1. Topic: Performance Management
Arriffin Mansor
1

2. Overview
Management
Functions: planning, Processes: measurement,
coordinating, and analysis/ evaluation, and
controlling improvement
Emphasis on the organizational and functional level
2

3. Overview
Measurement: understanding of the term KPI or performance
measures, identification of the KPI, application of MFPMM,
audit to improve KPI by linking with policies, objectives,
database, etc., ratio networking, and target setting
Analysis: trend/ variation understanding with MCPMT,
benchmarking process, and scorecard and root-cause analysis
Improvement: outsourcing, development of manufacturing
strategies, integration of knowledge learned on logistics and
supplier partnership
3

4. Overview
What reflects or represents the term performance?
performance
Kaplan and Norton (1992): Financial, customer,
internal business, and innovation/ learning
Sink and Tuttle (1989): Profitability, productivity,
quality, quality of work life, innovation,
effectiveness, and efficiency
Harper (1984): Productivity, unit cost, price, factor
proportion, cost proportion, product mix, and
input allocation
4

5. Introduction
Multi-national, national, and industrial levels
Organizational, functional, program, and project levels
Team and individual levels
Individual level
Management Workforces
Knowledge and Blue-collar
white-collar
5

6. Introduction
(1) Measuring productivity/ performance requires a
system view of an organization or a unit of analysis.
(2) Measuring productivity/ performance is common.
(3) Understanding of impacts from low productivity is
critical for management (competitiveness).
(4) Understanding of unit dimensions and definitions
are essential for measurement.
6

7. Introduction
Ongoing Issues for “Productivity” Management
(2) Total-, multi-, and single-factor productivity
consideration
(3) Combination of various input factors
(consideration into weight of each input, data
collected such as intangible assets, unit
dimensions, reporting and information format
on tabular and/or graphical forms, etc.) as well
as output factors
7

8. Introduction
System View of an Organization
Upstream Inputs Processes Outputs Downstream
8

9. Introduction
Purposes of performance measurement:
To identify whether we are meeting customer requirements
To help use understand our processes
To ensure decisions are based on facts, not on emotion
To show where improvements need to be made
To show if improvements actually happened
To identify whether our contractors or suppliers are meeting
our requirements
(Department of Energy, USA)
9

10. Introduction
Performance measurement should be used and integrated into
a management system and process, based on the following
reasons.
Control: Performance measurement helps reduce process
variation.
Continuous improvement: Performance measurement helps
identify defect resources, process trends, and defect prevention
as well as opportunities for improvement.
Need to have feedback by management: Performance
measurement helps mangers and administrators realize what is
to be done, what is being done, when to take corrective and
preventive actions, and when to change the expectation.
(Department of Energy, USA) 10

11. Introduction
Downstream or outcomes: customers, users,
consumers, buyers, and stakeholders (impacts,
reaction, satisfaction, financial growth, sales,
return, replacement, recall, survival, etc.)
Upstream: providers, suppliers, contractors,
and vendors (relationships, partnerships,
contractual agreements, etc.)
11

12. Introduction
Outputs
Tangible Intangible
Outcomes
[Satisfaction, Expectation, Desirable Impacts, etc.]
12

13. Basics on Measurement
Deming “You cannot manage what you
cannot measure.” “You cannot measure
what you cannot define.” “You cannot
define what you do not understand.”
13

14. Basics on Measurement
• Mandated by the Government Performance and
Results Act (GPRA) of 1993
• Federal agencies must be accountable and focus on
improving service quality and customer satisfaction.
• Coupled with the Government Management Reform
Act of 1994 which emphasizes performance improvement
and openness for annual financial audit (i.e., PART, activity-
based management, performance-based contract, adaptive
process for planning and budgeting, ownership cost, etc.)
14

15. Basics on Measurement
The 1993 Government Performance and Results
Act (GPRA) requires the following:
(1) Establishing top-level agency’s policies and
objectives as well as annual program goals
(2) Defining how the agency intends to achieve
these objectives and goals
(3) Demonstrate how the agency will measure
its own performance, including the programs
15

16. Basics on Measurement
Bush Administration (2001): “Performance
measurement is not an annual event; rather it
is a continuous process requiring clear
performance expectations, periodic feedback
for review, and analysis for improvement.”
Bush Administration (2001): “Performance
measurement is not an option; the only
question is how well it is done.”
16

17. Basics on Measurement
Measurement: understanding on static/dynamic
measure, and total-/ partial-/ single- factor measure,
and surrogate measure
Static Ratio: Revenue ÷ Cost
Dynamic Ratio: [Revenue46 ÷ Revenue45]
[Cost46 ÷ Cost45]
17

18. Basics on Measurement
Single-factor measure: Output ÷ labor
Partial- or multi-factor measure: Output ÷ (labor +
material)
Total-factor measure: Output ÷ (labor + material +
capital + machine + facility + utility + information)
18

19. Basics on Measurement
Case study for single-factor measure (labor only): 5 employees producing 500
output units in one month by working 22 days per month and 8 hours per
day. For the second month, 600 units were made with 5 employees but
working 20 days with the same working hours in one day. [880 = 5 × 22 × 8]
and [800 = 5 × 20 × 8]
Static measures (one month): Dynamic measures (one month):
500 units ÷ 880 labor hours = 0.57 [(600 ÷ 500)] ÷ [(800 ÷ 880)] = 1.20 ÷
units per labor hour 0.909 = 1.32 or
500 units ÷ 5 persons = 100 units 0.75 ÷ 0.57 = 1.32
per person
[(600 ÷ 500)] ÷ [(5 ÷ 5)] = 1.20 ÷ 1.00
600 units ÷ 800 labor hours = 0.75 = 1.20 or
units per labor hour
120 ÷ 100 = 1.20
600 units ÷ 5 persons = 120 units
∴ No unit dimension!
per person
19

20. Basics on Measurement
Case study for multi- or partial- factor measure: 5 employees producing 500
output units in one month by working 22 days per month and 8 hours per
day. For the second month, 600 units were made with 5 employees but
working 20 days with the same working hours in one day. The amount of
materials used are 1,000 and 1,250 units respectively. The price for the
outputs for the first and second month is $1,000 per unit while the costs of
labor over the two months is $15 per labor hour and $150 per material unit
(m2) for material. [880 = 5 × 22 × 8] and [800 = 5 × 20 × 8]
Multi- or partial- factor measures are as follows.
Month # 1: [(500 ×1000)] ÷ [(880 × 15) + (1000 ×150)] = 3.06 Static Ratio
Month # 2: [(600 ×1000)] ÷ [(800 × 15) + (1250 ×150)] = 3.01 Static Ratio
Months 1 and 2: [(600 ×1000) ÷ (500 ×1000)] = 0.98 Dynamic
[(800 × 15) + (1250 ×150)] ÷ [(880 × 15) + (1000 ×150)] Ratio
20

21. Basics on Measurement
Surrogate measures represent the implication of outputs and
inputs that are to be examined. Nowadays, they are used to
reflect upstream and downstream as well.
“Transportation services” = total mileage traveled or total
passenger mileage traveled such as total miles ÷ buses or
total miles ÷ employees, etc.
“Restaurant services” = level of satisfaction, revenue, and
profit such as revenue ÷ staffs, level of satisfaction ÷
electricity, etc.
∴ “quality students,” “innovation in product development,”
“quality of work life for office workers,” and so on
21

