PERFORMANCE MEASUREMENT: AN INTRODUCTION TO THE COURSE

Spring semester, 2012

Course aim and objectives

Providing the students with a knowledge of:
modern concepts of organizational performance, advanced models for measuring the organizational performance sophisticated tools for measuring the organizational performance (aggregate index methodology, stochastic frontier analysis, data envelopment analysis)

Developing students skills in:

constructing a model for measuring the units performance adequate to specific perspective and goals of the analysis; correct application of empirical data on the units performance for evaluation of specific types of efficiency; using the software for estimation of the respective performance measures; making an adequate judgments on the units performance according to results obtained from respective quantitative model.

Course content
Topic 1. Performance Management System: the elements and internal structure Topic 2. Performance Measurement: Basic Concepts and Glossary Topic 3. Performance Measurement: Processes and Analytic Frameworks Topic 4. Economic Underpinnings for Performance Measurement:
Technology Modeling Basics of Production Economics

Topic 5. Production Efficiency Analysis:

Parametric Models of Technology: Average Production Function vs. Frontier Production Function Farell Model

Topic 6. Efficiency Measurement Using Data Envelopment Analysis (DEA) Topic 7. Measuring Efficiency with the Aggregate Index Numbers Topic 8. Efficiency Measurement Using the Stochastic Production Frontier Analysis.

Grading rules
Final exam Course work: Course work includes: Number of Type of assignment assignments per type Problem solving Case study: assessment of DMUs performance from sample data (group assignment) 2 50% 50% Part of final grade 20%

20%

Writing a summary on research article on performance measurement

10%

Evaluation system
Course work maximum of 50 points in finale valuation:
1st individual assignment maximum 10 points; 2nd individual assignment maximum 10 points; 1st group assignment maximum 10 points; 2nd group assignment maximum 10 points; 3rd individual assignment maximum 10 points.

Final exam (open book, 90 minutes, Maximum number of points 50, 5 tasks, examination grade is estimated as total sum of points earned for questions 1-5, the exam is not passed in case the sum of points earned is less than 20):
the question 1may yield up to 5 points; the question 2 may yield up to 10 points; the question 3 may yield up to 10 points; the question 4 may yield up to 10 points; the question 5 may yield up to 15 points.

Final course evaluation: students final mark for the course is determined by the sum of points earned through the class work (maximum 50) and final examination (maximum 50).

Literature
Books:
1. 2. Business performance measurement: Unifying theory and integrating practice /Edited by Andy Neely. 2nd edition, (2008). Cambridge: Cambridge University Press. 528 p. Coelli Tim, D. S. Prasada Rao, George E. Battese. An introduction to efficiency and productivity analysis, 2nd edition. New York: Springer, 2005. 356 p. Cooper W.W., Seiford L.M., Tone K. Data envelopment analysis: A comprehensive text with models, applications, references and DEA-Solver Software. 2nd edition. New York: Springer, 2007. 490 p. Fisher F.M., Shell K. (1998). Economic Analysis of Production Price Indexes. Cambridge: Cambridge University Press. 226 p. Harbour J.L. The basics of performance measurement, 2nd edition. London and New York: Taylor and Francis, 2009. 93 p. Performance Management: Multidisciplinary Perspectives. //Ed. By Richard Thorpe and Jacky Holloway . New York: Palgrave Macmillan, 2008. 331 p Farrell M. J. (1957). The Measurement of Productive Efficiency. //Journal of the Royal Statistical Society. Series A (General), Vol. 120, No. 3. pp. 253 290 Forsund F.R., Sarafoglou N. (2002). On the Origins of Data Envelopment Analysis. //Journal of Productivity Analysis, 17, 2340 Hammer M. (2007). The 7 Deadly Sins of Performance Measurement and How to Avoid Them. // MIT Sloan Management Review, Vol.48, No. 3. pp. 18 28 Ittner C.D., Larcker D.F. (2003). Coming Up Short on On Nonfinancial Performance Measurement. //Harvard Business Review (November): pp. 88 95.

3.
4. 5. 6.

Journal articles:
1. 2. 3. 4.

