Performance Measurement GEOP 4316

Outline Measures of Performance Balance Scorecard Key Performance Indicators (KPIs) Dashboards

Measures of Performance

Measures of Performance Why measure performance? What is not measured cannot be improved. Determine how the organization is meeting its goals/mission. Compare to competition and past performance. Understand effect of changes (internal and external). Establish financial condition and stability. Reward employees and other resources.

Measures of Performance A element of an ideal performance management system is one that focuses effort on Improving things that really matter Gives people the information and freedom that they need to realize their potential within their own roles and that aligns their contribution with the success of the enterprise.

Measures of Performance Most organization measure performance using accounting measures – Net profits, gross margin, ROA, ROE, etc. Why use accounting measures? Accounting profits and returns can be measured on a timely basis Because they are timely, precise, and objective

Measures of Performance What is the problem? accounting/financial measures are lagging indicators Lagging indicators are measures that point to earlier plans and their execution. Typically behind the actual time, thus too late to affect future products and services. Currently is July, we get sales reports for May. However, this becoming less of an issue with todays IT technologies.

Measures of Performance In the global, technology-driven, decentralized environment, measuring financial performance, while important, is not sufficient. Even if less than precise, other measures of performance are required. These measures should be capable of measuring multiple attributes of an organization.

Measures of Performance Many non-financial indicators can serve as lead indicators Common examples are: Market share, new product introductions, new product development lead times, product quality, customer satisfaction, employee morale, personnel development, inventory turnover,

Measures of Performance Comprehensive Measures should include Financial performance (Sales, revenue, COGS,…) Customer satisfaction: loyalty, repeat sales, company reputation Internal business process developments: Identify the critical internal processes for which the organization must excel in implementing its strategy. Cycle Time, Completion Rate, Workload and Employee Utilization Transactions per employee, Errors or Rework Allow an organization to learn and grow Employee Satisfaction, retention and turnover, training hours and resources Technology Investment This leads us to Balanced Scorecards

Balanced Scorecards

Balanced Scorecards Definition: is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals. Balances financial and non-financial measures Balances short and long-term measures Balances current performance drivers (leading indicators) with outcome measures (lagging indicators) Should contain just enough data to give a complete picture of organizational performance Leads to strategic focus and organizational alignment. http://en.wikipedia.org/wiki/Balanced_scorecard www.csusm.edu/qi/qiresources/qipresentations/bscbasics.ppt

Balanced Scorecards http://bi-insider.com/business-intelligence/balanced-scorecard-defined/

Balanced Scorecards Why are balanced scorecards needed To achieve strategic objectives. To provide quality and value with fewer resources. To eliminate non-value added efforts. To track progress and evaluate process changes. To continually improve. To increase accountability.

Balanced Scorecards Targets need to be set for all measures Should have a “solid basis” Give personnel something for which to aim If achieved will transform the organization Once measures and targets are established, it is the responsibility of management to determine how the organization will achieve its goals. Measures are used to determine the effectiveness of strategic initiatives.

Balanced Scorecards Key Performance Indicators The measures of performance that the organization recognizes to be critically aligned with its mission and strategy Multiple goals to achieve a mission Multiple indicators related to a goal Multiple measures for an indicator A target for each measure A result for each measure Mission Objective/ Goal Measure Target Result

Balanced Scorecards Mission: Provide efficient and reliable delivery to our customers … Goals: 1) efficient delivery 2) reliable delivery Measures: 1a) labor costs per delivery, 1b) equipment cost per delivery, … 2a) cycle time, 2b)% on time delivery, 2c) % delivery to wrong locations Targets 1a) $4, 1b)$7 2a) 2 days, 2b) 95%, 2c) 1%

KPI Dashboards Visual/ Interactive tool that enables stakeholders to view relevant metrics. Can view different sets of information View based on relevance/ managerial position