Lee and Fisher (2007) assert that there is a strong correlation between the attainment of organisational objectives and effective performance management. Although optimum levels of performance are not prescribed by Partnerships Victoria in its guidance material for PPP (nor subsequently by Infrastructure Australia in the national PPP guidelines published in 2008), KPIs should be relevant, reliable and accurate (Partnerships Victoria 2003a: p.131). Adhering to these principles may appear simple; however programs (or in this case the achievement of PPP objectives) can fail due to poorly defined KPIs (Evans and Bellamy 1995). Ideally, but depending upon the nature of the contract, performance ranges for KPIs should be reviewed regularly in conjunction with the concessionaire.
The need for KPI modification may arise for a number of reasons including:
- KPIs may not be 'fit for purpose'. This may arise because the understanding of the public partner and concessionaire during the contract design stage is limited with regard to what the future operating environment will actually be like (Mandri-Perrott 2010: p.152; Brenninkmeijer in Urio 2010: p.93). A lack of information can increase levels of uncertainty.
- There may be too many (or too few) KPIs that need to be evaluated (Cambridge Economic Policy Associates 2005: p.36); the former perhaps being driven by over-exuberance to oversee all perceived aspects of operational performance and the latter perhaps by a lack of engagement with detail or due to limitations of skill or resourcing.
- Changes to service delivery requirements that may arise from contract variations e.g. the uptake of new or modified services by service operators or from government interventions (see section '4.3.3 Risk Management Principles' for more information).
- A lack of clarity. Evidence shows that KPIs can be vague and thus open to interpretation (Edwards et al 2004: p.45). This can be exacerbated by changes of staff (Cambridge Economic Policy Associates 2005: p.36) and differing perceptions or interpretations of performance outcomes.
Modifications should therefore be relevant, measurable, repeatable and achievable.