SAMPLE. Not for training purposes. Student Workbook. BSBHRM512 Develop and manage performance-management processes.

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1 Student Workbook BSBHRM512 Develop and manage performance-management processes 1 st Edition 2015 Part of a suite of support materials for the BSB Business Services Training Package

2 Copyright and Trade Mark Statement All rights reserved. Apart from any use permitted under the Copyright Act 1968, no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise, without written permission from the publisher, Innovation and Business Industry Skills Council Ltd ( IBSA ). Use of this work for purposes other than those indicated above, requires the prior written permission of IBSA. Requests should be addressed to the Product Development Manager, IBSA, Level 11, 176 Wellington Pde, East Melbourne VIC 3002 or sales@ibsa.org.au. Innovation and Business Skills Australia, IBSA and the IBSA logo are trade marks of IBSA. Disclaimer Care has been taken in the preparation of the material in this document, but, to the extent permitted by law, IBSA and the original developer do not warrant that any licensing or registration requirements specified in this document are either complete or up-to-date for your State or Territory or that the information contained in this document is error-free or fit for any particular purpose. To the extent permitted by law, IBSA and the original developer do not accept any liability for any damage or loss (including loss of profits, loss of revenue, indirect and consequential loss) incurred by any person as a result of relying on the information contained in this document. The information is provided on the basis that all persons accessing the information contained in this document undertake responsibility for assessing the relevance and accuracy of its content. If this information appears online, no responsibility is taken for any information or services which may appear on any linked websites, or other linked information sources, that are not controlled by IBSA. Use of versions of this document made available online or in other electronic formats is subject to the applicable terms of use. To the extent permitted by law, all implied terms are excluded from the arrangement under which this document is purchased from IBSA, and, if any term or condition that cannot lawfully be excluded is implied by law into, or deemed to apply to, that arrangement, then the liability of IBSA, and the purchaser s sole remedy, for a breach of the term or condition is limited, at IBSA s option, to any one of the following, as applicable: (a) if the breach relates to goods: (i) repairing; (ii) replacing; or (iii) paying the cost of repairing or replacing, the goods; or (b) if the breach relates to services: (i) re-supplying; or (ii) paying the cost of re-supplying, the services. Published by: Innovation and Business Industry Skills Council Ltd Level Wellington Pde East Melbourne VIC 3002 Phone: Fax: reception@ibsa.org.au ISBN: Stock code: BSBHRM5121W First published: April st edition version: 1 Release date: April 2015

3 Table of Contents Introduction...1 Features of the training program...1 Structure of the training program...1 Recommended reading...1 Section 1 Develop performance management processes...3 What skills will you need?...4 What is performance management?...4 Develop performance objectives and metrics Develop performance management processes Develop processes for formal performance appraisal meetings Consult with key stakeholders Section summary Further reading Section checklist Section 2 Implement performance management processes What skills will you need? Provide manager training Effective training Support mentoring, proactive coaching and continual feedback Support intervention to manage underperformance Support counselling Support disciplinary processes Provide support to terminate employees Evaluate performance management processes Reflect on your own practice and gather personal feedback Section summary Further reading Section checklist Section 3 Coordinate learning and development What skills will you need? Design learning and development plans and strategies Deliver and monitor learning and development Negotiate contracts and remedial action Generate reports Section summary Further reading Section checklist BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1

4 Glossary Appendices Appendix 1: Integrated performance management system Appendix 2: Performance appraisal planning checklist Appendix 3: Conducting an appraisal (sample procedure and template) Appendix 4: Skills audit/training needs analysis Appendix 5: Counselling template Appendix 6: Written warning template example Appendix 7: Example of a competency rubric for a customer service position Appendix 8: Personal development plan template Appendix 9: Service level agreement template st edition version: 1 BSBHRM512 Develop and manage performance-management processes

