarge organization goals to cover areas critical to sustained organization performance. It underscores the issue that an organization responds essentially to the goals it focuses on. If these are short term, the organizations bias will be similar. The balanced scorecard supplements traditional private sector financial measures with criteria that measure organization performance from three additional perspectives those of customers, internal business processes, and learning and growth. It therefore enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth. A predominant focus on financial results motivates short-term behavior often at the expense of long term behavior and benefits. Thus, companies need to broaden their performance focus and benchmarks from short-term measures such as returns on investment and revenue growth, to longer term ones like market share, customer relations and satisfaction, revenues from new products and employee satisfaction and growth. These latter measures ensure the more holistic and longer term development of the organization. There has not as yet been any widespread application of the balance scorecard to public sector organizations. However, as focus on output and outcome performance in the public sector matures, quite naturally managers begin broadening out performance measures to ensure sustainability of efficient and effective performance of the public sector organization. The use of the balanced scorecard then becomes pertinent. 2.3 Links Budget allocation to Output Delivery New public management promotes a direct link between results based public sector management and the budgetary process. Agency budgets are assessed and allocated based on the cost of delivering outputs, a process known as output-based budgeting. The process would usually include performance agreements between a central coordinating department and the recipient department. These agreements record expected performance (outputs) for the budget allocated. This budgeting system quite rightly assumes that budgets cannot be realistically based on the delivery of outcomes. These are often medium

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term objectives; they are influenced by a number of variables, some not within the control of the agency concerned; and their monitoring is a very complex task. Output based budgeting is a logical consequence of the application of results based management. However, it has generally been a failure in its application in developing countries for some very good reasons. Output based budgeting assumes an operational and financial management infrastructure of a fair degree of sophistication and this is often not feasible in a developing country context. It requires accrual accounting systems often unrealistic when governments still struggle with maintaining line budgeting systems. The degree of skills required for establishing outputs, costing them, verifying the realism/accuracy of the costing, monitoring and reporting implementation, assessing the need to adjust budgets based on past performance etc are simply often not available in developing countries. If available, they have often already been captured by the private sector who can afford to pay more attractive salaries. In the context of the above, it is not recommended to intrinsically link results based management with output based budgeting. An adequately effective results based management system with a performance-related budget can be put in place using the conventional line budgeting system. Budgets can still be linked to the delivery of a program of outputs, and should be justified on this basis. Selective input-output ratios are feasible for certain services and can appropriately become the basis for controlling inputs.

2.4 Requires Performance Reporting Effective and results-focused public sector organizations typically adopt a performance reporting system as part of larger public accountability responsibilities. In countries which have adopted the output based budgeting system, reporting on achievements of outputs becomes an essential basis for appropriating the next years budget. Periodic performance reporting provides the essential data on which performance diagnosis is based. The performance report essentially provides period information on organizational performance against a set of performance indicators which represent outputs delivered by the organization and the outcomes/impacts these have achieved. Outputs can and should be reported annually. Outcomes/impacts sometimes can only be assessed in a longer time frame, perhaps of up to three years. Notwithstanding this, it is essential that outcomes are monitored and reported. Organizational performance measured in terms of outputs and outcomes is normally assessed using three parameters: (1) targets that have been set by management or stakeholders, (2) past performance, using a trend analysis to review whether performance is on an upward trend or otherwise, and (3) comparators or industry benchmarks (in the public sector, comparators could be similar institutions in comparable countries). Often, targets set by management for a specific performance period already take account of past performance and comparator performance levels. This comparative performance analysis is essential to assess the quality of organizational performance and identify related variances, either positive or negative, from expected or required levels of performance. The variances or gaps between present and desired levels of performance thus provide the basis and a trigger for initiating performance diagnostic analysis.

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A thorough performance report and its analysis is of course contingent on performance information. Many public sector institutions are known to be particularly deficient in having information readily available on performance, more specifically on outputs and impacts. This is a reflection of public sector institutions being typically budget and supply driven rather than output and impact focused. The introduction of RBM must be accompanied with the parallel establishment of a management information system to provide timely feedback on output performance.

