The document discusses various methods for measuring business performance, including key performance indicators, financial statement analysis, cash flow analysis, return on investment, working capital, and cost-volume-profit analysis. It provides details on financial statements such as the balance sheet, income statement, and cash flow statement. Various techniques for analyzing financial statements are described, including ratio analysis, DuPont analysis, horizontal analysis, vertical analysis, and trend analysis. Key terms like cash flow, return on investment, and working capital are also defined.

1. UNIT-IV MEASURING BUSINESS
PERFORMANCE
Key performance indicators-Financial statement
analysis- Cash flow analysis, ROI, working
capital, cost volume profit analysis. Customer -
satisfaction Retention and acquisition. Employee
Performance - Benchmarking, employee
retention

2. • Key performance indicators (KPIs) refer to a
set of quantifiable measurements used to
gauge a company’s overall long-term
performance.
• KPIs specifically help determine a company’s
strategic, financial, and operational
achievements, especially compared to those
of other businesses within the same sector.

3. • KPIs vary between companies and between
industries, depending on performance criteria.
For example, a software company striving to
attain the fastest growth in its industry may
consider year-over-year (YOY) revenue growth
as its chief performance indicator.

4. • Financial statement analysis is the process of
analyzing a company’s financial statements for
decision-making purposes.
• External stakeholders use it to understand the
overall health of an organization and to
evaluate financial performance and business
value. Internal constituents use it as a
monitoring tool for managing the finances.

5. • How to Analyze Financial Statements
• The financial statements of a company record
important financial data on every aspect of a business’s
activities. As such, they can be evaluated on the basis
of past, current, and projected performance.
• In general, financial statements are centered
around generally accepted accounting principles
(GAAP) in the United States. These principles require a
company to create and maintain three main financial
statements: the balance sheet, the income statement,
and the cash flow statement. Public companies have
stricter standards for financial statement reporting.
Public companies must follow GAAP, which requires
accrual accounting. Private companies have greater
flexibility in their financial statement preparation and
have the option to use either accrual or cash
accounting.

6. • Several techniques are commonly used as part of
financial statement analysis. Three of the most
important techniques are horizontal
analysis, vertical analysis, and ratio analysis.
• Horizontal analysis compares data horizontally, by
analyzing values of line items across two or more
years. Vertical analysis looks at the vertical effects
that line items have on other parts of the
business and the business’s proportions. Ratio
analysis uses important ratio metrics to calculate
statistical relationships.

7. • types of Financial Statements
Balance Sheet
• The balance sheet is a report of a company’s financial
worth in terms of book value. It is broken into three
parts to include a company’s assets, liabilities,
and shareholder equity.
• Short-term assets such as cash and accounts receivable
can tell a lot about a company’s operational efficiency;
liabilities include the company’s expense arrangements
and the debt capital it is paying off; and shareholder
equity includes details on equity capital investments
and retained earnings from periodic net income.
• The balance sheet must balance assets and liabilities to
equal shareholder equity. This figure is considered a
company’s book value and serves as an important
performance metric that increases or decreases with
the financial activities of a company.

8. • Income Statement
• The income statement breaks down the revenue that a
company earns against the expenses involved in its
business to provide a bottom line, meaning the net profit
or loss. The income statement is broken into three parts
that help to analyze business efficiency at three different
points. It begins with revenue and the direct costs
associated with revenue to identify gross profit. It then
moves to operating profit, which subtracts indirect
expenses like marketing costs, general costs, and
depreciation. Finally, after deducting interest and taxes,
the net income is reached.
• Basic analysis of the income statement usually involves the
calculation of gross profit margin, operating profit margin,
and net profit margin, which each divide profit by revenue.
Profit margin helps to show where company costs are low
or high at different points of the operations.

9. • Cash Flow Statement
• The cash flow statement provides an overview of
the company’s cash flows from operating
activities, investing activities, and financing
activities.
• Net income is carried over to the cash flow
statement, where it is included as the top line
item for operating activities. Like its title,
investing activities include cash flows involved
with firm-wide investments. The financing
activities section includes cash flow from both
debt and equity financing. The bottom line shows
how much cash a company has available.

