1 / 19

Performance Measurement (Evaluation Systems)

Performance Measurement (Evaluation Systems). Next class: Amos Police Force Assignment #2 available on-line due March 17 th. CMA. CMA NS Information Session Date: March 24 Time: 11:15am Location: 190 Schwartz. Performance Measurement.

dea
Download Presentation

Performance Measurement (Evaluation Systems)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Performance Measurement (Evaluation Systems) Next class: Amos Police Force Assignment #2 available on-line due March 17th

  2. CMA • CMA NS Information Session • Date: March 24 • Time: 11:15am • Location: 190 Schwartz

  3. Performance Measurement • Performance measurement systems are an integral part of the management control systems • Management control is a process through which management ensures that resources are obtained and used effectively and efficiently in accomplishing the organization's goals • To be most effective performance measures should be tied to the strategic objectives of the organization • Two key principles of performance measurement • Measurement of performance • Compensation based on measured performance

  4. Performance Measurement: Theories of Incentives and Behavior Expectancy theory (from applied psychology) • People are motivated to act in ways that they expect to provide them with desired rewards and to prevent the penalties they wish to avoid. • So incentive plans must: • Provide the proper rewards and penalties • Make it likely that the desired behaviors will lead to those rewards or penalties Agency theory (from financial economics) • An employee contracts with an employer to perform certain work, and the employer wants to be sure that the work is duly and well performed. • So incentive plans must: • Motivate the employee to work • Align the employee’s goals with the employer’s

  5. Effective Performance Measurement System

  6. Uses of Performance Measurement • 1) Monitoring • 2) Decision Making • 3) Attention Focus • 4) Legitimization • 5) Compensation – income is not guaranteed but dependent on performance • 6) Translating and implementing strategy

  7. Dysfunctional Outcomes of Performance Measurement • Fundamentals problems exist in performance measurement if the unintended behavior is created • Designers of incentive plan can be surprised to find that these systems create unintended behavior • Examples: • Credit Lending– performance measurement was $$$ of credit extended • Enron – performance measured by stock price and revenue recognition

  8. What makes an effective performance measurement system?

  9. Effective Performance Measurement System • Given the goals of the company which alternative incentive will motivate the desired behavior? • Unlikely a single measure or even several measures will effectively assess performance • assesses progress toward organizational goals and objectives - promote intended behavior • includes critical success factors • a mix of financial and nonfinancial – multiple measures • congruent with reward systems – pay performance link • participatory and easy to understand by employees • absolute vs relative evaluation • Various types of compensation (e.g. salary, bonuses, options)

  10. Effective Performance Measurement System • feed back provided • Include both short and long term measures • employees in appropriate jobs & appropriate performance expectations • attainable performance levels • measures are observable (objective vs. subjective) • responsibility and control is considered (overall vs. divisional) • limit ability to manage/manipulate outcome measures

  11. What are some traditional measures of performance?

  12. Traditional Performance Measures • Some monetary measurement of income is used by virtually all businesses to assess performance • Financial measures do not address issues of competitive reality • 1) Cash flow • 2) Return on Investment • 3) Residual Income • 4) Economic Value Added

  13. Why are traditional performance measures inadequate?

  14. Problems with Traditional Measures • 1) Overly aggregate • 2) Not Timely • 3) Backward looking • 4) Promote dysfunctional behavior in the short term. • 5) Not one measure or type of measure can realistically capture performance.

  15. What are non-traditional performance measures?

  16. Nonfinancial Performance Measures • Traditional financial measures are easy to measure but inadequate • Non-financial measures are being used increasingly instead of traditional systems • Focus on the leading indicators of profit • Recognition of the time lags between non financial and financial performance.

  17. Nonfinancial Performance Measures (cont’d) • Non financial performance measures create shareholder wealth • Non financial measures better predict future cash flows • A large scope of nonfinancial performance measures relate to critical success factors. • Intellectual capital becoming the basis of competitive advantage • What gets measured gets done • Customer service is an important measure

  18. Why are nonfinancial measures not well utilized in performance measurement?

  19. Non-Financial Measure - Current Practice • Importance-measurement gap • Measurement-use gap • Susceptible to measurement problems • Difficult to measure effectively (accuracy, ambiguity, timeliness) • Lead-lag relationship

More Related