2.5 Promotes Performance Analysis and Continuous Improvement Another integral element of RBM is performance analysis and continuous improvement. Performance reporting leads to the identification of performance problems (negative variances) or performance improvement opportunities (potentially positive variances). The greater the clarity and preciseness with which these are defined, the easier will be the subsequent diagnostic processes which isolate causal factors and consequently lead to institutional strengthening actions. (See Box 3). If we are to improve performance, this is the necessary starting point. Identifying performance variances in tangible, verifiable and timely terms is contingent on the quality of the performance indicators used. This is a particular challenge when dealing with those public sector organizations where the outputs cannot be quantified. An example would be a policy making and regulation body. While quantification is in such cases not possible, documenting outputs in tangible and monitorable terms is usually feasible. Performance variance or improvement identification also assume assumes that past and comparator performance information is accessible for reference.

Box 3. Examples of Performance Variances in Developing Country Public Sector Organizations Investment applications have fallen over the last 12 months compared to a neighboring country with similar socio-economic characteristics Production and exports of specific crops have remained stagnant over the last 24 months despite consistent weather patterns Quality of road maintenance has fallen over the last year as evidenced by increased potholes and related traffic congestion The female entrants for primary education remains at 30% of male entrants despite a specific education program for parents in this regard over the last two years Shortage of critical drugs in medical clinics in specified rural areas City cleanliness continues to be below specified standards with regard to littering and garbage clearance Population growth rates continue to be above 2%

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Performance analysis essentially seeks causes in order to rectify and improve performance. Causes generally fall within two broad categories internal and external. The temptation is to first seek for external causes so blame can be assigned to factors beyond the organization. However, numerous internal factors also do influence performance resources, systems, structure, strategy, policy, culture, and leadership. This performance analysis process must consciously assess the influence of these internal variables first thus focusing on causes within the control of the organization. The performance analysis process is in some ways a difficult process since it deals with nonquantitative relationships, subject to varying interpretations. The search is for root causes, and therefore the process requires to keep asking why as one goes deeper into cascading levels of causes. For instance, a pubic works agency is analyzing the problem of traffic management and its primary contributor viz continuing potholes in the road (the performance variance). A first level cause is identified as inadequate staffing of maintenance gangs. This in turn is caused by inadequate budgetary outlays for maintenance (resources), which is due to the priorities of the government in the allocation of resources (strategy). If the resource issue is therefore a given, the analysis asks - how can constrained resources be used more effectively to at least minimize the problem (systems and structure)? Is the information system on the status of various roads working effectively to allow for prioritization of road maintenance programs? Are first line supervisors being held accountable for best use of available resources? Is there an incentive in place to motivate them to better performance? This process of questioning and searching for root causes must continue till key causative variables are identified.

Figure 2 A Simplified Cause-Effect Analysis of the Public Works Agency in a Developing Country
Performance Variance: Road maintenance deteriorating

Shortage of staff due to Public Service retrenchment (Resource Issue)

Information on road conditions not received as per schedule (System Issue)

Accountability for road conditions not clarified and enforced

Quality of first line supervision has deteriorated with staff attrition

Govt. policy on which services get priority (Strategy/Pol icy Issue)

Inability of Mgt. to persuade Finance on budget allocation

Client Orientation not emphasized by Management (Value Issue)

Salary scales unattractive to qualified engineers (HR System Issue)

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It is sometimes difficult for an outsider, without an understanding of the inner dynamics of the organization, to undertake this causal analysis in any useful degree of depth and accuracy. On the other hand, process consultants do have special skills to assist managers and staff within the organization move systematically through this causal analysis. The most practical and effective approach appears to be group-based cause-effect tree analysis. This implies establishing the variance and then seeking causes and causes of causes, in a cascading process as demonstrated below. It is important to identify which category variable is influencing the performance variance because the appropriate corrective or improvement action will differ depending on the variable. For instance, addressing a system or process inefficiency will require a very different approach to that required to address an issue related to leadership and values of the organization.

2.6 Assumes Meritocracy in Managing HR RBM can only work if staff selection, compensation and career management are professionally managed and based on merit. Like budgets, human resources are a key resource to the delivery of results. A department head cannot be held accountable for results if she/he is not given discretion on the quality of staff provided to the department. Accountability for results demands that such resources be of the highest possible quality and with a repertoire of competences responsive to the results expected. Thus, selection must be professionally managed, open and competitive, eschewing political pressures and influence. Promotions and career management must be guided by HR best practice, and staff must feel that principles of fair competition are transparently applied. Compensation in the public sector is often not able to be competitive with the private sector. However, it is not necessary that it be competitive to attract the talent and skills needed by RBM. Often professionals join the public service for reasons other than financial reward. It remains essential though, that a fair wage is provided based on comparative salary studies of the local market. Performance pay and bonuses are far more difficult to apply and manage than in the private sector and are usually avoided even in developed countries, except in situations where the organization, though within the public sector, retains financial independence in terms of revenue, costs and surpluses. Issues such as complexity of results to be delivered, and difficulties in quantification, monitorability, and attribution usually make performance pay impractical in the public sector. Professional HR management has been one of the major constraints to a results-oriented public sector in developing countries. It is not uncommon to encounter a public sector with personnel appointments substantially influenced by political forces, or departments with bloated and underpaid staff complements because regulations or absence of political will do not allow for related rationalization. However, there is no easy way out. Professionally managed human resources is a sine qua non for effective RBM. 3. Triggers for RBM

