QUANTITATIVE PERFORMANCE MENASUREMENT OF TAX OFFICES IN SLOVENIA

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1 QUANTITATIVE PERFORMANCE MENASUREMENT OF TAX OFFICES IN SLOVENIA Prof. Stanka Setnikar Cankar, Ph.D., Faculty of Administration, Slovenia Žiga Andoljšek, Ph.D., Faculty of Administration, Slovenia ABSTRACT Measuring performance is this days more and more important also in public sector. National governments are struggling to secure the necessary revenues to meet the growing demands for public services. Monitoring efficiency and effectiveness does not ensure customer satisfaction on its own. The users of public services are citizens, so careful attention must be paid to providing the public with an influence over determining outputs and outcomes. The purpose of measuring efficiency and effectiveness is to create as high an output as possible with the resources available, and hence to achieve the set outcome. This means sufficient public participation must first be ensured when setting objectives and monitoring operations. In democratic countries this means using social responsibility, whereby an institution is socially responsible in its operations to stakeholders. Once a public institution s operative objective has been set, and social influence ensured, the next issue is the institution s organisation and control over its operations. Managers can derive considerable assistance in that area from efficiency and effectiveness monitoring using a measurement system like the one presented in this paper. The objective of this paper is to present the system of indicators developed for a public administrative institution, which takes into account most of the specific characteristics of the public sector. The final result of the analysis is a set of indicators that eliminates most of the imbalance in the information available to managers and owners in planning and comparisons between public institutions, makes decision-making easier for management, and promotes efficiency and effectiveness within an institution. Defining the system of indicators requires the prior definition of the basic classification areas for the indicators of the most significant factors. This are: Technical /technological factors, Human factors, Organisational factors, Quality, Outcome. The multi-stage combination of data is the most suitable model for measuring efficiency and effectiveness in the public administration. This enables a large number of factors that affect value, but that are relatively difficult to define in similar terms, to all be taken into account. This model provides aggregate indicators at different levels of aggregation which indicate the state or changes in each of the areas included. A characteristic of the method used is that we can observe the step-by-step aggregation of indicators according to the indicator groups defined theoretically at individual levels. The analysis took into account theory on efficiency and effectiveness. Taking this and the dynamics of the environment in question, we selected an aggregate indicator method, although there also exist multi-variate analyses that group indicators mathematically. 1

2 Indicator system proves that the effectiveness of public institutions can be measured. In this way financing can be based on results and not just political or negotiating power. Publishing results provides the public with information on the use of budget funds and the functioning of the public administration. If opinion surveys on taxpayer satisfaction also formed part of the assessment process, the quality and outcome indicators would be even more representative. This would further improve responsiveness to public demands, which is one of the main objectives of performance measurement. 1 INTRODUCTION Improving and measuring efficiency and effectiveness has been a constant theme of government development for at least 50 years. Over the past two decades recessions, increasing demands from the public and objections to payment of taxes in the OECD countries have forced them to attempt to improve the effectiveness of their public administrations (Policy Brief, 1, 2004). Targeted budgeting should transform the trends in public administration. These reforms have moved the function of managers away from input to output and objectives. The positive effect of these reforms has been achieved by properly developing the measurements and indicators needed to record actual results. Since some categories are difficult to measure, one must find a balance between measuring or not measuring. Control processes themselves have an impact on the more efficient use of budget funding and the more effective functioning of public institutions. Monitoring efficiency and effectiveness does not ensure customer satisfaction on its own. The users of public services are citizens, so careful attention must be paid to providing the public with an influence over determining outputs and outcomes. The purpose of measuring efficiency and effectiveness is to create as high an output as possible with the resources available, and hence to achieve the set outcome. This means sufficient public participation must first be ensured when setting objectives and monitoring operations. In democratic countries this means using social responsibility, whereby an institution is socially responsible in its operations to stakeholders, who are the public, non-governmental organisations, interest groups, associations and other interest parties. Once a public institution s operative objective has been set, and social influence