22. Basics on Measurement
Performance Measures or KPIs
Quantitative KPIs Descriptive KPIs
Ratio Format Non-ratio Format Occurrence Questionnaire
Format Format
Cross-ratio Format Cross-ratio Format
Size, weight,
Weight, scale,
scale, reliability,
accuracy, and
Definition Data and
comprehensive
of Terms Reliability and comprehensive-
-ness
Accuracy ness
22

23. Basics on Measurement
Ratio format: useful for identifying KPI as well as
enhancing the quality of information and of
information analysis
Ì Normalization for trend analysis, benchmarking,
etc.
Ì Consideration into changes in an organization
(such as takeover, new product introduction, etc.)
23

24. Past and Present Projects:
• Internal Benchmarking for Electricity Generating
Authority of Thailand (EGAT) on Generation and
Transmission
• Counterpart on Behalf of Provincial Electricity
Authority (PEA): PWC Report on Productivity and
Efficiency Benchmarking with 5 Other Public
Utilities (Prepared for the Ministry of Energy)
• Internal Benchmarking for PEA on Distribution
24

25. Basics on Measurement
Issues of Measurement “Robustness”
(financial and non-financial dimensions such as weight,
distance, volume, time, utility consumption, and so on):
• Labor: $, hours, and headcounts
• Materials: $, kilograms, m3, and m2
• Space: $ and m2
• Machines: $ and hours
25

26. Basics on Measurement
Robustness
Revenues
New Customers Repeated Customers
Target Unexpected Primary Secondary
Group Group Group Group
26

27. Basics on Measurement
Robustness
System Availability
Reliability Maintainability
(Uptime) (Downtime)
Operating Time Standby Active Maintenance Delay Time
Time
Logistics Administration
Corrective Time Preventive Time
27

28. Examples
Business and Industries
1. Bad Debt as a % of Revenue
2. Unplanned Overtime as a % of Overtime
3. % Of Suppliers with 100% Lot Acceptance over One Year
4. % Of Shipments Requiring More Than One Attempt to Invoice
5. % Of Customers Using “Invoiceless” Processing
6. Recycled Material Values as a % of Purchased Material Values
7. Total Time Lost Due to Injuries ÷ 1,000,000 Hours Worked
8. Total Time Lost Due to Strikes ÷ 1,000 Hours Worked
9. % Of Qualified Suppliers and Subcontractors Receiving 90% of
Total Purchased Value
28

29. Examples
Business and Industries
• % Of Requests for Engineering Actions Open for More Than Two
Weeks
• Spare Parts Cost after Warranty as a % of Total Cost Suggested
by Design Teams
• Standard Parts in New Releases as a % of Total Parts
• % Of Parts with Two or More Suppliers
• Suppliers with Quality and Productivity Improvement Programs
as a % of Total Suppliers
• % Of Employment Requested Filled on Schedule
• Average Time to Process Health and Accident Insurance Claims
• % Of Employees Who Have Not Been Trained in the Past 12
Months
29

30. Examples
Government (Function)
• Information Technology Expenditures as a % of Revenue
(Government of New South Wales, Australia )
• Recycled Material Values as a % of Purchased Material Values
(Government of New South Wales, Australia )
• % Of Late Reports (Department of Energy, USA)
• % Of Errors in Reports (Department of Energy, USA)
• Errors Reported by Outside Auditors as a % of Total Errors
(Department of Energy, USA)
• Error in Time Estimates ÷ Total Value of Estimates (Department of
Energy, USA)
• Number of Hours Lost due to All Equipment Downtime as a % of
Total Available Hours (Department of Energy, USA)
• % Deviation from Budget (Department of Energy, USA)
• % Variation to Cost Estimates (Department of Energy, USA)
30

31. Examples
Government (Program/project) by
Department of Trade and Industry, United Kingdom
• Time Predictability on Design = [(Actual Duration at Commit to
Construct - the Estimated Duration at Commit to Invest) ÷ the
Estimated Duration at Commit to Invest] × 100.
• Time Predictability on Construction = [(Actual Duration at Available
for Use - the Estimated Duration at Commit to Construct) ÷ the
Estimated Duration at Commit to Construct] × 100.
• Cost Predictability on Construction = [(Actual Cost at Available for Use
- the Estimated Cost at Commit to Construct) ÷ the Estimated Cost at
Commit to Construct] × 100
• Differences in the Planned Completion Duration and the Actual
Contract (client-agreed) Completion Duration as a % of the Contract
(client-agreed) Completion Duration
• Total Number of Change Orders Issued by the Client ÷ Project
Duration Time
• Value of work subcontracted to or supplied by other parties as a % of
Total Project Cost
31

32. Examples
Education
• % Of graduates who can find work within 6 months
• % Of graduates who have received job offers from multi-
national corporations
• Publications in international journals ÷ staffs
• Publications in international journals ÷ research projects
• % Of laboratory equipment in use
• % Of texts in elective courses that have been published in
the past 10 years
• % Of courses that have adapted the use of multi-media
software
• % Of incoming students from top-tier high schools
32

33. Descriptive KPIs
Occurrence Format (Source: FedEx from Neely, 1998)
Dimensions (Conditions Reflecting Satisfaction) Weight # Points
Right day, late service 1
Wrong day, late service 5
Complaints reopened by customers 5
Missing proof of delivery 1
Invoice adjustment requested 1
Missed pick-ups 10
Damaged packages 10
Lost packages 10
Over-goods (packages received in lost and found) 5
Abandoned calls 1
Score
33

34. Basics on Measurement
Data Performance Information
measurement
• Roles of measurement is to convert data to information for
decision/actions.
• Analysis of information for improvement (interventions
and budgeting), and rating and ranking (external parties)
• HR consideration (to be referred to as appraisal not
measurement, and to be related to functional job analysis)
involves pay-scale, par hike, placement, skill development,
promotion, etc. This is not the focus of the material!
34

35. Basics on Measurement
Potential Problems:
• Lack of knowledge on inputs and outputs in
terms of priority and impacts (What are the
primary inputs? What constitutes the primary
outputs? What represents the inputs and
outputs? Current data being collected?)
• Multiple outputs in terms of products and
services [1 truck + 1 car + 1 motorcycle + 1
repair work ≠ 4 units] [1 TV + 1 radio ≠ 2 units]
35

36. Basics on Measurement
Potential Problems (cont.):
3. Multiple inputs
[10 m2 of Space + 30 m2 of Materials ≠ 40 m2]
4. Consideration must be made into a time-effect
for using inputs to generate outputs.
[Outputs ÷ (labor + materials)]
[Outputs ÷ (labor + new investment capital)]
36

37. Basics on Measurement
Potential Problems (cont.):
5. Integration with the database (Is the database
robust enough?)
6. Rapid changes in prices (per unit of outputs)
and costs (per unit of inputs). You must be
able to differentiate the contributions to the
profits whether they are from the productivity
improvement or the changes in unit price/ cost.
37

