ORGANIZATIONAL PERFORMANCE MANAGEMENT

AND THE IRS BALANCED MEASUREMENT SYSTEM

Business Results

C ustomerSa tisfa ction

EmployeeSa tisfa ction

• Provide accurateand professionalservices tointernal andexternalcustomers in acourteous, timelymanner

• Create an enablingenvironment foremployees byproviding qualityleadership,adequate training,and effectivesupport services

• Generate a productive quantity ofwork in a quality manner and providemeaningful outreach to all customers

OFFICE OF ORGANIZATIONAL PERFORMANCE MANAGEMENT

DECEMBER 1999

Publication 3561 (01-2000)Catalog Number 28908N

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ORGANIZATIONAL PERFORMANCE MANAGEMENT ANDTHE IRS BALANCED MEASUREMENT SYSTEM

The IRS Balanced Measurement System has beendeveloped as part of the effort to modernize the IRS and toreflect the Service’s priorities, as articulated in the IRSmission. This new approach to measurement is intendedto help shift the focus of individuals and the organizationaway from achieving a specific target or number toachieving the overall mission and strategic goals of the IRS.

To help ensure balance, each of the three components ofbalanced measures – customer satisfaction, employeesatisfaction, and business results – will be carefullyconsidered by the IRS when setting organizationalobjectives, establishing goals, assessing progress andresults, and evaluating individual performance.

The IRS will use balanced measures, comprised of bothoutput and outcome measures1, at both the strategic leveland the operational level to measure organizationalperformance. At the individual level, critical elements andcritical performance expectations that support and alignwith the IRS mission and balanced measures approach willbe the basis by which employees are evaluated.

In September 1999, a “Balanced Measures Regulation”was issued to formally establish the IRS’ new performancemanagement system. The issuance of the regulation, whichfollowed a public comment period, sets forth the structurefor measuring organizational and employee performancewithin the IRS. A copy of the regulation is available on theIRS Insider and the IRS Digital Daily (www.irs.gov).

At the strategic level, measures will be used to assessoverall performance in delivering on the mission and threestrategic goals. Strategic measures will apply to theorganization as a whole and to each of the major operatingand functional divisions in the modernized IRS.

At the operational management level, balancedmeasures are used to assess the effectiveness of programand service delivery of particular components of theorganization.

The IRS has translated its mission into three strategicgoals of service to each taxpayer, service to all taxpayers,

1 Output measures reflect units produced or services produced by a program,

e.g., cases closed, calls answered. Outcome measures reflect results – thechanges or accomplishments that are achieved, e.g., customer satisfaction,employee satisfaction, quality.

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Measuring Performance at the IRS

STRATEGIC

OPERATIONAL

INDIVIDUAL

Measures the organization’soverall performance indelivering on the missionand strategic goals

Measures the effectiveexecution of particularaspects of the organization

Based on critical elementsand standards that arealigned with IRS balancedmeasures and mission

LEVE

L OF

MEA

SURE

MEN

T

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and productivity through a quality work environment.These three strategic goals are supported by the balancedmeasures as depicted in the next table. This frameworkwill assist the IRS in describing how programs andinitiatives tie to achievement of the mission and goals asreflected in improvements in the measurement results.

Relationship of Strategic Goals to Balanced MeasuresSTRATEGIC GOAL

w ObjectivesBALANCEDMEASURE

Service to Each Taxpayerw Make filing easierw Provide first quality service to each taxpayer

needing assistancew Provide prompt, professional, helpful treatment

to taxpayers in cases where additional taxes maybe due

Customer Satisfaction

Service to All Taxpayersw Increase Fairness of Compliancew Increase Overall Compliance

Business Results (Quality,Quantity & Outreach)

Productivity through a Quality Work Environmentw Increase employee job satisfactionw Hold agency employment stable while economy

grows and service improves

Employee Satisfaction

OPERATIONAL LEVEL BALANCED MEASURESFRAMEWORK

Service to Each Taxpayer/Customer SatisfactionThe “service to each taxpayer” goal is measured from thecustomer’s point of view. The goal of the CustomerSatisfaction element is to provide accurate and professionalservices to internal and external customers in a courteous,timely manner. The customer satisfaction goals andaccomplishments of operating units within the IRS aredetermined on the basis of customer feedback collected viamethods such as questionnaires, surveys and other types

of information gathering mechanisms. Information tomeasure customer satisfaction for a particular work unit isgathered from a sample of the customers served.Customers are permitted to provide information requestedfor these purposes anonymously. Customers may includeindividual taxpayers, organizational units or employeeswithin the IRS and external groups affected by the servicesperformed by the IRS operating unit.