10. Methods of Financial Statement
Analysis
• Ratio Analysis
• Ratio analysis is amongst the most popular methods of
financial statement analysis. There are different types of
ratios that help management and analysts to dig out
meaningful information.
• There are six categories of ratios:
• Profitability ratios
• Liquidity ratios
• Leverage ratios
• Coverage ratios
• Activity ratios
• Valuation ratios

11. • DuPont Analysis
• DuPont analysis breaks up the ROE (Return on
Equity) formula into three ratios to help in
understanding the cause and effect relationship
of different factors resulting in ROE. We simply
divide net earnings available for equity
shareholders by shareholders’ equity in order to
calculate ROE.
• But, DuPont analysis split this formula into a
product of net profit margin, asset turnover,
and financial leverage.

12. • Horizontal Analysis
• In horizontal analysis, the analysts compare the financial
information of one period with the previous years.
• In this, we compare a line item with the same line item in another
period (a year or quarter). The objective is to find any significant
change in any line item. For instance, if the cost of goods sold
(COGS) rises much more than the increase in sales or gross profit
rises but net profit drops.
• Vertical Analysis
• In the vertical analysis, every line item in the financial statement is
calculated as a proportion of another prominent item. Usually, each
line item is calculated as a proportion of revenue or sales in the
income statement. Each line item is represented as a proportion of
total assets on the balance sheet. After calculating ratios, one can
compare them with the past years to identify any unusual
happenings.

13. • Comparative Financial Statements
• Analysis using the comparative financial
statement is similar to the horizontal and vertical
analysis. In this method, we prepare the income
statement and balance sheet in a way to get a
time perspective of the line items. Or, we can say
the financial statements show figures for two or
more years in a single financial statement. It
makes it easy to compare a line item with the
previous years.

14. • Trend Analysis
• This method of financial analysis is similar to
horizontal analysis. In this method also, we
compare and review the financial statements
for three or more years. Under trend analysis,
the earliest year becomes the base year. The
objective is to find any pattern in the financial
numbers. These patterns could be rising (or
falling) sales, any seasonal trend, fluctuations
in expenses, and more. An analyst can also
use ratios to identify trends (if any) in the
financial numbers.

15. • What Is Cash Flow?
• Cash flow is the net cash and cash equivalents
transferred in and out of a company. Cash received
represents inflows, while money spent represents
outflows.
• A company creates value for shareholders through its
ability to generate positive cash flows and maximize
long-term free cash flow (FCF).
• FCF is the cash from normal business operations after
subtracting any money spent on capital
expenditures (CapEx).

16. • Businesses take in money from sales
as revenues and spend money on expenses. They
may also receive income from interest,
investments, royalties, and licensing agreements
and sell products on credit. Assessing cash flows
is essential for evaluating a company’s liquidity,
flexibility, and overall financial performance.
• Positive cash flow indicates that a company's
liquid assets are increasing, enabling it to cover
obligations, reinvest in its business, return money
to shareholders, pay expenses, and provide a
buffer against future financial challenges.

17. • Cash flows are analyzed using the cash flow
statement, a standard financial statement that
reports a company's cash source and use over a
specified period.
• Corporate management, analysts, and investors
use it to determine how well a company earns to
pay its debts and manage its operating expenses.
The cash flow statement is an important financial
statement issued by a company, along with the
balance sheet and income statement.

18. • Types of Cash Flow
• Cash Flows From Operations (CFO)
• Cash flow from operations (CFO), or operating cash
flow, describes money flows involved directly with the
production and sale of goods from ordinary operations.
CFO indicates whether or not a company has enough
funds coming in to pay its bills or operating expenses.
• Operating cash flow is calculated by taking cash
received from sales and subtracting operating expenses
that were paid in cash for the period.
• Operating cash flow is recorded on a company's cash
flow statement, indicates whether a company can
generate enough cash flow to maintain and expand
operations, and shows when a company may need
external financing for capital expansion.

19. • Cash Flows From Investing (CFI)
• Cash flow from investing (CFI) or investing cash flow reports how
much cash has been generated or spent from various investment-
related activities in a specific period. Investing activities include
purchases of speculative assets, investments in securities, or sales
of securities or assets.
• Negative cash flow from investing activities might be due to
significant amounts of cash being invested in the company, such
as research and development (R&D), and is not always a warning
sign.
• Cash Flows From Financing (CFF)
• Cash flows from financing (CFF), or financing cash flow, shows the
net flows of cash used to fund the company and its capital.
Financing activities include transactions involving issuing debt,
equity, and paying dividends. Cash flow from financing activities
provides investors insight into a company’s financial strength and
how well its capital structure is managed.

