Performance Analysis in Private Sector Organizations

Performance Analysis in Private Sector Organizations describes financial performance indicators; describes non-financial performance indicators; analyses past performance; explains the causes and problems created by short-termism and financial manipulation of results; explains the Balanced Scorecard and the Building Block Model and discusses the difficulties of target setting in qualitative areas.

Performance Analysis in not for Profit Organizations and the Public Sector

Not for profit organizations have general objectives which include:

• “Surplus maximization (Similar to profit maximization)
• Revenue maximization
• Usage maximization
• Usage targeting (Matching the capacity available)
• Full/ partial cost recovery (Minimizing subsidy)
• Budget maximization: Maximizing what is offered
• Producer satisfaction maximization: Satisfying the wants of staff and volunteers
• Client satisfaction maximization: Generating the support of the public”

Performance could be measured in Private Sector Organizations through:

Performance can be measured using the value for money criteria of economy, effectiveness and efficiency.

• Economy is spending money frugally
• Efficiency is getting the most for the money spent.
• Effectiveness is getting what has to be done economically and efficiently
• Public sector organizations

Public sector organizations come in many shapes and forms. The most obvious examples are schools and hospitals, police forces and local transport providers, but there are many less visible organizations such as regulatory bodies. The objectives of public sector organizations are very different from those of commercial organizations, and this can make performance management more complicated. The following factors in particular differentiate public sector organizations from commercial:

1. They have a broader group of stakeholders than commercial organizations. This can lead to greater conflicts. Commercial organizations are likely to be mainly concerned with shareholders, employees, customers and their lenders. Public sector organizations are likely to be interested in pleasing the providers of funding (the government), the users of the service and the taxpayer. In the case of schools, for example, parents would be happy to see more money spent on education but, as taxpayers, they may not wish to pay more taxes.
2. Customers do not pay directly for the services they receive, and there may be little relationship between the costs of providing the service and the amount it is used. Consider a subsidised bus service, for example. The daily costs of running the buses are likely to be largely fixed, and do not depend on the number of passengers using them at least in the short term. This makes it harder to decide how much should be spent on the service.
3. Many public sector organizations operate as monopoly providers. Even if customers are not happy with the service they receive, they cannot switch to an alternative supplier. In commercial organizations, this is generally not the case, and bad performance will lead to a loss of customers and, therefore, loss of funding.
4. The output of public sector bodies is often difficult to measure. How do you determine how much work a police force has performed? Statistics such as the number of crimes reported may be used. If the police force is doing a good job however, and crime is falling, the number of crimes reported may fall. So the lower number of crimes reported would wrongly suggest that the police force is not working so hard.

There is a perception that performance in public sector organizations is poorer than in the private sector, both in terms of efficiency and quality of service.