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The U.S. General Accounting Office (GAO) provides defines Performance Measurement as: "Performance measurement is the ongoing monitoring and reporting of program accomplishments, particularly progress towards pre-established goals. It is typically conducted by program or agency management. Performance measures may address the type or level of program activities conducted (process), the direct products and services delivered by a program (outputs), and/or the results of those products and services (outcomes)."
This process of performance measurement often may require the use of various statistical methods to measure the progress towards the specified goals and objectives. Thus we say that the process of performance management is the measure of the various instruments and steps such that the organization reaches its planned objectives and goals and thus reaching the desired results. The measures tell us about the products, services and the thus help us to understand and improve the processes that lead to these products or services.
Why do we measure Performance
Following are some of the reasons quoted in favor of measuring the performance:
To evaluate the performance of the organization and set out standards to improve the processes to achieve the desired norms. This step involves performing benchmarking practices and correspondingly improving the self as per the current achievement goals and objectives.\
To Control the work done by the subordinates. The managers today set certain goals for their team and in turn keeps a check on the performance being made in that direction. Such a thing is measured by establishing an effective Management Control System.
To make estimates and budgets, the managers and the top level management have to continuously keep a check on the performance measurement standards and the progress being made in that direction.
The measurement of performance is also necessary to keep the workforce motivated towards their tasks. It is essential to make the workforce realize if they are performing their tasks above the average level of expectation or of they are under performing.
Organizations also need to reward and make celebrations once their objectives and goals are attained. So performance measurement is a must to achieve this.
Organization should also ensure that by measuring the performance, it is able to learn the various pitfalls that it has to take care of so that it achieves its desired objectives.
To make continuous improvements, organizations first need to know what it has to improve upon; this can only be possible if it undertake performance measures.
Performance measurement is also essential to make promotions of the organization's good points, unless it knows what it has above and better than others, it cannot promote them.
Major issues in Performance and Evaluation Systems
Following are some of the major issues in the performance and evaluation systems are mentioned below:
Establishing an effective performance system is a continuous and time consuming process, so people who are involved in the design of it gets trapped into the repeated tasks involved in it and in turn often keeps the primary objective of measuring performance at a back seat, thus diverging from the mail goal.
Performance measurement systems is a time consuming process and it takes a long time to design, and finally implement it. As a result, the managers may take the easy path to implement it. Thus the managers must be motivated to a serious level and should have a strong urge from within to attain the goals.
Often it may be the case that the people may set very high aspirations and goals to achieve and finally implement the performance measurement systems. Equipped with unreachable goals and objectives with high levels of motivation, when failure comes in, the entire performance measurement system falls back. Thus it can be said that the achievement of the performance measurement goals should be done in small steps directed towards the problem.
It is very likely that the people will oppose the performance measurement process. Opposition to change is always the common trend and hence this process will as well be opposed by the people. The organization should take this matter seriously and gradually try to win the favor of the employees and finally implement the performance measurement systems.
Often an organization may take the performance measurement results to take punishment and punitive actions against their employees. This should be avoided at all costs. Imagine how an employee may feel if every move of his is tracked. He may become disloyal and may lose interest in the work thus ultimately affecting the organization's performance and growth.
It is often the case that some of the workforce and even the top management people have a notion that something will not succeed and that it is sure to fail. Such a belief may be due to past experiences of failure or because of long and extra efforts required to accomplish any past projects. Such an attitude is dangerous to the establishment of any system for that matter and should be changed.
It is often the case that the management does not take effective steps to measure the upcoming roadblocks to the implementation of the project. It should not only measure the results of the performance measurement system but also measure the unforeseen critical factors that will impact the results.
It may often be the case that a few people may take all the control in the implementation of the performance measurement system, this group of people may take all the control in their hands and would not take the opinions of others into account. Such a case should be avoided. When designing the system, control should be given to those who are responsible for the performance measurement and improvement.
In the implantation of the performance measurement system, it may often be the case that the management only focuses on a single aspect of the problem which ultimately does not lead to the attainment of the desired objectives. Instead, a holistic view of the entire problem should be considered. The big picture should be looked first and then it should be broken down into small fragments each one targeting certain aspect of the entire system.