Ideally, RBM can most effectively be introduced when it is part of a larger public sector reform program, initiated by the government for a number of possible reasons. In such a situation, RBM is usually one of many reform initiatives in a reform program that usually addresses the role of government and the public sector in a multi-faceted fashion. Thus, the package may include economic policy reforms, the privatization or contracting out of certain services, reforms in the management of the budget and

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human resources, and RBM for a variety of public sector agencies or perhaps across the whole public sector. In this scenario, the introduction of RBM is made easier given the support of the highest levels within the government (it becomes a mandatory exercise with no option given to the concerned public sector agencies) , and the reinforcement provided by parallel reforms. However, the above is not a typical or common situation. Usually, government or donors are called upon to persuade rather than coerce the concerned public sector agency to adopt RBM. Selling the concept of RBM to public sector agencies in developing countries is not an easy task unless the concerned agency is led by a reformist management. RBM calls for greater accountability on the part of the agencies for concrete results. It makes their budgets subject to performance evaluation. It often requires hard human resource decisions to ensure required levels of productivity. Later in this paper are described typical incentives available to promote the use of RBM to such agencies. At this point however, it is useful to note that there are three often-encountered entry points for donors, who seek to catalyze the adoption of RBM by public sector agencies in developing countries.

3.1

Capacity Building

Donors are often approached by public sector agencies of developing countries for capacity building assistance. Every year millions of dollars are invested by donors in this type of assistance. Unfortunately, much of this investment goes to waste, spent on interventions that have limited sustained impact. Interventions are usually not anchored in any disciplined institutional diagnostic analysis. The typical capacity building intervention is training. Skills are imparted but often without parallel strengthening of the institutional environment within which they can be put to productive use. It is therefore necessary for donors to move to an institutional and more holistic approach to capacity building to ensure sustained results. One such approach is RBM. RBM focuses on results, which must also be the focus and guiding parameter for any capacity building exercise. Thus, when requested for capacity building assistance, it is wise for donors, as a first step, to require the requesting agency to begin with a specification current performance shortfalls, described in terms of outputs and outcomes. The identified performance variance is then used to work diagnostically to the identification of institutional causes which can then be addressed through capacity building. The success of the capacity building investment will be tangible and monitored improvement in the identified performance shortfall, viz outputs and outcomes. The above process becomes a staring point to focus the public sector agency on tangible and monitorable results. When aid dollars are used to demonstrate tangible improvement in public sector performance, it becomes a powerful motivator for both donor and recipient to program future aid for capacity building along similar processes, thus gradually promoting the move to results based management. Donors should therefore use the opportunity of request for capacity building to gradually move the agency to adopting a full fledged RBM system.

3.2

RBM Supports the Sector Wide Approach

The sector wide approach (SWAp) is another potential entry point for the application of RBM in developing countries. The SWAp approach to the delivery of public services assumes that the central service agency, be it the ministry of health, education or transport, assumes lead responsibilities for the

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delivery of specified outcomes for the sector over a medium term period (5 to 10 years). The focus is very much on outcomes. A SWAp discourages the project-based approach of some donors under the principle that all project investment should contribute to key sectoral outcomes. Therefore, it is logical to begin with medium term outcomes and then work back to developing a program of outputs, reforms, investments and recurrent activity which will ensure outcome achievement. In this connection, performance analyses such as described above, are undertaken to identify what policy, institutional and financial constraints hinder the achievement of eventual outcomes. The sector program of investment and reform is built around addressing these constraints. Hence the term programmatic approach. The sector program is led by the lead sectoral agency, and supported by colleague agencies and donors. The lead agency takes accountability for achievement of stated outcomes.