5 Student Workbook Introduction Introduction Features of the training program The key features of this program are: Student Workbook Self-paced learning activities to help you to develop an understanding of key concepts and terms. The Student Workbook is broken down into several sections. Facilitator-led sessions Challenging and interesting learning activities that can be completed in the classroom or by distance learning that will help you consolidate and apply what you have learned in the Student Workbook. Assessment Tasks Summative assessments where you can apply your new skills and knowledge to solve authentic workplace tasks and problems. Structure of the training program This training program introduces you to developing and managing performance management processes. Specifically, you will develop the skills and knowledge in the following topic areas: 1. Develop performance management processes. 2. Implement performance management processes. 3. Coordinate learning and development. Your facilitator may choose to combine or split sessions. For example, in some cases, this Training Program may be delivered in two or three sessions, or in others, as many as eight sessions. Recommended reading Some recommended reading for this unit includes: Armstrong, M., 2006, Performance Management: Key Strategies and Practical Guidelines, 3 rd edn, Kogan Page. Daniels, A., 1999, Bringing out the best in people, 2 nd edn, McGraw-Hill, Australia. Dwyer, K., Essentials of performance management, Change Factory, viewed September 2014, < Hale, J., 2003, Performance-Based Management: What Every Manager Should Do To Get Results, Pfeiffer, San Francisco. PeopleStreme, What is Employee Performance Management?, PeopleStreme, viewed September 2014, < BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 1 of 123

6 Introduction Student Workbook PriceWaterhouseCoopers, 2008, Managing business performance: The metrics that matter, available online, viewed September 2014, < Performance-Metrics-2008.pdf>. Rothwell, W. and Sredl, H., 1992, The ASTD Reference Guide to Professional Human Resource Development Roles and Competencies, 2 nd edn, Vol. 2, ASTD, USA. Tovey, M., Uren, M. and Sheldon, N., 2010, Managing Performance Improvement, 3 rd edn, Pearson, Australia. Please note that any URLs contained in the recommended reading, learning content and learning activities of this publication were checked for currency during the production process. Note, however, IBSA cannot vouch for the ongoing currency of URLs. Every endeavour has been made to provide a full reference for all web links. Where URLs are not current we recommend using the reference information provided to search for the source in your chosen search engine. 1 st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 2 of 123

7 Student Workbook Section 1 Develop performance management processes Section 1 Develop performance management processes The focus of this section is on the skills and knowledge required to develop integrated performance management processes. Case study: Managing people for profit 1 In the hard-nosed world of managing organisations, people management is often seen as the soft side of management. Whilst considered as positively contributing to performance indicators measuring customer and employee satisfaction, people management is not seen as directly improving the bottom line. People management; however, contributes directly to the bottom line. Managers who pay insufficient attention to their processes for people management are missing an opportunity to make a substantial difference to their profits. A ten-year study published by Dennis Kravetz in 1996, correlated people management practices with profit performance measures. It revealed that strong improvement in the profit performance measures correlated with high scores of people management practices. The study covered over 200 organisations (150 of which were Fortune 500 companies), measured five key indicators of profitability and correlated them with companies with high people management practice scores compared to those with low people management practice scores. Indicator of profitability Companies with high people management practices scores Companies with low people management practices Sales growth 16.1% 7.4% Profit growth 18.2% 4.4% Profit margin 6.4% 3.3% Growth in earnings per share 16.7% 4.7% Growth in total returns 19% 8.8% In the companies studied, the increase in profits equated to an average of US$67 million. Companies that improved their people management practice scores added US$294 million in profits per company, a gain of 60% over three years. Companies which experienced no change added an initial US$78 million, a gain of 16%. For the eight companies which showed a decline in people management practice scores there was a reduction in profit by US$16 million a decline of 3%. 1Dwyer, K., Managing people for profit, Change Factory, viewed September 2014, < Adapted with permission. BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 3 of 123