20. • How to Analyze Cash Flows
• Using the cash flow statement in conjunction with other financial
statements can help analysts and investors arrive at various metrics and
ratios used to make informed decisions and recommendations.
• Free Cash Flow: FCF is a measure of financial performance and shows
what money the company has left over to expand the business or return
to shareholders after paying dividends, buying back stock, or paying off
debt.
• Unlevered Free Cash Flow: UFCF measures the gross FCF generated by a
firm that excludes interest payments, and shows how much cash is
available to the firm before financial
• Operating Cash Flow: OCF is money generated by a company’s primary
business operation.
• Cash Flow to Net Income Ratio: The ratio of a firm’s net cash flow and
net income with an optimum goal of 1:1.
• Current Liability Coverage Ratio: This ratio determines the company’s
ability to pay off its current liabilities with the cash flow from operations.
• Price to Money Flow Ratio: The operating money flow per share is
divided by the stock price.

21. • What is Return on Investment (ROI)?
• Return on investment (ROI) is a measure of
how much money an investor has earned or
lost on an investment relative to the amount
of money that was initially invested.
• It is most commonly measured as net
income divided by the original capital cost of
the investment. The higher the ratio, the
greater the benefit earned.

22. • Return on Investment (ROI) is a performance indicator that
is used to assess an investment’s effectiveness or to
compare the effectiveness of several distinct investments.
It is a ratio that assesses an investment’s profit or loss in
relation to the capital invested.
• The cost of an investment is subtracted from the benefit or
return of an investment, and the result is divided by the
cost of the investment.
• A percentage or ratio is used to represent the outcome. ROI
can be used to evaluate an investment’s performance in
absolute terms. It can also be used to compare the
effectiveness of various investments.

24. • Here is an illustration of how to employ this
formula:
• Assume you put $100 into a stock, and a year
later, it was worth $120.
• You would first deduct the investment’s cost
($100) from its return ($120) before calculating
your ROI: $120 – $100 = $20
• Then, you would split the investment’s gain ($20)
by its cost ($100) as follows: $20 / $100 = 0.2
• Finally, to express the ROI as a percentage,
multiply the value by 100: 0.2 x 100 = 20%
• Your ROI in this case would be 20%. This indicates
that a 20% return on your investment was
achieved.

25. • Why Is ROI a Useful Measurement?
• ROI is a popular metric because of its versatility and
simplicity. Essentially, ROI can be used as a rudimentary
gauge of an investment’s profitability. This could be the
ROI on a stock investment, the ROI a company
expects on expanding a factory, or the ROI generated in
a real estate transaction.
• The calculation itself is not too complicated, and it is
relatively easy to interpret for its wide range of
applications. If an investment’s ROI is net positive, it is
probably worthwhile. But if other opportunities with
higher ROIs are available, these signals can help
investors eliminate or select the best options. Likewise,
investors should avoid negative ROIs, which imply a net
loss.

26. • What Is a Good ROI?
• What qualifies as a “good” ROI will depend on
factors such as the risk tolerance of the investor
and the time required for the investment to
generate a return.
• All else being equal, investors who are more risk-
averse will likely accept lower ROIs in exchange
for taking less risk. Likewise, investments that
take longer to pay off will generally require a
higher ROI in order to be attractive to investors.

27. • Factors that Affect your Return on Investment?
• 1. Market Conditions: Your return on investment is significantly
influenced by the state of the market (ROI). The success of
investments and the return an investor can anticipate are impacted
by economic cycles, interest rates, and inflation.
• 2. Investment Plan: Your ROI will be significantly influenced by the
investment strategy you use. The risks and possible returns of
various tactics vary.
• 3. Time Horizon: The length of the investment’s time horizon will
also directly affect its return on investment. Longer time horizons
typically provide an investment more room to grow or decline in
value, which will have a bigger impact on the overall return.
• 4. Risk Tolerance: Another element that will affect Return on
investment is risk tolerance. Larger risk-taking investors might be
more willing to put up with bigger possible losses in exchange for
higher rewards.
• 5. Fees and Expenses: Fees and costs associated with investments,
such as commissions and management fees, can directly affect the
return. While reduced costs can boost prospective returns, higher
fees can decrease the overall return.