Figure 3. Elements of a Sector Wide Approach

Policy & Legal Framework

- Economic Growth and Poverty Reduction Indicators Sector Outputs Sector Impacts - Human Development Indicators - Environment Indicators

Sector Inputs

Institutional Capacity

SWAps assume that a results based management system is in place for the concerned sector agency. In fact a SWAp is not feasible unless: (i) clear and strategic outcomes and outputs have been identified by the sectoral agency, (ii) there is in place an information system which monitors and reports on the achievements of these, and (iii) there is continuing analysis of the variables affecting the achievements of related targets.

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Box 4. The Cambodian Priority Action Program Ministry of Education Key Sectoral Outcome: In furtherance of its contribution to poverty reduction the Ministry of Education established in 2000 the overall policy objective of achieving universal education by the year 2010 Constraints Identified through Problem Analysis: There was a need to reduce the educational cost burden on poor households so as to increase participation of their children in basic education; Delivery of education to the primary level was constrained by high levels of repetition (on average, about 40% of students repeated grades I and II). It was estimated that the annual cost of repetition was Riels15-20 billion in the education budget; Teachers were underpaid and many supplemented their salaries by demanding additional payments from students and by absenting themselves from teaching to take on second jobs; Program Actions Developed: Provide a discretionary budget for each school consisting of a flat amount topped up by a pro rata amount for each student registered. The money was to be used for operations and maintenance. The requirement for parents to pay a registration fee for each student was discontinued and School Support Committees were expected to ensure that such payments were not demanded at the start of each school year.; Deliver remedial lessons during the long vacation for all grades I and II students who did not meet the required standards during the school year. The lessons would be for half a day for two months of the vacation. The program was extended to years I-VI in 2001; Pay teachers additionally to provide the remedial classes; Outcomes /Impacts: In the first year the program, despite some hiccoughs, had the following outcomes: Not all schools were able to implement the requirement for parents not to pay the registration fee, partly as a result of tardy disbursements on the part of the Ministry of Finance. The reported Provincial Treasury requirement that, in some provinces, it be paid up to a 10% commission for funds released, also reduced the amount of funds received by each participating school; An additional 86,000 students gained access to the next grade. In the pilot provinces, promotion rates from Grade I to Grade II increased from 54% in 1999 to 82% in 2000 and from Grade II to Grade III from 67% to 83% respectively, approximately halving the rate of repetition and, consequently, saving the education budget in the region of Riels 10 billion in costs; 4,500 teachers in 10 provinces were trained by UNICEF and the NGO KAPE in remedial teaching and gained additional wages for 120 hours of teaching; The role of the School Support Committee as an active representative of the community in school affairs was reinforced by giving the Committees something positive to do by ensuring that payments were not demanded by schools for pupils to register; An IEC program supporting PAP resulted in improved parent support for schooling which produced an increase in Grade I entries in 2000 of about 41%; 64 District Budget Management Centres had their first experience of managing priorities between schools and disbursing funds which was increased to 183 in 2001.

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3.3

Decentralization

Many developing countries are in the process of decentralization. Strong political motivations are usually behind this trend and often governments have little choice but to move in this direction. The decentralization process provides an excellent opportunity for developing country governments and donors to promote and institutionalize RBM as part of this process. The objective of decentralization is to delegate and empower local agencies and governments with authorities and accountabilities for a variety of purposes more responsiveness to local needs, relieving central fiscal pressures, giving a greater voice to local authorities in managing government. Decentralization provides an ideal opportunity to institutionalize RBM. Local government is usually required to substantially revamp itself in terms of mandate, focus, structure, systems, resources, and staffing in this process. Such a dramatic reconstitution of any organization is a perfect opportunity to ask all the basic questions that RBM requires such as what is the fundamental purpose of this organization? Who are its clients? What are the results it should deliver to them? How can it be best structured and managed to do so? RBM is in fact the only reasonable and practical way to approach organization restructuring as part of a decentralization process. It ensures that the expectations and objectives of the decentralization process have indeed some probability of being achieved. It also ensures that all the relevant issues related to ensuring effective decentralization are put on the table and examined by decision makers in a responsible and comprehensive manner.

4.

