ACCA P5考试：PERFORMANCE INDICATORS

　　Particularly in profit-seeking organisations, the prime financial performance indicators allow performance to be measured but they say little about how that performance has been achieved. So, high profits will depend on a combination of good sales volumes, adequate prices and sufficiently low costs. If high profits can only be achieved by a satisfactory combination of volume, price and cost, then those factors should be measured also and will need to be compared to standards and budgets.

　　Similar effects are found in not-for-profit organisations. For example, in a school, a CSF might be that a pupil leaves with good standards of literacy. But that might depend on pupil-teacher ratios, pupils’ attendance and the experience of the teachers. If these factors contribute to good performance, they need to be measured and monitored.

　　Just as CSFs are more important than other aspects of performance, not all performance indicators are created equal. The performance indicators that measure the most important aspects of performance are the key performance indicators (KPIs). To a large extent, KPIs measure how well CSFs are achieved; other performance indicators measure how well other aspects of performance are achieved

　　There are a number of potential pitfalls in the design of performance indicators and measurement systems:

　　• Not enough performance measures are set Often, directors and employees will be judged on the results of performance measures. It has been said that ‘Whatever gets measured gets done’ and employees will tend to concentrate on achieving the required performance where it is measured. The corollary is that ‘Whatever doesn't get measured doesn't get done’ and the danger is that employees will ignore areas of behaviour and performance which are not assessed.

　　• Too many performance indicators This occurs especially where performance measures are not ranked by importance and none have been identified as KPIs. Performance indicators have to be measured, calculated and reported to management, and discrepancies must be explained or excuses invented. Too many measures can divert time from more important tasks and there is a danger that employees concentrate on the easier but more trivial measures than on the more difficult but vital targets.

　　• The wrong performance measures An example of this would be applying strict cost measures in an organisation where luxury products and services are sold (a differentiation strategy). This is likely to detract from the organisation’s strategic success.

　　• Too tight/too loose performance measures Performance indicators that are too difficult to attain can lead to a loss of employee motivation and promote dysfunctional behaviours such as gaming and the misrepresentation of data. Performance measures that are too loose can pull down performance. Benchmarking can help to avoid this. Internal benchmarking generally sets measures based on previous period’s measures or set measures with respect to other branches or divisions. However these internal benchmarks can lead to complacency as many organisations have to compete with others and benchmarks should be aligned to competitors’ performance.

　　• ‘Hit and run’ performance indicators This means that a performance indicator is set and then it is assumed that things will look after themselves. Performance indicators need a management framework they are to be at all effective.

　　PERFORMANCE MEASURES – A PRACTICAL FRAMEWORK

　　Expanding on the last point, above, to establish a performance measurement system, something like the following is needed for each measure:

　　1. A meaningful title of the measure

　　2. What is its purpose and how does that purpose relate to strategic success?

　　3. What other performance measures might be affected by this one, how are they affected and how are conflicts to be resolved?

　　4. Who will be held responsible for it?

　　5. What is the source data, who is responsible for its supply, how is it measured and how is the measure calculated?

　　6. What investigations and explanations are required and who is responsible?

　　7. What target is set and how has that target been determined?

　　8. How often should the target be updated?

　　9. How often is the measure reported on?

　　10. Reporting and action?