8 Section 1 Develop performance management processes Student Workbook The practices which predicted company financial success fell into the categories of management style, company culture and goals, organisation structure, communications practices, quality and customer satisfaction, recognition and reward practices, employee development practices, section/promotion practices and job design. What skills will you need? In order to develop performance management processes, you must be able to: analyse organisational strategic and operational plans to identify relevant policies and objectives that need to be integrated with performance management processes develop objectives for performance management processes to support organisational strategy and goals and to build organisational capability design methods and processes for line managers to develop key performance indicators for those reporting to them develop organisational timeframes and processes for formal performance management sessions ensure performance management processes developed are flexible enough to cover the range of employment situations in the organisation consult with key stakeholders about the processes and agree on process features gain support for the implementation of the performance management processes. What is performance management? Armstrong defines performance management as: A systematic process for improving organisational performance by developing the performance of individuals and teams... a means of getting better results from the organisation, teams and individuals by understanding and managing performance within an agreed framework of planned goals, standards and competence requirements. 2 So it is a system that is designed to help employees do their jobs to the best of their ability. As discussed in the case study above, elements of performance management such as setting targets, developing skills, monitoring performance and taking actions to improve performance have a direct impact on profitability. 2 Armstrong, M., 2006, Performance Management: Key Strategies and Practical Guidelines, 3 rd edn, Kogan Page, p st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 4 of 123

9 Student Workbook Section 1 Develop performance management processes Case study: Price Waterhouse Coopers (2008) A study completed by Price Waterhouse Coopers 3 in late 2008 of over 400 senior managers in Canada revealed that organisations with high financial performance were 26% more effective in planning, analysing, measuring and managing performance when compared with organisations of low financial performance. Overall, performance management is essential to the sustainable development of capacity within organisations. It has measureable impact on the job satisfaction and commitment of employees and the financial performance of organisations. Learning activity: Raising productivity through better performance management Watch the video BSBHRM503A: Raising productivity through better performance management on IBSA s YouTube channel at < What changes have recently occurred in the workplace at Callaghan Collision Centre? What are the benefits to employees of the new performance management system? 3 PricewaterhouseCoopers, 2009, Performance management matters: Sustaining superior results in a global economy, PWC Canada, available online, viewed September 2014, < Report-0609-en.pdf>. BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 5 of 123

10 Section 1 Develop performance management processes Student Workbook Apart from productivity, what are the other benefits has Callaghan Collision Centre witnessed? Let s take a closer look at some of the main performance management concepts, namely, the performance management cycle, system components, coordinating performance management processes, analysing business and strategic planning and building a learning organisation. The Performance Management Cycle On an individual level, the performance management cycle focuses on the time the employee is with the organisation and is developed by the organisation to achieve their potential and assist the organisation is meeting its goals. The four stages of the cycle are illustrated below: Review Performance review Plan Performance agreement Monitor Managing performance Act Personal development 1 st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 6 of 123

11 Student Workbook Section 1 Develop performance management processes The four stages in the performance management cycle can be described in more detail as follows. Planning involves defining job roles and agreeing on performance outcomes. Development involves a number of activities that improve employees skills and knowledge in order to build workplace capability. The development needs to support agreed performance outcomes. The entire process is monitored to identify the results of the planning and development. Finally, performance planning is reviewed and amended, based on the results of monitoring, as necessary to support individual and organisational outcomes and to ensure continuous improvement. On an organisational level, as applied to the whole of an organisation s workforce, the performance management cycle may be thought of as a system, in which the stages provide a basic framework for improving people performance. The stages are supported by important performance management components such as processes and documentation. Performance management system components Not every performance management system operates in the same way. There are some aspects of performance managements that are essential for managing performance and some that are less critical. These are described below as core or optional inclusions. Core inclusions: Core inclusions are essential to most management systems. These include: job descriptions orientation induction and probation key performance indicators (KPIs) development and performance plans recruiting processes policies and procedures communicated goal, strategy and tactics reward and recognition schemes regular coaching and mentoring annual (minimum) formal individual performance reviews formal training and informal upskilling counselling, confronting and termination processes. Optional inclusions: Optional inclusions assist in the delivery of the core inclusions and are more appropriate in larger organisations. They include: succession planning employee surveys customer surveys annual training plan competency framework policies on authority and behaviour written processes competency-based organisational design. BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 7 of 123