28. What is Working Capital?
• Working Capital represents the firm’s holdings of
assets like cash, marketable securities,
receivables, etc. Funds, being the backbone of
any efficient business, are the most important
aspect to be managed. Careful maintenance of
the working capital and fund mix to acquire are
key areas of decision-making and are important
as they help to meet any business contingencies.
• From an accounting perspective working capital is
the difference between the short-term sources of
funds, i.e., the current assets, and the short-term
financial obligations, i.e., the current liabilities.

30. • Working capital can be called short-term finance. It is
the amount normally available to any business so that
they can finance day-to-day business operations and
current activities. The primary objective of working
capital is to enable an enterprise to maintain cash
flows to meet its day-to-day financial obligations.
Working capital has two different meanings from the
perspective of value.
• First is the gross working capital, and here, the
enterprise’s working capital is represented by the total
investment in current assets.
• Secondly, net working capital, and here, an
enterprise’s working capital is denoted by the
difference between current asset holdings and current
liability holdings.

31. • Business stakeholders consider positive
working capital as an important indicator to
judge a company’s financial well-being. For
any company to stay in the market, they need
to remain solvent in the long run. Even
accounting ratios are calculated based on a
mix of working capital, current assets, and
current liabilities.

32. • Components of Working Capital
• Current Assets: Those assets that are easily converted into cash or have high
liquidity are called current assets, and these assets are held by businesses to
be converted into cash within 12 months or one normal operating cycle.
• Examples: cash, marketable securities, debtors, bills receivable, bank balance,
short-term investments, inventory, etc.
• The holding of capital assets suggests the healthy financial well-being of a
business, as it helps to finance the day-to-day business functions. Current
assets are normally used to pay out current liabilities.
• Current Liabilities: Those liabilities or financial obligations that are required to
be paid or due within 12 months or within one normal operating cycle of a
business are known as current liabilities. Examples: creditors, bank overdrafts,
bills payable, loans to be paid within 12 months, etc.
• Current liabilities are incurred to maintain regular business operations, like
purchasing goods on credit, which creates a creditor. When a business is
facing a cash crunch, it takes a bank overdraft to finance its operations.

35. • Significance of Working Capital
• Negative working capital suggests that the company’s
current assets are not sufficient to pay off current
liabilities, and the company has more short-term debt
than its short-term resources. Negative working capital
is an indicator of poor short-term health, low liquidity,
and a cash crunch.
• Positive working capital suggests that the company’s
current assets are greater than its current liabilities.
The company has an excess of short-term resources
over its short-term debt. Positive working capital
suggests high liquidity and better financial well-being,
as it is one of the indicators used by stakeholders to
assess the financial well-being of a company.

36. cost volume profit analysis
• Cost-Volume-Profit (CVP) Analysis is a
mathematical equation that businesses apply to
see how many units of a product they need to sell
to gain a profit or break even. Companies use this
formula to determine how the changes in fixed
costs, variable costs, and sales volume can
contribute to the profits of a business
• In CVP analysis, we need to consider some of the
cost elements such as hardware, personnel,
facility, operating and supply cost.

37. • Cost Volume Profit Analysis includes the analysis of sales
price, fixed costs, variable costs, the number of goods sold,
and how it affects the profit of the business.
• The aim of a company is to earn a profit, and profit
depends upon a large number of factors, most notable
among them is the cost of manufacturing and the volume
of sales. These factors are largely interdependent.
• The volume of sales is dependent upon production volume,
which in turn is related to costs that are affected by the
volume of production, product mix, internal efficiency of
the business, production method used, etc.
• CVP analysis helps management in finding out the
relationship between cost and revenue to generate profit.
• With CVP Analysis information, the management can better
understand the overall performance and determine what
units it should sell to break even or to reach a certain level
of profit.

38. • Hardware cost – Hardware cost includes actual purchase and
peripherals (external devices) that are connected to the computer.
For example, printer, disk drive, etc.
• Personnel costs – Personnel costs include EDP staff salaries and
benefits as well as pay for those who are involved in the process of
development of the system.
• Facility cost – Facility cost is the amount of money that is spent in
preparation of a site that is physical where application or computer
will be in operation. This includes wiring, flooring, lighting and air
conditioning.
• Operating costs – These include all costs associated with day-to-day
(everyday) operation of the system and amount depends on number
of shifts, nature of applications.
• Supply costs – Supply cost are variable costs that increase with
increased use of paper, disks and like.
• The performance category emphasizes improvement in accuracy of
or access to information and easier access to system by authorized
users.
• Minimizing costs through an efficient system – error control or
reduction of staff- is a benefit that should be measured and included
in cost/benefit analysis

