Performance Management System. Measuring Performance. Part I

PERFORMANCE MANAGEMENT SYSTEM (Module-2) Measuring Performance Why measure Performance? • It is necessary to keep in mind that “What gets measured gets done” and “If you can’t measure it, you can’t manage it.” • To improve performance, one needs to know what the current performance is. Agreeing and reviewing objectives is an important aspect of performance management. As a process, performance measurement is not simply concerned with collecting data associated with a predefined performance goal or standard. • Performance measurement is better thought of as an overall management system involving prevention and detection aimed at achieving conformance of the work product or service to your customer's requirements. • These actions occur in a continuous cycle, allowing options for expansion and improvement of the work process or product as better techniques are discovered and implemented. • Improvements to performance have to start from an understanding of what the level of current performance is in terms of both results and competencies. This is the basis for identifying improvement and development needs in the individuals. • Mainly, it provides the information required for career planning and continuous development by identifying strengths to be enhanced as well as weaknesses to be overcome. • This can only be achieved if there are reliable performance measures. • Performance management also gives opportunities to good performers to take charge of their own performance. This cannot be done unless they Performance measurement serves the following purposes: • Ensures customer requirements have been met • Provides standards for establishing comparisons • Provides visibility and a scoreboard for people to monitor their own performance levels • Highlights quality problems and determines which areas require priority attention • Gives an indication of the costs of poor quality • Justifies the use of resources • Provides feedback for driving the improvement effort What should be measured ? • It can be argued that what gets measured is often what is easy to measure. • And in some jobs what is meaningful is not measurable and what is measurable is not meaningful. • Levinson said that: ‘The greater the emphasis on measurement and quantification, the more likely the subtle, non-measurable elements of the task will be sacrificed. Quality of performance frequently, therefore, loses out to quantification.’ • Measuring performance is relatively easy for those who are responsible for achieving quantified targets, for example sales. • It is more difficult in the case of knowledge workers, for example scientists. • But this difficulty is alleviated if a distinction is made between the two forms of results – outputs and outcomes. Criteria for Performance Measures Performance measures should be: • be related to the strategic goals and measures that are organizationally significant and drive business performance • be relevant to the objectives and accountabilities of the teams and individuals concerned – they are effective only if they are derived from the statements of accountabilities or are based on well-researched competence frameworks, or both • focus on measurable outputs and accomplishments and ranges of behaviour which can be precisely and clearly defined (behaviour is how people act and how they conduct themselves, which is observable as it occurs) • indicate the data or evidence that will be available as the basis of measurement • be verifiable – provide information that will confirm the extent to which expectations have been met • be as precise as possible in accordance with the purpose of the measurement and the availability of data • provide a sound basis for feedback and action • be comprehensive, covering all the key aspects of performance so that a family of measures is available. Classification of Measures Performance Measures must be relevant, significant and comprehensive. Measures or metrics can be classified under the following headings: • Finance – income, shareholder value, rates of return, costs • Output – units produced or processed, throughput, new accounts • Impact – attainment of a standard (quality, level of service etc), changes in behaviour (internal and external customers). Completion of work / project, level of take-up of a service, innovation • Reaction – judgement of others, colleagues, internal and external customers • Time – speed of response or turnaround, achievements compared with timetables, amount of backlog, time to market, delivery times. The following indicators can be used in government set-ups: • Productivity indicators that focus on the amount of work completed within a defined length of time • Utilisation rates that refer to the extent to which available services are used • Time targets that refer to the average time taken to carry out defined units of work – for example, the time to process appeals. • Volume of service – the amount of work done • Demand / service provision Expressing measures Measures can be expresses in four different ways: i. Counts – the number of times an accomplishment takes place ii. Ratios – the no. of times an accomplishment takes place divided by the no. of times it could have taken place iii. Percentages - the proportion of actual achievement to total available achievement iv. Financial impact – of achieving or failing to achieve a result Focus of performance measures Types of Measures We can study the types of measures to evaluate the performance for the following :A) Organizational B) Team C) Individual Types of Performance Measures for an Organization The three most important things that need to be measured in a business are customer satisfaction, employee satisfaction and cash flow. 1) A Balanced Scorecard 2) The European Foundation for Quality Management (EFQM) model 3) The Economic Value Added Model (EVA) 4) Other traditional financial measures 1) A Balanced Scorecard • It is a strategic planning and management system that is used extensively in business and industry, government and non-profit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. • The concept of the balanced scorecard was first touted in the Harvard Business Review in 1992 in a paper written by Robert S Kaplan and David P Norton. • The Balanced Scorecard (BSC) is a performance measurement framework which has strategic nonfinancial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. • The BSC provides a method for organisation to systematically develop a comprehensive system of planning and control. It helps in getting a performance measurement system that translates organisation strategy into objective measures, targets and initiatives. The term “scorecard” signifies quantified performance measures and “balanced” signifies the system is balanced between: • Short-term and long-term objectives • Financial and non-financial measures • Lagging and leading indicators • Internal and external performance perspectives Why Use a Balanced Scorecard? • Improve organizational performance by measuring what matters • Increase focus on strategy and results • Align organization strategy with workers on a day-to-day basis • Focus on the drivers key to future performance • Improve communication of the organization’s Vision and Strategy • Prioritize Projects / Initiatives Original Business Perspectives - The Balanced Scorecard model suggests that we view the organization from 4 perspectives, then develop metrics, collect data and analyze it relative to each of these perspectives.The 4 Business perspectives as per Kaplan and Norton are: Financial (shareholder) perspective Customer perspective Internal perspective • Goals - increased profitability, growth, increased return on their investment • Measures - cash flows, cost reduction, economic value added, gross margins, profitability, return on capital/equity/investment s/sales, revenue growth, working capital, turnover. • Goals - new customer acquisition, retention, extension, satisfaction • Measures - market share, customer service, customer satisfaction, number of new/retained/lost customers, customer profitability, number of complaints, delivery times, quality performance, response time. • Goals - improved core competencies, improved critical technologies, reduction in paperwork, better employee morale • Measures - efficiency improvements, development/lead/cycle times, reduced unit costs, reduced waste, amount of recycled waste, improved sourcing/supplier delivery, employee morale and satisfaction, internal audit standards, number of employee suggestions, sales per employee, staff turnover. Innovation and learning perspective • Goals - new product development, continuous improvement, employee development • Measures - number of new products and percentage of sales from these, number of employees receiving training, training hours per employee, number of strategic skills acquired, alignment of personal goals with the Scorecard. Implementation of the Balanced Scorecard 1) Be clear about organisational strategy and objectives 2) Develop a strategy map 3) Decide what to measure 4) Amend the Scorecard if appropriate 5) Finalise the implementation plan 6) Implement the system. 7) Publicise the results 8) Utilise the results 9) Review and revise the system Advantages of Balanced Scorecard • Translation of strategy into measurable parameters • Communication of strategy • Alignment of individual goals with strategic objectives • Helps align key performance measures with strategy at all levels of an organization. • Provides management with a comprehensive picture of business operations. • Facilitates communication and understanding of business goals and strategies at all levels of an organization. • Maximized Cooperation - Team members are focused on helping one another succeed. • It provides strategic feedback and learning. • Initiatives are continually measured and evaluated against industry standards