Chapter 3: Evaluation of performance Area of Study 1: Large-Scale Organisations in Context

The concepts of efficiency and effectiveness EfficiencyEffectiveness The best use of resources in the production of goods and services Outcome judged on both the quality and quantity of the goods and services produced Productivity is a quantitative measure of efficiency (numerical). Measures the relationship between inputs and outputs. The ability of the organisation to achieve its previously determined objectives Managers and employees are appraised against the organisational and departmental objectives

Measuring organisational efficiency and effectiveness Key Performance IndicatorsMeasuring performance A tool used to measure progress towards the achievement of organisational goals and outcomes When a number of KPI’s are used together they can provide an overview of the organisation’s performance Qualitative measures Quantitative measures Any performance measure must be: Relevant Valid Reliable Delivering valuable information All KPIs should be comparative and may be compared to: Changes in KPIs over time Other organisations or benchmarks in the industry sector Budgets, estimates or targets set by the organisation

Financial Performance Indicators KPIDefinition and use of KPI in the organisation Net Profit-Profit is the difference between revenues and expenses -a successful business would be making a profit -acceptable level will depend on organisational objectives that have been set Number of Sales-numerical measure of how many sales business has made in a period of time -business keen to maximise number of sales within the limits of the productive capacity Market Share-percentage of sales that one firm has compared with its competitors in the same industry -successful firms aim to increase their market share Productivity and the rate of productivity growth -basic measure of efficiency, amount of output per worker per period of time -Is productivity growing each period? Is it increasing at the required rate?

Non-financial Performance Indicators KPIDefinition and use of the KPI in the organisation Level of staff turnover -the rate at which staff leave and are replaced within a LSO -if turnover rate is high then it may indicate dissatisfaction in the workplace -Can be costly – recruiting and training employees regularly Employee satisfaction -through staff satisfaction survey and absenteeism levels -if job satisfaction is high, employees are more likely to be productive -if low organisation needs to examine ways to improve performance and satisfaction in the areas indicated Level of Wastage-levels of waste of resources including raw materials, labour, time and money -reducing waste will reduce the costs associated with producing

Non-financial Performance Indicators Continued... KPIDefinition and use of the KPI in the organisation Customer Satisfaction -measured by number of complaints. If customers are unhappy they will usually let the company know -customer satisfaction survey –means of looking at what needs to be done to improve for customers Number of workplace accidents -shows if the organisation values employee safety as an important priority -if number decreases, sign that safety policies are working effectively Activity 3.2 Activity 3.4

Growing importance of non-financial measures of organisational performance ‘Balanced Scorecard’ measurement Allows managers to look at performance of an organisation from four perspectives: 1. Customer Perspective 2. Internal capabilities perspective 3. Innovation and learning perspective 4. Financial perspective