Ways to measure and manage the value behind public procurement
Each year, the government has an allotment of public procurement spending to be doled out amongst various goods and services. These items help the government accomplish goals, ensure operations continue to run, and meet any public policy needs. Procurement levels are also often a good indicator of the robustness of a country’s economy and functionality of its financial institutions.
The measure of its value is elusive, however, and to date, the government has not set standards to measure the value of procurement. This creates certain obstacles and allows organizations the freedom to pick and choose what standards to measure their procurement in general.
In this article we’ll discuss:
- How is the government measuring (or is not measuring) public procurement?
- Ways to measure public procurement value
- Guidelines in place to ensure efficiency
How does the government measure public procurement?
There are no consistent metrics to measure
Unfortunately, there are no across the board metrics that can be used to measure government procurement. That means that an organization has its own unique way of how they measure public procurement and do not have a set of standards which to use for comparison. There are some broad metrics that many do use, such as savings/cost avoidance, customer satisfaction, and small business/socio-economic metrics. Because these metrics seem to cut across industries, it is easy to see why these standards would be used to try and value public procurement. These metrics are also good indicators as to how efficient the customer/supplier relationship is.
A good amount of what organizations use to measure public procurement ends up being a list of the organization’s best practices and would have no real value when applied to another sector. When left to their own devices, sometimes overseers of procurement relationships use what has been done in the past, and take no initiative to try and work out a better, and perhaps more cost-effective, system.
Another issue with this lack of consistent metrics is that organizations can be simply told by lawmakers or special interest groups what they should be tracking. When the people that hold the money tell you how they want to see the procurement measured, organizations tend to acquiesce.
Why is this a problem?
This is a problem because without ways to track how organizations measure, and compare, public procurement you cannot know if it is efficient. You also cannot develop a reliable set of data to track and see if any trends have developed. Trends offer insight into how the relationship is really functioning. By missing out on this information, it is harder to see if any improvements or adjustments might be made. If a relationship has produced good outcomes over the years, there’s no way to track if it could be better, and either the customer or the supplier could have a better outcome. This lack of data could seriously be hampering the manner in which some contracts are written and enforced.
Efficiency is something that everyone can agree on is a desirable outcome, but with no standard set of metrics, it is very hard to track. Because organizations choose what metrics they want to track their procurement value, perhaps the metrics they follow do not completely measure whether the procurement operations fully deliver on the objectives laid out in the original contract. This can lead to problems with the supplier/customer relationship and put a strain on any potential new ones.
Would standard metrics make this process more accountable?
Each relationship between contractor and supplier is different, and it would be difficult to create a standard set of metrics by which to measure the value of public procurement across the board. This is why we have such a large array of differing procurement measurements. But perhaps instead of attempting to measure the value of procurement, we work on the process used to measure performance. By doing this, organizations can still have the flexibility to use the metrics they prefer, but how they track the performance of these procurement relationships would be more standardized. It would be helpful to have an agreed set of performance measurements by which to measure procurement value. When creating these measurements, policy makers, suppliers and contractors should consider:
- Consistent policy goals
- Accurate and reliable information
- Defining and measuring efficiency
- Introduce a performance driven culture
- Strong support and guidance
- Availability of information
These are important to working towards a more consistent way to measure procurement performance, and hopefully its value. When the goals of the organization’s measurements align with the above list, there is not only more consistency but also more transparency.
Metrics can be linked to Outcomes and Critical Practices
Many of the metrics available to organizations linked to outcomes and critical practices are just not being employed at all. This is a problem since procurement measurement is closely linked to both of those. Many of the metrics currently used to measure procurement are only company best practices created and used internally for company oversight. They were not specifically designed to measure and track procurement value. By strengthening performance measurements that comply with critical practices, organizations can hope to get more consistent, desirable outcomes.
Outcomes
This is the key to measuring public procurement, and the best way to judge if the system is efficiently working or needs to be revised. There are 4 key outcomes desired from any public procurement:
- Enabling the agency mission and customer objectives
- Achieving the best value (managing costs)
- Complying with rules and policy
- Achieving social policy goals
The most efficient and desirable procurement relationships occur when all of these outcomes are met. It shows that both sides are continuing to benefit from working together and are operating efficiently.
Critical Practices
These are essential practices that bring about the outcomes listed above and lead to beneficial procurement relationships. When these targets are met, outcomes are good and consistently beneficial:
- Customer engagement
- Core procurement capabilities
- Supplier and contract management
- Procurement talent and organization management.
By using these practices, organizations should have an easier time reaching optimal outcomes.
Ways to measure public procurement value
By taking all the loose parts that surround measuring procurement, we see three components emerge. Since value is subjective, and without standard procurement measuring metrics, there are a couple of broad ways to interpret how critical processes and outcomes can be viewed:
- Customer value. This measures the value placed on the end item good that ends up with customers.
- Supplier value. This takes into account the value of the supplier performance and their working relationships.
- Procurement value. How procurement delivers value to customers and the organization.
These are a few ways that procurement value could be measured. This will vary according to contract and according to the organization, but it is a good place to start to track how each component measures up. By understanding the critical processes required to reach ideal outcomes, policy makers and company overseers can hopefully improve their processes.
Looking forward
Are standards possible?
It seems that definite standards would be ideal for measuring public procurement value. Perhaps they could very well be measured according to a set of government measurements, but that would rely on a consensus of policymakers, suppliers, and customers across a wide swath of industries. It doesn’t seem likely that this will happen. In the meantime, perhaps we focus on performance measurement in procurement instead.
As we mentioned above, by agreeing on a certain set of broad objectives to make performance measurement more precise, organizations can apply those standards to their particular industry or contract. This offers more flexibility than can be offered by rigid standards, but still gives some guidelines for how to measure procurement more effectively.
Public procurement value is difficult to measure, and as we’ve seen, there are many ways that organizations continue to do this. Unfortunately, this does not leave us with a standard set of metrics by which to judge what is working and what is not. But perhaps if all parties worked harder towards developing a clearer, more consistent way to measure performance in procurement, we would be a little closer to judging its true value.
