Performance measures play an important role in all companies and their daily operations. By providing multiple methods of comparison and evaluation, accounting measurements provide a better view of the overall state of a corporation. Not only do investors use certain measures to help decide which companies to invest in, but internal managers use other measures to make sure their company is meeting set standards and that it is not falling behind or losing money. Therefore, it is important that these measures are accurate and not misleading. It is up to auditor and regulators, such as the SEC, to ensure that only reliable measurements are being provided. While, customized measurements can more accurately focus on the goals of a specific company or process, more traditional measurements can be used to compare companies or processes. With the rise in popularity of customized or specialized performance measurements, their validity must be compared and contrasted to that of traditional measures of performance.
The importance for creating performance measures stretches from internal managers all the way to external investors. Internal managers can use different performance measures to help determine if a company is running efficiently and if it is meeting standards that were preset. For example, an internal manager of a manufacturing plant can use performance measures to see if enough products are being made to meet demand, if the machines are being utilized for the most profit, and if there is enough employees to run the machines. Executive management can use performance measures to determine if they are on track to be profitable for the year and if not they can use them to figure out why they are not profitable. Investors and Analy...
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...urn is the total return of a stock to an investor. This equals the capital gain plus the dividends for a certain period. The benefit of total shareholder return is that it allows the performance of shares to be compared even if they do not have the same growth rate or dividends. Economic Value added (EVA) is a measure of company’s financial status based on residual wealth. It is calculated by taking the net operating profit after taxes and subtracting out the cost of capital time the capital. Maintaining the integrity of these measurements is important since they are not regulated or audited. To maintain the integrity a company must be consistent with which data is included and it must disclose this information with the measurements. Along with that it is important that the company shows how these measurements hold up against the most comparable GAAP measurement.
There are many ways to analyze the performance of a company, some more popular than others. According to the Barney text the accounting method is the most popular way of measuring a firm's performance (Barney, 2002). Some of the reasons for the popularity could include the fact that accounting measures of performance are publicly available on many firms and they communicate a great deal of information about a firm's operations. Other methods of performance analysis include firm survival and the multiple stakeholder approach.
Tapinos, E., Dyson, R.G. & Meadows, M. (2005). The impact of performance measurement in strategic planning. International Journal of Productivity and Performance Management, 54(5/6), 370-384.
There is a wide range of financial performance measurement methods however there are two broad categories that are widely used as the baseline of measuring financial performance which are Investor returns and accounting returns. Investor returns simply implies that the financial performance of firms is solely dependable on the stakeholders returns, the better returns shareholders get the better the firm is doing. First studies to employ investor returns as a measure of financial performance were those of Markowitz(1927)and Vance (1975).However previous studies indicate this as a flawed approach because share price is only one element of investor returns, dividend income is ignored which is also one crucial element of investor returns therefore
Harrison Jr. (Chairman and Chief Executive Officer) The main metric being measured under Customers is customer satisfaction. Strategic measures include smart usage of capital, and a smooth integration with both merger firms for added value. Operating revenue, operating expenses, operating margin, and credit allocation, fall under Financial measures. Within the Internal measures include, shareholder value, employee engagement, employee training, employee retention with the help of incentives and benefits, and employee performance.
Overall performance is always one of the most important indicators of economic activity and every financial report starts with results of annual performance. Performance is "The results of activities of an organization or investment over a given period of time. " (http://www.investorwords.com/3665/performance.html)
Metrics are very important in Operations Management within an organization because it provides functions such as control, reporting, communication, opportunities for improvement and expectations. It is a certifiable measure stated in either quantitative or qualitative terms types of measurements. In addition, metrics has different types of categories in the organizations. One of which is “Organizational Focus”, that have four different types of level within the organization or firm. 1. Organizational Metrics – this type of measure, capture and describe the performance of an organization (i.e.…market share and rate of return). 2. Product Metric – it measures cost per unit, contribution margin per unit, or growth in sales.
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
There are a number of contemporary performance management tools that have helped P&G to effectively handle the performance of the teams working within the organisation. As a leader one should understand performance management not only a means to appraise the performance of the team but it also to implement a critical assessment on the individual’s performance. This will help with their professional issues and development (Nelson & Quick, 2012). Proctor & Gamble sets different kinds of Key Performance Indicators (KPIs) and personal objectives for different employee. This helps to effectively discuss the performance of the individual employees as well as the overall operations.
The Balanced Scorecard has emerged in recent years as a performance measurement system in various organizations. This paper will discuss the origin and concept of the balanced scorecard and how it was first implemented. We will then review the criticisms on the balanced scorecard methodology as well as analyse the strengths and weaknesses of this performance measurement tool.
Performance management is a management tool used to value, monitor and measure a company’s strategies that ensure the efficiency and effectiveness of its product delivery. This management tool does not focus on the organisation and on its employees as well as stakeholders. It is a continuous process that entails that managers make sure that organisational and employee values are corresponding (Aguinis, 2005,p.1/2-1/5). Performance Management brings about the competencies in the employees, increases self-esteem by giving feedback to employees, there is a low number of lawsuits because it helps understand the company better (eThekwini Municipality, 2008,p.10-11). According to Pride, Hughes and Kapoor (2011, p.288) performance management creates motivation for employees; one theory of motivation is of Expectancy, which stipulates that employees satisfaction is driven by expectations of what an organisation will offer in return.
Enterprises want to know their performance. They want to know how they are performing against generally expected standards against their competitors.
Performance management is a useful and powerful tool that can be used by managers to identify what areas of their organisation they need to improve to increase the organisation’s overall performance. The idea of a balanced scorecard enforces a sensible distribution of resources and effort across all aspect of performance an organisation is, or should be, concerned with.
There are several reasons organizations initiate performance evaluations, however the standard purpose for performance evaluations is to discuss performance expectations; not only from the employers perspective but to engage in a formal collaboration where the employee and the manager are both able to provide feedback in a formal discourse. There are many different processes an organization should follow when developing its performance evaluation tool; in addition essential characteristics that must accompany an effective performance appraisal process. I will discuss in detail the intent of a performance evaluation, the process an organization should follow in using its performance evaluation tool, along with the characteristics of an effective
When implementing a new performance management system in an organization there are both advantages and disadvantages that need to be taken into consideration by the design team. However, one of the best ways to know if a performance management system is effective is by implementing the system within the organization and then continuously monitor and reevaluate if the system is still relevant to the organizational
Performance management is a continuous process that creates a working culture to encourage employees to improve their work performance and reach their full potential during their stay of employment. Performance Management also provides strategic direction, develop competency in employees and instill organization value. This paper will identify methods and affects that performance management plan has on the organization and their employees.