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 Non- Financial measurement.

What is 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, in-and-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 measured and committing to rewards 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 Set up a consultative process that will facilitate the involvement of managers, employee and union representatives as necessary in the design of your system. Identify what you will measure and how you will measure it.

A Process for Introducing a Performance Management System Commit your company to decisions to train, discipline, make redundant or reward according to the level of competency achieved Document and design a system for writing performance plans, giving feedback and appraising performance 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.

Critical Success Factor Key Performance Indicators Perspective Critical Success Factor Key Performance Indicators Financial success Shareholder wealth Dividend yield % increase in share price   Cash flow Actual v budget Debtor days Customer satisfaction 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