40. • Importance of Cost Volume Profit Analysis
• CVP analysis helps in determining the level at which all relevant
cost is recovered, and there is no profit or loss, which is also called
the breakeven point. It is that point at which volume of sales equals
total expenses (both fixed and variable). Thus CVP analysis helps
decision-makers understand the effect of a change in sales volume,
price, and variable cost on the profit of an entity while taking fixed
cost as unchangeable.
• CVP Analysis helps in understanding the relationship between
profits and costs on the one hand and volume on the other. CVP
Analysis is useful for setting up flexible budgets that indicate costs
at various levels of activity. CVP Analysis also helpful when a
business is trying to determine the level of sales to reach a targeted
income.

42. • Examples #1
• XYZ wishes to make an annual profit of $100000 from the sale of
appliances. Details of manufacturing and annual capacity are as
follows:
• Based on the above information, let’s plug the numbers in the CVP
equation:
• 10000*p= (10000*30) +$30000+$100000
• 10000p = ($300000+$30000+$100000)
• 10000p=$430000
• Price per unit= ($430000/10000) = $43
• Thus price per unit comes out to $43, which implies that XYZ will
have to price its product $43 and need to sell 10000 units to achieve
its targeted profit of $100000. Further, we can see that the fixed
cost remains constant ($30000) irrespective of the level of sales.

43. Benefits
• CVP analysis provides a clear and simple understanding
of the level of sales that are required for a business to
break even (No profit, No loss), level of sales required
to achieve targeted profit.
• CVP analysis helps management to understand the
different costs at different levels of production/sales
volume. CVP analysis helps decision-makers in
forecasting cost and profit on account of change in
volume.
• CVP Analysis helps businesses analyze during
recessionary times the comparative effects of shutting
down a business or continuing business at a loss, as it
clearly bifurcates the Direct and Indirect cost.
• The effects of changes in fixed and variable cost help
management decide the optimum level of production.

44. Customer - satisfaction Retention and
acquisition
• Customer engagement is the cornerstone of any successful
business. It's the level of interaction and involvement that
customers have with a brand, product, or service. A customer who
is engaged is more likely to remain loyal to a brand, make repeat
purchases, and recommend the company to others.
• Statistics show that There is a 60-70% chance of selling to an
existing customer, while the chance of closing a sale with a new
customer stands at just 5-20%. But how exactly does customer
engagement impact acquisition and retention, and what can
companies do to foster it?
• Customer satisfaction (CSAT) is a measure of how well a
company’s products and services meet customers’
expectations. It reflects your business’ health by showing how
well your products are resonating with buyers.

45. • Customer acquisition is how a company turns
a potential customer into a new customer.
Some examples of customer acquisition
include email marketing, using a CRM
(customer relationship management)
platform, or providing great customer service
and earning a reputation for doing that well

46. • Customer engagement is the level of interaction
and involvement that a customer has with
a brand, product, or service.
• It's a measure of how connected a customer feels
to a company and its offerings. It's the level of
excitement and enthusiasm that a customer
experiences when they interact with a brand, and
it can be influenced by factors such as the quality
of the product or service, the level of customer
service, and the overall customer experience.

47. • Why is customer engagement important?
• Simply put, engaged customers are more likely to remain
loyal to a brand, make repeat purchases, and recommend
the company to others.
• They are also more likely to be forgiving when things go
wrong and less likely to switch to a competitor. In short,
customer engagement drives acquisition and retention, and
it's an essential part of building a successful and sustainable
business.
• By fostering customer engagement, companies can create
a loyal customer base that will drive growth and
profitability for years to come.

48. • Acquiring new customers is a critical part of growing any
business, but it's often a costly and time-consuming
process.
• This is where customer engagement comes in. Engaged
customers are more likely to recommend a brand to others,
which can help drive acquisition and reduce the cost of
acquiring new customers. When a customer is engaged,
they are more likely to become an advocate for the brand,
spreading the word to friends, family, and colleagues.
• Additionally, engaged customers are more likely to make
repeat purchases, which can help to drive acquisition in the
long term. When a customer is satisfied with their
experience and feels connected to a brand, they are more
likely to return and make additional purchases. This not
only drives acquisition, but it also helps to build customer
loyalty and reduce the risk of customers switching to a
competitor.

