Performance Measurement for Not for profit organisation Question # Culture Centre Tauranga is a rapidly expanding coastal town

of about 100,000 people. The city has a wide number of leisure facilities including a multiplex cinema and a new culture centre which combines a museum and an art gallery. The multiplex cinema (Big Screen) is a profit oriented and privately owned firm. The culture centre is publicly funded and managed, and is non-profit seeking. The culture centre was built after considerable delays caused by opposition from local tax payer groups. Income and Expenditure accounts for the last year were as follows: Culture Centre $000 Income: Grants Ticket Sales Sponsorship Sales of refreshments Total Less: Staff Cost Maintenance and repairs Fees to artists/film distributions 125 Operating Costs Net Interest Total Costs Operating surplus 1000 0 200 126 1326 $000 Big Screen $000 0 700 58 654 1412 $000

532 50 350 384 135 (1226) 100

312 15 65 412 (1156) 258

Other information of last year: Culture Centre Visit per year Average visits per local resident Artists shown/ films shown Opening times Open days 125,000 0.6 15 9am to 5pm Monday Saturday 255 days Big Screen 200,000 1.5 65 10am to midnight Everyday 363 days

Number of Staff Annual Salary ($000) 100 80 60 40 20 Culture Centre 1 1 1 20 5 Big Screen 1 1 0 0 20

Required: (a) What are the problems faced by the Culture Centre when measuring its performance? (10 marks) (b) Comment on how the Culture Centre could measure the Value for money of its service provision for the year. Calculate appropriate performance measures that the Culture Centre could use and contrast with Big Screen. (10 marks) (Total: 20 marks)

Answer # Culture Centre (a) A number of difficulties arise when attempting to measure the performance of the Culture Centre. Multiple Objectives The Culture Centre will have multiple objectives, e.g. attract visitors to the town, showcase new artists, and improve the culture of local people. Even if they can all the clearly identified it may be impossible to say what overriding objective is. Measuring Outputs Outputs can seldom be measured in a way that is generally agreed to be meaningful as it is difficult to judge whether non quantifiable objectives have been met. (For example, how can we measure the quality of an exhibition?) Data collection can be problematic. For example, the quality of service offered to visitors may be measured by the number and type of letters received either complaining or praising the centre. If this measure is used it ignores the majority of visitors who will not bother to write. Lack of profit measure The Culture Centre is not expected to make a profit and as there is no admission charge. Financial indicators are therefore meaningless. Nature of service provided Like many non-profit seeking organizations that provide services, the Culture Centre will find it difficult to define a cost unit. This problem does exist for commercial service providers but problems of performance measurement are made simple because profit can be used. Financial Constraints Although every organization operates under financial constraints, these are more pronounced in non-profit seeking organizations. For instance, a commercial organizations borrowing power is effectively limited by managerial prudence and the willingness of lenders to lend, but a local authoritys ability to raise finance for the Culture Centre (whether by borrowing or via local taxes) is subject to strict control by Central Government. Political, social and legal constraints Unlike Big Screen, the Culture Centre is subject to strong political influences. Local authorities, for example have to carry out central governments policies as well as their (possibly conflicting) policies. The performance indicators of public sector organizations such as the Culture Centre are subject to far more onerous legal requirements than those of private sector organizations such as the Big Screen. Whereas profit seeking organizations are unlikely in the long term to continue services making negative contribution, non-profit seeking organizations may be required to offer a range of services, even if some are uneconomic.

(b) Value for Money involves providing a service in a way that is economical, efficient and effective (the 3Es). The Culture Centre can monitor the value for mone y being achieved by monitoring each of these criteria, bearing in mind that the achievement of one criterion might conflict with the achievement of others. In order to make such calculations meaningful they should be compared against prior year data or a similar business. Economy is the attainment of the appropriate quantity and quality of inputs at the lower of cost. Fir example is assessing the salaries paid to staff the aim is to obtain the desired quality at the lowest price. Effectiveness measures whether an organizations objectives have been achieved. The culture Centre has numerous and potentially conflicting objectives. Efficiency is the relationship between inputs and outputs, in other words, obtaining the greatest possible output for a given input.

Economy

Performance Measures

Culture Centre

Big Screen

Average cost of staff

$532000/28 =$19000 $125000/15 =$8333

$312000/22 =$14182 $350000/65 =$5384

Average cost of fees to artists/film distributors

The culture centre seems to achieve worse economy than Big Screen. A comparison of staff costs shows that the Culture Centre has higher average costs than Big Screen. However the desired skills and experience are not likely to be the same for both organizations. A better comparison would be to compare these ratios with other centers in other parts of the country. The Culture Centre also has higher average cost of fees to artists / film distributors. However again there is a difficulty comparing these two organizations because of the differences in the nature of showing a film and an artists exhibition.

Effectiveness The Culture Centre attracts 125000 visitors per year. This in itself may be the measure of success or otherwise of the centre (although this should be compared against a benchmark such as other similar attractions or prior year data once it exists). It should be noted that however the average visits per local resident last year was lower than Big Screen.

Measures of success in meeting objectives such as to improve the cultural life of local residents will prove very difficult as this is hard to quantify. The other data given does not enable a view to be taken on other objectives such as attracting new business.

Efficiency The Culture Centre could monitor the percentage of total days or hours which it was open. This would highlight the efficiency of usage of available resources and focus managers attention on the need to meet customers needs. The data indicates that the Culture Centre is open far less than Big Screen. Research would need to be undertaken to determine whether opening hours similar to Big Screen would be beneficial for the Culture Centre. Performance Measures Culture Centre Big Screen

% of days open

255/365 =70% 70% x 8/24 =23%

363/365 =99% 99% x 14/24 =58%

% of hours open

Another measure of efficiency might be cost per artist/film. The data shows that this is far higher for the cultural centre. However again there is a difficulty here of not comparing like with like. For example, the set up costs for an exhibition may be far higher with more space required. In addition the Culture Centre has a museum as well as being an art gallery. The costs of the Culture Centre could be split between its different functions but this in itself is problematic.

Performance Measures

Culture Centre

Big Screen

% of days open

1226000/15 =81733

31154000/65 =17754

Whilst these measures go some way towards assessing the Culture Centres performance they need to be compared to a similar organization in order to be able to draw meaningful conclusions from the data.