ensured, the next issue is the institution s organisation and control over its operations. Managers can derive considerable assistance in that area from efficiency and effectiveness monitoring using a measurement system like the one presented in this paper. The purpose of this paper is to expose the need to improve effectiveness and efficiency in public institutions. This requires a system of indicators to be defined, to provide a picture of institution s current state. Nevertheless, an awareness of the specific characteristics of Slovenian public institutions means an individual approach will be used. The objective of this paper is to present the system of indicators developed for a public administrative institution, which takes into account most of the specific characteristics of the public sector. The final result of the analysis is a set of indicators that eliminates most of the imbalance in the information available to managers and owners in planning and comparisons between public institutions, makes decision-making easier for management, and promotes efficiency and effectiveness within an institution. 2 SYSTEM OF INDICATORS TO MEASURE PUBLIC ADMINISTRATION EFFICIENCY AND EFFECTIVENESS First the areas that have a significant impact on any institution (in the private or public sector) must be defined. Each of these areas must be assigned an appropriate weighting with respect to their importance, in order to determine the overall efficiency and effectiveness. All areas may be given the same weighting, or a range of weightings may be assigned. The definitions of these areas and connections between them are based on OECD 2

3 definitions, findings from other professional literature on public sector economics, as well as the nature of the Slovenian public administration. This led to five basic areas within the system, with indicators in each area giving a measurement of efficiency and effectiveness. It is vital to ensure in the first phase of analysis that the selected indicators actually offer a realistic presentation of efficiency and effectiveness in the specific area. This means, for instance, that the indicators should provide an accurate measurement of the state of and changes to operational quality in the Tax Administration of the Republic of Slovenia or the Culture Inspectorate of the Republic of Slovenia. Many of the main indicators for these institutions will of course differ and not be mutually comparable, but that is not relevant at this phase of the analysis. The system of indicators built on this basis will also prove useful in the next phase for calculating the aggregate indicators. It has been found in (public and private) institutional practice that decisions adopted on the basis of logically structured indictors are better than those made on the basis of intuition alone. A database incorporating a system of indicators has to be created to ensure the tool is available to the management directly involved; this is its primary purpose. Defining the system of indicators requires the prior definition of the basic classification areas for the indicators of the most significant factors. The following factors are those mentioned most frequently in the professional literature (Rozman, 2002, pp ): Technical /technological factors, Human factors, Organisational factors. Some other factors will be added to these, especially those with an impact on effectiveness. Improving effectiveness measurement has a direct effect on costs, which is seen in the profit (performance/effectiveness). Rozman (in Pučko and Rozman, 1992) and Tekavčič (and Možina et al., 2002) state that the same group of factors affect both efficiency and effectiveness indicators. Effectiveness in the public sector can also be expressed in non-financial terms, so this must be reflected in the set of indicators. This primarily involves indicators on the quality of services, which are becoming increasingly important. There is also a need to define indicators relating to achieving the organisation's outcome or the socially defined rational operation of an institution. The latter indicator in particular will directly indicate effectiveness in terms of meeting operating objectives. 2.1 Employee capabilities The public administration is a service sector in which the capacity of its employees has an exceptional impact on economic output (Etizioni, 1964, p.2). Staff and their knowledge are the main capital of each such institution and a condition for their successful operation. People, or their capacities, are the key production factor in service sectors. Set objectives can only be met by adapting operations to the changing environment. There are three basic attributes, without which nothing will be achieved: knowledge, skills, and motivation. This means that people will not function if they do not know how to perform a function, cannot perform a function or do not want to. If just one of these is missing, the person is taken out of action. Knowledge, skills and motivation can together be referred to as staff capabilities (Lipičnik, 2002, p.456). People can consciously take information from an environment, process it and pass it on. Theoretical writers (Ivanko, 2003) have stated that the definition of knowledge is essential to the correct processing and use of information to meet an institution's objective. Knowledge functions as the medium and transformer when information is assembled in different forms and content, and as new knowledge and new services. A certain level 3

