PERFORMANCE MEASUREMENT
Learning objectives
• To understand what is Performance
Management.
• To understand what is Process
Performance measures.
• To understand and explain the how
organisation can have successful PM.
• To understand and explain what is NonFinancial measurement.
What is Performance Management?
Performance Management:
• is organization system to create
appropriate analytics and metrics
to successfully achieve
organization goals.
• Includes software, policies,
procedures, tools, and forms used
to improve performance:
What is Performance Management?
• Planning:
assigning business objectives to individuals;
identifying daily operational activities, outputs, and
target measures; and, identifying which long-term
competencies are most important to a specific job.
Output of planning process is agreed upon
performance plan for specific performance period.
• Monitoring:
observation of work and collection of performance
data.
What is Performance Management?
• Coaching is used to help individual improve
their Performance. Coaching should be
continuous and non-confrontational.
• Performance Appraisal compares
individual’s performance against assigned
business objectives; activities, outputs, and
target measures; and competencies.
• Compensation: rewards individual for
target/above target performance.
What is Process Performance measures?
• Process Performance Measures are
designed to capture cost, cycle time,
conformance to standards, quantity,
and quality performance.
• Lean manufacturing and Six Sigma
techniques are often used to improve
performance at process level.
Can organisation have successful
PM
• Generally, "it is difficult, but not
impossible." A Successful performance
measurement system links strategy to:
• business and department scorecards
• Processes
• job performance measures
• Therefore, well-designed, company-wide
performance measurement system will, inand-of-itself improve performance to some
degree.
• But, a truly successful performance
measurement system is designed with
tools and techniques to close
performance gaps between target
performance measures and actual
performance.
Performance Measure is a
methodology that:
• guides and enables the organization to carry out its
mission, vision, and values
• uses the Balanced Scorecard to define strategic linkages
to integrate performance across organizations.
• communicates the strategy to a business unit, joint
venture, or shared service.
• uses the Balanced Scorecard to develop performance
measures for financial, customer, internal processes,
and growth and learning to align employees with the
strategy
Performance Measure is a
methodology that:
• aligns everyone within an organization so that all
employees understand how what they do supports the
strategy
• provides feedback to senior management if the strategy
is working
• shows where the gaps are between targets and actual
• develops action plans to achieve targets
Performance Measure is a
methodology that:
• uses activity based costing to better understand
customer, product, service, channel
profitability in order to achieve targets
• uses Activity Based Management, Process
Management, and TQM to achieve targets
• ties compensation into action plans and
performance measures
Effective performance management
• A performance management system will only
be effective if it:
• Rewards behaviour that improves the
employee’s performance,
• Addresses behaviour or incompetence that
results in poor performance by discipline,
development or redundancy.
• Is integrating into a cycle of planning and
performance measurement that extends from
corporate, through business unit planning
down to individual performance agreements
Effective performance management
• Objectively measures performance.
If it is not objective, it will not operate as a system
but be continually challenged by employees or
managers. Objectivity can be achieved by setting
competency standards or goals for various levels
of performance, explaining how each will be
m easur e d and commi t ti ng to rew ards or
discipline for each standard during Performance
Planning. Appraisal then becomes a simple and
unemotional process based on objective criteria.
Effective performance management
• Is trusted to be fair.
Employees need to be reassured that the
system will be used equitably across their
organisation. Achieve this by negotiating
use of the system into an Enterprise
Agreement or individual performance
contracts and then making implementation
of the system as transparent as possible.
Effective performance management
• Both managers and employees see that they have
something to gain from using the system.
Correct implementation sometimes requires
managers to change the way they currently work.
If they do not also see how it makes their job
easier the system will quickly be seen as a
bureaucratic chore and will not be implemented
successfully.
Good design will ensure ease of operation and
managers should then be held accountable for
using the system through their own performance
contracts.
Effective performance management
• Employees naturally resist having their
performance measured because they fear the
consequences of it being found unsatisfactory.
For most employees, this resistance evaporates
very quickly if they can see it also provides real
opportunities for superior performance to be
rewarded.
