performance measurement

performance measurement
The process of (a) developing indicators to assess progress towards certain predefined goals and (b) reviewing performance against these measures. Performance measures can be applied to the whole organization or to particular departments, branches, or individuals. They are often divided into:
• strategic indicators - related to successful and effective performance over the lifetime of an organization;
• operational indicators - related to the success and profitability of products and services; product mixes and portfolios; and productivity and output;
• specific indicators - including organization income or profit per member of staff, per customer, per offering, per outlet, per square foot; returns on investment; speed of response; product durability and longevity of usage; volume and quality targets;
• behaviourial indicators - related to staff management aspects; prevailing attitudes and values; the extent of strikes, disputes, absenteeism, labour turnover, and accidents; harmony-discord, cooperation-conflict; the general aura of well-being;
• confidence indicators - reflecting the relationship between the organization and its environment, its backers, its stakeholders, its customers, and its communities;
• ethical indicators - reflecting the standards of behaviour and performance that an organization sets for itself and its acceptance in both markets and communities. A distinction is also made between financial measures, such as return on capital employed, residual income, and Economic Value Added, and non-financial measures, such as delivery time or customer retention. Management accountants will be particularly interested in identifying how the use of different financial and non-financial measures influences the behaviour of managers. For example, using return on capital employed as a measure will probably encourage managers to reduce investment; this may improve short-term performance figures but will damage the long-term performance of the company. Another problem may arise if managers improve delivery times to meet targets but significantly increase costs in the process. These two examples emphasize the importance of understanding the behavioral aspects of management accounting. Another issue is how to link non-financial and financial measures. The balanced scorecard is a recent development that connects non-financial and financial performance measures to a company's overall strategy. See also Goodhart's law

Big dictionary of business and management. 2014.

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