ACCA Applied Skills · Performance Management

Performance Analysis in Not-for-Profit and Public Sector Organisations

Not-for-profit and public sector bodies exist to deliver services, not to make profit. You judge them by value for money: economy (low cost inputs), efficiency (output per input) and effectiveness (meeting objectives). Exam answers need the right measure, a link to the scenario and a clear view of its limits.

What this chapter covers

This chapter covers how you assess performance when profit is not the main goal. Charities, hospitals, schools, councils and government agencies pursue service aims, often with several stakeholders who want different things. Profit-based measures such as return on capital employed do not tell you whether they are succeeding.

The chapter has four parts. First, the typical objectives of these organisations and how they differ from those of a business. Second, the three Es of value for money: economy, efficiency and effectiveness. Third, the measures used, both financial and non-financial. Fourth, the problems of measuring and controlling performance when outputs are hard to define or value.

It links to the rest of the paper. You have already met performance measurement, the balanced scorecard and divisional performance for commercial firms. Here you apply the same thinking to a different setting. It also draws on stakeholder analysis and on budgeting and control. Expect it in objective test questions and as part of a written Section C answer, often inside a scenario about a charity, a school or a health service.

This chapter is short, but the ideas are easy to apply and easy to lose marks on. Objective test questions often ask you to classify a measure as economy, efficiency or effectiveness, and a wrong label scores zero because marking is all or nothing. In constructed response questions, you may be asked to suggest measures or explain problems for a named organisation. A student who learns the definitions and practises applying them to scenarios can pick up reliable marks with little study time.

Specific performance analysis issues in not-for-profit organisations and the public sector: topics in the order to study them

1Not-for-Profit and Public Sector ObjectivesStart here because every measure only makes sense once you know what the organisation is trying to achieve and who its stakeholders are.
2Value for Money: Economy, Efficiency and EffectivenessThis is the core framework of the chapter and the most tested idea, so learn it before looking at specific measures.
3Performance Measures for NFP and Public SectorOnce you know the three Es, you can sort financial and non-financial measures into them and choose suitable ones for a scenario.
4Problems of Measuring and Controlling NFP PerformanceFinish with the limits of measurement, since these points evaluate everything you learned before and support discussion answers.

How to prepare Specific performance analysis issues in not-for-profit organisations and the public sector

Aim for firm definitions first, then repeated practice applying them to short scenarios. Do not just read; classify and explain.

Write down typical objectives of a charity, a hospital and a school, and list who the stakeholders are for each.
Learn the three Es in your own words. Use one running example, such as a school or a hospital ward, and give a measure for each E.
Practise classifying measures. For each one, ask: is it about cost of inputs, output per input, or achievement of the objective?
Build a list of financial and non-financial measures for two or three organisation types, and note what each one tells you.
Learn the problems of measurement: multiple and unclear objectives, outputs hard to quantify, no profit figure, and the effect of political or donor influence. Prepare one example for each.
Answer one scenario question in full. Name the organisation, apply the measure, then give a limit or a risk, such as staff focusing only on what is measured.
Do a timed set of objective questions on this chapter and review every wrong answer for the reason you chose it.

Common mistakes in Specific performance analysis issues in not-for-profit organisations and the public sector

Mixing up economy and efficiency.
Fix: Ask one question: does the measure look at the price of inputs (economy) or at output relative to inputs (efficiency)? Practise with a few examples until it is automatic.
Treating effectiveness as a cost measure.
Fix: Remember that effectiveness asks whether the objective was met. Tie it to the stated aim of the organisation, for example outcomes for users.
Suggesting profit-based measures as the main test of success.
Fix: Start from the organisation's objectives and choose measures that match them. Mention financial control only as a constraint, such as staying within budget.
Giving generic answers that ignore the scenario.
Fix: Use the organisation's own services and stakeholders in every point. Name the measure, say what it shows and why it suits this body.
Listing measurement problems without explaining them.
Fix: For each problem, write what it is, why it arises in this organisation and what effect it has on control or decisions.
Ignoring that economy, efficiency and effectiveness can pull against each other.
Fix: Add a sentence showing a conflict, such as cutting costs to improve economy while harming quality and therefore effectiveness.

Last-day revision: Specific performance analysis issues in not-for-profit organisations and the public sector

Not-for-profit bodies aim to deliver services or benefits, not to maximise profit.
Many have several objectives and stakeholders, such as donors, users, staff and government.
Value for money means getting the best use of resources to achieve objectives.
Economy means buying inputs at the lowest cost for the right quality.
Efficiency means getting the most output from the inputs used, or using the least input for a given output.
Effectiveness means achieving the objectives or intended outcomes.
Economy can conflict with effectiveness: cheap inputs may reduce quality or results.
Use both financial and non-financial measures, and compare with targets, past periods or similar bodies.
Outputs are often hard to measure and value, and outcomes may appear much later.
Measures can distort behaviour if staff focus only on what is measured.
Always link your answer to the organisation in the scenario.

Specific performance analysis issues in not-for-profit organisations and the public sector practice questions

Specific performance analysis issues in not-for-profit organisations and the public sector in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Specific performance analysis issues in not-for-profit organisations and the public sector: frequently asked questions

What are the three Es in value for money?

They are economy, efficiency and effectiveness. Economy is about the cost of inputs, efficiency is about output relative to input, and effectiveness is about achieving the objectives. Together they show whether resources were used well.

Why can't you use profit to judge a not-for-profit organisation?

Its main purpose is to provide a service or benefit, not to earn a surplus. A body could make a large surplus and still fail its users. Measures must reflect the service objectives, with finance acting as a constraint.

How is this chapter tested in the PM exam?

It can appear in objective test questions, such as classifying a measure as economy, efficiency or effectiveness. It can also appear in a constructed response question, where you suggest measures or discuss the problems of measuring performance for a given organisation. Marking of objective questions is all or nothing.

What is the best way to revise this chapter quickly?

Learn the three Es with one example each, then practise sorting measures into them. Add a short list of measurement problems with a sentence of explanation for each. Finish with a timed set of questions and review any mistakes.