4 of knowledge is required even for the production of normal services. More knowledge means the time taken to perform everyday tasks is reduced, making service performance more efficient. People can acquire knowledge through education, in-work training and through experience. This means that institutions must continually invest in employees and their knowledge, and that investment will produce an economic return in the form of greater efficiency in work and a more effective institution. Educated and properly trained employees are an important productive driver of efficiency and effectiveness in public administration. This includes both formal education and work or skill-related training, while a third component is found in relations between employees and the employee attitude to customers. Public administration is introducing a new method of managing human resources. The changes are based on a different attitude to their employees. One important change is in how knowledge and skills are evaluated. This new approach goes beyond simply recognising certificates and various other qualifications on paper and emphasises the content of the knowledge with which employees contribute to an institution's objectives and development. Inwork training contributes to this very objective. Continual education is essential to being able to continually monitor changes in the profession, in administrative procedures, and changes in legislation and other legal acts (Cassells and Thornhill, 1993, p.159). If surveys are not carried out in these institutions, then bookkeeping data is available from which results can be taken and used in literature, education, and seminars. Investment in people indicators are above all a measure of potential, as they are based on education, in-work training and experience. 2.2 Technology Efficiency is expressed through low operational and material costs per production unit, which means the efficient utilisation of working resources and work subjects. Productivity measures the technical side of an institution s efficiency (Rozman, 1992, p.265), economy takes into account other production factors in addition to the main production factor in service creation, which is work. Technology can significantly increase efficiency. The public sector produces products and services but is not technically intensive. Its work and tasks are defined by laws on the functions of ministries and their agencies, including the Administrative Procedure Act (Official Gazette of the Republic of Slovenia, no. 83/2003, 45/2004, 61/2004) and other regulations. Since the technology used is defined by law and the management do not have a specific influence on its selection, it is not taken into account in the efficiency and effectiveness indicators. Nevertheless, technical equipment is vital to every activity. The tools, as working resources have traditionally been known, in the service sector today are being replaced by computers, modern telecommunications and partially by means of transport. People apply the work resources to the subject of their work, which is transformed by the process into products or services. The more modern the subject of work, the faster people can generate output and with greater ease, which leads to greater efficiency. 2.3 Organisation People consciously strive to achieve as much as they can with as little input as possible, to achieve maximum output from the resources used. The raw materials of the operating process are arranged in time, space and content to achieve the greatest possible efficiency. Organisation is the formal and technical process of combining these raw materials, processing, and products and services to achieve the highest possible level of effectiveness (Rozman, 1999, p.268). Processes in an institution can take place without human intervention. The objective of processes is greater productivity, lower costs, higher quality and implementation of services, all of which requires cooperation 4

5 between a large number of employees. Cooperation between many people requires coordination and management. If coordination is poor or non-existent, then disorder and inefficiency will be the result. Specialisation is a vital part of organising the work of the public administration, especially within ministerial agencies. All employees have some degree of specialisation to perform their tasks. Different classifications of tasks and duties can be found in different agencies, but the agencies themselves have little influence over their own work organisation, which will now be managed by the Ministry of Public Administration. It is very important to measure how dependent efficiency is on work organisation. This is measured by the burden on individual employees and cooperation, divided into internal and external. Internal means the classification of tasks and specialisation, with each person specialised for specific tasks. Cooperation is another vital part of public administration, which increases the amount of services produced and the level of quality. The organisational factors measured include the utilisation of capacity, utilisation of working time, utilisation of space, standardisation, specialisation and cooperation (Tekavčič in Možina et al., 2002, p. 669). Managers must use these indicators in their work. These indicators are intended to measure what can be achieved by wellorganised human and technical resources. They should also indicate which areas are well-organised and which are poorly organised. 