Identifying productivity in the public sector

Executive summary: The aim of this audit was to examine selected areas of government activity to see if sufficient information was available to identify and assess changes in productivity. The following six activities in five agencies were examined: primary and secondary school education (the Department of Education and Communities), acute inpatient care (NSW Health), CityRail (Transport for NSW), all activity in the NSW Police Force, and the NSW Local Court (the Department of Justice). Productivity is commonly defined as the amount of output per unit of input, such as labour or capital. Despite its importance, productivity trends in the public sector are not well understood or reported to Parliament. All of the agencies examined had an understanding and reported on input, output and quality indicators that could be used to track their productivity. However, agencies did not have clear guidance or direction about how this information could be used to track productivity. We found that agencies had a better understanding of, and improved reporting for, efficiency. Efficiency trends are equally important to understand the impact of changing cost. However, not all agencies met their legislative requirement to report on qualitative and quantitative measures and indicators of efficiency performance where practicable. We also found that the NSW Government’s 2011 wages policy – which allows for remuneration increases above 2.5 per cent per year as long as wage offsets, including productivity improvements, are sufficient to restrain total employee expenses growth to less than 2.5 per cent – has been effective in supressing employee expense growth. Supporting findings Productivity in the public sector is important Improved public sector productivity leads to a higher standard of living for citizens. Given that the New South Wales public sector represents roughly one-sixth of the New South Wales economy, improved public sector productivity also contributes to economic growth. While the main drivers of economy-wide productivity are outside the control of individual organisations, such as investment in education and infrastructure, improvements in labour productivity can also be driven by issues that are within the control of individual organisations. These include human capital, organisational infrastructure and use of technology. In the absence of a competitive market, reporting on and understanding productivity within an individual government organisation is key to improving performance. It assists in identifying strategies to improve how work is being carried out to improve service delivery. All agencies had some ability to track their productivity and efficiency We found that all of the agencies examined had the ability to track their productivity and efficiency in their activities over time (see Exhibit i below). The Department of Justice, however, had a limited ability to track its productivity and efficiency trends due to a lack of accessible and reliable data for all its core outputs and a lack of quality indicators