Service to All Taxpayers / Business ResultsThe “service to all taxpayers” goal is gauged through a

combination of quality, quantity and outreach measures.The goal of the Business Results elements is to generate aproductive quantity of work in a quality manner and toprovide meaningful outreach to all customers. Thebusiness results measures consist of numerical scoresdetermined under the elements of Quantity and Quality.

♦ The quantity measures, which are to be used in conjunctionwith the quality, customer satisfaction, and employeesatisfaction measures2, provide information about thevolume and mix of work products and services produced byIRS operating units and consist of outcome-neutralproduction and resource data. Examples include thenumber of cases closed, work items completed, customereducation, assistance and outreach efforts undertaken, hoursexpended and similar inventory, workload and staffinginformation.

2 The Balanced Measures Regulation restricts the use of quantity measures for

organizational units with employees who exercise judgement with regard toenforcement of the tax law. Quantity measures may be used to setorganizational goals or to evaluate organizational performance in theseareas only if done in conjunction with the other elements of the BalancedMeasurement System. (See section 801.2(b) of the Regulation.)

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♦ The quality measures provide information about how wellIRS operating units developed and delivered their productsand services. The quality measures are determined basedupon a comparison of a sample of work items handled bycertain functions or organizational units against a prescribedset of standards that incorporate the customers’ point ofview. Additional quality measures will gauge the accuracyand timeliness of the products and services provided.

Productivity Through a Quality Work Environment /Employee Satisfaction

The “productivity through a quality workenvironment” goal is assessed via measures of employeesatisfaction. The goal of the Employee Satisfaction elementis to create an enabling work environment for employeesby providing quality leadership, adequate training,and effective support services. The employeesatisfaction ratings to be given within the IRS aredetermined on the basis of information gathered viasurvey. All employees have an opportunity toprovide information regarding employee satisfactionunder conditions that guarantee them anonymity.

ADDITIONAL LINKAGES BETWEEN BALANCEDMEASURES AND STRATEGIC GOALS

The relationship of operational performancemeasures to strategic goals as described above isintended to help illustrate the primary linkagesbetween the measures and goals. The IRS recognizesthat secondary linkages between the measures andthe three goals also exist. For example, efforts toimprove employee satisfaction in support of theproductivity through a quality work environment goal

often result in improvements to customer service therebyenhancing the service to each taxpayer goal. Similarly,quality efforts that improve the timeliness and accuracy ofwork performed not only result in improved businessresults and service to all taxpayers but can also result inimproved levels of customer satisfaction and better serviceto each taxpayer.

USE OF ENFORCEMENT DATA

In addition to the balanced measures, the IRS collects agreat deal of other information about programs andservices that is useful for purposes of tracking, analyzingand reflecting the factors that affect overall performance.Some of this information, such as dollars collected, dollarsassessed, liens filed, and seizures executed, are records of

Performance Assessment Framework

Organizational PerformanceAssessed Through Balanced

Measures

Examples of OtherAssessment,

Decision-MakingInformation

Cost and Size ofPrograms/Initiatives

•Budget•FTEs

Impact of Part icularStrategies/Initiatives

•Enforcement Results•Audit Coverage•Cost Savings/ROI

•Etc.

Business Results

CustomerSatisfaction

EmployeeSatisfaction

• Provide accurateand professionalservices tointernal andexternalcustomers in acourteous, timelymanner

• Create an enablingenvironment foremployees byproviding qualityleadership,adequate training,and effectivesupport services

• Generate a productive quantity ofwork in a quality manner and providemeaningful outreach to all customers

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tax enforcement results which the organization is prohibitedby law from using to evaluate or to impose or suggestproduction quotas or goals for any employee.

Therefore, in the IRS Balanced Measurement System,enforcement statistics are not measures of performance ateither the operational or strategic level. Enforcementstatistics are used, however, at a strategic level to makeprojections for and to assess the effectiveness of particularstrategies and initiatives. Such information is intended tohelp illustrate the potential impact of resource and strategydecisions on factors that affect overall compliance, such asaudit coverage.

DEVELOPING BALANCED MEASURES

At the Strategic LevelAs described earlier, measures at the

strategic level are meaningful for the service asa whole and for each of the operating andfunctional divisions. They will be comprised ofmeasures such as burden, compliance, overallcustomer satisfaction and employee satisfaction,and productivity. Taxpayer burden andvoluntary compliance, for example, are amongthe most important outcomes affected by IRS’activities for which measurements at thestrategic level are critical but also inherently difficult todevelop. The challenge is in identifying valid and reliableways to measure them.