2.4 Quality An institution offering high quality services is considered to be special and different from other organisations by its customers. A service organisation's successful operation depends on whether it offers quality. The quality of a service is assessed by the users; their satisfaction or disappointment constitutes the "moment of truth" in which a service organisation discovers its strengths and weaknesses (Potočnik, 2000, p.157). Quality can be measured at many levels: organisation, management and the individual. Each level provides information on how processes function. The results must relate to the lowest level possible, as only then can the manager of an individual unit and individual responsibilities be distinguished. The public administration today demands greater emphasis on the quality of service implementation, and particularly on greater understanding and attention to the quality of services the public actually wants. Measuring service quality has a large impact on the operation, organisation and management of every organisation, as it provides feedback on the users' perceptions of service quality. This policy has been implementing the United Kingdom since 1993 when the then Prime Minister, John Major, issued the Citizens Charter, setting out citizens' rights in relation to the public administration. In 1992 the Competing for Quality document was issued, defining a five-year cycle for the implementation of a quality assessment system for public services. A similar trend can been seen in France, where public administration quality has been improved in line with the total quality management theory (TQM). Researchers have recently developed some models, the most typical of which is the Servqual (service quality) measurement model (Kasper et al, 1999, p.216). The Servqual model was developed in 1986 by Parasuraman, Zeithaml and Berry on the basis of several years of research at the Marketing Science Institute in Cambridge (MA), USA. The model is based on measuring the gap between user perceptions and expectations of quality. The method is based on a scale of five groups of quality dimensions (Parasuraman et al., 1986, pp. 6 7): tangibles, reliability, responsiveness, assurance and empathy. The method s main objective is to ascertain the relationship between the customer and the service provider. It must focus on tasks, which involves service provider-customer contact. The number of complaints provides information on customer satisfaction with the service provision. Submitting a complaint clearly indicates a lack 5

6 of confidence that the organisation is functioning correctly. However, the resolution of complaints must also be considered because not all of them are justified. 2.5 Outcome Effectiveness is measured by ascertaining whether an organisation has met its objectives. Each organisation, be it public or private, has its own objective or purpose of operation. In the private sector this purpose is to create profit, though this objective is increasingly being replaced by return on equity (ROE), return on investment (ROI) and return on assets (ROA). Each of these involve an increase in the organisation s owners assets. Effectiveness in any organisation is defined in terms of achieving objectives. This concept can be applied to social responsibility which has also appeared in the field of entrepreneurship in recent years. The concept is based on a company s approach to the various problems of its employees, partners and the community. Institutions must face the question of whether they are functioning properly on a daily basis. Good managers, who attempt to answer this question, are caught between the economic benefits of an institution and management as defined by customs, rules and expectations. The ethical part of decision-making must take into account the various participants (stakeholders) and their differing interests. The stakeholder theory defines the benefits to economic subjects that operate within society; in return for these benefits the economic subjects must offer various services or amenities (Campbell, 2003, p.280). According to this theory, an institution is obliged to meet the objectives of the owners and of the stakeholders, though the latter is on a voluntary basis, and to integrate social and environmental concerns into its operations (Green Paper 2002, p. 8). The effectiveness of public institutions depends on the socially defined objectives that set and achieved. The socially defined objective for the Tax Administration of the Republic of Slovenia is the proper collection of taxes from taxpayers, the objective of the Customs Administration is the proper collection of customs duties, the objective of the Slovenian Police Force is to ensure law and order in society. Of course, these objectives are difficult to measure, and certain aspects may even be unmeasurable. The tax debt and tax revenues can be measured to give the outcome for the Tax Administration, replaced by the customs revenue indicator for Customs, while the number of cases solved is one indicator for the Police. 3 AGGREGATE INDICATOR Measuring efficiency and effectiveness is a very complex area. Economic theory makes clear that a number of factors affect efficiency and effectiveness. A set of indicators has to be defined to include all these factors. An unsystematic approach will have a negative impact on the analysis results so it makes sense to define the indicators in terms of the areas set out in the preceding chapter. The approach used by international institutions (e.g. UN or OECD) to assess sustainable development, which is a similar problem, was another reason in favour of using the aggregate indicators. In the case at hand this involves aggregating simple indicators from a lower level with a higher level to achieve transparency and a systematic approach. 3.1 Creating simple efficiency and effectiveness indicators Absolute data is only rarely used in comparisons between operative units. Better quality information can be obtained on relations between various phenomena if relative figures are used. The relative figure method is simple and based on basic mathematic functions. 6

