CHAPTER 9

PERFORMANCE MEASUREMENT

Process of quantifying action, where measurement means the process of quantification and the performance of
the operation is assumed to derive from actions taken by its management.

CRITERIA OF SELECTION MEASUREMENT

one of the problems of developing a practical performance measurement system is attempting to reach some
balance between having a not so many key measures on one hand and having many comprehensive measures
on other hand.

COMPREHENSIVE MEASURES. Multifaceted and complicated to direct, but competent of handing over many
shades of performance

Five PERFORMANCE OBJECTIVES

Quality Objective. satisfying customers by providing error-free goods and services which are
“fit for their purpose”

Speed objective. minimizing the time between a customer asking for goods/services and the customer receiving
them in full, but increasing the availability of goods/services.
Dependability objective. keep the delivery promises made to customers
Flexibility objective. being able to vary/adapt the operation’s activities to cope with unexpected
circumstances/give customers individual treatment
Cost objective. produce goods/services at a cost which enables them to be priced appropriately for the market
while still allowing for a return to the organization.
10 Recommended Criteria for Performance Measure
 SIMPLE. should be comprehensible to users.
 DEVELOPED BY USERS. in order to guarantee ownership and commitment to measures users should be
the ones to develop them
 FEW IN NUMBER. -2-3 measures are enough despite increase in the number of departments, functional
areas, plants and corporations.
 RELEVANCE TO CUSTOMERS. -both the needs of the internal and external customers must be
considered in developing measures.
 IMPROVEMENT. -the focus must be on improvement, prevention and strategic long-term planning, and
goal setting.
 COST. -the bottom-line is the cost and profit must reveal an improved financial image.
 VISIBLE. -measures must be known and posted in key locations like rest room and work centers for
everyone to see.
 TIMELY. -measures must be done hourly, daily or weekly rather than monthly or quarterly in order for
financial and accounting data to be presented early for decision-making.
  ALIGNED. -all set of measures and indicators tied to customers and organizational performance offers a
technique to support all activities with organizational goals.

 RESULTS. - Vital key measures required to be directed as a result of the interest of all stakeholders
namely customers, employee, stockholders, suppliers, the public and the community.

MEASUREMENT STRATEGY
Performance measurement is the overall responsibility of the quality council. It makes certain that all
measures are incorporated into total system of measures.

KEY PERFORMANCE INDICATORS (KPI) - company’s quantifiable goals, normally attached to an

organization’s strategy, as exposed through performance management tools like the Balanced Scorecard.
Putting into practice the key performance indicators of a balanced scorecard normally have 4 processes:

 The company transforms its corporate vision into quantifiable operational goals that are discussed to
employees.
 These goals are coupled to individual performance goals which are reviewed on a started cyclic basis.
 Internal processes are instituted to meet and/or surpass the strategic goals and customer expectations.
 Key Performance Indicators are evaluated to appraise and construct recommendations to improve
future company performance.

PERFORMANCE MEASURE DESIGN

Examples of these new frameworks. Kaplan and Norton’s Balanced Scorecard
Skandia’s Navigator model

Steps to Find the Right Measures

step 1: begin with the end in mind. Performance measures are objective comparisons that provide evidence of
an important performance outcome. It is of the utmost importance to decide which outcomes are most worth
tracking right now. Focus on one outcome at a time.
Step 2: be sensory specific. When you have the end in mind, you are ready to get a handle on what specifically
about your outcome you will measure. This is where you take care in your choice of words to describe the
outcome as concretely as possible. Use “sensory” language – the language that describes what you and others
would see, hear, feel, do, taste or smell if your outcome was happening now.
Step 3: check the bigger picture. Check the bigger picture for what could happen if you measure your outcome.
What level of control do you have over achieving it? What might the unintended consequences of measuring the
outcome be (both the positive and the negative)? What behaviour would the KPI drive? Which other areas of
performance might be sabotaged or limited? This is your first chance to change your mind about what’s most
worth measuring.
Step 4: what’s the evidence?. get ultra specific and figure out what the potential measures are that could let
you (and everyone else) know that the outcome is being achieved. For each of your sensory rich statements
from step 2, what could you track to tell you the extent to which it is occurring? Which of these potential
measures would be the optimal balance between objectivity and feasibility?
Step 5: name the measure. Naming your performance metrics marks the point at which you know exactly what
you will be measuring. Be succinct and informative and deliberate, as you need to be able to continually and
easily identify each measure as it moves through the steps of being brought to life and being used in decision
making.
PERFORMANCE BASED MANAGEMENT SYSTEM
Resources are both the sum of time, money and/or energy applied and the kind of resources exploited. Kinds of
resources consist of capital and labor and skill types and core competencies necessary, beside the physical and
spatial location of resources.

Reach is breadth and depth of control over which management desire to stretch its resources.

Result is the impact on the groups attained by the resources utilized. Preferred results generally comprise of the
realization of a most wanted mental or physical situation.

BALANCE SCORECARD
• is a strategic planning and management system that is employed comprehensively in business and industry,
government and non-profit organizations worldwide to support business activities to the vision and strategy of
the organization, get better internal and external communications and check organizational performance
against strategic goals.
• created by Drs. Robert Kaplan (Harvard Business School) and David Norton as a peformance measurement that
added strategic non-financial performance measure to traditional financial metrics.

The idea is to provide managers and executives a more 'balanced' view of organizational perfomance.
• The 'new' balance scorecard alters an organization's strategic plan from a smart but inactive document into
the "marching orders" for the organization on a daily basis.

Four perspective of Balanced scorecard:

1.Learning and Growth perspective
This perspective includes employee training and corporate cultural attitudes related to both individual and
corporate self-improvement. In a knowledge worker organization, people are the main resource.
2.The Business Process perspective
This perspective refers to internal business processes. Measurements based on this perspective will show the
managers how well their business is running, and whether its products and services conform to customer
requirements.
3.The customer perspective
Recent management philosophy has shown an increasing realization of the importance of customer focus and
customer satisfaction in any company. These are called leading indicators: if customers are not satisfied, they
will eventually find other suppliers that will meet their needs.
4.The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will
always be a priority, and managers will make sure to provide it. In fact, there is often more than sufficient
handling and processing of financial data.