performance measurement Flashcards
a measure
quantification of dimension, size, or capacity of any object
performance measures used to
keep track and monitor different aspects of performance to assess achievement of organisational goals and value creation
what performance measures do
- communicate performance to material stakeholders
- communicate strategy and business plans, and align employee’s goals with organisational goals
- track performance against targets
- evaluate employees’ performance as basis of rewards
- guide and develop future strategies and performance
integrated reporting
- value created, preserved, or eroded by organisations over time manifests itself in increases, decreases or transformations of capitals caused by the organisation’s business activities and outputs
capitals
- financial
- manufactured
- intellectual
- human
- social/relational
- natural
financial capital
funds available to produce goods/services
manufactured capital
physical objects available to produce goods/services
intellectual capital
- organisational capital (knowledge, systems)
- intellectual property (patents, copyrights)
human capital
people’s competencies, capabilities, experience, motivations to innovate
social/relational capital
- relationships between stakeholders
- ability to share information to enhance wellbeing
natural capital
- renewable and nonrenewable environmental resources/processes
- support past, current, and future organisational prosperity
critical success factor
key strategic/operational objectives that captures an aspect of performance vital to organisation’s success
key performance indicators
developed to make CSF more concrete and quantifiable, and measure process against CSF
management process
plan, do, check, adjust
performance measures
developed after CSF and KPIs which are more comprehensive measure short or long-term objectives
summary of steps to developing performance measures
1) define value, determined by what stakeholders value
2) determine CSF that captures firm’s success in creating value eg safe operation
3) develop measures that indicate progress or results against CSF eg percentage of incidents
types of performance measures
- financial and non-financial
- quantitative and qualitative
- internal and external
financial measures
- measures performance in dollars or ratio of dollars
- measures financial outcomes of firm/managers’ actions
non-financial measures
- operational measures that considers various aspects of firm performance
- actionable, understandable, easily linked to firm goals
quantitative measures
- measures stated in numbers
- can be manipulated mathematically
- more objective and precise
qualitative measures
- measures stated in words
- cannot be manipulated mathematically
- less precise and provides directional information
- used when performance cannot be quantified
internal measures
- measures performance from an internal/operational process point of view
- monitor processes required to deliver stakeholder value
- considers value chain activities
- early indicators of external measure of performance
external measures
- measures performance from stakeholders’ point of view
- monitors organisations’ ability to create stakeholder value
effective measures
capture a diversity of experiences and events, from different perspectives
characteristics of effective measures
- objectivity
- reliability
- accuracy
- lack of ambiguity
- cost-effective
- consistency
- sensitivity
- functionality
objectivity
- not biased or subjective
- provides same reading regardless of who/what is being measured/measuring
reliability
provides the same information every time a specific event takes place
accuracy
- clear, precise and consistent
- measures actual performance
lack of ambiguity
- free of distortion
- what is being measured is explicitly and uniquely defined
cost-effective
provides more value to user than cost of developing or collecting it
consistency
conducive to most forms of linear transformation
sensitivity
- signals changes in key conditions
- small amount of change can be detected by measure
functionality
- linked to organisation’s CSF
- creates desired, not dysfunctional behaviour
dysfunctional consequences
- undesirable side effects that destroy value
- occurs when measures create incentives for individuals to do things that organisation does not want them to do
types of dysfunctional consequences
- behavioural displacement
- gamesmanship
- operational delays
- negative attitudes
behavioural displacement
- measure encourages employees to do things not consistent with firm objectives
- result of incorrect/incomplete definition of firm’s goals or expected behaviour
gamesmanship
- employees take actions intended to improve measured performance, but not in organisation’s best interest
- creation of slack resources
- data manipulation
operational delays
- measure prevents completion of key task/activity
- makes it difficult for employees to get work done
negative attitudes
- measure may be viewed as unfair
- can result in inefficiencies and potential sabotage