38. Basics on Measurement
Unit assume constant
Interval Scale (use
of mean and
Arbitrary standard deviation)
0 1 2 3 4 5 such as temperature
origin
and position
No unit between two points
Ordinary Scale (use of
median and percentiles)
Order 1st 2nd 3rd 4th 5th
such as preference and
street numbers
38

39. Basics on Measurement
Constant unit
Ratio Scale (use of
mean and
Non-arbitrary standard
0 1 2 3 4 5 deviation) such as
zero
length and time
#3 Nominal Scale (use of mode)
#5
#2 such as assignment of numbers
#6 #7
for queuing or sport teams
#1 #4
39

40. Basics on Measurement
Scrap and Rework- to- Sales Ratio (in %)
Definition
•Sale: the value of goods and services sold during the period ($)
% •Scrap and Rework: the value in terms of cost with respect to
direct labor, material, and other indirect support ($)
12.00 Starting points, variation,
10.00 trends, and satisfaction?
8.00
6.00
4.00 Month
2.00
Jan Feb Mar April May June
40

41. Linking with Analysis/ evaluation
1. Internal analysis/ evaluation (comparison with
past performance in terms of trend and
variation, and with the internally-established
targets, expectation, and anticipation)
2. External analysis/ evaluation (comparison with
standards, benchmarks, industrial averages with
respect to the industries/ clusters, benchmarking
partners, and competitors)
41

42. Linking with Improvement
Desirable impacts should be anticipated prior to
improvement interventions. For example, to
improve productivity, one may expect at least one of
the following five desirable impacts.
Output Output Output
Input Input Input
Output Output
Input Input
42

43. More on Measurement
“Performance Framework”
Seven Performance Criteria
Profitability/ Productivity Innovation Quality
budgetability
Effectiveness Efficiency Quality of Work Life
43

44. More on Measurement
Definitions:
• Efficiency: Degree to which the system utilizes the “right” thing. This definition may be
Efficiency
represented by the ratio of “Resources planned for consumption” to “Actual consumption of
resources.”
• Effectiveness: Degree to which the system accomplishes the “right” thing. This definition may
Effectiveness
be represented by the ratio of “Actual outputs” to “Planned outputs.”
• Profitability/budgetability: Ability to generate profit/revenue based on resources consumed
Profitability/budgetability
• Productivity: Relationships between outputs generated and resources consumed for output
Productivity
generation
• Quality (anywhere in the process model): Degree to which the system conforms to
(
requirements, specification, or expectations.
• Innovation: Ability to change over time within processes or operations, and products/services
Innovation
offered in the market.
• Quality of Work Life: Reflecting on how people feel toward their workplace. Feeling in driven
Life
by factors such as pay, safety, culture, relationships with co-workers and supervisors,
flexibility, autonomy, etc
44

45. Sink’ Performance Criteria Interrelationships
To maintain the desirable level
of productivity, the organization
has to pay attention to its human
resources.
If the organization is • Quality of work life
• Effective and
• Efficient.
The organization will
The organization be very
Each critical point will likely be
within the • Profitable or
• Productive. • Budgetable.
organization is well
managed and has
well-designed To survive the anticipated level of
processes in place. competition, and to become
• Quality proactive in responding to
customer needs, the organization
must be become
• Innovative.
Virginia Quality and Productivity Center at Virginia Tech
45

46. More on Sink’s
Unit of Analysis Level
Upstream Value-added Downstream
Systems Processes Systems
Inputs Outputs
Quality Quality Quality Quality Quality
checkpoint 1 checkpoint 2 checkpoint 3 checkpoint 4 checkpoint 5
TQM = Management of Quality at 5 Checkpoints
46

47. More on Sink’s
Organizational System
Upstream Value-added Downstream
Systems Processes Systems
Inputs Outputs
Productivity
Efficiency Effectiveness
Innovation
and Quality
of Work Life
Quality
Profitability
47

48. More on Measurement
University of California Framework
Effectiveness Efficiency Quality Timeliness
Productivity Safety
Definitions:
Effectiveness: A process characteristic indicating the degree to which the process output (work
Effectiveness
product) conforms to requirements (Are we doing the right things?)
Efficiency: A process characteristic indicating the degree to which the process produces the
Efficiency
required output at minimum resource cost. (Are we doing the things right?)
Quality: Degree to which a product or service meets customer requirements and expectations.
Quality
Timeliness: Degree to which a unit of work was done correctly and on time. Criteria must be
Timeliness
established to define what constitutes timeliness for a given unit of work. The criterion is usually
based on customer requirements.
Productivity: Reflecting the value added by the process divided by the value of the labor and
Productivity
capital consumed.
Safety: Degree to which the overall health of the organization and the working environment of its
Safety
employees. 48

49. More on Measurement
Family of Measures Framework
Profitability Productivity External Quality Internal Quality Other Quality
Definitions:
• Profitability: Relationships between Outputs Generated and Resources Consumed for output
Profitability
generation
• Productivity: The value added by the process divided by the value of the labor and capital
Productivity
consumed.
• External Quality: Measures whether a unit of work was done correctly and on time also meets
Quality
customer requirements and expectations.
• Internal Quality: A process characteristic indicating the degree to which the process produces
Quality
the required output at minimum resource cost. (Are we doing the things right?)
• Other Quality: Measures the overall health of the organization and the working environment
Quality
if its employees. Ability to change over time within processes or operations, and products/
services offered in the market
49

50. Transformation
Kurstedth, 1990 (Management Systems Laboratory at Virginia Tech)
Decisions Actions
Who What is
manages? managed?
Information
Perception Data
Information Measurement
Portrayal
What is used to manage?
50

51. Transformation Other Audiences:
Upper Management,
GAO, OMB,
“Control Boss, Etc.
Loop”
Perception Portrayal
• Manager Measurement And Evaluation Measurement And
• Management Team Systems Evaluation
• Employees Output/Visibility Tools and Techniques:
Data Massaging Process
Decision
Data
Normal Direction
Improvement Measurement
• I/O Analysis Intervention Techniques and
• And Techniques Systems: Data
Vision/Strategy
Collection Process
• Report Design
• Data Collection Design
• Data Analysis Techniques Action
Measurement
Downstream
Upstream
Systems
Systems
Organizational
System
Sink and Tuttle, 1989 51

52. Transformation
Administer the Build the
Management Business
Process (improvement)
A B Current
Situation
Suggests a
Lack of
Continuous
Improvement
C in Operation
and Work
Processes
Source: Hoehn (2002)
Cater to crises
52

53. Transformation
Build the
Administer the Business
Management (improvement)
Process
Balance in
(visibility &
Time
Control) A B Management
Requires
Performance
Measurement
and Its
C Integration
with
Management
Source: Hoehn (2002) Systems and
Processes
Cater to crises
53

54. Transformation: Common Misuse of
Performance Measurement?
• Measuring A while hoping for B. We measure the easy
things, the most pressing things, the wrong things; we hope
for quality while measuring and controlling only production
schedules.
• Measuring to control in such a way as to make improvement
more difficult. We focus on control of excess, creating a
compliance mentality rather than an improvement
orientation.
• Measuring to find those who have performed poorly in
order to punish them while ignoring the good performers.
Source: Sink and Tuttle, 1989
54

