www.bradford.ac.uk/management

Performance Measurement

Why Measure?

Performance Measurement

The process of quantifying the efficiency and
effectiveness of past

Action

`

Measurement = the quantification of past action

Past action



current performance

Requires:
• Set of Metrics
• Supporting Infrastructure

The Role of Measurement

• Compliance
• Check
• Challenge

4

THE PROBLEM OF THE FROG

The Ideal Performance

Measurement System

In a perfect world, managers would be able to
design an optimum PMS that would have:
• Few measures
• Non-financials that would predict financial

performance

• The same measures throughout the whole

organisation

• Clear connections to people performance, for

compensation purposes

• Stability

Core Measurements

• Employee satisfaction
• Customer satisfaction
• Cash flow

Why Measure?

Check Position

•

Measures as a means of:

– Establishing position
– Comparing (benchmarking)
– Measuring progress

Communicate Position

•

Measures as a means of:

– Communicating performance
– Communication with the regulator

Confirm Priorities

•

Measures as a means of:

– Managing
– Management and cost control
– Focusing investment

Compel Progress

•

Measures as a means of:

– Motivation
– Communicating priorities
– Basis for reward

Adapted from Neely (1998) Measuring Business Performance

8

… but a lot of companies have not established this

coherence

One of the major challenges for

management today is to establish

coherence between long-term objectives

and daily operations …

Procedures

Strategies

Values

Mission

Values

Policies

Competition basis

Vision

Goals

Strategies

Success criteria

BU 1

Strategic

conditions

BU 2

Strategic

conditions

BU 3

Stratecic

conditions

BU 4

Strategic

conditions

Mission

Policies

specific to

Divisions

Competition

basis

Vision

Mission

Policies-

specific to

Divisions

Competition

basis

Vision

Mission

Policies

specific to
Divisions

Competition

basis

Vision

Mission

Policies

specific to
Divisions

Competition

basis

Vision

Objectives

Success criteria

Strategies

Projects

Objectives

Success criteria

Strategies

Projects

Success criteria

Strategies

Projects

Success criteria

Strategies

Projects

Action plan

Action plan

Action plan

Action plan

Financial plan

Financial plan

Financial plan

Financial plan

BU 5

Strategic

conditions

Mission

Policies

specific to
Divisions

Competition

basis

Vision

Objectives

Success criteria

Strategies

Projects

Action plan

Financial plan

BU 6

Strategic

conditions

Mission

Policies

specific to
Divisions

Competition

basis

Vision

Objectives

Success criteria

Strategies

Projects

Action plan

Financial plan

Top

Management

The ‘goal hierarchy’ should be consistent from top

to bottom

Often the business units work towards own goals

- not aligned with the corporate strategy

Goal

Goal

Goal

Goal

Goal

Goal

Top

Management

Objectives

Objectives

9

The reason is a common disconnect between

strategic ambition and the operational targets

which are designed to direct the daily

operations

Standards and Measures

„a “standard” is any set of agreed-upon rules for the
production of (textual or material) objects‟

Overview of the characteristics of “standards”:
• cover more than one community of practice, over time
• enable action/cooperation over distance and heterogeneity
• tend to be enforced by legal bodies
• do not reflect any natural law that the “best” will win’
• possess inertia and are therefore difficult/expensive to

change

(Bowker and Star,1999:14)

Principles Of A Performance

Measurement System (PMS)

11

CONTROL OF

EXECUTION

REPORT

FORECAST

PLAN

PMS Development

• Define an appropriate hierarchical organisation structure.

• Identify the key variables that determine performance.

• Establish Key Performance Indicators.

• Set and agree objectives, plans and targets.

• Obtain timely and accurate information defining achievement of

objectives, plans and targets.

• Implement focused Action Review meetings

• Identify problems and constraints that prevent achievement and take

appropriate remedial action.

Control of
Execution

Report

Review

at an appropriate

interval

Use to indicate
achievement against
targets

Merchandise
success

Feedback performance

Surface problems

Initiate action to rectify,
recover, prevent

Track, adjust, refine

Performance data
only

Indicate trends /
patterns

Achievement
improvement

Management Control Process

13

Forecast

Plan

Expected
outcomes

Trends

Agree & publish

Detailing of
forecast into
shorter time-
frames

Agree & publish

Vision

Objectives

Balance demand &
output

Regulate activities

Eliminate
bottlenecks

Smooth work flow

Track, adjust,
refine

Establish
sequence &
priorities

Management Report

Control/Review Stage - Feedback Loop

Implement

Corrective

Action

Planned

Performance

Actual

Performance

Comparison

of Actual vs

Plan

Identification

of Variance

Cause

Analysis

Determine

Corrective

Action

Action Review Meeting Process

Essential components of robust management

reporting system:

• Clear organisational structure.

• Structured information system.

• Disciplined review process.

Management Reporting

Typical hierarchy of control / review frequency

PLAN

REVIEW

REPORT

Board of Directors

Departmental

Manager

Supervisor

Weekly

Monthly

Annually/
Quarterly

Hourly

Daily

Management Reporting

Management

Team

The Performance Pyramid

The Strategic Measurement and Reporting Technique (SMART) pyramid; Adopted from Lynch and Cross (1991)

Corporate

Vision

Market

Financial

Productivity

Flexibility

Customer

Satisfaction

Waste

Cycle Time

Delivery

Quality

Performance Management Systems

Internal Effectiveness

External Effectiveness

Business units

Departments,

groups and

work teams

Core business processes

Individuals

Mea

sure

s

Obje

ctives

The Drivers of Customer

Satisfaction

Adapted from BT Mobile

– a Customer Services Project

After-Sales

Sales Team

Shop

Reseller

Provision

Quality of

Service

Loyalty

Price

Perception

Satisfaction

Value for

Money

Image

Reliability