1.5.1. The IRS Balanced Performance Measurement System

(1) Purpose:

1. To provide an overview of the IRS Balanced Performance Measurement System.

2. To outline how the IRS uses the IRS Balanced Performance Measurement System to measure organizational performance.

3. To provide general guidance and direction for IRS business units on the appropriate use and application of balanced measures, since it is not possible to prescribe acceptable actions for every situation.

(2) Audience: IRS executives, managers and IRS performance measures staff

(3) Policy owner: Associate CFO for Corporate Budget

(4) Program owner: Associate CFO for Corporate Budget

(5) Primary stakeholders: CFO and IRS performance measures staff

(6) Program goals: To create and maintain Servicewide performance measures that comply with the authorities listed below and that reflect the IRS mission and priorities.

(1) The following is a quick reference for the IRS balanced performance measurement system.

1. The IRS must carefully consider each of the three components of balanced measures - customer satisfaction, employee satisfaction and business results - when setting organizational objectives, establishing goals, assessing progress and results, and evaluating individual performance.

2. Under the IRS Balanced Performance Measurement System, the approved set of balanced measures is the primary means for assessing organizational performance. The IRS can use other information and data for purposes such as workload planning and analysis.

3. Each measure should have targets based on the previous year's results, historical patterns, and the anticipated mix of resources available. Additional considerations include the linkage to organizational priorities and initiatives, planned process improvements or system enhancements, an assessment of existing and emerging trends, and internal and external issues. Measures may be categorized as indicators for a short time when initially created, in the absence of historical data, and when there’s a lessened degree of control over the measurable value. Targets are not required for indicators.

4. Targets set for quantity business results must always consider the effects on customer satisfaction, employee satisfaction and quality. The IRS may use quantity measures to evaluate and/or set or suggest goals for organizational units at levels that do not measure customer satisfaction, employee satisfaction or quality, if such measures exist at a higher level in the organization.

5. The IRS should not use the performance of any one unit as a standard by which the performance of other units are evaluated because of differences in the types of taxpayers served, specific tax issues addressed and other factors. However, some measures at the Servicewide level may combine aspects of multiple business units into one measure. In these cases, individual business units should track their own performance separately from the combined measure.

6. The primary focus of organizational reviews should be on the effectiveness of actions taken and accomplishments.

7. The numeric results achieved for any measure will never directly equate to the evaluation of an individual.

8. Because measures reported by the IRS externally are subject to extensive evaluation and review, measure evaluation should meet an especially rigorous set of standards.

9. In determining the appropriateness of a specific course of action, managers and employees should exercise sound judgment consistent with 26 CFR Part 801, Balanced System for Measuring Organizational and Employee Performance within the Internal Revenue Service.

(1) The IRS Balanced Performance Measurement System provides a means to:

1. Establish priorities.

2. Guide and motivate performance and establish a link between performance targets and organizational goals and objectives.

3. Obtain feedback to identify how well the IRS meets customer and stakeholder expectations and to identify areas for improvement.

4. Assess overall program effectiveness and communicate results.

(1) The IRS collects information about programs and services and uses some of it to establish performance measures. The IRS uses other information and data for workload planning and analysis.

(2) The Balanced Performance Measurement System enables the IRS to use performance results to:

1. Measure how an organizational unit performs relative to its past performance.

2. Identify areas for improvement by considering results from measures of customer satisfaction, employee satisfaction and business results.

3. Align and support various review processes.

4. Identify the factors that influence performance.

5. Provide input to a manager’s performance appraisals, but not serve as a direct evaluative tool.

6. Report to Treasury as required by GPRAMA.

(1) The IRS uses workload indicators for resource planning during the development of program plans and budgets. Workload indicators project expected levels of activity for an organization or program, identify resource needs and justify the IRS budget requests to the Department of the Treasury, OMB and Congress.

(2) Organizational performance assessments include workload indicators to compare actual workload to planned workload for making future projections and estimating resource requirements.

(3) Diagnostic tools are any data used to understand what influences and affects performance. In some cases, organizations may share data used as a diagnostic tool for their organization (such as cycle time) so that other organizations may use it as a budget level measure. This is permissible if the measure conforms to the guidelines and restrictions set forth in this IRM.

(4) Using diagnostic tools and workload indicators provides a mechanism to study the factors that influence performance and identify opportunities that managers can take to improve customer satisfaction, employee satisfaction and business results.