Strategic Performance Measurement Systems
Today there are many performance measurement systems, each has its own set of advantages and disadvantages and group of users. For business wide implementation, there are systems including the Balanced Scorecard (Kaplan and Norton, 1993, 1996, 2001), Performance Prism (Neely, 2002), and the Cambridge Performance Measurement Process (Neely, 1996). On the other hand, for Team based structures, there are approaches like Total Measurement Development Method (TMDM) (Tarkenton Productivity Group, 2000), TPM Process (Jones and Schilling, 2000), and the 7-step TPM Process (Zigon, 1999). An organization must select the best strategy that aligns with its goals and objectives and then take all necessary steps to finally implement it.
Balanced Score Card Approach
The concept of balancing performance and its measurement comes from the times when Robert Kaplan and David Norton first made use of the Balanced Scorecard in 1992.The idea of the approach is the translation of the business accomplishments into a set of measures distributed among critical set of business perspectives. Since the time that Kaplan and David first introduced the concept, many different variations have come into picture mainly because of the fact that all organizations are different and each has different goals and objectives and have different business strategies. The concept was introduced as a way of motivating and measuring the performance of an organization. The concept is based on a systematic and focused approach and is based on measuring the internal results and simultaneously assessing the external environment. It focuses on both the aspects; the results themselves and the process and strategy adopted in arriving at the results. The processes that contribute to the desired results are examined and their cross functional effects are studied. This approach is used by the managers in top management levels so that there is a comprehensive assessment of the organization in a single go and those responses can be used to estimate the performance as per the organization's goals and objectives. This approach makes measurement to a limited number and keeps track if the achievements in one area are being done at the expense of the other area. The Kaplan and Norton Balances Scorecard approach takes into account the following four perspectives and factors:
This aspect deals with the fact of taking into consideration the various stakeholders associated with the business organization. These stakeholders are closely monitored and their expectations and all financial implications are carefully catered to keeping in view the organization's goals and objectives. This also takes into consideration the financial objectives of the organization.
This aspect deals with the fulfillment of the satisfaction of the customers' needs of an organization. The customers catered to are both the internal and the external ones. It takes into account the steps that should be taken by the organization for the customers and also at the same time ensure the financial stability and success.
Internal Business Process
This deals with the organization's performance levels at the key internal business processes. It takes into account the internal business processes that most impact the satisfaction levels of the customers and the consumers. These processes are then critically studied and hence steps taken to improve them so that the satisfaction levels of the customers are maintained and the organization's goals are also catered to.
Learning and Growth
This deals with the fact of sustaining organization innovation and continuous improvement. It takes into account the factors that are essential to effectively manage change and measure long term learning and growth objectives of an organization. It ensures that all possible improvements be made to ensure efficient business processes and ultimately satisfied customers.
Following figure shows the above mentioned four perspectives and the relation between them:
As can be seen from the above discussion and the figure, the scorecard approach provides a holistic view of the perspectives and parameters that affect an organization's goals and objectives. Each of them is directly linked to the strategy of the organization and thus provides with the achievement of an integrated and efficient performance measurement system.
Here the Financial perspective becomes the major driver because financial implications are one thing that every organization is most concerned about. As can be seen, the customer satisfaction is the driver for the financial success; effective business processes also lead to customer satisfaction levels, and learning and growth leads to establishment of efficient internal business processes. There are in addition some secondary and indirect factors as well that affect the performance measurements.
Need for a Balanced Approach
Following are some of the factors that speak in favor of using balanced approach to measuring the performance:
All the factors that are critical to an organization's success are studied and taken care of.
The balanced approach takes into account the long term strategy of the business organization.
The vision and strategies of the organization are carefully taken into account and steps are taken to track the performance as per the goals and objectives.
The organization's strategy is translated into distinct and clear objectives by means of using the balanced scorecard approach.
This approach measures performance from different set of perspectives and hence similarly sets objectives from various perspectives.
The performance measurement system is very tricky as far as the incorporation of the environmental/social responsibility performance indicators is concerned. Some people consider performance indicators and performance measurements as being synonymous and being one and the same thing, while others consider that they both are very independent and are nowhere linked or connected. Similarly some consider goals, targets, objectives, mission and vision as one while the others consider them as being different. The primary objective of any organization should be to pick any of these views such that it best fits the organization strategies and goals and then to ensure that all the people in the company are at the same level of understanding of these concepts and they are all in sync .Thus before starting any such important and substantial task of implementing an efficient performance system in any organization, all the people of that group should be on the same page and hence in sync with each other so that any decision that need to be taken is taken by a unanimous consensus of everyone.