1. Performance Measurement
GEOP 4316

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

3. Measures of Performance

4. 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.

5. 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.

6. 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

7. 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.

8. 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.

9. 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,

10. 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

11. Balanced Scorecards

12. 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.

13. Balanced Scorecards

14. 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.

15. 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.

16. 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

17. 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%

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