(5) The business units may establish improvement targets for diagnostic tools and workload indicators but only in direct support of overlying budget or operational level measures.

(6) Using results from diagnostic tools or workload indicators to compare one unit to other units may be appropriate for conducting analysis, exploring best practices or seeking process enhancements to improve the overarching balanced measure(s).

(7) The IRS uses diagnostic tools and/or workload indicators to identify and understand the underlying factors that cause changes in the balanced measures.

(8) Examples of diagnostic tools and workload indicators:

1. Customer satisfaction/experience survey results (for example: particular survey questions, identified improvement priorities, narrative comments)

2. Employee survey results

3. Cycle time

4. Employee experience/training/skill levels (for example: hours of training per employee, work force mix, average education level of newly-hired employees)

5. External factors (for example, tax law macroeconomic cycles)

6. Employee absenteeism and/or turnover rates

7. Return closures per unit of effort

8. Inventory level

9. Individual Master File (IMF)/Business Master File (BMF) workload mix

10. Staffing resources (for example, full-time equivalent (FTE) appropriated, FTE realized and resource utilization)

11. Results for individual quality standards/elements

12. Wait time/transaction time

13. Cost information

14. Number of returns filed

15. Records of Tax Enforcement Results (ROTERs) (More information on ROTERs can be found in IRM 1.5.2, Uses of Section 1204 Statistics.)

    Note: Organizations will set no targets and make no comparisons between units for ROTERs.

(1) There are two types of targets an organization can use to communicate priorities and guide performance - qualitative and quantitative:

1. Qualitative targets are general in nature and suggest a desired direction.

   Example: "Improve Customer Satisfaction"

2. Quantitative or numeric targets are specific.

   Example: "Improve Customer Satisfaction from 70% to 80%"

(2) The IRS will use actual results against qualitative and numeric targets to report on agency progress in delivering its tax administration responsibilities.

(3) All levels of the organization can establish qualitative targets to support organizational strategies and plans.

(4) Organizations should base numeric targets for any measure on a review of prior year results, historical patterns, the anticipated mix of resources available, the link to organizational priorities and initiatives and an assessment of existing and emerging trends, internal and external issues and problems.

(1) In conducting a formal review of an organization's performance, the IRS will use the balanced performance measures as the indicators used to determine achievement of the targets outlined in the annual program plan.

(2) The primary focus of organizational reviews should be on the actions taken and related accomplishments, not numeric results. Reviews also should be forward-looking, using the information and results obtained to identify plan revisions and improvement opportunities.

(3) During an organizational review, units can communicate the numeric results achieved for any of the balanced performance measures to provide a point of reference for a more detailed discussion of the actions taken to help achieve the IRS mission and strategic goals.

(4) Organizational units may use workload indicators and diagnostic tools to help explain factors that may affect the balanced performance measures results.

(1) For detailed information on evaluating individual performance see IRM 6.430.3, Performance Management Program for Evaluating Managers, Management Officials and Confidential Management/Program Analysts.

(2) The IRS will base non-supervisory employee evaluations on critical elements or performance standards, as appropriate, and the review of work performed. The IRS will not directly tie individual evaluations to achievement of numeric goals.

(3) The IRS will base supervisory evaluations on the actions taken in accordance with an agreed upon plan and performance standards. Evaluations may mention the achievement of numeric goals in the narrative section in manager evaluations as analytical input to determine whether the actions taken achieved the desired performance result. Direct measures of performance may not use numeric measures.

(4) Using the above guidance, when focusing on actions taken to achieve desired performance results, a supervisor's written evaluations or performance discussions may cite the specific goal or result to demonstrate the effect of the supervisor's actions.

(1) A performance budget is a presentation that clearly explains the relationship between performance goals and the costs for achieving targeted performance levels. The IRS uses performance measures in its budget to illustrate this relationship.

1. In general, a performance budget links strategic goals with related outcome-oriented, long-term and annual performance goals and the costs of specific activities that contribute to achieving those goals.

2. While management will need to collect enough measures to capture all aspects of performance, external policymakers will primarily be interested in the success of the program. Performance budget measures focus on results and the desired achievement of a program or service.

