Measures of outputs, efficiency & effectiveness

An entity’s performance measures must include measures of the entity’s outputs, efficiency and effectiveness, if these are appropriate measures of the entity’s performance in the context of its purposes or key activities.

Historically, output measures have been the dominant means by which entities have measured their performance. However, there is a reasonable expectation that, where appropriate, performance measurement would include measures of effectiveness and efficiency of the key activities undertaken to achieve entities purposes.

In some cases it may be appropriate to use a proxy measure, that is, an indirect measure of the activity which is strongly correlated with the activity to measure effectiveness and efficiency of the activity. For example, this may occur when data is not available or cannot be collected at regular intervals, or when the cost of gathering and analysing information is prohibitive or outweighs the potential benefits of collecting and reporting on it.

Where impact of activities is difficult to assess, output measures may be an appropriate assessment proxy for whether services have reached their intention, at the right time and cost.

For an entity with key activities involving the development and provision of policy advice to government, the development of output measures may be sufficient as effectiveness and efficiency measures may not be appropriate when the cost and reliability of data collection and the needs of stakeholders are taken into account.

If proxy measures are used, it is good practice for entities to include in their corporate plan an explanation of why they are being used, and demonstrate why the proxy measure is suitable.

What is an output measure?

Output measures assess the quantity and quality of the goods and services produced by an activity (including their volume or quantity).

What is an efficiency measure?

Efficiency is generally measured as the price of producing a unit of output, and is generally expressed as a ratio of inputs to outputs. A process is efficient where the production cost is minimised for a certain quality of output, or outputs are maximised for a given volume of input. In a public sector context, efficiency is generally about obtaining the most benefit from available resources; that is, minimising inputs used to deliver the policy or other outputs in terms of quality, quantity and timing.

Key activities that are transactional in nature (such as the processing of welfare or grant payments, the operation of call centres or revenue collection functions) lend themselves to efficiency measurement, in addition to the measurement of outputs and effectiveness to provide a complete picture of the performance of the entity.

What is an effectiveness measure?

Measures of effectiveness assess how well an entity has delivered on its purposes; that is, whether the activities of the entity have had the intended impact/policy objective/achieving the purpose.

Although the examples of effectiveness measures offered above are quantitative in nature, effectiveness will not always be able to be measured in quantitative terms. For many activities undertaken by the public sector, qualitative measures will complement quantitative measures. For example, people receiving education to improve literacy skills might be surveyed to understand the impact that an increase in literacy had on their quality of life.