55. Transformation: Common Misuse
of Performance Measurement?
• Behavior is influenced by measures
– “You get what you measure because that is what you
reveal as what you think is important.” (Sink and Tuttle,
1989)
• But, are we measuring the right things?
– How do we know the measure accurately reflects system
performance?
– How do we know that the measure is under the control of
those it’s attributed to?
– Are we measuring to control or to improve, or both?
55

56. Transformation
The Management System Model (MSM)
demonstrates a “general” management process
and then depicts the roles of performance
measurement for the unit of analysis.
(Performance measurement = a management tool)
56

57. Background Enhancement
Balanced/complete Performance-based
Measures Management
Performance
Measurement
Systems
Budgeting
& Stakeholders
Planning (customers and
shareholders)
Source: Neely, 1998
57

58. Background Enhancement
Process Customer Financial
Results Results Results
Output/ outcome- driven performance
measurement at “Best Buy Corporation”
58

59. Background Enhancement
System view of performance measurement
Performance Measurement System
Performance Robust Database Mechanism
Criteria and Areas
Collection, Verification, Process,
Retrieval of Data, Reporting,
Performance
Analysis, and Decision/actions
Measures
Cognitive Style of Users
59

60. Background Enhancement
(US Department of Energy, FY 1999)
• Area of measurement: Engineering
Minimum Desirable
Focus Performance Measures (standards) (targets)
• % of Operations Manuals 100% within 100% on
Systems/ updated in accordance with 30 days of schedule
operations schedule schedule
Manual
updates as • % of manuals that are
100% within 100% on
technical accurate and complete in
60 days of schedule
support accordance with approved
schedule
schedule
Measure VS targets VS standards
60

61. Background Enhancement
• Area of measurement: Engineering
Focus Performance Measures Minimum Desirable
Provide • % of deliveries of services and 60% of 95% of
configuration publications (on standards, inquiries are inquiries are
management Federal rules and decisions, completed completed
assistance, and environmental reports, Federal and on date and on date
maintain Codes, State-wide orders, and requested. requested.
integrated construction estimating
schedule standards) in accordance to
baseline for requests
task, site, and 70% of all 95% of all
• % of schedules and reports
project basis schedules/ schedules/
are updated and maintained on
reports have reports have
a monthly basis
been updated been updated
61

62. Background Enhancement
• Area of measurement: Management Information Systems
Focus Performance Measures Minimum Desirable
• % of software problems
solved on the first call to Help 50% 85%
Desk
User
satisfaction • Number of support hours
with support 2.0 hours 1.5 hours
required per end-user devices
activities
• % of Help Desk
technicians certified as 25% 75%
Microsoft Office Experts
62

63. Background Enhancement
• Area of measurement: Management Information Systems
Focus Performance Measure Minimum Desirable
Effective project 60% completion 85% completion
management • % of Information Systems within ± 15 % within ± 15 % of
control of initiatives completed of planned date planned date and
Information and planned planned man-
Systems projects man-hours hours
63

64. Background Enhancement
• Area of measurement: Management Information Systems
Focus Performance Measures Minimum Desirable
• % of network availability (Access, 90% overall 97% overall
Visio, Internet Connector, during 6:30 during 6:30
Washington E-mail Connector) a.m. to 5:00 a.m. to 5:00
p.m shift p.m shift
Maximize 90% overall 96% overall
network and • % of business application during 6:30 during 6:30
application availability (Travel Manger, P- a.m. to 5:00 a.m. to 5:00
availability Centra, Magic-Solutions, and so on) p.m shift on p.m shift on
Monday- Monday-
Friday Friday
• Average turnaround time 10-day Less than
for problems/maintenance average 10-day
on the primary database average
64

65. Background Enhancement
• There have been new reports and articles on this
topic appearing at a rate of one for every five hours
of every working day since 1994.
• In 1996 alone, one new book on this subject
appeared every two weeks.
• In 1996, the survey found that 64% of American
business were actively experimenting with new ways
of measuring and utilizing non-financial data.
65

66. Background Enhancement
Source: DOE, USA 66

67. Background Enhancement
Source: DOE, USA 67

68. Background Enhancement
Source: DOE, USA 68

69. Background Enhancement
Knowledge Management within the Organization Relies
on Robust Performance Measurement.
Know-what, know-where, Increasing Levels of
know-when, know-how, Complexity and Value
and know-why Intangible
Assets
Experience
Expertise and Skills
Data and Information
69

70. Background Enhancement
Source: DOE, USA 70

71. Background Enhancement
Planning for
Performance
Measurement
71

72. Background Enhancement
• The Balanced Scorecard seeks to link four measurement
perspectives to provide a comprehensive view of business
performance
Balanced Scorecard Framework for Action
Financial Perspective
GOALS MEASURES
How Do We Look
• Clarify and translate
to Shareholders?
vision and strategy
• Communicate and link
strategic objectives and
How do
Customers See Us? What Must We Excel At? measures
Customer Perspective
GOALS MEASURES
Internal Business Perspective
GOALS MEASURES
• Plan, set targets, and
align strategic
initiatives
• Enhance strategic
feedback and learning
Innovation and Learning Perspective
GOALS MEASURES
Can We Continue
to Improve and
Create Value?
Source: Kaplan and Norton, 1992, 1996 72

73. Measurement (DOD, USA)
Mission/ objectives/ policies
Basics
Strategies Financial Perspective: How do we add
value for customers/stakeholders while
controlling costs?
Customer Perspective: Who do Internal Business Perspective:
we define as our customers/ To satisfy customers/
stakeholders? How do we create stakeholders while meeting
value for our customers/ budgetary constraints, at what
stakeholders? work processes must we excel?
Employee Learning and Growth
Perspective: How do we enable ourselves to
grow and change, meeting legislative and
citizen demands?
73

74. Background Enhancement
Perspective Question Performance Focus and Areas
Customer How do customers see us? Time, quality, performance and service,
and cost [Quality, effectiveness, and
innovation in products and services]
Internal What must we excel at? Cycle time, excellence , and employee skills
[Productivity, quality, QWL, effectiveness,
Business efficiency, and innovation in processes]
Innovation Can we continue to New product launches, customer value,
and operating efficiency [Quality and
improve and create value? Innovation in products/services and
processes]
Financial How do we look to Income, expenses, assets, liabilities…
[Profitability and productivity]
shareholders?
74

75. Relating to the Balanced Scorecard (DOE, USA)
Customer Perspective: KPI or measures include:
• % of customers satisfied with responsiveness, cooperation, and
communication (Data to be collected through the customer
survey)
• % of customers satisfied with quality (Data to be collected
through the customer survey)
Financial Perspective: KPI or measures include:
• Actual Spending-to-Budget Ratio (Data to be collected from the
agency’s financial database)
• % of late payment in $ on contracted services (Data to be
collected from the agency’s financial database)
75

76. Relating to the Balanced Scorecard (DOE, USA)
Internal Business Perspective: KPI or measures include:
• % of acquisition transactions using Electronic Commerce (Data
to be collected from the agency’s financial database)
• % of targets achieved within a timeframe (Data to be collected
from the agency’s central database)
Learning and Innovation Perspective: KPI or measures include:
• % of staffs meeting mandatory qualification standards (Data to
be collected from the agency’s Career Development database)
• % of staffs satisfied with the professionalism, culture, values,
and empowerment (Data to be collected through an employee
survey)
76