7 Creating simple efficiency and effectiveness indicators depends on the definition of basic categories: inputs, outputs and outcome. When these categories have been defined in line with the theory described above, actually composing the indicators is a simple process, and depends on the institution being studied. It is essential at this stage to acquire data on the output and outcomes of individual institutions, which must be defined in relation to their objectives. Only if they are defined correctly will the indicators actually measure what they are intended to measure. 3.2 Aggregate Performance Indicator for Public Administration (PIPA) The multi-stage combination of data is the most suitable model for measuring efficiency and effectiveness in the public administration. This enables a large number of factors that affect value, but that are relatively difficult to define in similar terms, to all be taken into account. This model provides aggregate indicators at different levels of aggregation which indicate the state or changes in each of the areas included. The diversity of public administration agency activities means that only the first and second level of aggregation will be uniform, and the creation of aggregate indicators at lower levels of aggregation and simple indicators will be left to the management of individual institutions. This will lead to each institution producing an aggregate indicator for the first aggregate level and first second level indicators. Table 1: Including indicators in the efficiency and effectiveness indicator UNIFIED BETWEEN INSTITUTIONS First level of aggregation Second level of aggregation unified for public admininstration Aggregate Performance Indicator for Public Administration PIPA1 Technical indicators (PIPA2-1) Employee capabilities indicators (PIPA2-2) Organisational indicators (PIPA2-3) Quality (PIPA2-4) Outcome (PIPA2-5) DIFFERENT BETWEEN INSTITUTIONS Simple indicators different for instiutions with different services Simple indicators or aggregation on level PIPA3, PIPA4 Simple indicators or aggregation on level PIPA3, PIPA4 Simple indicators or aggregation on level PIPA3, PIPA4 Simple indicators or aggregation on level PIPA3, PIPA4 Simple indicators or aggregation on level PIPA3, PIPA4 This procedure produces a system of public administration efficiency and effectiveness indicators (PIPA), which will be prearranged and uniform for the first two levels (PIPA1 and PIPA2), while at the lower levels (PIPA3, PIPA4, simple indicators) managers will be able to select the indicators or areas most suited to their institution. The five basic sets of second level indicators can be supplemented with additional aggregate levels, suitable for different types of activity. A third and fourth level of aggregate is used in measuring the efficiency and effectiveness of tax offices. 7

8 Figure 1: Selection of aggregate indicators for the Tax Administration In addition to defining a method of aggregating data, a standardisation method must also be defined. The standardisation alowes to compare indicators expressed in different measures. 4 PUBLIC ADMINISTRATION EFFICIENCY AND EFFECTIVENESS INDICATOR SYSTEM The analysis will start by selecting indicators at the lowest level (fourth), which will be aggregated into higher level indicators. Despite the diversity of tax office, they can be compared because they all share the same organisation, rules and perform the same tasks. A total of 223 simple indicators were defined at this level, which are aggregated into the aggregate indicator according to the theoretical scheme. The aggregation scheme produces 13 third-level (PIPA3) aggregate indicators, five second-level (PIPA2) indicators, and one first-level (PIPA1) indicator for evaluating the efficiency and effectiveness of tax offices. The 223 proposed indicators were narrowed down to 178, which were included in the system and in the secondphase calculation of aggregate indicators. Since the database in the observed institution was not configured to calculating all these indicators, it was not possible to calculate 45 of them. Nevertheless, this data is in the tax administration system, and a partial adjustment would mean that all 223 indicators could be calculated. 4.1 Partial analysis The indicators were aggregated in line with the scheme and the tax administration's efficiency and effectiveness was analysed on the basis of: - simple indicators - standardisation model comparing institutions with similar activities - factor analysis First and second level indicators (PIPA1 and PIPA2) The highest level of aggregation provides the most condensed form of information on efficiency and effectiveness. This level is only intended to give a rough comparison between institutions, but its simplicity 8

