Performance Management. Ch. 9 The Performance Measurement. Mechanism. Chiara Demar8ni UNIVERSITY OF PAVIA. mariachiara.demar8ni@unipv.

Transcription

1 UNIVERSITY OF PAVIA Performance Management Ch. 9 The Performance Measurement Mechanism Chiara Demar8ni mariachiara.demar8ni@unipv.it Master in Interna+onal Business and Economics

2 Defini8on Performance measurement is the process of quan+fying the efficiency and effec+veness of past ac+ons A performance measure is a PARAMETER used to quan8fy the efficiency and/or the effec8veness of past ac8ons The purpose of performance measurement is SCORECARD KEEPING 2

3 The Performance Measurement Process 1. DESIGN Selec8on of the measures Defini8on of the metrics 2. PLANNING AND BUILDING Development of systems and prac8ces Communica8o n 3. & OPERATION Applica8on of systems and prac8ces Improve decision- making 4. REFRESH Refinement of applica8on Review of the measurement relevance

4 Strategic Performance Measurement System - BSC SPMS aligns management processes, such as target seqng, decision- making, and performance evalua8on, with the achievement of the chosen strategic objec8ves Financial Perspective Return-on-Capital-Employed Cash Flow Project Profitability Profit Forecast Reliability Sales Backlog Customer Perspective Pricing Index Customer Ranking Survey Customer Satisfaction Index Market Share Innovation and Learning Perspective % Revenue from New Services Rate of Improvement Index Staff Attitude Survey N. Of Employee Suggestions Revenue per Employee Internal Business Perspective Hours with Customers on New Work Tender Success Rate Rework Safety Incident Index Project Performance Index Project Closeout Cycle

5 The Performance Measurement Matrix Non- cost Cost 1. Balanced approach 2. Perspec8ve- based framework design It lacks some essen8al measures (financial measures, stakeholder sa8sfac8on) Internal External - Repeat buyers - Customer complaints - Market share - Design cycle - Percentage on- time delivery - New products - Competitive cost position - Relative R&D expenditure - Design cost - Material cost - Manufacturing cost

6 The Integrated Performance Measurement System It fails to provide a structured process that specifies objec8ves and 8mescales for development and implementa8on

7 The Performance Prism Stakeholder sa8sfac8on who are our key stakeholders and what do they want and need? STRATEGIES PROCESSES CAPABILITIES Stakeholder contribu8on what do we want and need from our stakeholders on a reciprocal basis? Strategies what strategies do we need to put in place to sa8sfy the needs of our stakeholders while sa8sfying our own requirements too? Processes what processes do we need to put in place to enable us to execute our strategies? Capabili8es what capabili8es do we need to put in place to allow us to operate our processes?

8 The Performance Prism Pros Cons STRATEGIES PROCESSES CAPABILITIES Performance Prism is structured to manage the rela8onships with its mul8ple stakeholders it is quite difficult to perform a review of the overall system It aims to be holis8c in orienta8on Five facets of the prism, which are func8onally related Sta8c approach its balanced approach to business does not easily relate to financial metrics

9 The SMART Pyramid Strategic Measurement and Repor3ng Techniques (SMART) pyramid Departments, Groups and Work Teams Business Unit Corporate Core Business Customer Processes satisfaction Market Corporate vision Flexibility Financial Productivity Quality Delivery Cycle time Waste C A S C A D I N G Individuals Performance management system External effectiveness Internal efficiency

10 Results and Determinants Matrix Lack of human resource and customer- related performance RESULTS Competitiveness Financial performance CAUSALITY DETERMINANTS Quality Flexibility Resource utilization Innovation

11 Features of the Performance Measurement System BALANCE balance in the tracking of both financial and non- financial performance measures LINK WITH CAUSALITY by achieving the target metrics, the strategic goals are also met cause- and- effect rela8onships that enable decision- makers to gain an expected effect MULTI- LEVEL FOCUS STAKEHOLDER ORIENTATION CUSTOMIZATION PROCESS the different organiza8onal layers (corporate, business unit, department, team, individual) Stakeholder wants and needs become part of the process of both designing and reviewing the performance measurement framework and the related metrics The performance measurement system can be adapted to organiza8onal needs and processes The framework s development, customiza8on and implementa8on are clearly stated in a process that C. Demar8ni Performance favours effec8ve Management design and use.

12 Budgetary control costs

13 A Taxonomy of Performance Measurement Systems HOLISTIC/ INTEGRATED BSC IPMS, PRISM FOCUSED PMM, Results & DeterminantsM., SMART pyramid DRIVEN STAKEHOLDER DRIVEN 13

14 The Cost of Measurement Cost of informa8on related to performance measures Cost of plans that facilitate the decision- making ac8vity Cost for the introduc8on of correc8ve ac8ons Cost related to side effects of measurement Withdraw of redundant measures and introduc8on of more helpful ones Poor understanding of desired results over- quan3fica3on gamesmanship op8mises the amount of measures A cost/benefit analysis of the measurement 14

15 Performance Measurement Tests 10 TESTS FOR MEASURES The truth test, intended dimension; The focus test, only dimension(s) which was (were) intended The relevance test, measuring the right thing; The consistency test, scien8fic tracking of the measure The access test, easy to access and to understand; The clarity test, possible ambiguity in interpre8ng the measure; The so- what test, which refers to the effec8ve use of the measurement The +meliness test, to take suitable ac8ons on 8me; The cost test, which addresses a cost/benefit analysis The gaming test, which refers to the assessment of whether the measure actually addresses the desired behaviour. 15

16 Develop your own Performance Measures Group A Group B Group C Group D Iden8fy up to 5 measures to reduce PRODUCTION SCRAPS Iden8fy up to 5 measures to reduce ENVIRONMENTAL IMPACT Iden8fy up to 5 measures to enhance CUSTOMER SATISFACTION Iden8fy up to 5 measures to reduce PRODUCTION LEAD TIME Challenge them according to the 10 tests Challenge them according to the 10 tests Challenge them according to the 10 tests Challenge them according to the 10 tests Exchange outcomes of the first part and try and game the measure 16