3. Division commissioners and chiefs are accountable for performance results. Organizational units are responsible for providing the Associate CFO for Corporate Budget with accurate and timely progress reports for their organization’s performance budget measures to ensure that the IRS meets internal and external reporting deadlines.

(2) Establishing Performance Targets for Budget Submissions

Organizations should base their performance targets for the annual budget requests to Treasury, OMB and Congress on current year actual performance and a set of assumptions, which include, but are not limited to, budget assumptions provided by the Associate CFO for Corporate Budget. They should provide to the Associate CFO for Corporate Budget each performance target and explain the basis on which the IRS established the target and known factors that contribute to increases or decreases in performance, such as inflation or new workload. Assumptions must be included for all:

1. Output/outcome measures (that is, unit count measures).

2. Efficiency measures (that is, the assumed number of FTEs or staff years (SYs) and their productivity). Fully loaded FTEs or SYs should be used for this purpose unless there are sound business reasons for an exception. Organizational units should note and fully document such exceptions.

3. Accuracy or quality measures assumptions must lay out the contributing factors and their relative weight to the overall score.

   Example: A quality measure might include weights of one-third each on following the correct process, accuracy and speed of response.

(3) Corporate Budget will submit the list of budget level measures, proposed targets and explanations of known factors influencing planned increases or decreases in performance to the Deputy Commissioners. The Deputy Commissioners will approve or disapprove the proposed targets before they are included in the IRS budget submission.

(4) Business units are responsible for reviewing performance data as this data is regularly reported externally.

1. Each operating division conducts the BPR process. During these reviews, division commissioners and chiefs discuss their progress on meeting their performance targets or goals and new or emerging issues that may affect major programs and/or performance.

2. The Department of Treasury requires the IRS to report progress on its suite of performance budget measures quarterly in the Performance Measures Manager (PMM) system.

3. The IRS reports its performance on the budget level measures in the annual Management’s Discussion and Analysis Report (MD&A) and the annual Congressional Budget Justification and Annual Performance Plan (CJ). The MD&A is part of GAO’s annual audit of the IRS’s financial statements, available at GAO.gov. Treasury publishes all budget and performance documents on Treasury.gov.

4. The IRS publishes relevant budget and performance measures information on IRS.gov.

5. The IRS shall take into consideration the results of external audits when updating performance measures as appropriate.

(5) In general, it is best to ensure the accuracy of all measures; however, performance budget measures data must be accurate and reliable so decision-makers can base their decisions on valid information. Since balanced performance measures reported by the IRS externally are subject to extensive evaluation and review, this set of measures should meet an especially rigorous set of standards.

1. Meaningful - The measure should be significant and directly related to the mission and goal.

   Example: If the goal of a program is to provide service to taxpayers, the measures that tell how well the IRS served those taxpayers are most meaningful.

2. Valid - The measure should accurately represent the desired output.

   Example: A measure of customer satisfaction based only on internal data does not fully reflect the purpose of the measure.

3. Customer focused - The measure should reflect the customers’ and stakeholders’ points of view.

   Example: Organizational units should measure the quality of their work products or services in part on the customers’ definition of quality.

4. Credible - The measure must be based on accurate and reliable data.

   Example: Organizational units should choose cases selected for a quality measure at random to ensure the resulting score accurately reflects the work performed.

5. Cost effective - The measure should be based upon acceptable data collection and processing costs.

   Example: If the costs of collecting statistically valid data at all levels of the organization outweigh the expected benefits of the information obtained, the organization may choose to limit the measure to higher levels or require a lower level of precision.

6. Understandable - The measure should be easy to calculate, interpret and understand.

   Example: Whenever possible measures should be understandable to interested outside parties with limited IRS experience and should be free from IRS jargon.

7. Comparable - The measure is useful for making comparisons with other data over time.

   Example: An organization may consider basing an internal quality score on the same sample of cases/calls used to measure customer satisfaction to compare internal results to external perceptions over time.

(6) Periodically performance measures may need to be updated. As priorities change and new program requirements evolve, the suite of measures included in the budget must adjust. These changes are most likely to occur during strategic assessments, with new initiatives, from changes in funding levels or as a result of new legislation. Generally, the IRS cannot change or drop measures that have been published in the CJ or Agency Financial Report (AFR) in the middle of a year. Division commissioners or chiefs may request revising, adding or dropping performance budget measures by written memorandum to the Associate CFO for Corporate Budget or the CFO. The Associate CFO for Corporate Budget may also request business units develop new measures to be included in performance reporting. Examples of appropriate changes include:

1. Replacing a quality measure with a new one concurrent with a change in the quality review process.

2. Adding a measure for a new program or one that is gaining attention and resources.

3. Eliminating a measure for a program that is being de-emphasized. Organizations should review their suite of measures periodically to ensure alignment with strategic goals and objectives.