49. • Finally, engaged customers are more likely to provide
valuable feedback to a company, which can help to improve
the customer experience and drive acquisition. By listening
to their customers and making changes based on their
feedback, companies can create a better experience that
will drive acquisition and retention over time.
• In conclusion, customer engagement plays a critical role in
driving acquisition by creating a loyal customer base that
will recommend the brand to others, make repeat
purchases, and provide valuable feedback.
• By investing in customer engagement, companies can
reduce the cost of acquiring new customers and build a
successful and sustainable business.

50. Customer - satisfaction Retention and
acquisition
• "Define your goals.
• Outline a plan.
• Choose a type of customer satisfaction survey.
• Customize your survey's layout and questions.
• Determine your survey's trigger.
• Select your survey medium.
• Analyze your survey data.
• Make adjustments and repeat.”

51. • Fostering customer engagement is a critical part of building a successful and
sustainable business, and there are many strategies that companies can use to
achieve this goal. Here are some of the most effective strategies for fostering
customer engagement:
• Personalization: Personalizing the customer experience can help to increase
engagement by making customers feel valued and understood. This can include
personalized product recommendations, targeted marketing messages, and
customized customer service experiences.
• Quality products and services: Offering high-quality products and services is a key
aspect of fostering customer engagement. When customers are satisfied with the
products or services they receive, they are more likely to be engaged and make
repeat purchases.
• Excellent customer service: Providing excellent customer service is another
important strategy for fostering customer engagement. When customers feel that
their needs and concerns are being heard and addressed, they are more likely to
be engaged and satisfied with their experience.
• Community building: Building a sense of community around a brand can help to
increase engagement by creating a sense of belonging and connection. This can
include social media communities, customer forums, and in-person events.
• Continuous improvement: Continuously improving the customer experience is a
key aspect of fostering customer engagement. By regularly gathering customer
feedback and making improvements based on this feedback, companies can create
an experience that is tailored to the needs and preferences of their customers.

52. • Measuring the impact of customer engagement on acquisition and
retention is essential for understanding the effectiveness of your customer
engagement strategies and making informed decisions about how to
improve them. There are several key metrics that can help to measure the
impact of customer engagement on acquisition and retention, including:
• Repeat purchase rate: This metric measures the percentage of customers
who make repeat purchases over a given period of time. A high repeat
purchase rate is a strong indicator of customer engagement and loyalty.
• NPS: NPS measures customer satisfaction and the likelihood of customers
to recommend a brand to others. A high NPS score is a strong indicator of
customer engagement and a positive impact on acquisition.
• CLV: CLV measures the total value that a customer will bring to a company
over the course of their lifetime. A high CLV is a strong indicator of
customer engagement and loyalty, and it can help to predict the future
impact of customer engagement on acquisition and retention.
• Customer satisfaction (CSAT) scores: CSAT scores measure customer
satisfaction with a brand, product, or service. A high CSAT score is a strong
indicator of customer engagement and a positive impact on retention.
• Customer engagement rate: This metric measures the level of interaction
and involvement that customers have with a brand, product, or service. A
high customer engagement rate is a strong indicator of customer
engagement and a positive impact on both acquisition and retention.

53. • What is employee performance?
• Put simply, employee performance is how a member of
staff fulfils the duties of their role, completes required
tasks and behaves in the workplace. Measurements of
performance include the quality, quantity and
efficiency of work.
• When leaders monitor the performance of employees,
they can paint a picture of how the business is running.
This not only helps to highlight what companies could
be doing in the present to improve their business, but
this information also feeds into future growth plans.

54. • How is performance measured?
Every role is different so the metrics used to measure
employee performance will ultimately depend on the type
of business the company and employees operate in.
But in general, the main ways to gauge performance are:
• Quality of work
• Standard of work produced is a key indicator of
performance. Are employees putting in maximum effort to
ensure high-quality results? Are performance objectives
being met? Quality of work provides the basis to analyse all
other elements of their performance.

55. • Speed and efficiency
Looking at how much employees accomplish in an average week, month or
quarter, how does this match up to your expectations? Are deadlines met, vastly
improved on, or is time wasted? Are corners being cut to produce work quickly?
Efficiency is the result of maximum output at least cost so this is vital to be aware
of within your company.
• Trust and consistency
Ask yourself if you trust your employees to do all their work to a high standard and
deliver it on time. Do they work independently or do you feel that you often have
to step in? Do they consistently display company values? Are they punctual and
present to the expected standard? High-performing employees can be trusted with
autonomy and continue to produce strong results without much supervision.
• Keep these performance metrics in mind when conducting individual employee
performance reviews.
• How to evaluate employee performance
• Performance reviews can be daunting, for both employees and managers – but
they’re a necessary starting point.
• Without proper evaluation of an individual employee’s performance, you may
waste valuable time and effort implementing improvement plans that don’t begin
to tackle the real problem. Take time during this stage to ensure that you get a
complete and well-rounded review of the individual's performance to provide a
solid foundation for improvement plans.

