MA - Performance Measurement Flashcards
How is performance measured and provides the three-step process
- Performance measurement is the process of setting targets, analyzing outcomes, and monitoring result
- Goals is to evaluate how organizations are managed from both efficiency and effectiveness perspective
Performance measurement process:
1. Planning
2. Analyze
3. Action
What is needed for the planning process
- We need to consider the short-term and long-term objectives and how they can be replicated
- Set targets, keep track, and compare to expectation
What is the objective for the planning stage
- It is to look at the big picture
- Need to align with strategic plan and clear reasoning behind the selection
- Priorities will cascade down the difference department, managers, individuals
What are the advantages of centralized and decentralized organization
Centralized organization - major decisions are made at the top of the organizational hierarchy
Advan: Can be extremely efficiency
Decentralized organization - decision-making is delegated down the organizational hierarchy with the realization that task and information specialization put lower-level managers in a better position
Issue: Lack of goal congruence - individuals throughout the organization may have incentives and goals that deviate from those established by top management
What are two ways to measure performance and how do you determine how well/ poorly the organization is performing
The two types of ways to measure performance are:
1. Finacial measure
2. Non-financial measures
How you determine how an organization is performing is based on: Key performance indicators (KPI)
Comprehensive performance indicators include financial & efficiency means
-Selecting performance measure, need to ensure the data required to assess the measure is readily available
What are four advantages to use for performance measures
- It put a spotlight on a few critical factors that the organization improve future performance
- It provides a platform for planning future measures (Adding, deleting, editing as appropriate)
- It provides critical insight to managers regarding the choices around strategy
- It includes a mix of lead measures and lag measures
What are the six types of measures
- Financial measure
- “improve overall financial health, May include return on net asset or net income - Customer focus measure & Stakeholder
-“Organization objective is to acquire new customer, win over market shares and retain customer - Internal business process measure
- Execution of chosen strategy, Enhance process efficiency, yield % or defect rate - Learning and growth measure
- Have skills, capabilities, and knowledge that, would enable it to achieve more of its strategic objective.
- Key staff turnover %, resignation % - Social impact measures
The organization’s objective is to improve environmental performance - Regulatory impact
- If the organization’s objective is to improve health and safety performance, measures may include # of lawsuits related to health and safety
What are two ways that managers can implement performance measures
What is expectancy theory
- Performance measures can help managers to improve management control, motivate workforce
- Provide linkage to its strategic goals & individual responsibility
Expectancy theory - states that employees’ motivation is derived from how much they want rewards, their assessment of whether effort will lead to expected outcomes
Provide some examples of the 6 performance measures of individuals’ performance
- Financial measure - Profit per employee over the year
- Customer measure - Unprofitable customer percentage
- Internal business process measures - cost of delivery
- Learning and growth - New product offered
- Regulatory measure - Adherence to external reporting standard
- Social impact measure - Public image
- There is not the best approach to individual performance measure
-demonstrate link to strategic objective, employee contribution - Standardization of individual performance measurement for accuracy, objectivity, and fairness across the organization
What is the difference between responsibility center and responsibility accounting
Responsibility center - Parts or subunits of an organization whose managers are responsible for carrying out the activities assigned to part of the organization
Responsibility accounting - An accounting system used to measure the plans and outcomes of the responsibility centers within an organization
- Will sacrifice performance on an important non-measured activity in favor of measured one
- Adding non-financial measures of performance such as meeting a target amount of rework due to an inferior product is often used in addition to a financial measure
- Can also improve corporate decentralization, issues arise when goods or services are transferred intr-company
What are the four types of responsibility centers
- Revenue
- Cost
- Profit
- Investment
- Both financial and non-financial performance measures can improve goal congruence by assigning decision-making rights to responsibility centers
-Improve goal congruence, accountability, control
Explain what revenue center and cost center
Revenue center
- Assume to have control only over the revenue generated by the center.
- The manager is not able to control most of the cost and investment levels. Not responsible for profit and ROI
Ex. Actual revenue level, revenue level compared to budget (variance analysis), Growth in revenue
- Few business units qualify as pure revenue centers because revenue-producing operations incurs costs related to earning that revenue.
Cost center
- Have control over costs incurred
Ex. Discretionary cost centred through periodic appropriation,
Engineered cost: production line, budgeted reflects the volume of activity undertaken
Financial measure: Variable cost per unit, DM per unit, DL per unit
Non-financial measure: Percentage of capacity utilization, number of quality complaints
Explain how profit and investment centers are used
Profit center
- Organizational units whose managers are held accountable for the profit
- Intention is that profit center manager pursue the profit objective assigned to their respective profit center
Financial measure: Actual profit and profit margin
Non-financial measure: Number of value-added services available to a customer, Unprofitable customer %
Investment centre
- Are responsibility centres where the managers are deemed to be able to control both the level of profit and level of investment
Common assign the profit measure to reflect the level of investment 1. ROI 2. Residual income
Financial measure:
- Profit margin
-Investment turnover
-R&D spending
Non-financial measure
- Inventory of innovation
-Number of customer-driven activities
- Employee turnover
What are the benefits and drawbacks of responsibility center
The benefit of a responsibility center is to link organizational goals with those of various departments and division
Drawbacks - This can lead to suboptimal decisions, and difficulty distinguishing responsibilities when responsibilities decisions can affect the other center.
Explain the management by objective and the benefits and drawback
Management by objective - Managers contribute specific goals, objectives & measures & time frames that are appropriate
- Needs to align with the organization’s mission & vision statement
Benefits of MBO - Direct manager and subordinate’s attention and allows them to focus on the result
- MBO focuses everyone in the organization to commit to achieving a specific measurable result, which helps the organization achieve its border
Drawbacks - Assume that a culture of cooperation exists in the organization. Managers are not truly open to their subordinates’ ideas
-Without proper interpersonal skills, managers, and subordinates MBO sessions may degenerate into time for criticism
- MBO tends to emphasize individual even when the work of the organization may be more of a co-ordinated group