9 means it will probably the most frequently used. This level can reveal that something is bad (or good), but to ascertain what is wrong (or right), one must look at a lower level - all the way down to the simple indicators. Table 2: First and second level indicators (PIPA1 and PIPA2) Second level indidators (PIPA 2) standardised values Employee capabilities (PIPA2-1) Technical indidators (PIPA2-2) Organisation al indicators (PIPA2-3) Quality (PIPA2-4) Outcome (PIPA2-5) First level indicator (PIPA1) Nonstandardise d values Standardise d values Tax Office 1 0,25 0,00 0,71 0,68 0,24 0,38 0,00 Tax Office 2 0,47 0,97 0,70 0,47 0,18 0,56 0,66 Tax Office 3 0,63 0,37 0,00 0,66 1,00 0,53 0,55 Tax Office 4 0,64 0,85 0,66 0,83 0,30 0,65 1,00 Tax Office 5 0,63 0,19 0,24 0,65 0,38 0,42 0,15 Tax Office 6 0,70 0,71 0,06 0,67 0,44 0,52 0,50 Tax Office 7 1,00 1,00 0,33 0,00 0,74 0,61 0,86 Tax Office 8 0,67 0,61 0,89 0,36 0,30 0,57 0,68 Tax Office 9 0,29 0,52 1,00 0,77 0,29 0,57 0,71 Tax Office 10 0,56 0,90 0,79 0,52 0,20 0,59 0,77 Tax Office 11 0,35 0,14 0,30 0,87 0,61 0,46 0,28 Tax Office 12 0,16 0,10 0,45 1,00 0,65 0,47 0,35 Tax Office 13 0,80 0,94 0,42 0,42 0,00 0,52 0,51 Tax Office 14 0,00 0,89 0,63 0,46 0,73 0,54 0,60 The last two columns in the table give the non-standardised and standardised values of the first-level efficiency and effectiveness indicators. The highest score was achieved by Tax Office 4, with Tax Office 7 in second place and Tax Office 10 third; these tax offices are in the upper quarter of the 0-1 scale. Tax Office 1 would be classified at the very start of this scale and Tax Office 5 at The management of Tax Office 1 and Tax Office 5 undoubtedly must take action. Looking at the second level (PIPA2) reveals in which general areas action should be taken. Tax Office 1 achieved its lowest scores in the area of technical resources (PIPA2-2), while its outcome (PIPA2-5) and staff capabilities (PIPA2-1) also scored poorly. The scores were relatively poor in Tax Office 5 for technical resources (PIPA2-2) and organisation (PIPA2-1). However, these are just rough assessments of the state of a specific area. Taking specific measures means investigating the state at the third and fourth levels of aggregation Third (PIPA3) and fourth level indicators The application of multi-stage aggregation means content-based areas can be formed that make it easier to adopt measures to make improvements, as they can be linked to management functions (or department organisation). The increased complexity of calculations for a procedure due to the large number of different areas partially reduces the transparency of the system (at the third level PIPA3 there are 13 aggregate indicators), but this is largely a higher level problem, and should not be too problematic at lower levels, as individual managers can control "their" part of the system. Analysis at the second aggregation level indicates that DU1 achieved poor results in three areas, the poorest of which was in technical resources. The technical resource indicators were classified into three groups. 9

10 Table 3: Second and third level indicators (PIPA2 and PIPA3) Third level indicators (PIPA 3) standardised values Technical indicators measure of outcome (PIPA3-4) Technical indicators measure of output (PIPA3-5) Technical indicators measure affect future (PIPA3-6) Second level indicators (PIPA2) Nonstandardise d values Standardise d values Tax Office 1 0,23 0,22 0,26 0,24 0,00 Tax Office 2 0,47 0,62 0,88 0,65 0,97 Tax Office 3 0,20 0,17 0,81 0,39 0,37 Tax Office 4 0,11 0,69 1,00 0,60 0,85 Tax Office 5 0,10 0,13 0,72 0,32 0,19 Tax Office 6 0,52 0,58 0,53 0,54 0,71 Tax Office 7 1,00 1,00 0,00 0,67 1,00 Tax Office 8 0,65 0,69 0,16 0,50 0,61 Tax Office 9 0,32 0,42 0,63 0,46 0,52 Tax Office 10 0,50 0,70 0,67 0,62 0,90 Tax Office 11 0,04 0,00 0,85 0,30 0,14 Tax Office 12 0,00 0,06 0,78 0,28 0,10 Tax Office 13 0,50 0,73 0,70 0,64 0,94 Tax Office 14 0,52 0,35 0,99 0,62 0,89 Indicators within this group should offer an overview of the efficiency and effectiveness of technical resources in an individual tax office. It is clear that Tax Office 1 was not the worst in any area (no indicator has the value 0), but it achieved such low results that it was last in the group comparison. The background to the low scores in the first two areas (PIPA3-4, PIPA3-5) are low tax revenues (outcome) and number of points achieved (output) for technical resource inputs (ongoing expenditure for goods and services, computers, vehicles). The third-level figures revealed that Tax Office 1 is in a poor state in every technical resource area, but more detailed data is needed to take action. Even in Tax Office 7, which had the highest score for technical resources, there are sufficient grounds for improvements to be made. In the first two areas (outcome and outputs) it achieved the best scores, but for the third indicator, which measures technical resource characteristics that could affect future efficiency and effectiveness (PIPA3-6) it had the lowest score. The third-level indicator values revealed that the situation is poor in some areas. Taking concrete action requires a more accurate analysis of the situation, which can be found by looking at fourth-level indicators. It is essential that the system ensures the traceability of the main causes of good or bad efficiency and effectiveness, so that measures to improve them can be defined in more detail. 4.2 Standardisation v. factor analysis A characteristic of the method used is that we can observe the step-by-step aggregation of indicators according to the indicator groups defined theoretically at individual levels. The analysis took into account theory on efficiency and effectiveness. Taking this and the dynamics of the environment in question, we selected an aggregate indicator method, although there also exist multi-variate analyses that group indicators mathematically. For this reason we used factor analysis to verify if the indicator groups had been defined correctly and the tax offices ranked correctly. This defines groups of indicators on the basis of variable values. Indicator aggregation takes place directly from the fourth to second level. The classification of indicators by group cannot be externally influenced. 10