12 Section 1 Develop performance management processes Student Workbook Coordinate performance management processes You will need to integrate performance management systems and processes in order for them to be effective in building capability. Effective performance management processes ensure that activities at every level of the organisation are coordinated and align with organisational goals. It is useful to think of performance management as being integrated both vertically linking organisational, departmental, team and individual objectives and capabilities and horizontally linking other components of HR as well as other management systems 4. Vision, mission, strategy Strategic HR management Training/ Planning Recruitment Monitoring coaching Importantly, while most organisational goal setting is top-down, goals at each level are best negotiated and agreed to ensure employee cooperation, hence vertical integration is two-way. See Appendix 1 for an example of a fully integrated performance management system. Analyse strategic and operational plans In order to develop integrated performance management systems and processes, you will need to analyse business plans, strategic plans, and operational plans to understand the organisation. You will need to understand the vision and mission of the organisation, its goals and strategic objectives, its company structure and its operations at all levels in order to coordinate HR activities and processes that are practical and effective for the organisation. Naturally, different organisations will require different goals, strategies and performance management processes. For example, the strategy of a low-cost airline would, in part, include having a higher proportion of variable costs compared to fixed costs. 4 Armstrong, M., 2006, Performance Management: Key Strategies and Practical Guidelines, 3 rd edn, Kogan Page. 1 st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 8 of 123

13 Student Workbook Section 1 Develop performance management processes The human resources strategy supporting this airline s needs would include a high proportion of casual and short-term contracted workers to match labour with daily and seasonal demand fluctuations. The performance management system must support both the overall strategy and the overall human resources strategy. In our low-cost airline example, it must reinforce the efforts to keep costs low. This would potentially affect the reward and recognition scheme and the types of key performance indicators (KPIs) used to manage people s performance and remuneration. Fostering a learning organisation In a rapidly changing technological and business environment, organisations must continually change and adapt in order to remain profitable. Collectively and individually, the organisation s workforce must be prepared to continuously improve through a process of organisational learning and development. The notion of the learning organisation was popularised through Peter Senge s influential management book, The Fifth Discipline: The art and practise of the learning organisation. According to Senge, learning organisations exhibit five characteristics: Systems thinking the idea of the organisation as an adaptive, interdependent network of coordinated functions designed for the purpose of achieving clear goals. Managers need to analyse systems to identify barriers to information flow, learning and adapting to changing business environments to achieve business goals. Personal mastery the commitment of employees to learning. Mental models Mental models are the ingrained frameworks including generalisations and assumptions that influence how people collectively view their world. When applying the idea of mental models to business, an organisation should aim to create a mental model that is understood and shared across the organisation about how the organisation itself learns and adapts to changing conditions. Mental models must be constantly questioned and revised as new information becomes available. Shared vision The whole organisation has a picture or idea of the future successes that the organisation is aiming for. Team learning A shared vision is more effective if the organisation can share the actions that can achieve that vision. Team learning is about aligning the development of the organisation as a whole. Much like a sports team will be more effective if all members are learning and developing together rather than focusing on training the one or two best team members and expecting them to achieve the results for the rest of the team. 5 It is difficult to find an example of an organisation that everyone can agree on as being a learning organisation and it is also difficult to define the learning organisation precisely but in simpler terms. It may be best, therefore, to describe the learning organisation as an ideal towards which the HR manager should attempt to move the organisation. 5 Smith, M. K., 2001, Peter Senge and the learning organization, infed, viewed September 2014, < BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 9 of 123

14 Section 1 Develop performance management processes Student Workbook To ensure HR practices (such as performance management practices) enable the organisation to respond effectively to new challenges, you will need to analyse plans, develop performance management processes and promote the benefits of continuously finding better ways to work in order to help your workplace become an effective learning organisation. Learning activity: Aligning performance management systems with strategy Think about three different types of organisations (army, advertising, airline) and their respective strategies for organisational success: army strategy: maintain discipline and order advertising agency strategy: build creativity low-cost airline strategy: keep costs low and align costs to revenue. Complete the chart below by suggesting performance management processes, activities or strategies to align to the various organisational strategies (some examples have been provided). Recruitment Formal training Coaching and mentoring Army Advertising agency Low-cost airline Train for physical fitness and endurance and decision making under pressure Train in the basics of operations Reward and recognition Reward innovation and new ideas reward quantity as well as quality. 1 st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 10 of 123

