Professional Documents
Culture Documents
Performance Measurement
Objectives
To understand the Performance Measurement System. To study the limitations of Financial Control Systems. Balance Scorecard as a tool of performance measurement. Implementation of Performance Measurement System. Difficulties in Implementing Performance Measurement System.
BSC View
Financial
Customer
Four Perspectives
1. Financial Perspective: The BSC retains the financial perspective since financial measures are valuable in summarizing the readily economic results of actions taken. Financial performance measures the strategies implemented and targets achieved. Financial objectives are basically related to profitability measures like operating income, return on capital employed, economic value added, profitability ratios etc. The other objectives can be rapid sales growth or generation of cash flow.
Contd.
2. Customer Perspective: - in this perspective, managers identify the customer and market segments in which the unit is competing. - The customer perspective generally include the measures like customer satisfaction, customer retention, customer profitability, new customer acquisition, market share etc. 3. Internal Business Process Perspective: - in this perspective, executives identify the critical internal processes in which the organization must excel. - The internal business process measures are focused on the internal processes that will have greatest impact on customer satisfaction and achieving financial perspectives.
Contd.
the generic value chain of business encompasses three principal business processes. i) Innovation ii) Operation iii) Post-sales services 4. Learning and Growth Perspective: This perspective identifies the infrastructure that the organization must build for the long term growth and improvement. Organizational learning and growth comes from three principle sources: people, systems and organizational procedures.
Contd.
3. Integrate measures into the management system: - the scorecard must be integrated with the organization's formal and informal structures, culture and human resource practices. 4. Review measures and results frequently: once the scorecard is implemented and running, the senior management should review is constantly. The organization should look for the following: - how is the organization is doing according to the outcome measures? - how is the organization is doing according to the driver measures? - How has the organizations strategy changed since the last review? - How have the scorecard measures changed?
Difficulties in implementation
1. 2. 3. 4. 5. Poor correlation between non-financial measures and results Fixation on financial results Measures are not updated Measures are overloaded Difficulty in establishing trade-offs