Chapter 4 Annual Performance Report and 2007 Annual Performance Plan

D. Performance Indicators and Measurement Systems

The Postal Service has worked to develop and maintain valid performance indicators and reliable, verifiable measurement systems for each strategic goal.

1. Measuring Revenue Generation

Total revenue to plan is used as a summary of revenue generation results. Chapter 3 of the comprehensive statement discusses the financial highlights. More detail is available in the audited 2006 Annual Report available at usps.com. The Postal Service’s financial systems are subject to thorough external review, including data developed and made public during rate case review.

2. Measuring Cost Reduction

These audited financial systems are also the source for tracking cost reduction. The Postal Service has a very disciplined process and managers are accountable for meeting very demanding operating expense targets as part of the Pay for Performance program. The Postal Service uses total factor productivity (TFP) to evaluate the effectiveness of its integrated cost management strategies.

TFP is a measure of efficiency that calculates changes in the relationship between outputs and the inputs used to produce them. The main outputs are mail volumes delivered and services provided to an expanding delivery network. TFP assigns weights to different types of mail volume to account for variations in the amount of work it takes to handle a piece of mail. Mail varies by size, shape, weight, preparation levels, and transportation mode. Inputs include all labor, capital, and materials used. Capital includes buildings, land, and equipment. Materials include utilities, supplies, services, and all other non-personnel items.

TFP is similar to the multifactor productivity methodology used by the Bureau of Labor Statistics to calculate national and industry-level productivity. Each component of TFP is very intricate. Developing a measure for each component requires constructing and aggregating a series of indexes. Data are derived from a number of audited postal information systems, the Cost and Revenue Analysis (CRA) Report, and General Ledger. Analysis is validated by a leading independent firm of productivity experts.

TFP results are expressed as a percent change from the prior year. There can be a lag between the impact of certain strategies, such as capital investment, and the actual results being achieved for a given year. Consequently, TFP results are most appropriately viewed as a long-term trend rather than concentrating on a specific year. Postal Service TFP has increased for 7 consecutive years.

3. Measuring Service Improvement

The Postal Service has developed reliable and verifiable service performance indicators and measurement systems that have helped improve performance and customer satisfaction. Given the scale of postal operations — more than 213 billion pieces of mail to more than 146 million delivery points — the development of modern measurement systems is not a trivial undertaking. The Strategic Transformation Plan 2006–2010

established the goal of improving in the development of delivery service performance standards, measurements, and reporting systems. Existing indicators and measurement systems will be updated consistent with the evolving characteristics of new products, services, processes, and operations.

Postal automation, using advanced barcode technology, is the foundation upon which future service measurement systems will be based. Until recently, the technology had not been available to efficiently track billions of low-cost items, such as letters. The strategies outlined in the Strategic Transformation Plan 2006–2010 will improve the visibility and the ability to track containers and individual mailpieces throughout the system, and will enable the development of new and improved service performance metrics and measurement systems.

For 2007, existing systems will be used to measure mail delivery performance for First-Class Mail, Express Mail, and Priority Mail.

A. FIRST-CLASS MAIL

First-Class Mail has delivery performance standards for overnight, 2- and 3-day service, depending primarily on distance. It is generally delivered 6 days a week, excluding federal holidays. Results reported for GRPA do not include any exclusionary periods. The External First-Class (EXFC) Mail measurement system, implemented in 1990, was a significant improvement to the purely internal systems it replaced. EXFC focuses on single-piece First-Class Mail. It is an end-to-end measurement from the time that mail enters the mail stream until it is delivered to a household, small business, or Post Office box. EXFC performance is measured by an independent firm under contract to the Postal Service.

EXFC is an external measurement system of collection box to mailbox delivery performance. EXFC continuously tests a panel of 463 ZIP Code areas selected on the basis of geographic and volume density from which 90% of First-Class volume originates and 80% destinates. EXFC is not a system-wide measurement of all First-Class Mail performance. The current network represents approximately 80% of all destinating stamped and metered First-Class Mail. EXFC measures service performance from a customer perspective (matches typical customer experience) and produces accurate, independent, externally-generated results. Official results are presented to the Postal Service 10 days after the end of each postal quarter. Performance is tracked at the national, area, and performance cluster level. Postal managers monitor interim results and program information on a daily basis. The contractor conducts special analyses to verify that the information is accurate and fairly represents the actual service provided by employees to postal customers. As of 2006, international mail is now also measured using the EXFC process.

The internal Origin and Destination Information System (ODIS) is a performance diagnostic tool and differs from EXFC in both purpose and methodology. ODIS-RPW (Revenue, Pieces, and Weight) is a continuous probability sample of all mail exiting the postal system, and a continuous probability sample of registered, insured, Collect on Delivery (COD) and Certificates of Mailing (COM) mailpieces entering the postal system.

Remittance mail is an important segment of First-Class Mail not separately measured by EXFC. However, the remittance processing industry has developed the Phoenix-Hecht Postal Survey, which is conducted twice