15 Student Workbook Section 1 Develop performance management processes What performance management system components will be required to support your suggested processes? How will your suggested processes contribute to the ideal of promoting a learning organisation? Develop performance objectives and metrics In order to set a baseline for performance, you will need to set clear expectations for people working in particular roles. You will need to develop performance objectives and standards, develop performance metrics to enable monitoring, align performance metrics to organisational goals, and use tools such as balanced scorecards to track organisational and individual performance against key result areas. Goals, objectives and targets In performance management, the terms goals, objectives and targets are often used loosely and interchangeably, but the terms are distinct. Where a distinction is drawn, goals are more general than objectives, and targets are more narrowly defined than objectives. For example, an organisation may have increasing profitability as a goal. It may have identified superior customer service as a way to differentiate itself from the competition and increase revenue. Objectives associated with the strategy could include completing workforce sales training, delivering consistently high customer service, and increasing sales revenue. The organisation might then define a number of specific, quantifiable and time-bound targets for departments, teams and individuals to realise the objectives. BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 11 of 123

16 Section 1 Develop performance management processes Student Workbook The hierarchy of this example of a goal and its associated objectives and targets can be illustrated as shown here. Goal Increase profitability through superior customer service Objectives Complete workforce sales training Deliver high quality customer service Increase sales revenue Goals, objectives and particularly targets as defined above should be SMART: S Specific Goals, objectives or targets should be clearly defined, reducing the risk of employees or teams misunderstanding performance expectations. M Measurable Goals, objectives or targets should ideally be expressible as a number or quantity in order to enable development of or align to performance metrics and facilitate monitoring activities. A Agreed Goals, objectives or targets should set in consultation with employees. R Targets Realistic/ Relevant 100% workforce completed within 6 months Increase customer satisfaction ratings by 5 points within 12 months Increase sales by 10% each quarter Goals, objectives or targets should be relevant to the organisation s overall aims and the individual s job role. They should also be attainable without being too easy to achieve. There is no point in setting unreachable targets. On the other hand, targets that are too easy to achieve may undermine performance potential. T Timeframed Goals, objectives or targets should have deadlines if they are to be effectively monitored. You need to measure achievement to know if you have succeeded; you also need to know when to measure. 1 st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 12 of 123

17 Student Workbook Section 1 Develop performance management processes Job standards Some aspects of organisational roles may be ongoing and therefore difficult to define in terms of timeframed goals objectives and targets. For example, superior customer service may be essential to achieving strategic objectives. All customer service staff or any employee that makes customer contact may be expected to conduct themselves in accordance with company values and be friendly, courteous and helpful. To assist performance management, Job standards should be described in a way to facilitate measurement or observation. Let s look at an example: Example job standards: answering the telephone The most common ways to describe and measure standards of acceptable performance include: time, accuracy, quantity and quality: Telephones are answered by the third ring. (time) Callers are transferred to correct extensions. (accuracy) Customer service agents are expected to answer at least three enquiries per hour. (quantity) All calls are answered with courteous tone of voice. Greeting includes employee s name, department and how may I help you? (quality) Importantly, job standards do not need to include ALL types of measures; however, each job standard should be measurable or observable in some way. Develop performance metrics In order for performance to be effectively monitored and evaluated, it needs to be measured. Performance is generally measured using key performance indicators (KPIs). KPIs measure an organisation s performance in critical areas, often called key result areas (KRAs). Key result areas may include general areas of performance important to the business or the role such as: financial measures, productivity, customer focus or training and development. KPIs show the progress (or lack of it) toward realising the organisation s objectives or strategic plans by monitoring activities in key result areas. These are the activities that, if not properly performed, are likely to cause severe losses or outright failure. KPIs will differ depending on the organisation. To be useful in the context of performance management, KPIs should generally conform to the following three requirements. 1. KPIs should promote common, clear understanding. They must be: a. simple enough for anyone to understand b. calculated in a standard way across the organisation c. documented. BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 13 of 123