77. Relating to the Balanced Scorecard
(typical private firms)
Customer Perspective: KPI or measures include:
1. % of revenue from new customers
2. Customer retention rate
3. Market share
Financial Perspective: KPI or measures include:
• Profit ÷ revenue
• Revenue ÷ total cost
• ROI and/or ROA
77

78. Relating to the Balanced Scorecard
(typical private firms)
Internal Business Perspective: KPI or measures include:
1. Inventory turnover
2. On-time delivery
3. Production yield
Learning and Innovation Perspective: KPI or measures include:
1. % of staffs who have not been trained for the past 12 months
2. % of revenue from new products
3. Product mix
78

79. Past and Present Projects:
• Office of the Public Sector Development Committee
(OPDC) for Assessing a Management System of the
“CEO-Provincial” Governors (75 provinces excluding
Bangkok)
[PM will host the CEO Summit in November 2004.]
• Institute for the Promotion of Teaching Science and
Technology, the Ministry of Education for
Assessment a Management System for the Director
79

80. Major Findings from the Assessment
Problems/Interpretations Impacts from Management System Problems
Database/IT Roadblock into Decisions/actions to Achieve Strategies
and Policies Outlined
Staffs Initial Roadblock into Deployment and
Implementation of Decisions/actions
Budget Initial Roadblock into Deployment and
Implementation of Decisions/actions
Participation Initial Roadblock stemmed from a Lack of Awareness
on Strategies and Policies
Perception of Problems within a Unity, Problem Understanding on the Seriousness and
Priority, Implications on Use of Quantitative
Management Team Data/information, Communication and Coordination
within a Management Team, Integration of
Performance Measurement within a Management
System, etc.
Perception of Success within a Definition of Success, Yardsticks or Comparable
Values (Benchmarks or Standards), Data/information
Management Team Sharing, Communication of Results, Subsequent
Impacts on Future Planning, etc.
Integration among Formulation, Planning Process, Accountability within a
Management System, Understanding of Contributors
Implementation, and Accomplishment into Success, etc.
80

81. Database, Staffs, Participation,
Other Audiences: and Budget
Upper Management,
Deputy Provincial Perception of Problems and
Budget Bureau, ONESB, BOI,
Governors
OPDC, etc. Success, and Integration
“External Control
among Formulation,
Loop” Implementation, and Success
“Internal Control
Loop”
Reporting Perception Information Portrayal
Measurement and Evaluation Measurement And
Provincial Governors Evaluation
Systems as well as Visibility
Tools and Techniques:
Data Massaging Process
Decisions Data
Normal Movement
Improvement Measurement
Intervention Techniques and
And Techniques Systems: Data
Collection Process
Actions
Measurement
Upstream Organizational Downstream
System
Private Sectors, Private Sectors,
Government Value-added Government
Agencies Inputs Processes Outputs Agencies
(operation- (operation-
oriented), Other oriented), Other
Audiences Audiences
81

82. Recommendations
Adaptability
Improvement of
Management Systems
Ownership
Responsiveness
Responsible Parties for Implementation: Provincial Governors and OPDC
• Adaptability (ability to adapt to different operating environment): Public Franchises,
Innovation Funds, Activity-based Costing, Tracking of “Unnecessary Cost,” etc,
• Responsiveness (ability to timely respond to stakeholder needs– fundamental or emerging
needs): Outsourcing, Cross-training Programs, etc.
• Ownership (ability to receive timely feedback on decisions/actions as well as being
accountable for planning): Performance Measurement, Acquisition Logistics, Performance-
based Contracts, Vendor Performance Forum, and Program Risk Managmeent
82

83. Recommendations
Empowerment
Sustainability of
Management Systems
Supportability
Robustness
Responsible Parties for Implementation: OPDC and Central Agencies
• Empowerment (sustaining the management system by assisting its adaptability): Saving
Accounts, Provincial Bonds, etc.
• Robustness (sustaining the management system by assisting its responsiveness): Management
Consulting Clinics, Value-chain Management for Planning, etc.
• Supportability (sustaining the management system by assisting its ownership):
Benchmarking Clearinghouse for Public Organizations, PM Awards for Service Quality and
Best-value Procurement, etc.
83

84. Available Assets within a Management System for Becoming More Adaptive,
Responsive, Robust, Accountable
Financial Assets Non-financial Assets
Intangible Assets Intellectual Properties
Human Capital Organizational Capital
Innovation Capital Process Capital
84

85. Applications of Ratio-format
Measures for Performance
Measurement and Analysis
85

86. Ratio-format Measures
Input/ Output Analysis or Upstream-input-
process-output-downstream Chain
Unit of Analysis
Upstream Inputs Processes Outputs Downstream
Internal/ external Internal/ external
entities such as entities such as
suppliers, customers, users,
competitors, etc. regulators,
competitors, etc.
86

87. Ratio-format Measures
University
Upstream Inputs Processes Outputs Downstream
High Schools Staffs Teaching Graduates Qualifications
for Workplace
Suppliers Students Approval Research
Suitable Skills
Subcontractors Instruments Experiments Reports and
Documents Employment
Budget Bureau Facility Review
Seminars Continuous
Budget Planning
Education
Intellectual
Utilities Procurement
Properties Publications
Revenue
87

88. Ratio-format Measures
Private Firm
Upstream Inputs Processes Outputs Downstream
Suppliers Staffs Planning Products Revenue and
Profit
Subcontractors Instruments Procurement Services
and after Sales Quality of Services
Approval
Equipment (Replacement,
Reports
Production Repairs, Return,
Facility and
Recall, etc.)
Inspection Documents
Capital
Customer
Warehousing
Utilities Satisfaction
Delivery
Raw Regulatory
Materials Compliance
88

89. Ratio-format Measures
Call Center
Upstream Inputs Processes Outputs Downstream
Suppliers Staffs Receiving Responses Quality of
Responses
Subcontractors Incoming Listening Data and
(Accuracy, Clarity,
Calls Information
Customers Data Fast, etc.)
Facility Gathering
Customer
Equipment Training and Satisfaction
Knowledge
Database
Building
89

90. Ratio-format Measures
Ratio Identification
Outcomes ÷ inputs
Outputs ÷ inputs
Outcomes ÷ outcomes
Outcomes ÷ outputs
Outputs ÷ outputs,
Inputs ÷ inputs
Inputs ÷ upstream
Upstream ÷ upstream
Actual outputs ÷ planned outputs
Planned or expected resource consumption ÷ actual consumption of resources
90

91. Ratio-format Measures
Leading and Lagging Categories
Rule Applications Ratio Format Dynamic and
Absolute Rule Static Types
Frequency Rule
Improvement or Control or
trend-specific monitoring-specific
91

92. Ratio-format Measures
Trend: Revenue ÷ Cost and Product ÷ Raw Materials
Control: % of Employees under 35-year old and % of
Employees with Children under 6-year old
Absolute Rule: Average time to respond to incoming
telephone calls and Average time for a corrective
maintenance action (type A repair)
Frequency Rule: % of incoming telephone calls that are
responded within 45 seconds and % of a corrective
maintenance action (type A repair) that is completed
within 30 minutes
92