• The best way to ensure that both management
and employees are aware of “what’s in it for
them” is to involve them in the design of the
Performance Management System.
A Process for Introducing a
Performance Management System
1. Set up a consultative process that
will facilitate the involvement of
managers, employee and union
representatives as necessary in the
design of your system.
1. Identify what you will measure and
how you will measure it.
A Process for Introducing a
Performance Management System
3. Commit your company to decisions to train,
discipline, make redundant or reward
according to the level of competency
achieved
4. Document and design a system for writing
performance plans, giving feedback and
appraising performance
5. Negotiate this system into your Enterprise
Agreement and/or Individual Performance
Contracts and train employees and
managers in its use
Non-Financial Performance indicators
• In recent years, the trend in performance
measurement has been towards a broader
view of performance, covering both
financial and non-financial indicators.
• The most well-known of these approaches
is the balanced scorecard proposed by
Kaplan and Norton. This approach
attempts to overcome the following
weaknesses of traditional performance
measures:
Non-Financial Performance indicators
• Single factor measures such as ROI and residual
income are unlikely to give a full picture of
divisional performance.
• Single factor measures are capable of distortion
by unscrupulous managers.
• They can often lead to confusion between
measures and objectives. If ROI is used as a
performance measure to promote the
maximisation of shareholder wealth some
managers will see ROI (not shareholder wealth)
as the objective and dysfunctional consequences
may follow.
• They are of little use as a guide to action. If ROI or
residual income fall they simply tell you that
performance has worsened, they do not indicate
why.
Non-Financial Performance indicators
• The balanced scorecard approach involves
measuring performance under four different
perspectives, as follows:
Financial Perspective (How do we look to
shareholders?)
• Customer Perspective( How do customers see us?)
• Process efficiency (What must we excel at?)
• Growth Perspective( Can we continue to improve and
create value?)
Non-Financial Performance indicators
• The term 'balanced' is used because managerial
performance is assessed under all four headings.
Each organisation has to decide which
performance measures to use under each
heading.
• Areas to measure should relate to an
organisation's critical success factors.
• Critical success factors (CSFs) are performance
requirements which are fundamental to an
organisation's success (for example innovation in
a consumer electronics company) and can
usually be identified from an organisation's
mission statement, objectives and strategy.
Non-Financial Performance indicators
• Key performance indicators (KPIs) are
measurements of achievement of the
chosen critical success factors. Key
performance indicators should be:
• specific (ie measure profitability rather
than 'financial performance', a term which
could mean different things to different
people)
Non-Financial Performance indicators
• measurable (ie be capable of having
a measure placed upon it, for
example, number of customer
complaints rather than the 'level of
customer satisfaction')
• relevant, in that they measure
achievement of a critical success
factor.
Non-Financial Performance indicators
• The balanced scorecard approach to
performance measurement offers several
advantages:
• it measures performance in a variety of
ways, rather than relying on one figure
• managers are unlikely to be able to distort
the performance measure - bad
performance is difficult to hide if multiple
performance measures are used
• it takes a long-term perspective of
business performance
Non-Financial Performance indicators
• success in the four key areas should lead
to the long-term success of the
organisation
• it is flexible - what is measured can be
changed over time to reflect changing
priorities
• 'what gets measured gets done' - if
managers know they are being appraised
on various aspects of performance they
will pay attention to these areas, rather
than simply paying 'lip service' to them.
Non-Financial Performance indicators
• The main difficulty with the BSC approach is
setting standards for each of the KPIs. This can
prove difficult where the organisation has no
previous experience of performance
measurement.
• Benchmarking with other organisations is a
possible solution to this problem.
Perspective
Critical Success
Factor
Key Performance Indicators
Financial success
Shareholder wealth
Dividend yield % increase in share
price
Cash flow
Actual v budget
Debtor days
Exam success
College pass rate v national average
Premier college status
Tutor grading by students
Flexibility
Average number of course variants per
subject (eg full-time, day release,
evening)
Process efficiency
Resource utilisation
% room occupancy
Average class size
Average tutor teaching load (days)
Growth
Innovation products
Information
technology
% of sales from < 1 year old
Number of online enrolments
Customer satisfaction