The document discusses key aspects of developing an effective performance management system for a business. It identifies four main categories of performance measures: quantity, quality, time, and cost. It also recommends measuring critical areas like financials, customers, employees, processes. Good measures are consistent with strategy, simple, closely related to the process, and facilitate learning. Traditional accounting focuses too much on costs and profits rather than operational metrics. An effective system clearly defines mission and objectives, understands each role, measures competitive position, communicates goals, and identifies opportunities for improvement.

1. Business Analysis & Improvement Systems
OPERATING A
SUCCESSFUL
BUSINESS
Performance Measures For Key
Performance Indicators
Paper 006-075

2. Business Analysis & Improvement Systems
1. Categories Of Performance
Measures
• Quantity - how much?
• Quality - how good?
• Time - how long?
• Cost - how many
dollars?
Paper 006-075 2

3. Business Analysis & Improvement Systems
2. What Needs To Be Known
• Where business improvement is
needed
• What the company does
• Greater focus on the customer
• Goals or targets
Paper 006-075 3

4. Business Analysis & Improvement Systems
3. What Should Be Measured
• Critical information:
– financial measures
– leadership and people
– customer focus
– ways of working
– performance
Paper 006-075 4

5. Business Analysis & Improvement Systems
3. What Should Be Measured
cont'd....
• Measures include:
– financial return on net assets
– delivery and accuracy measures
– customer satisfaction and
retention
– employee satisfaction
– productivity
– retention rates
Paper 006-075 5

6. Business Analysis & Improvement Systems
3. What Should Be Measured
cont'd....
• Performance Control System includes:
– available in the appropriate time frame
– contains information about where and how
to respond to any corrective actions
Paper 006-075 6

7. Business Analysis & Improvement Systems
4. Qualities Of Good Measure
• Qualities which should be included:
– consistency with corporate strategy
– simplicity
– conceptually "close to the process it
measures"
– facilitate learning
Paper 006-075 7

8. Business Analysis & Improvement Systems
5. What's Wrong With Traditional
Accounting Based Information?
• An inadequate tool for strategic decision
making
• Need to venture beyond costs and profits
to:
– customer satisfaction
– quality
– innovation
– employee development
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9. Business Analysis & Improvement Systems
5. What's Wrong With Traditional
Accounting Based Information cont'd....?
• While keeping financial soundness as a principal
factor
• Financial reporting systems which are designed
to report to government authorities are not
sufficient to help managers actually run a
business
• Operational managers have difficulty making
financial measurements meaningful to the day-to-
day work of employees and mid level managers
• Focus on "actionable" measures
Paper 006-075 9

10. Business Analysis & Improvement Systems
6. Performance Measurement
Objectives
(A) Performance Measurement For
Top
Management:
• Timeliness - long term commitment
• The focus is on the future not the past
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11. Business Analysis & Improvement Systems
6. Performance Measurement
Objectives cont'd....
(B) Performance Management For Middle
Management:
• Timeliness - outcome measures which are very
prompt
• Operational data should always have the
response built in
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12. Business Analysis & Improvement Systems
6. Performance Measurement
Objectives cont'd....
(C) Performance Management For
Operations Personnel:
• Timeliness - "real time" feed back is the
best option
• Pre-programmed response
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13. Business Analysis & Improvement Systems
7. Developing An Effective
Performance Management System
• Define the business’ mission statement
• Identify strategic objectives
• Develop an understanding of each
function's role
• Develop a performance measure that
describes the firm's competitive position
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14. Business Analysis & Improvement Systems
7. Developing An Effective Performance
Management System cont'd....
• Communicate the strategic objectives
• Use the performance structure to
locate areas of opportunity and
improvement
• Periodically re-evaluate the
performance control system
Paper 006-075 14