93. Ratio-format Measures
Verification: (1) Unit dimensions, frequency, data
accuracy and reliability, and
definition for data collection
(2) Information usefulness for
decisions/ actions
(3) Linkage with organizational
policies and objectives (through the
pyramid or breakdown structure
concepts or performance network)
93

94. Ratio-format Measures
Outcomes ÷ Outcomes
– Revenue from new customers ÷ Revenue
– Revenue from rework ÷ Revenue
Outcomes ÷ Outputs
– Return ÷ Amount produced
– Delivery errors amount ÷ Delivery amount
Outcomes ÷ Inputs
– Revenue ÷ Assets
– Revenue ÷ (Labor + Utility) cost
94

95. Ratio-format Measures
Outputs ÷ Outputs
– Rework ÷ Amount produced
– Unplanned amount produced ÷ Amount produced
Outputs ÷ Inputs
– Amount produced ÷ Labor
– Amount produced ÷ Materials
Process
– Average amount of respond time on a customer complaint
– Absent hours from unsafe and unsuitable working
environment ÷ Working hours
95

96. Ratio-format Measures
Inputs ÷ Inputs
– % Of people who resign after 6-month of employment
– % Of rejects on incoming materials
Inputs ÷ Upstream
– % Of parts from approved suppliers
– % Of rejects from the same suppliers
Upstream ÷ Upstream
– % Of suppliers that have been audited as scheduled
– % Of active suppliers that have been internationally certified
or recognized
96

97. Value-based Management with
Ratio-format Measures
• “Value added” represents the value which the firm
adds to the materials, components, goods/ services
which it buys from others in order to create its own
sale revenue or value of output turnover.
∴ Value-added = (Sales or Value of Output
Turnover) – (Bought in Materials and Services
such as Raw Materials, Components,
Goods/services, and Energy)
Source: Screehivasan, V. (1991), the Michigan Manufacturing Technology Center,
USA
97

98. Economic Value Added (EVA):
• Registered Trademark of Stern Stewart & Co.
• Financial-based measure with focus on
shareholders’ wealth
• Visualize “true” economic profit
EVA = OPBT – TAX – (TCE x COC)
OPBT: Operating Profit Before Tax
TAX: Federal, state, and local tax
TCE: Total Capital Employed
COC: Cost of Capital
Limitations: Data, Not applicable for public organizations, past
performance or lagging indicators, not suitable for dynamic environment,
etc.
98

99. Multi-criteria Performance/ productivity
Measurement Technique (MCP/PMT)
Attempts to combine information from different ratio-
format measures into an overall level of performance
Attempts to integrate different types of ratio-format
measures into performance information (e.g.,
productivity = outputs ÷ inputs, profitability =
outcomes ÷ inputs, quality = outcomes ÷ outcomes, or
outcomes ÷ outputs, outputs ÷ outputs etc.)
99

100. Productivity Measurement Technique
(PMT)
100

101. Multi-criteria Performance
101

102. MCP/PMT
Implementation:
(2) Identification of ratio-format measures
(3) Verification of their suitability
(4) Understanding of past information,
including trends
(5) Selection of a performance scale (to be the
same for all selected ratios)
• Scale should be 0-1.00, 0-10.00, or
0-100.00 for simple interpretations!
102

103. MCP/PMT
(5) Development of a preference curve (to be unique
from one ratio to the next)
– Desirable, best, competitive levels of
performance (driven by internal capability,
shareholder expectation, competition, best-
practice)
(6) Weight assignment on each ratio
(7) Data collection
(8) Computation
(9) Analysis and improvement
103

104. MCP/PMT (Baht, x 1,000)
Month Sales R. Mat. Direct La Injury/ Subcont. Utility
Compen.
Jan. 78,762 24,547 7,963 98 1,583 874
Feb. 60,134 23,334 6,227 112 2,127 912
March 82,277 23,870 6,455 85 1,855 989
April 47,556 10,619 4,852 78 846 652
May 31,467 12,055 4,047 51 997 545
June 20,425 11,457 3,398 54 785 516
July 28,064 12,141 3,352 65 1,005 576
August 24,974 12,379 3,751 45 998 544
Sept. 33,449 14,327 4,274 49 776 512
Oct. 51,325 18,177 4,912 56 1,056 743
104

105. MCP/PMT
Month Sales ÷ Sales ÷ Injury ÷ Sales ÷ Subcont. ÷
Raw. Mat. Direct La. Direct La. Utility Direct La.
(per 1,000) (per 100)
Jan. 3.21 9.89 12.31 90.12 (B) 19.88
Feb. 2.58 9.66 17.99 65.94 34.16 (W)
March 3.45 12.80 (B) 13.19 83.19 28.78
April 4.48 (B) 9.80 16.08 72.94 17.44 (B)
May 2.61 7.78 12.60 57.74 24.64
June 1.78 (W) 6.01 (W) 15.89 39.58 (W) 23.10
July 2.31 8.37 19.39 (W) 48.72 29.98
August 2.02 6.66 12.00 45.91 26.61
Sept. 2.33 7.83 11.46 65.33 18.16
Oct. 2.82 10.40 11.40 (B) 69.08 21.50
Average 2.76 8.92 14.20 63.85 24.42105

106. MCP/PMT
Sales-to-Raw Materials Ratio
5
4
Ratio Value
3
2
1
0
1 2 3 4 5 6 7 8 9 10
Month
106

107. MCP/PMT
Sales-to-Direct Labor Ratio
15
aio a e
R t V lu
10
5
0
1 2 3 4 5 6 7 8 9 10
M nh
ot
107

108. MCP/PMT
Compensation and Injuries-to-
Direct Labor Ratio
(per 1,000 Baht)
30
R t Va e
aio lu
20
10
0
1 2 3 4 5 6 7 8 9 10
Month
108

109. MCP/PMT
Sales-to-Utility Ratio
10
0
80
R tioVa e
a lu
60
40
20
0
1 2 3 4 5 6 7 8 9 10
Month
109

110. MCP/PMT
Subcontract-to-Direct Labor (per 100 Baht)
40
Ratio Value
30
20
10
0
1 2 3 4 5 6 7 8 9 10
Month
110

111. MCP/PMT
• Development of the preference curve
– Need to understand process capability as well
as to expose work process to external factors
such as competition
– Unique from one ratio to the next (unlike the
performance scale)
– Values on the preference curve should be
controllable as well as challenging and
measurable (numerical figures)
111

112. MCP/PMT
Preference Curve for Sales-to-Raw Materials Ratio
Performance Value Scale
Scale
≤ 1.78 0 (Worst)
100
2.76 50 (Acceptable)
≥ 4.48 100 (Best)
50 Actual results for November is 4.58
 the value on the performance
scale is 100 (out of 100)
0 Ratio Information
4.58
1.78 2.76 4.48
112

113. MCP/PMT
Preference Curve for Sales-to-Direct Labor Ratio
Performance Value Scale
Scale
≤ 6.01 0 (Worst)
100
8.92 50 (Acceptable)
≥ 12.80 100 (Best)
50 Actual results for November is 5.64
 the value on the performance
scale is 0 (out of 100)
0 Ratio Information
5.64
6.01 8.92 12.80
113

