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Management matters.

If you doubt it, just ask the folks at the Interior Department. They found out the hard way last December. The 2001 Federal Performance Report's findings about mismanagement at the Bureau of Indian Affairs kicked off a series of events that ended with all of Interior being cut off from the Internet and e-mail to and from outside the department. Some bureaus remained offline for months. Our story about BIA prompted an investigation of Interior's computer networks that revealed serious security lapses. A federal judge ordered the department off-line until the holes could be plugged.

While we couldn't have known the full extent of BIA's security weaknesses in 2001, the Federal Performance Project certainly foresaw trouble for the agency, handing it a D for information management. We found BIA's technology was so deficient that data often was accessible only by phone, fax or mail. What systems there were frequently crashed. At various times, computer service interruptions - due sometimes to faulty technology and sometimes to unpaid bills - have left BIA unable to communicate with Interior headquarters or Indian schools and without Internet service.

That management matters is a core belief of the Federal Performance Project, a partnership of Government Executive and The George Washington University Department of Public Administration. The project is funded by The Pew Charitable Trusts. For four years we've rated federal agencies' management abilities.

We've assessed management of human resources, information, physical assets and finances as well as ability to manage for results at 27 agencies. We focus our reviews on management capacity because it is an indicator of agencies' health and ability to deliver results. We also believe that reporting what stands in the way of good management can help political leaders and the public understand the challenges involved in running government programs and what needs to be done to help them run better.

This year, for the first time, we re-evaluated agencies we've graded in the past. All six - the Social Security Administration, Federal Aviation Administration, IRS, Environmental Protection Agency, Centers for Medicare and Medicaid Services and Immigration and Naturalization Service - received grades during the project's first year, 1999. Three, the IRS, FAA and EPA, have improved in three years; IRS from an overall C to a B-, FAA from a C to a B, and EPA from a B- to a B. Others, SSA, CMS and INS have fallen in the rankings; SSA from an A to a B, CMS, which was called the Health Care Financing Administration when we graded it last, from a C to a C-, and INS from a C- to a D. The overall grades of 1999 and 2002 aren't precisely comparable, though, because we've changed how we weigh grades in each of the management issue areas we examine. We've also altered our focus in a number of management issue areas.

In four years, we've refined and deepened our evaluations in a number of ways. The biggest change came last year, when we began basing each agency's overall grade 50 percent on its performance in managing for results, as opposed to giving grades in all five categories equal weight.

We made the change to give results-based management the attention we feel it merits as a predictor of success, or at least improvement, in the other areas and in overall agency performance. Four years' experience rating agencies also has taught us to be less mechanistic in assessing how finances and information contribute to management success within agencies. Where we once based financial management grades largely on success or failure in achieving a clean audit opinion, we now consider the cost of achieving clean opinions. In far too many cases, clean opinions are won only by dint of excruciating manual data reconciliation by agency finance staff at the close of the fiscal year.

We've also moved away from evaluating information technology systems toward assessing whether managers and employees get the right information in the right form at the right time in order to achieve strategic goals. Thus, we're now at least as interested in the quality of data agencies use to measure performance as we are in the quality of their enterprise architecture.

Grading management capacity - the degree to which an agency sets clear and appropriate goals, girds itself to achieve them and then measures performance and improves - is a tricky task. Many agencies are assigned contradictory or confused missions. They are blocked by politicians' objections or badly conceived laws from closing unneeded facilities, shifting staff to match workload, collecting data to assess performance and from taking many other actions that would be considered no-brainers in the private sector.

As we grade, we must weigh whether to hold such failures against the agencies or chalk them off as insurmountable limitations. For the most part, we've chosen to let our grades reflect these problems. In some past cases, such as the Coast Guard and the Postal Service, we've credited agencies for mustering their management resources to frankly predict the consequences of externally imposed limitations.

But it's not always easy to make the call, especially in cases where management appears to be good or getting better, but some combination of limitations and management weaknesses contributes to disaster.

Because we are so acutely aware of the limitations of grading, the project produces more than grades. The feature stories that accompany each agency's grades carry equal weight in our assessment. These stories are not intended to explain the grades, but instead to place each agency's management performance within the context of the political, economic, social, demographic and historical challenges it faces.

We believe this combination of grades and stories offers the most fair and comprehensive analysis of federal agency management ever undertaken.

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