56. • 360-degree feedback
• As the name suggests, this method takes a look at
feedback, opinions and assessments from a circle
of people. This includes team members,
supervisors and others, that the employee works
within the company. By going beyond what the
direct manager sees, you’re instead shown a well-
rounded view of performance. Look for any
similarities in the 360-degree feedback from the
different areas, as this will identify areas for
further improvement.

57. • Objective-based performance
• With this method, managers and employees work together to develop
performance goals and set clear deadlines for completion. When
employees are involved in the process of creating their objectives, they
can see how their individual goals contribute to larger company goals. This
creates more understanding of what needs to be done and why it’s
important.
This method also helps to increase engagement and motivation for the
employee while making it very easy to define success and failure for the
employer.
• A twist on the SWOT
• Many will already be familiar with a SWOT analysis, but for performance
evaluation, it’s best to swap ‘weakness’ with ‘areas for development’.
Think of ‘opportunities’ as future opportunities for the growth of your
employees and their development within the company, too.
• Starting with strengths allows managers, but also importantly, employees
themselves to say what they feel they are good at – helping to indicate
where employees might like to develop further. This method can also be a
great way to find out if the employee feels that anything about the
business is holding them back, or if they feel they are lacking important
resources, for example.
• By mapping out these different areas of performance, both the manager
and employee can work together to create a plan for development.

58. • Ranked performance on scales
• A traditional method is using numbered scales, such as 1 to 5 or 1 to 10, to
rank an employee’s performance in specific areas. These scales are
commonly used as they’re easy to understand for both employees and
managers, allow for easy comparison between team members, take little
administration and can be adapted to any business needs. Managers or HR
can set the criteria to be ranked – often including behaviours, aptitude or
projects completed.
• Self-evaluation
• In this method, the employee judges their own performance against
questions set by the employer. This method is most useful when used
alongside a verbal performance review. Although some employees may
find it difficult to know where they stand, when you can spot the
difference between what the employee thinks of their own performance,
and what you think – you will find some interesting points to discuss in the
meeting. This method also helps employees to understand what the
performance review will look at, which can ease any anxieties.

59. • 9 effective steps to improve employee performance
• 1. Investigate why the employee isn’t meeting expectations
• The list of reasons why an employee isn’t performing as expected can be endless. If you don’t get to
the bottom of these, it’s almost impossible to take the right steps to improve it.
• Start with an open and frank discussion and find out if the employee feels anything is affecting their
ability to perform. It could be that they feel the business is holding them back from reaching their
full potential, they could be lacking resources, don’t feel aligned with company goals or aren’t
receiving the proper guidance or training.
• It’s also possible that factors affecting work may be unrelated to work itself. Personal reasons such
as an employee may be going through a time of poor mental wellbeing or experiencing issues in
their personal life can also impact performance.
• This conversation can provide a basis for you to give more effective support.
• 2. Discuss both the highs and lows
• Performance reviews shouldn’t just be focused on what’s not going well – even though
improvement is your end goal.
• Focusing just on areas for improvement could knock your employees’ confidence and could lead to
resentment if they feel that their hard work in other areas is going unnoticed. Be sure to let your
employees know what they’re doing well and point out any stand-out moments in performance
since their last review, as well as the areas for development.
• When you recognise their hard work, employees will know that they’re a valued member of the
team and will continue to put this effort into their work. Nevertheless, when you do discuss
challenges and areas for development, you have to be clear about any problems. The easy road
would be to ‘soften the blow’, but by not being clear on what the problem is exactly, you’ll make
any problems worse in the long term and the relationship could become more hostile.
• Make sure that the employee leaves the conversation with a clear understanding of their strengths,
any areas for development and the steps that should be taken to get there, as this will minimise
stress. When delivering feedback you must always consider your employee's wellbeing. It's a good
idea to check you're not giving them too much to do. Or, that they feel out of their depth.