114. MCP/PMT
Preference Curve for Compensation and Injury
Cost-to-Direct Labor Ratio
Performance Value Scale Interpolation:
Scale ≤ 11.40 100 (Best) 14.20- 11.40 = 12.40- 11.40
100 14.20 50 (Acceptable)
100 - 50 100 - (X)
? X = 82.14
≥ 19.39 0 (Worst)
50 Actual results for November is 12.40
 the value on the performance
scale is 82.14 (out of 100)
0 Ratio Information
12.40
11.40 14.20 19.39 114

115. MCP/PMT
Preference Curve for Sales-to-Utility Ratio
Performance Value Scale
Scale
≤ 39.58 0 (Worst)
100
63.85 50 (Acceptable)
≥ 90.12 100 (Best)
50 Actual results for November is 91.04
 the value on the performance
scale is 100 (out of 100)
0 Ratio Information
91.04
39.58 63.85 90.12
115

116. MCP/PMT
Preference Curve for Subcontract-to-Direct Labor Ratio
Performance Value Scale Interpolation:
Scale ≤ 17.44 100 (Best) 34.16- 24.42 = 30.68- 24.42
100 24.42 50 (Acceptable)
50 - 0 50 - (X)
X = 17.86
≥ 34.16 0 (Worst)
50 Actual results for November is 30.68
 the value on the performance
scale is 17.86 (out of 100)
?
0 Ratio Information
30.68
17.44 24.42 34.16
116

117. MCP/PMT
Performance Level
November from Scale 0-100
Ratio 1: 4.58 100.00
Ratio 2: 5.64 0.00 Equal Weight
Ratio 3: 12.40 82.14 of 20% for
Each Ratio
Ratio 4: 91.04 100.00
Ratio 5: 30.68 17.86
117

118. MCP/PMT
• Overall Level of Performance =
(100 × 0.20) + (0 × 0.20) + (82.14 × 0.20) +
(100 × 0.20) + (17.86 × 0.20) = 60 out of 100
Interpretations and implications: the level of performance in
November ≥ acceptable level
Static VS dynamic views when developing a preference curve
with closed- and open- system points of view
Weight assignment (to be consistent with organizational
policies and objectives)
118

119. Past and Present Projects:
• Thai Flour Group (BKK Inter Food) for Possible
Interrelationships between Quality of Work Life and
Productivity with MCPMT– Please See the Paper for
More Details
• Thai Flour Group (BKK Inter Food) for
Developing and Deploying Ratio-format KPIs:
Improvement on Monitoring and Management
• PEA for Developing and Deploying Ratio-format
KPIs at the Functional Levels (34 functions + 1 zone)
119

120. Lessons Learned:
• Database and Performance Measurement:
Integral and Inseparable Parts
• Cost of Developing and Deploying KPIs must be
considered prior to implementation. Benefits/cost
analysis should be made (although eventually the
benefits will outweighs the cost!).
• Accounting information is still important. The
objective is to enhance information for
decisions/actions (not to replace what has been in
use). Go back to the problems in 1970s for U.S.
businesses.
120

121. Performance Network
• Harper (1984): Historically, the performance has
been measured by individual ratios. Financial ratios
such as liquidity, debt-equity, inventory turnover,
profit margin, return on investment, return on
assets, etc. have been applied for a long time.
• More importantly, the ratios must reflect the
systematic nature of the unit under examination.
This nature implies the understanding of inputs,
processes, and outputs as well as external factors
impacting the conversion of these inputs to outputs
such as suppliers, competitors, customers, etc.
121

122. Performance Network
• Several issues embedded during the
development and use of these ratios.
– Output and inputs definitions (tangible and
intangible) and their respective importance into
the operations
– Linkage with organizational policies and
objectives
– Interrelationships among the identified ratios for
comprehensive cause-and-effect analyses
– Use of information for planning and realistic
target setting
122

123. Performance Network
Identification of the Ratios
Input Factor
Physical Quantity Financial Value
Output Factor
Physical Quantity Financial Value
123

124. Performance Network
• Areas that reflect the performance
– Productivity
– Unit Cost
– Price
– Factor Proportion
– Cost Proportion
– Product Mix
– Input Allocation
124

125. Performance Network
Productivity = Output(s) Physical Quantity
per Physical Quantity
Input(s)
Unit Cost = Input(s) Financial Value
per Physical Quantity
Output(s)
Price = Input Financial Value per Physical
Quantity (of the same type of
Input an input)
125

126. Performance Network
Factor = Input Physical Quantity or Financial
Value of One input over
Proportion Input Another Type Input
Cost = Input Financial Value of One Input
over Total Financial
Proportion Inputs Value of Entire Inputs
Physical Quantity or Financial Value of
Product Mix = Output One Output over Another Output (or
in Some Cases, One Output Can Be
Output Broken into Smaller Categories.)
Applied When One Input Can Be
Input = Input Broken into Smaller Categories
for Both Physical Quantity and
Allocation Input Financial Value
126

127. Performance Network
• Productivity: Output per labor, output per
tons of fuel, etc.
• Unit Cost: Cost per one output unit, Labor
cost per one output unit, etc.
• Price: Total labor cost per worker, Total
material cost per ton, etc.
• Factor Proportion: Material cost per labor
cost, Labor cost per fuel cost, etc.
127

128. Performance Network
• Cost Proportion: Labor cost per total cost,
Material cost per total cost, etc.
• Product Mix: Revenue from product per
revenue from repair services, product A per
product B, Product A per product A rework,
etc.
• Input Allocation: Inspector per production
line worker, Indirect labor per direct labor,
etc.
128

129. Performance Network
• Implementation
 Defining businesses in terms of outputs and
inputs with basic understanding of policies and
objectives (may assume outcomes ≈ outputs)
 Identifying both physical quantity and financial
value relating to each output and input factor
 Listing the required ratios as stated by the 7
aspects
129

130. Performance Network
• Rules for Ratios:
 More than one input factor:
Output = Output × Capital
Labor Capital Labor
 Pay and productivity (cost per unit of a factor is
function of both its productivity and price)
Wage Cost = Wage Cost ÷ Output
Output Labor Labor
130

131. Performance Network
 Pay your greatest attention to the greatest
proportion
Profit = Profit × Output or
Labor Output Labor
Profit = Profit × Output or
Capital Output Capital
Output = Output × Materials or
Labor Materials Labor
131

132. Performance Network
Profit/Capital Employed
Profit/ Revenue Revenue from Sales/
from Sales × Capital Employed
Revenue from Labor Cost/ Labor Cost/
Sales/ Total Cost ÷ Total Cost × Capital Employed
132

133. Performance Network
Overhaul Units/Capital Employed
Overhaul Units/
Labor ÷
Training
Cost/ Labor
× Training Cost/
Capital Employed
Training Cost/ Working Hours/ Inventory/ Capital
Working Hours × Inventory × Employed
133

134. Performance Network
Actual Bus Miles/ Total Cost
Actual Bus Miles/ Operation Cost × Operation Cost/ Total Cost
Actual Bus Miles/ Fuel Cost/
Fuel Cost × Operation Cost
Actual Bus Miles/ Maintenance Cost × Maintenance Cost/ Operation Cost
Actual Bus Miles/ Available Bus Miles/
Available Bus Miles × Maintenance Cost
134

