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CHAPTER 1 Guide for Target-Setting This Guide for Target-Setting outlines a structure that can be used by transportation agencies for developing and evaluating targets. This section describes the actual structure and how an agency might implement it, including examples gleaned through actual agency implementation (these examples reference Case Studies provided in Volume III, which has been published as NCHRP Web-Only Document 154). Target setting must be applied strategically and carefully, with an understanding of the context in which targets will be applied. There is no one predefined, prescribed approach for setting and using targets because their intended use can vary greatly; in fact, no agency currently relies on a single, pre- scribed, systematic approach for setting targets. Using the information from the case studies, as sum- marized in Volume I, the seven-step process from NCHRP Report 551 can be reconstituted and refined within the context of the PBRA framework to create a flexible structure to guide agencies in setting targets. The structure is as follows: · Step 1--Establish Performance Management Framework. Establish the Framework that links organizational goals to resources and results. Performance measures and their atten- dant targets are the link connecting goals to specific investments. · Step 2--Evaluate the Factors Influencing Target-Setting. Ask the right questions about the factors internal and external to the agency that affect target-setting and the approaches that can be used. · Step 3--Select the Appropriate Approaches for Target-Setting. Based on the factors in Step 2, select an approach or approaches for setting targets. · Step 4--Establish Methods for Achieving Targets. Within the context of the Performance Management Framework, identify methods that orient the agency and its resources towards achieving the targets set in Step 3. · Step 5--Track Progress Towards Targets. As part of the "Measure and Report Results" element of the Performance Management Framework, track progress specifically against targets. · Step 6--Adjust Targets Over Time. Based on financial and political realities, ease, or difficulty of achieving targets, and increasing experience in PBRA, use the feedback loop in the Performance Management Framework to reevaluate and adjust targets. Table 1.1 provides a comparison between the seven-step process used in NCHRP Report 551 and the approach suggested in this report. The following sections explain each of the suggested six target-setting steps in further detail. Step 1--Establish Performance Management Framework Performance-based resource allocation (PBRA) takes place within an overall Performance Management Framework. The six elements of the Performance Management Framework are described in Figure 1.1; the Framework is described in greater detail in Volume I, Chapter 2. To II-5
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II-6 Guide for Target-Setting and Data Management Table 1.1. NCHRP Project 8-70 target-setting structure compared to NCHRP Report 551 seven-step process and performance management framework. NCHRP Project 8-70 Performance Approach NCHRP Report 551 Seven-Step Process Management Framework Establish PBRA framework. · Define the context for target setting and Entire framework, within establish time horizon(s). agency context. · Develop long-term goals based on con- sideration of technical and economic factors. Evaluate the factors · Determine which measures should have Target setting. influencing target-setting. targets. · Consider current and future funding availability. · Consider policy and public input implications for target setting. Select the appropriate · Establish targets. Target setting. approaches for target-setting. Establish methods for · Analyze resource allocation scenarios and Target Setting and achieving targets. tradeoffs. subcomponent of allocate Resources. Track progress towards · Track progress. Subcomponent of measure targets. and report results. Adjust Targets Over Time. N/A Part of feedback loop. Goals/Objectives Performance Measures Target Setting Quality Data Evaluate Programs and Projects Allocate Resources Budget and Staff Measure and Report Results Actual Performance Achieved Figure 1.1. Performance management framework.
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Guide for Target-Setting II-7 summarize, Performance Management is a business process that links organizational goals and objectives to resources and results. Performance measures and their attendant targets are the lynchpin in this process connecting goals to specific investments. The approaches by which measures and targets are set and the methods by which they are used in investment decision- making play critical roles in the overall success of a public agency or private company. Establish Goals and Objectives Performancebased resource allocation decisions are anchored in a set of policy goals and objectives which identify an organization's desired direction and reflect the environment within which its business is conducted. For example, many state DOTs have well-defined goals for the transportation system, including infrastructure condition, level of service and safety, as well as goals reflecting economic, environmental, and community values. Likewise, the private sector frequently establishes policy goals to guide production of products and services while defining the environmental and community context for its investment decisions. Through this first step, many of the factors that will affect target-setting will begin to become more evident (see Step 2). In the private sector, the processes used by most companies operate such that every goal should have a target and every target should align with a goal. Most companies prefer to reduce the number of goals and targets rather than risk misalignment or confusion between goals and targets. MNC and Corporation X, both large companies, are focused on cost reduction. Select Performance Measures Performance measures are a set of metrics used by organizations to monitor progress towards achieving a goal or objective. The criteria for selecting measures often include the following: · Feasibility, · Policy sensitivity, · Ease of understanding, and · Usefulness in actual decision-making. Companies that use Total Quality Management (TQM) rely heavily on simple metrics because changes are implemented at the shop floor level where data must be readily obtained and recorded in order to be credible and immediately actionable. Also, changes in the definition of metrics over time can stifle motivation to achieve the target; companies that use balanced scorecards need stable metrics more than most because unstable metrics make the scorecard appear unreliable. DIY Company has consistently used one key metric--transportation cost as a percent of gross trade sales. Identify Targets Targets are a quantifiable point in time at which an organization achieves all or a portion of its goals. These points set a performance level for each organizational measure, such as achieving
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II-8 Guide for Target-Setting and Data Management a 25 percent reduction in highway fatalities by 2030. The steps used to set such a target include the following: · Establish Performance Management Framework, · Evaluate the Factors Influencing Target-Setting, · Select the Appropriate Approaches for Target-Setting, · Establish Methods for Achieving Targets, · Track Progress Towards Targets, and · Adjust Targets Over Time. Realistic targets are essential to making rewards and penalties effective in the private sector. The anticipated gains can be embedded in business unit or depart- mental budgets, and individuals can be more readily held accountable for their performance towards reaching the target. MNC uses an annual cost reduction target that is widely communicated throughout the organization. Allocate Resources The allocation of resources (time and money) is guided by the integration of the preceding steps into an organization's planning, programming, and project development process. To the extent possible, each investment category is linked to a goal/objective, a set of performance mea- sures, and a target. Specific investment proposals are defined in relation to specific targets. Measure and Report Results The data for each performance measure must be regularly collected and periodically analyzed. The analysis should indicate how close the organization is to achieving its targets and identify the actions necessary to improve results. Many public and private sector organizations have tracking systems in place to monitor performance allowing senior staff to make periodic budget adjustments. Mn/DOT prepares a one-page "snapshot" with performance measures and red, yellow, and green colored shapes to represent annual progress relative to targets, by state and by district. The snapshot graphically illustrates the trend direction and projects the next year's forecast. Corporation X uses a combination of hard- ware and software to gather data from its widely dispersed field operations. Create Data Management Systems "Good" data is the foundation of performance management. Effective decision-making in each element of the performance management framework requires that data be collected, cleaned, accessed, analyzed, and displayed. The organizational functions that produce these requirements are called data management systems. The first key dimension centers on the technical chal- lenges associated with data systems, including development and maintenance of hardware and software, and the specifications for data collection, analysis, archiving, and reporting. The second area focuses on the institutional issues associated with data stewardship and data governance. These focus areas will be explored and discussed in Chapter 2.