Performance Measurement

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In simple terms, performance measurement shows how your business organizations results are compared to a set target or goal. Performance measurement, regardless of activity, can be seen as a pm3comparison of actual results with an expected result.

Seems like an easy thing to do considering the baseline of the activity. It is easy if you know how to handle the topic.

A growing business needs to be closely and carefully managed to ensure the success of new investment decisions and expansion plans. Putting performance measurement systems in place can be an important way of keeping track of the progress of your business. It gives you vital information about what’s happening now and it also provides the starting point for a system of target-setting that will help you implement your strategies for growth.

Performance measurement and target-setting are important to the growth process. While many small businesses can run themselves quite comfortably without much formal measurement or target-setting, for growing businesses the control these processes offer can be indispensable.

Knowing how the different areas of your business are performing is valuable information in its own right, but a good measurement system will also let you examine the triggers for any changes in performance.

One of the key challenges with performance management is selecting what to measure by choosing the right metrics.

The selected metrics need to be aligned with your strategic vision and business development plans to make sure that you’re following the right things to measure.

Strategic visions can be difficult to communicate, but by breaking your top-level objectives down into smaller concrete targets you’ll make it easier to manage the process of delivering them.

pm1This type of measurement unit is often referred to as a key performance indicator (KPI). The two key attributes of a KPI are quantifiability (i.e. you must be able to reduce it to a number) and that it directly captures a key business driver. More about KPI’s can be found in an earlier post here.

Key performance indicators (KPIs) are at the heart of any system of performance measurement and target-setting. When properly used, they are one of the most powerful management tools available to growing businesses.

A major drawback of KPI’s is the fact that they measure only a very limited view on a quite complex process that is your business that can be influenced by many factors. Therefore KPI’s should not be used as a single proof of performance or non-performance. It’s crucial that you tailor your measurement to your specific circumstances and objectives. To have a broader understanding of the performance of a business organization you should always look at more that one KPI.

Also when looking at the performance of a business organization you must understand very clearly the following :

    • why are you looking at performance? Sometimes by clarifying the scope of the evaluation can change the result of the evaluation
    • what is the strategic view of the business organization? You must understand the goals of the organization to be able to benchmark them against expected results.
  • are the chooses measurement methods the correct ones? Do you understand the methodology of measurement?

Performance measurement has to confirm or infirm the ultimate goal of a business to create value to its stakeholders for its shareholders. Business performance can ultimately be reduced to the expectations of shareholders and stakeholders that are met by actual results. In case of deviations of these expectations, corrective actions are needed. The corrective actions can start from an adjustment of the strategic goals, if needed, and go towards the root causes of the business processes. One way of looking at this is by bottom line improvement that is more complex than it sounds.

Fact is that performance measurement is something that can be used regardless of activity. Deviations from expected results should be understood in detail. Based on the deep understanding corrective actions can de be developed.

TopCFO can help you get through all these delicate and tricky aspects of developing your business.

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