135. Performance Network
Profit/ Equipment Asset
Profit/ Outputs × Outputs/ Equipment Asset
Outputs/ Labor ÷ Equipment Asset/ Labor
Outputs/ Materials × Materials/ Labor
135

136. Performance Network
Revenue/Total Cost
Revenue/Labor Cost
× Labor Cost/Total Cost
Revenue/Material Material
Cost × Cost/Labor Cost
Labor Cost/Labor Labor
Hours × Hours/Total Cost
136

137. Performance Network
Inventory Value/ Operating Cost
Inventory Value/ Labor Cost × Labor Cost/ Operating Cost
Inventory Value/ Material Labor Cost/
Material × Handling ÷ Labor
Handling Cost Cost/ Labor
Labor Cost/ Audit
Audit Cost × Cost/
Damage and 3-month Damage and 3-
Operating
Inventory ÷ month Inventory
Cost
Value/Material Value/ Inventory
Handling Cost Value
137

138. Information Analysis for
Target Setting
(Research with BKK Inter Food)
• Next step for performance measurement
Y
Revenue
Total Cost
8
Revenue Util. Cost Labor Cost
Util. Cost Labor Cost Total Cost
1 2 3
Revenue Mat.Cost Util. Cost
Mat. Cost Total Cost Total Cost
4 5 6 7
Util. Cost Raw. Inv Revenue Revenue
Mat. Cost Mat. Cost Raw. Inv. Labor Cost
138

139. Information Analysis (cont.)
Target Y: Revenue-to-Total Cost ratio
Measures X1: Revenue-to-Material Cost ratio
X2: Material Cost-to-Total Cost ratio
X3: Utility Cost-to-Total Cost ratio
X4: Utility Cost-to-Material Cost ratio
X5: Revenue-to-Material Cost ratio
X6: Revenue-to-Raw Material Inventory ratio
X7: Revenue-to-Labor Cost ratio
X8: Labor cost-to-Total Cost ratio
Y = -0.310 - 0.0002 (T) + 0.576 (X1) - 0.291 (X2) + 14.145 (X3) -10.166
(X4) + 0.004 (X5) + 0.024 (X6) + 0.010 (X7) + 1.826 (X8)
139

140. Information Analysis (cont.)
• Network is dynamic!
– Contributions from one ratio will change over time.
– Suitability must be revisited to expand or reduce the
network scope
• Data must be collected over the same frequency.
• More than one network should be made to help
comprehensively analyze the circumstance.
• Network must be aligned with business operations
and strategy.
140

141. Audit to Improve Measures or
Ratios (AIM)
• Revisiting the development of measures or
ratios
• Five components for developing a ratio
(upstream, inputs, processes, outputs, and
downstream)
• Each component can be assessed in terms of
financial and non-financial value (e.g., $, m,
person, m2, m3, hour, day, week, company,
etc.)
141

142. AIM
• Measures or ratios must be clearly defined (e.g.,
injury cost, maintenance, return, revenue, inventory,
etc.)
• Measures or ratios must have their dimensional
units for data collection.
• Measures or ratios must be aligned with
organizational policies and objectives. ∴ Pyramid
or breakdown concept may be necessary to
demonstrate this linkage.
• Measures or ratios must be accepted and integrated
into management processes and systems for
continuous performance improvement.
142

143. Multi-factor Productivity
Measurement Model (MFPMM)
143

144. Other Measurement Tools
Multi-factor Productivity Measurement Model
(MFPMM)
Development by the American Productivity and
Quality Center (1977) for measuring
productivity/performance at the organizational
and functional levels
Attempt to combine outputs and inputs for
analysis and evaluation
Attempt to relate productivity with changes in profits, the
ability to raise price, and the impacts from changes in unit cost
144

145. MFPMM
Benefits from the Model:
• Identify the overall level of productivity
from an integrated point of view as well as
contributions from a single input factor
• Realize the impacts from productivity on
the profit/loss
• Provide forward-looking or leading
information for management by applying
both static-and dynamic- measure formats
145

146. MFPMM
Framework for MFPMM Development
Impacts from Productivity Changes
2002 2003
Output Value $170 $252
Input Value $200 $280
Output ÷ Input 0.85 0.90
Dynamic view [(252 ÷170) ÷ (280 ÷200)] = 1.0588
Profit/loss ($30) ($28)
146

147. MFPMM
Interpretations:
• Productivity by 5.88%
• Loss decline by $2
• Based on the 2002, the organization should have
generated $238 (according to input value). At the
same time, the cost should have been $296.5
(according to output value)
∴ Generate more output value than it should be by $14
∴ Consume less input value than it should be by $16.5
147

148. MFPMM
Interpretations (cont.):
4. “$14” and “$16.5” represent the opportunity gain!
You don’t find these figures in typical company
reports.
5. If the productivity level remains constant, the loss
would have been between $42 – 44.5.
6. Revisit the consequences in productivity increase!
7. Leading information on future profit/loss?
148

149. MFPMM
Framework for MFPMM Development (cont.)
Impacts from Productivity Changes
2002 2003
Output Value $500 $600
Input Value $100 $150
Output ÷ Input 5.00 4.00
Dynamic view [(600 ÷500) ÷ (150 ÷100)] = 0.80
Profit/loss $400 $450
149

150. MFPMM
Interpretations:
• Productivity by 20%
• Profit increase by $50
• Based on the 2002, the organization should have
generated $750 (according to input value). At the
same time, the cost should have been $120
(according to output value)
∴ Generate less output value than it should be by $150
∴ Consume more input value than it should be by $30
150

151. MFPMM
Interpretations (cont.):
4. “$30” and “$150” represent the opportunity loss!
You don’t find these figures in typical company
reports.
5. If the productivity level remains constant, the
profit would have been between $480-600
(implying less profits than it should have been).
6. Revisit the consequences in productivity decrease!
7. Leading information on future profit/loss?
151

152. MFPMM
Framework for MFPMM Development (cont.)
Impacts from Productivity Changes
2002 2003
Output Value $200 $300
Input Value $150 $175
Output ÷ Input 1.33 1.71
Dynamic view [(300 ÷200) ÷ (175 ÷150)] = 1.29
Profit/loss $50 $125
152

153. MFPMM
Interpretations:
• Productivity by 29%
• Profit increase by $75
• Based on the 2002, the organization should have
generated $233.33 (according to input value). At
the same time, the cost should have been $225
(according to output value)
∴ Generate more output value than it should be by
$66.67
∴ Consume less input value than it should be by $50
153

154. MFPMM
Interpretations (cont.):
4. “$50” and “$66/67” represent the opportunity
gain! You don’t find these figures in typical
company reports.
5. If the productivity level remains constant, the
profit would have been between $ 58.83-75.
6. Revisit the consequences in productivity decrease!
7. Leading information on future profit/loss?
154

155. MFPMM
Factors Contributing to Performance
Changes in Change in Change in
Product Revenue Product Price
Quantity (Unit Price)
Change in Change Change in
Productivity in Profit Recovery
Change in Change in Change in
Resource Cost Resource Cost
Quantity
(Unit Cost)
155