60. • 3. Provide consistent feedback as they progress
• The most efficient way to improve employee performance is to provide regular feedback. By frequently feeding
back, you can help employees stay on track as they work to improve, rather than any issues being saved for a more
formal review. By then, the effects of poor performance may have been detrimental to the team or business.
• Frequent feedback helps employees to become more comfortable with receiving feedback in general. It can also
stop any negative connotations that people associate with receiving feedback. That’s because frequent feedback is
more likely to be a mix of positive and constructive comments, which can help to keep employees engaged and
encouraged rather than disheartened.
• It's important for performance improvement that employees know where they stand and how they’re progressing.
They’ll then be more aware of how they’re doing and what steps need to be taken to improve further. Putting this
information into a performance improvement plan can help both of you.
• 4. Create a positive workplace culture
• A positive workplace culture helps to pave the way for higher engagement, greater motivation and better
performance.
• Review elements such as how aligned employees are with the company vision and mission, the employee
benefits offered and how the business operates – for example, the work environment and elements like flexibility
or holiday policies.
• The workplace culture should give employees the stage to perform to the best of their abilities. A strong, high-
performance workplace culture allows employees to be focused and engaged without any negativities distracting
them and with the support of a positive workplace to drive them forward.
• The most simple way to find out if your workplace culture is right for your employees is to ask them! Use a
confidential survey tool to ask your employees what they think about how your business operates. As this is a
confidential platform, your employees will feel free to be honest about anything that they would like to see
improved.
• Not only can this help you to make changes to anything in the business that may be affecting performance, you
can also show your employees that you value them by making changes based on their suggestions. This helps to
make your people feel valued but also improve engagement levels.
• 5. Prioritise learning and development
• Often, poor performance can be attributed to a skill or knowledge gap. By creating a focus on learning and
development, employees are reminded of best practice, not to mention gaining new skills while taking valuable
steps along their career path.
• Work with employees to create individual L&D plans as, when you give employees a say in how and what they
learn, they stay engaged and it helps to bring extra motivation.

61. • 6. Set measurable and realistic goals
• To help drive performance improvement, an employee needs to know what’s being measured. This
way they can monitor their own performance and, in turn, work to improve this. If goals aren’t
measurable, employees are left guessing about whether they’re improving and they might feel that
their results are subjective to their manager’s opinions.
• Secondly, goals must also be realistic. Of course, you want to aim big, but anything that feels too
unachievable could overwhelm employees and add to burnout. On the other hand, goals that are
too easy will not provide any motivation. Be sure to find the right balance right.
• You also need to ensure that it’s clear when you expect these goals to be completed by. Set two
dates, one to come back and see how things are progressing, and another for an expected
completion date.
• 7. Regularly recognise great work and improvement
• When you recognise and reward good work, you're letting employees know that their effort is
noticed. By creating a process which allows for regular recognition, you keep high performers
engaged. Who then can lead by example and help others.
• Our Celebration hub is a great way to make reward and recognition routine as it facilitates peer-to-
peer recognition. In addition to making it easier for managers to send rewards to exceptional
employees. You can learn more about Celebration hub in this quick introductory video.
• One error that leaders often make is spending too much time focusing on under-performance and
not on the wins their teams achieve every day. To keep your teams happy and productive you must
show appreciation and not consistently criticise their work.

62. • 8. Maximise job satisfaction
• Often, employees only want to put in what they’re getting out of a role. If they feel they aren't
getting paid enough, aren't getting the benefits that they could be getting elsewhere, or feel like
their workplace is lacking in resources - they may not try as hard to perform. Take a look at rival
employers to ensure you are offering the right benefits to keep your staff happy, engaged and
productive. For example, if rival employers are offering their London-based employees a London
weighted wage, you should look into doing the same.
• 9. Act when you don’t see improvement
• If you’ve worked with your employee to set clear goals, expectations and a plan for improvement,
and they still aren’t working to make a change – you have to act on this.
• If you don’t, employees will feel that it’s fine to underperform or have to be micromanaged. This is
also demotivating for those who are performing well. As if they feel that poor performance receives
no consequences, they’ll wonder why they are putting effort in.
• Address the issue and lack of improvement with a written or verbal warning. By marking how
important this issue really is with a warning, it can help employees to take more notice as they are
shown the severity of the situation.
• Even little things which are left to fester can become bigger issues and drive down performance. By
monitoring development and acting on this, you’ll maintain a productive and performance-oriented
workplace.
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