11 Table 4: Classifying tax offices using different standardisation methods Tax Office 14 Tax Office 13 Tax Office 12 Tax Office 11 Tax Office 10 Tax Office 9 Tax Office 8 Tax Office 7 Tax Office 6 Tax Office 5 Tax Office 4 Tax Office 3 Tax Office 2 Tax Office 1 Standardisation Factor analysis Source: Andoljšek, 2004, 159 The classification of tax offices by factor analysis is almost the same as classification by standardisation at all levels of aggregation. The author considers that classification by factor analysis is more mathematical and cannot be influenced. In classification by standardisation, the selection of indicators can be subjectively influenced. It is also important that standardisation takes into account the absolute gap between tax offices and eliminates different units of measurement. Familiarity with the tax offices and ongoing monitoring offer even more realistic results. 5 CONCLUSION Of the available models, the one offering the most realistic picture in the current circumstances is the standardisation model for the comparison of institutions with similar activities. It is vital that averages eliminate the impact of a different number of indicators on the final indicator and the ranking of the institutions studied. Standardisation eliminates different units of measurement in which the indicators are expressed, and indicates the gaps between the different units studied. This takes into account the absolute gap between units. The ranking of institutions at different aggregate levels can be seen, in line with the methodology. The first and second level are of particular interest to managers and control. When a database covering several years and a system of efficiency and effectiveness indicators has been set up, then norm values for each indicator can be defined. The standardisation model can then be implemented on their basis with the norm values which will be supplemented at higher organisational levels of the public administration with the method of standardisation of institutions with different activities. This means the time dimension would also be included in the assessment of efficiency and effectiveness. The purpose of this paper is not just to produce an analysis and ranking of institutions, but to define tools allowing managers to manage their institution more efficiently. The indicator system offers a wide range of information that provides an overview of how the organisational structure is functioning, and makes decisionmaking easier. This is an internal justification of the benefits. Even more, publishing results provides the public with information on the use of budget funds and the functioning of the public administration. If opinion surveys on taxpayer satisfaction also formed part of the assessment process, the quality and outcome indicators would be even more representative. This would further improve responsiveness to public demands, which is one of the main objectives of performance measurement. 11

12 The vision provided by the indicator system is also of external benefit. It proves that the effectiveness of public institutions can be measured, which should enable financial planners to target funds at less developed areas and units that most need funding. In this way financing can be based on results and not just political or negotiating power. Publishing results provides the public with information on the use of budget funds and the functioning of the public administration. If opinion surveys on taxpayer satisfaction also formed part of the assessment process, the quality and outcome indicators would be even more representative. This would further improve responsiveness to public demands, which is one of the main objectives of performance measurement. 6 LITERATURE ANDOLJŠEK, Ž. (2004): Merjenje učinkovitosti in uspešnosti državne uprave na primeru Davčne uprave Republike Slovenije. Doktorska disertacija, Ljubljana, 212 str. CAMPBELL et.al. (2003): Business Strategy: An Introduction. Butterworth-Heinemann, Oxford, 478 str. CASSELLS, F. in THORNHILL, D. (1993): Self Assessment and Administrative Tax Reform in Ireland. V: Sandford Cedric (ed.): Key issues in Tax Reform. Bath, Fiscal Publications, str ETIZIONI, A. (1964): Modern organizations. New Jersey, 256 str. IVANKO, Š. (2003): Novi trendi v razvoju in organiziranosti sodobnih institucij. Uprava, FU, 124 str. KASPER et al. (1999): Services Marketing: Management. An Interational Perspective, 750 str. LIPIČNIK, B. (2002): Ravnanje z ljudmi pri delu. v Možina et al.: Management, Didakta, Radovljica, str MOŽINA et al. (2002): Management. Didakta, Radovljica, 872 str. OECD (2004): Public Sector Modernisation: Governing for Performance. OECD, str. 8 PARASURAMAN et al. (1986): Servoqual a Multiple Item Scale for Measuring Customer Perceptions of Service Quality. Marketing Science Institute, Cambridge, 39 str. PUČKO, D. in ROZMAN, R. (1992): Ekonomika in organizacija podjetja. 1. knjiga: Ekonomika podjetja, Ljubljana, 344 str. POTOČNIK, V. (2000): Trženje storitev. Gospodarski vestnik, 229 str. ROZMAN, R. (1999): Teorija organizacije. v Kavčič, B. in Kovač, J., Sodobna razlaga organizacije, Moderna organizacija, Kranj, str