Performance Management System: the elements and internal structure

Performance Management
Performance management is a relatively new concept to the field of management. Simply put, performance management includes activities to ensure that goals are consistently being met in an effective and efficient manner. Performance management literature typically starts out with various examinations of the term "performance. Performance management is about running the business. It is about doing the right things, and doing the things right. What this means in practice can differ from organization to organization: there is no one way of managing performance. [7, p.8]

Performance Management: An Application Domain

the organization (private, public, government agencies, non for profit); departments (computer support, administration, sales, etc.) processes (billing, budgeting, product development, financial management, etc.); programs (implementing new policies and procedures to ensure a safe workplace; or, for a nonprofit, ongoing delivery of services to a community); products or services to internal or external customers projects (automating the billing process, moving to a new building, etc.); teams or groups organized to accomplish a result for internal or external customers; employee assigned to accomplish a job task assigned at a workplace.

Revenue growth as a key priority for executives (Bain & Company Management Tools & Trends, 2011)

25 of the most popular management tools

(Bain & Company Management Tools & Trends, 2011)

Downsizing definitions
1. Reducing the total number of employees at a company through terminations, retirements, or spinoffs.
Source: http://www.investorwords.com/1571/downsizing.html

2. Intentional reduction in the size of a workforce at all staffing levels, to survive a downturn, improve efficiencies, or become a more attractive candidate for acquisition or merger. Used often as a euphemism for indiscriminately firing the employees
Source: http://www.businessdictionary.com/definition/downsizing.html

Top 10 most used management tools

(Bain & Company Management Tools & Trends, 2011)

Performance Management
Performance management is a building on the process of goals attainment, adding the relevant communication and action on the progress achieved against these predetermined goals Overall Goal and Focuses of Performance Management: to ensure that the organization and all of its subsystems (processes, departments, teams, employees, etc.) are working together in an optimum fashion to achieve the results desired by the organization.

Performance Management
The starting point for Barneys (1997) conceptualization is that an organization is an association of productive assets which come together to obtain economic advantages. For organization to continue to exist, the owners of these assets must be satisfied with their use. The owners will only be inclined to provide these assets if they are satisfied with the returns they are receiving. So, organizational performance is defined in terms of the value that an organization creates using its productive assets in comparison with the value that owners of these assets expect to obtain.

Ongoing Activities of Performance Management

Achieving the overall goal requires several ongoing activities:
including identification and prioritization of desired results, establishing means to measure results, establishing means to measure progress toward those results, setting standards for assessing how well results were achieved, tracking and measuring progress toward results, exchanging ongoing feedback among those participants working to achieve results, periodically reviewing progress, reinforcing activities that achieve results, intervening to improve progress where needed.

Key Steps & Critical Practices in PerformanceBased Management

Define Mission and Goals (including Outcome-Related Goals)

Involve key stakeholders in defining missions and goals. Identify key factors that could significantly affect the achievement of the goals. Align activities, core processes, and resources to help achieve the goals.

Measure Performance
Develop a set of performance measures at each organizational level that demonstrate results, are limited to the vital few indicators for each goal at each organizational level, respond to multiple priorities, link to responsible programs, and are not too costly. Collect sufficiently complete, accurate, and consistent data to document performance and support decision making at various organizational levels. Report performance information in a way that is useful.

Key Steps & Critical Practices in PerformanceBased Management

Use Performance Information

Use performance information in systems for managing the organization (firm,agency or program) to achieve performance goals. Communicate performance information to key stakeholders and the public. Demonstrate effective or improved program performance. Support resource allocation and other policy decision making.

Reinforce Performance-Based Management

Devolve decision making with accountability for results. Create incentives for improved management and performance. Build expertise in strategic planning, performance measurement, and use of performance information in decision making. Integrate performance-based management into the culture and day-today activities of the organization.

The Performance Management Pillars

The Performance Management System Internal Structure

Strategy: the terms of expression

Mission: An organisations mission is its basic function in society, and is reflected in the products and services that it provides for its customers and clients. Goals: An organisations goals are the intensions behind its decisions or actions. Goals will frequently never be achieved and may be incapable of being measured. Objectives: Objectives are goals expressed in a form in which they can be measured.

The Pyramid of Organizational Targets

Performance Reference Model of the Federal Enterprise Architecture, 2005

Performance Measurement Dilemma

Ex.: pin-making factory from Adam Smiths Wealth of Nations.
Technological process includes 4 stages: cutting wire, sharpening wire, putting pin-heads on the sharpened wire, packaging pins into boxes 4 workers each employed at one stage

2 possible organizational setups of the business process:

4 independent business units running a separate stage Single business unit (a factory) with technologically separated production units (departments)

What are the performance measures for the 4 workers in different organizational setups? What are they about? What is the performance measurement dilemma?

Ex.:the CEOs task to cut the average production cycle by 50% during 12 months
You are a linear manager responsible for operation of the production unit. You have got the task from the CEO. Describe your action plan to reach the goal.