(7) Changes to Historical (previously published) Performance Data

1. The IRS cannot make changes to historical data that have been reported in the IRS CJ, the MD&A or the AFR.

(1) Identify IRS Strategic Goal Addressed

• Review the IRS Strategic Plan

• Review Goals, Objectives and Activities in the IRS Strategic Plan.

(2) Identify End Outcomes

• What is the program’s "bottom line?"

• What evidence would you need to defend the program?

• What is the end benefit?

• How will you know you have been successful?

(3) Develop Intermediate Outcomes

• What needs to change to achieve outcome goals?

• Who has the capacity to make the change?

• Is the outcome measurable?

(4) Identify Activities and Outputs to Achieve Outcomes (Refers to Objectives and Activities in the IRS Strategic Plan)

• What will produce changes needed to achieve outcome?

• What specific things will influence the target of change?

• What products do you need?

• What services do you need?

(5) Develop Metrics and Output Measures to Track Activities

• What is trackable to assess progress of activities?

• What are the numerical values of outputs and activities?

• What efficiency measures concern customers and stakeholders?

(6) Prioritize and Choose Measures (Refers to Objectives and Activities in the IRS Strategic Plan)

• Identify links to strategic plan.

• Link and track with budgets.

• Assess results.

• Alter and improve strategies, activities and processes based on data.

(7) Set Targets for Measures

• What baseline data exists?

• If none, what baseline data do you need to collect?

(8) Identify and Allocate Resources Needed to Achieve Outcomes

• Use normal budget process or new initiative process.

(9) Define, Collect, Analyze and Report on Measures

• Use Data Collection Checklist.

• Will this be: Budget level? Operational? Oversight Board?

(1) The IRS may use balanced performance measures and corresponding underlying metrics to identify and understand changes in performance and to identify improvement options.

(2) The Traditional Problem-Solving Model is an approach the IRS has used effectively and has several steps.

1. Receive Data

   1. Organizational units obtain data from a variety of sources such as performance results, quality review results and data collected by the Taxpayer Advocate. In other instances, organizational units may have to develop data locally.

   2. Organizational units may often repeat this step after they define a problem. For example, an initial scan of data, such as survey results, may suggest that a problem exists with customer service and lead to the development of an initial problem statement. This in turn would require additional data collection to accurately define the problem.

2. Define the Problem

   1. In some cases, the problem may be obvious. In other cases, you will need to analyze the data to identify the problem.

   2. State the problem in objective terms. An accurately worded problem statement is important for the other steps in the process.

      Example: “Taxpayers do not have a sufficient understanding of IRS procedures.” Not: “IRS employees are not explaining our procedures sufficiently to taxpayers.”

3. Determine Potential Causes of the Problem

   1. Determining potential causes requires research. Look at all the data available to you. Talk to employees and peers and search for potential causes.

   2. Assess the possible causes. Don’t jump to conclusions about the solution.

   3. Evaluate causes and prioritize them based upon their effect on the problem.

4. Generate Alternative Solutions

   1. Include all involved parties to generate alternatives.

   2. Specify alternatives consistent with organizational goals.

   3. Specify short and long term alternatives.

   4. Brainstorm using others’ ideas.

5. Evaluate and Select an Alternative

   1. Evaluate all alternatives without bias.

   2. Evaluate alternatives relative to goals.

   3. Evaluate both proven and possible outcomes.

   4. State the selected alternative explicitly.

6. Implement and Follow Up on the Solution

   1. Plan and implement a pilot test of the chosen alternative.

   2. Gather feedback from all affected parties.

   3. Seek acceptance or consensus by those affected.

   4. Establish ongoing measures and monitoring.

   5. Evaluate long-term results based on the final solution.

      Note: In cases where you have no solutions that work, you will need to repeat step (4) Generate Alternative Solutions. Alternatively, consider re-evaluating the problem again as sometimes you may not find a solution because the problem definition is not well-defined.