Potential Coverage of RBM within Government

Theoretically, RBM can and should be applied to every government department or agency. In New Zealand, RBM was applied equally to service delivery agencies such as health and education services, as to central and core agencies such as Treasury, the Public Service Commission and the Central Bank. For instance, as part of this application, the Reserve Bank Act of New Zealand provides for the government to enter into a contract with the Reserve Bank to maintain inflation within agreed parameters. In general, the application of RBM probably benefits support, advisory and regulatory agencies more than service delivery agencies, though it is more easily applied in the latter. The results of service delivery agencies are fairly obvious and are usually the focus of day-to-day activities and decisions (though they may not be regularly reported on). In the case of advisory, regulatory and support agencies, such results are not easily apparent. They need to be fleshed out through disciplined analysis, asking basic questions such as what is the purpose of this organization? Who are its clients and in what way does it serve them? If it disappears, what will be lost and who will suffer? In developing countries, public sector agencies that have most easily accepted and adopted RBM are municipalities and essential service agencies such as health and education. The common characteristic of these agencies is that they deliver critical services to the public, their performance on these services is easily translated into monitorable performance indicators, and elections are often won or lost based on the quality of or improvements in their services. The fact that implementing RBM across whole of Government may be difficult does not preclude its application to specific agencies whose functions lend themselves more easily to such a system such as

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public works, transport, education or health. RBM can be applied across the public sector, or limited to selected agencies, or even to specific units within an agency. Sometimes, it is strategically wise to begin with small discrete organization units who become in turn, the beacons and torch bearers for the adoption of the system within the broader organization. The discipline of focusing on results, monitoring and reporting on performance, analyzing shortfalls and improving has a powerful positive influence through the organization, and makes work more meaningful and rewarding.

5.

Principles for Implementing RBM

Implementing RBM is not an inherently expensive exercise. There are numerous examples, such as the Bangalore City Revival Program, where with very modest resources, but with strong high level commitment, the program was initiated and implemented. Sometimes, when donors enter the picture, they visualize the introduction of RBM as an end in itself. Thus, it is projectized, substantial money is thrown into the exercise, enthusiastic consultants are given design and implementation responsibilities, conditionalities are imposed to milestone the implementation, and a detailed schedule is developed. However, to be successful the implementation of RBM must be a process, often using trail and error in a slow and gradual process of adjustment. Finding the best possible fit between the system on the one hand, and the nature and constraints of the concerned organization on the other, is a major challenge. Conditions are never ever perfect.

5.1

Incentives are Essential

Like any new system, implementation is contingent on the strength of incentives. Practicing RBM is a challenge, and particularly for public sector organizations that are traditionally activity and disbursement oriented. Taking on accountability for clearly defined outputs, and making budget allocations conditional on achievement of these can be threatening to say the least. The system therefore must be made attractive enough for the leadership to pursue it determinedly. What are some of the possible incentives to promote institutionalization? One option is to make contestable the services to be provided by the public agency. This is not always feasible since many public functions, particularly those related to policy making and regulation, are intrinsic to the role of government. However, it is often possible to make the delivery of public services contestable. When a service departments existence depends on competing with private sector suppliers, performance very soon improves dramatically. Such services can range from provision of agricultural extension services, to health and education, and even weather forecasting. In PNG, more than half the annual recurrent budget for health is allocated to NGOs to manage rural health clinics. And, at the encouragement of donors, this practice is now spreading to other services as well such as education and agricultural extension. A second option is the use of the public report card. As indicated earlier, the experiments with public report cards in Bangalore, Madras and the Philippines have been hugely successful in enhancing the service performance of municipalities and central agencies. The issue of course is who takes accountability for the financing and management of this audit process? In the above examples, it has been NGOs, supported the government. This is the preferred option since it ensures that the exercise remains cost effective and transparent.

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Political re-election always remains a fairly strong incentive for politically elected heads of agencies, such as municipalities, to push for more effective performance. Tangible improvements in the delivery of essential services are usually the most dependable strategy for re-election. However, while reelection is an incentive for the elected, it is not for the administration. Thus, it then falls on the elected head of the municipality to find ways to motivate the administration to improve services. The most effective incentive has been linking annual budget allocations to the delivery of outputs. At one extreme, this is in the form of output based budgeting. However, one need not go all this way. Even simply requiring a disciplined public report on output achievement based on the budget provided to the agency, is often incentive enough to make the administration feel accountable and therefore motivated enough to meet assigned targets.