18 Section 1 Develop performance management processes Student Workbook 2. KPIs should correlate with performance. They must: a. directly measure the results of a process b. be directly affected by changes to that process c. not be directly affected by factors outside of that process. 3. KPIs, even soft KPIs, such as behaviours and attitudes, should be quantifiable, that is they should be expressed as a number or a percentage so that they can be measured. KPI types Objectives, targets and the KPIs that measure performance against objectives and targets can be classified into three types: input, process and output. Input KPIs measure the activities that are designed to facilitate improvements in performance results. These activities include management actions to implement performance management and achieve organisational goals such as holding performance review meetings, coaching or providing training. Process KPIs measure the efficiency of processes, for example, the number of times stock is sold or used over a period of time (inventory turnover or stock turn). Another example, more geared towards the measurement of individual performance might be contribution to the improvement of team processes or the support of co-workers to do the same. Finally, output KPIs measure the results of inputs and processes. These could include productivity levels or number of sales per month for example. KPIs are often said to be leading, in that they indicate future performance, or lagging, in that they reflect past performance. For example, sales training numbers may indicate future sales performance, while current sales figures reflect past activity. Cascading KPIs Objectives and KPIs at a lower level of the organisation should be aligned with objectives and KPIs set at higher levels. In this respect KPIs are said to cascade from higher level organisational goals An important principle to follow is that all individual or team KPIs should be related to organisational strategic KPIs. If the alignment is not clear, you need to question whether the KPI is appropriate. Sometimes what is measured in terms of individual, team and organisational performance ends up being what is easy to observe and measure (or was has always been observed and measured) and not what it is important to measure. In other words, don t measure an aspect of performance because it is easy to express as a number or ratio, measure it because it matters. HR managers may be required to provide training in creating KPIs for their direct reports. The simplest method of creating KPIs is to cascade them from the goals of the organisation as a whole, or the department/section that the individual or work team is a part of. 1 st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 14 of 123

19 Student Workbook Section 1 Develop performance management processes Example: Cascading KPIs from a numeric goal 6 Imagine that we want to develop KPIs for a sales team as part of their effort in achieving a profit after tax of $2 million. Lower level KPIs (bolded) express team or individual sales team KPIs relevant to realising the organisational goal. 6 Dwyer, K., Cascading performance indicators from numeric goals, Change Factory, viewed September 2014, < Adapted with permission. BSBHRM512 Develop and manage performance-management processes 1 st edition version: 1 Page 15 of 123

20 Section 1 Develop performance management processes Student Workbook Balanced scorecards A key performance management tool for the monitoring of performance at all levels of the organisation is the balanced scorecard. A balanced scorecard utilises KRAs, KPIs and targets to concisely set out the overall performance of an individual, team or even whole organisation. The concept of the balanced scorecard, first developed by Robert Kaplan and David Norton, takes a holistic view of organisational performance. By viewing the organisation from four perspectives, the balanced scorecard provides a more comprehensive understanding of current performance. Financial perspective the bottom-line financial measures. Internal perspective the performance of the key internal processes of the business. Customer perspective customer needs and satisfaction. Innovation and learning perspective the organisation s own people and infrastructure. By balancing customer and employee satisfaction measures with results and financial measures, managers have a more complete picture and will know where to make improvements. The following example shows what a balanced scorecard could look like for manager of a chain store: KRA KPI Target Result Financial $ expenses 4% reduction in operating expenses for store. Process Customer satisfaction $ value of travel receipts Reduce travel expenditure to $3,000. Number of completed performance appraisals Accuracy of workplace documentation Number of complaints by number of calls 100% performance reviews completed biannually. Recordkeeping requirements completed with 97% accuracy. Less than two complaints per quarter. % of rejected deliveries Less than 2%. % of performance management processes carried out Performance management processes should be carried out for all employees twice per year. 1 st edition version: 1 BSBHRM512 Develop and manage performance-management processes Page 16 of 123