To date, the balanced measures effort has focusedprimarily on the development of measures at theoperational level. However, work began in FY 1999 and

will accelerate in FY 2000 to develop strategic measures forroll-out in the modernized IRS during FY 2001. Once fullyimplemented, strategic measures will be used by the IRS inits annual performance plan at the Strategic ManagementLevel and for each Operating Division and FunctionalDivision.

At the Operational LevelThe IRS is utilizing a four-step process for the

development of balanced measures in each of its OperatingDivisions and Functional Divisions. The total durationfrom start to finish of this process varies depending on theavailability and usability of existing measures as well asthe complexity and related system requirements of thefinal set of measures selected.

In Phase I, Conceptualization and Problem Definition,the measures team is convened, a charter and timeline is

prepared, and a baseline of current measures, if applicable,is completed. The teams are comprised of national officeand field IRS personnel and union representatives. InPhase II, Development, the team identifies a proposed setof measures for each element of the balanced measurementframework – customer satisfaction, employee satisfaction,and business results. During this phase, best practice

Balanced Measures Development Process

PHASE I

Conceptual izat ion and Problem Defini t ion

PHASE II

Development

PHASE III

Design and Test ing

PHASE IV

Implementat ion

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reviews are conducted and a pro/con analysis is applied toeach proposed measure. Phase II concludes upon approvalof the proposed set of measures by the IRS OrganizationalPerformance Management Steering Committee. Forpurposes of obtaining additional feedback on the proposedmeasures, information is also shared with externalstakeholders and others via pressreleases and the IRS Digital Dailyweb site. In Phase III, Designand Testing, the approvedmeasures are thoroughly testedand revised as necessary. Animplementation plan is preparedfor the final phase,Implementation. Duringimplementation – Phase IV, anymanagement information systemrequirements and cost andpersonnel needs are resolved.Prior to rolling out the measures,a communication and trainingplan is completed and ownershipof the measures is clearlyestablished in the relevantOperating or FunctionalDivision.

PROGRESS UPDATE

The IRS completed balanced measures development forthe Examination, Collection and three Customer Serviceproduct lines in calendar year (CY) 1998. In CY 1999,additional balanced measures were approved for Tax

Exempt and Government Entities3, Large and Mid-SizeBusiness, Appeals, Taxpayer Advocate Service, Research,Statistics of Income, and additional Customer Serviceproduct lines. These measures are undergoing final designand implementation. Other measures teams underway inCY 1999 that are expected to have approved balanced

measures in early CY 2000 includeInformation Systems, CriminalInvestigation, Counsel,Submission Processing, andAgency Wide Shared Services. Allremaining areas, including SmallBusiness/Self-Employed and theWage & Investment OperatingDivisions, will commencemeasures development in CY2000. For the Small Business/SelfEmployed and Wage andInvestment Operating Divisions,much of the balanced measureswork that has already beencompleted for the Examination,Collection, and Customer Servicefunctions will be applicable. TheMeasures Development Progresstable reports on progress for theOperating Divisions andFunctional Divisions.

3 Balanced measures were approved for most of the Tax Exempt portion of

TE/GE. Additional measures work is yet to be done for the CoordinatedExam Program, Customer Account Services, and Government Entities.

Measures Development Progress

Large and Mid-Size BusinessTax Exempt and Government Entities

Small Business and Self Employed*Wage and Investment*

Information SystemsAgency-Wide Shared Services

Taxpayer Advocate ServiceCriminal Investigation

Appeals

CounselCORE

KEY:

Not yet started or Phase I

Phase II, Development Underway

Phase III, Testing and Final Development

Phase IV, Implementation As of 12/99

*Much of the balanced measures development work already completed in Examination,Collection and Customer Service will be transferable and applicable to these OperatingDivisions.

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SUMMARY

In moving forward with the creation of a neworganization focused on “providing America’s taxpayerstop quality service by helping them understand and meettheir tax responsibilities and by applying the tax law withintegrity and fairness to all,” it is essential that the IRSchange how it measures organizational performance. Keyto this change is the development of new, balancedmeasures that are aligned with the mission and strategicgoals of the new IRS.

The transition from the old ways of doing business tothe new, modernized IRS will take time. The measuresreflected in this document will help move the IRS in thatdirection and bring the organization a step closer to a trulybalanced framework of measurements at the strategic andoperational levels.

As the balanced measures are tested and usedthroughout the organization, lessons will be learned andrefinements in the measures may be necessary. However,the basic concept of what needs to be measured—customersatisfaction, employee satisfaction, and business results—will remain stable and firmly grounded in theorganizational design principles of the modernized IRS.