5.2

Internal Ownership and Commitment is Necessary

RBM cannot be effectively implemented and institutionalized unless it is internally led. It needs the commitment and support of the highest level of management of the organization. While this may be saying the obvious, it is repeatedly apparent that donors do not always practice this principle. There have been numerous cases of SWAps where donors, unhappy with the performance of the sectoral agency, have themselves taken over and developed the sector program for the developing agency. Their motivation has usually been the need to commit funds to the program and this commitment is often contingent on the quality and acceptability of the program to their own home offices. Needless to say, the program has failed. RBM is more than a system or a program. It envisages a set of managerial attitudes and an organizational culture that give pre-eminence to results in the management of operations. This implies substantial changes in the nature of daily managerial transactions ranging from decision-making, financial management, and HR management. It implies a different attitude to the public and relations with major stakeholders. In essence, effective RBM means a whole new perspective to agency operations, and one which cannot be imposed from outside. External incentives can of course be created to encourage this change in mind set. But finally, it is necessary for internal leadership to accept and lead the initiative. A related issue is the lack of attention paid by donors to management and absorptive capacity when deciding on supporting a sectoral or municipal program. It is typical that the merits and urgency of the intended outcomes and impacts become the overarching criterion for decision making on levels of donor aid to a particular program. While this is indeed important, program dimensions and funding must finally be to internal leadership capacity and commitment. If not, then program failure should come as no surprise. 5.3 Keep it Simple

This implementation principle parallels the principle of internal leadership. In effect it states that RBM should be implemented by and within the capacities of the concerned organization. Too often donors contribute consultants who usually take over leadership of the exercise, and devote much effort to transplanting a system that has worked in their own developed country but is quite inappropriate in the conditions prevailing in the developing country. There is reluctance to compromise on the sophistication of the system even though local capacities very apparently cannot cope with it. The classic example is the

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push to introduce output-based budgeting in some Pacific countries as part of RBM. Most of these countries have poor existing financial management systems and skills. The prevailing and more simple line budgeting system does not work effectively. Yet, a profound leap of sophistication is expected with the adoption of output based budgeting at the instance of donors. Aspects that need to be kept simple to smoothen the process of implementation include the number and type of performance indicators selected, the systems used to collect, process and report on performance information, the periodicity and comprehensiveness of reporting, systems linking budgets to output planning and delivery, and the type of feedback provided.

5.4

Performance Data Management and Reporting

What you measure and monitor is what you get is the oft-quoted dictum of RBM. Equally critical is the management and processing of performance data and feeding it back in digestible form to decision makers and operations staff. One of the most powerful forces in changing behavior and motivating performance is pertinent, objective and timely feedback. Again, a danger in the design of management information systems (MIS) supporting RBM, is to leave it in completely in the hands of information management specialists and developed country consultants. Their natural tendency is to resort to a level of sophistication that leads to a complex information system, requiring financing and skills beyond the capacity of the concerned agency. This happens repeatedly and the MIS operates only as long as donors are able to finance and support it. Information on performance should ideally be built into daily management practice. This makes simplicity mandatory, if operators and supervisors are to take the time to record performance. Whether these are clinic records or teacher reports, the principle must be to require the essential minimum, and ensure that this is effectively used, before scaling up information requirements. A related issue to note here is that organization information systems capture certain data as a result of transactions but they do not capture what they have not dealt with so they can report on how many clients they have serviced, not how many they should have. It therefore remains essential to supplement organization information systems with pubic and independent audits such as have been described earlier. 6. Conclusions

When donors promote RBM in developing countries, the system usually falls victim to a results orientation among donors that is output rather than outcome focused. An outcome focus to RBM would emphasize the sustained institutionalization of the system in the developing country. This would by definition require local ownership of the initiative, and the tailoring of sub systems and processes to local skills. This in turn would demand a slow and gradual build up of leadership commitment on the one hand, and a long term systematic strengthening of skills and institutional capacity to manage. This approach, however, is often contrary to the typical short term donor need for tangible and quick results. It is therefore not surprising to see RBM fail so often when supported by donors. SWAps are usually an excellent entry point. There is often a meeting of intentions and commitment in the development of a SWAp, between the developing country and donors. SWAps generally focus on priority development goals for both the country concerned and the internal community.

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The opportunity should be used to also introduce RBM as a system to support the sustained management and effectiveness of a SWAp. It would be helpful if success stories in the design and implementation of RBM in developing countries are documented and shared more widely. There is a wealth of experience in the application of RBM. And while results have been mixed, the lessons of the success stories can have an important impact on encouraging wider application. Finally, there is no easy fix. The task of shifting to results based management is a long term proposition. It can only be addressed in gradualist fashion through carefully developed and integrated capacity building initiatives that address the typical constraints and choose the right types of indicators. Donors have an important role to play in providing judicious though sustained support to get the desired outcome better use of the developing countrys limited resources for the benefits of its citizens.

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