1. Chapter 3 – Evaluation of Performance
The Concept of Efficiency and Effectiveness
Part of a manager’s role is to analyse the efficiency of all activities in the organisation, including the production processes, service delivery, and effectiveness of staff and procedures. The effectiveness of such processes and activities needs to be measured against the predetermined objectives of the organisation and against how efficiently resources have been distributed and used. A number of different measures or performance indicators can be used to evaluate both resource efficiency and objective effectiveness.
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2. Chapter 3 – Evaluation of Performance
The Concept of Efficiency and Effectiveness
Efficiency
The management process requires the efficient and effective combination of resources to produce goods or to successfully deliver a service. These resources can include:
• Financial resources such as cash and loans • Material resources such as raw materials and components or parts • Human resources such as skills and contribution of the employees • information resources such as knowledge about a product or market.
Continue to read Page 50 on Efficiency
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3. Chapter 3 – Evaluation of Performance
The Concept of Efficiency and Effectiveness
Components
processed parts purchased from another producer
Efficiency
the way the organisation uses its available resources to achieve its objectives; ‘doing things right’
Productivity
a measure of the functioning and efficiency of a production system; the level of output obtained from a set level of input
Quantitative Measures
measures that are based on the use of numerical data
Effectiveness
he degree to which an organisation achieves its stated objectives; ‘doing the right things’
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4. Chapter 3 – Evaluation of Performance
The Concept of Efficiency and Effectiveness
Effectiveness.
is the ability of the organisation to achieve its previously determined objectives. These objectives are developed at the strategic level of the organisation and are written in line with the overall mission and vision statements and strategy of the organisation.
Continue to read Page 50 on Effectiveness
Complete Activity 3.1
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5. Chapter 3 – Evaluation of Performance
Measuring Organisational Efficiency and Effectiveness
It is important for an organisation to measure both efficiency and effectiveness in terms of its strategic objectives. These concepts can be measured through the use of performance indicators (PIs).
Performance indicators
A performance indicator is a tool used to measure progress towards the achievement of organisational objectives. The PIs used will be determined by the specific objectives of the organisation. When a number of PIs are used together, they can provide an overview of the organisation’s performance.
PIs can either be qualitative or quantitative:
Qualitative measures rate the quality of performance and may include the level of job satisfaction and customer service levels.
Quantitative measures are usually measured as a number or figure and include indicators such as profit margins and debt level.
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6. Chapter 3 – Evaluation of Performance
Measuring Organisational Efficiency and Effectiveness
Measuring Performance
Performance measurement is a complex issue and there are a number of considerations that need to be taken into account, including whether the measure should be qualitative or quantitative, and whether the impact is immediate or delayed.
Any performance measure must be:
• relevant – does it provide the information required by users?
• valid – as the information or data been collected correctly?
• reliable – what is the source of the data? Has it been based on measurable data or is it anecdotal?
• delivering valuable information – will the PI provide useful information that will assist users to make decisions?
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7. Chapter 3 – Evaluation of Performance
Measuring Organisational Efficiency and Effectiveness
Measuring Performance
All Performance Indicators should be comparative and may be compared to:
Changes in PIs over time – for example, did the rate or amount increase or decrease over the past year? Did sales increase by 10 per cent over the period?
Other organisations or benchmarks in the industry sector – does the organisation meet or exceed benchmarks set by the best organ- isations in the industry?
Budgets, estimates or targets set by the organisation – did the figures or perfor- mance match or exceed what was expected or budgeted for?
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8. Chapter 3 – Evaluation of Performance
Performance indicators used to evaluate the performance of LSO
See Page for Performance indicators and their definitions
Some Performance indicators include:
- Number of Sales - Percentage of Market Share
- Net Profit Figures - Productivity and the growth rate
- Level of Staff turnover - Level of job Satisfaction
- Customer satisfaction levels - Number of workplace accidents
- Level of waste - Number of customer complaints
- Return on investment - Debt to equity
- Debtors turnover - Staff absences
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9. Chapter 3 – Evaluation of Performance
Performance indicators used to evaluate the performance of LSO
ACTIVITY
Using the table on Page 54 chose 6 of the below PI and write a short description about how a LSO might use it to evaluate performance.
Complete
ACTIVITY 3.2
ACTIVITY 3.3
- Number of Sales - Percentage of Market Share
- Net Profit Figures - Productivity and the growth rate
- Level of Staff turnover - Level of job Satisfaction
- Customer satisfaction levels - Number of workplace accidents
- Level of waste - Number of customer complaints
- Return on investment - Debt to equity
- Debtors turnover - Staff absences
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10. Chapter 3 – Evaluation of Performance
Growing importance of other measures of organisational performance
Many organisations are primarily focused on financial performance indicators to measure success, such as sustaining reduced costs and increased market share.
The measurements should be broad and cover areas such as progress towards objectives, employees’ performance levels, customer satisfaction levels, and other indicators such as quality, efficiency, creativity and innovation.
The Balanced Scorecard Measurement
The balanced scorecard approach is a method of determining organisational performance that allows managers to look at performance in an organisation from four perspectives:
1 Customer perspective (How do customers see us?)
2 Internal capabilities perspective (At what must we excel?)
3 Innovation and learning perspective (Can we continue to improve and create value?)
4 Financial perspective (How do our owners/ shareholders see us?)
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11. Chapter 3 – Evaluation of Performance
Growing importance of other measures of organisational performance
The Balanced Scorecard Measurement
The balanced scorecard approach is a method of determining organisational performance that allows managers to look at performance in an organisation from four perspectives:
1 Customer perspective (How do customers see us?)
2 Internal capabilities perspective (At what must we excel?)
3 Innovation and learning perspective (Can we continue to improve and create value?)
4 Financial perspective (How do our owners/ shareholders see us?)
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12. Chapter 3 – Evaluation of Performance
Growing importance of other measures of organisational performance
The Balanced Scorecard Measurement
Characteristics of a Balanced Scorecard:
Regular emphasis on the strategic intent and direction of the business by highlighting strategic goals
Broad focus of management to include sustainable long-term performance
Improved communication within the organisation regarding performance and appraisals
a focus for business process improvement
management’s attention focused on capabilities needed for strategic goals.
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13. Chapter 3 – Evaluation of Performance
Growing importance of other measures of organisational performance
Stakeholder Approach The stakeholder approach focuses on how the organisation meets the needs of its stakeholders. There are a number of different stakeholders in an organisation who all have a vested interest in its performance:
1 Customers are interested in quality products and customer satisfaction.
2 Suppliers want to be paid promptly.
3 Governments want the organisation to comply with legal requirements.
4 Employees want a safe working environment, opportunities for skill development and a flexible workplace.
5 Competitors will often benchmark against the organisation.
6 The community wants organisations to take on social responsibility, behave ethically and to have a commitment to charity.
7 Shareholders want a satisfactory rate of return in terms of dividends from the organisation and also an increased share price.
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14. Chapter 3 – Evaluation of Performance
ACTIVITIES:
Chapter Summary Questions
2, 3, 4, 5 & 7
Key Knowledge Tasks
Chapter Test (weebly)
Past Exam Questions
SAC.
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