Performance measurement is a process where valuable information about the performance of a system, group, individual, or organization is gathered, analyzed, and reported. It is a useful tool used to estimate and track the progress which has been made in the organization
If you are looking for a performance measurement definition by author’s, then one of the most important ones is
The process of evaluating how well organizations are managed and the value they deliver for customers and other stakeholders – Moulin
What is performance measurement?
If you are looking for an answer to how do we track the progress of the strategy we’ve put in place, then your answer is through a method known as performance measures.
The concept of measuring performance is considered a strategic practice where organizations have to evaluate, respond, and align a set of measures to get anything constructive and valuable around them. As the name suggests, the method deals explicitly with the measurement of performance.
The performance measures are quantitative indicators that have to be put in specific places to track the progress which is made in the organization. It will show whether the organization, individual, or group will achieve and accomplish their objectives and goals.
The information that performance measures drive is considered very informative and helpful. It becomes possible to create valuable reports around it and share the information with important stakeholders for future growth and development. These measures include a broad range of criteria like
- People measures
- Process measures
- Customer measures
- Financial measures
Important steps for effective performance measures
Take the following steps for effective performance measures
- Involve people in leadership positions in the process. When they become part of a measurement process, it becomes easy to convey the facts and information to people working under them
- Make sure that everyone is championing the process because half-hearted attempts will not take it very far
- Include talks about performance measures in meetings so that every stakeholder is aware of its importance
- Align the budgeting process to the business strategy
- Communicate the key measures to everyone in the organization so that every member can achieve the desired goals.
Performance measurement techniques
Some important measurement techniques are described below
1. Create a mission statement
A mission statement plays an essential role in every organization. It is the framework upon which the organizations lean on, and this is why it becomes critical to create one if you are looking for an effective performance measure technique.
It is time to tell about the business’s overall goals and objectives through the mission statement so that every stakeholder knows what to do. It is the mission statement that will give clarity to the employees so that they can eventually improve their performance
2. Create both a short-term and a long-term performance plan
If you are looking for an effective performance measure technique, then create both a short-term and a long-term performance plan. Short-term objectives like cost control will result in long-term outcomes, for instance, a boost in customer satisfaction. The performance measurement tools can be a success if you consider all the measures of financial performance like liquidity, profitability, activity, etc.
while setting up long-term goals. The next step is equally important as you have to break the long-term outcomes into short-term objectives and describe the process to monitor the performances
3. Create different levels of objectives
The key is to develop different levels of objectives so that every employee knows the role he has to lay in the scheme of the organization’s things. Setting various objective levels will prove a boon in understanding how a specific role will fit in the bigger picture and how it will help the business reach its goals and objectives.
Hence create different levels of objectives if you are looking for an effective performance measure technique
4. Define who is responsible for every goal
It is essential to establish a leadership hierarchy so that everyone knows the role he has to play in the organization and can take ownership and accountability for their actions. Define who is responsible for every goal if you are looking for an effective performance measure technique.
In most organizations, senior management is responsible for strategic planning and department or middle managers for day-to-day performances. When you have clarity about the role which every employee plays, it becomes easy to set performance measures to monitor whether the objectives have been achieved or not.
5. Know the critical factors to the success of CSFs
Knowing about the CSFs is vital for every employee in an organization. It will play an essential role in achieving overall goals. This information will empower the workforce and motivate them to reach their end-goals. If you are looking for an effective performance measure technique, know the critical success factors or CSFs.
6. Look at the market and economic conditions
The performance measurement tools and techniques no doubt play an essential part in the growth and development of an organization, but it must also take into account the impact of market and economic conditions along with the actions of the competitors while analyzing performances
7. Evaluate and re-evaluate your goals
If you are looking for an effective performance measure technique, regularly evaluate and re-evaluate your goals. Implementing them will help measure the organization’s overall profitability, and it will become easy to know about the profit against the budgeted targets.
Regular discussions will further help in updating progress, identifying obstacles, and resetting the goals if necessary.
The advantages of using performance measures are as follows
- The performance measures are considered advantageous as it can improve and boost individuals’ and groups’ productivity and the organization. It creates clear goals with the help of specific standards to measure success, and the workforce now finds it easier to move forward and achieve them
- The performance measures are considered advantageous as it helps to recognize the individuals who have proved their worth by becoming top performers. Individualized metrics identify these individuals so that the organization can know about their best talent and take steps to retain them at any cost
- The performance measures are considered advantageous as it can easily identify both the individuals and the teams that are not performing at required levels by comparing the outputs of one against another using the same chart.
- The performance measures are considered advantageous as it improves and increases the level of communication. Accurate measurement metrics have proved a blessing in most cases as they are outlined with specific instructions that help to avoid any confusion in communication
- The performance measures are considered advantageous as it provides a clear chain of command where every employee has a specific role to play in the bigger picture. The defined space ultimately eliminates any confusion, and every employee can now fulfill his responsibility to the best of his abilities
The disadvantages of using performance measures are as follows
- The performance measures are considered disadvantageous as it can result in a decrease in the output levels. This is because when the measures are defined, then the unskilled employees might feel as if the organizational goals are unattainable at their current training levels, and this might ultimately prove de-motivating
- Performance measurement methods are not easy to understand, as metrics will have to be defined via key processes and terms. People who do not understand the concept will avoid it, which can lead to communication breakdowns.
- The performance measures are considered disadvantageous as factors like change, learning, and innovation are not given their due importance
- The performance measures are considered disadvantageous as emotional decisions and negative evaluations by supervisors and managers can easily disrupt the data collection process. It will result in false conclusions that will, at the end of the day, prove harmful for the organization
- The features of a performance measurement system are considered disadvantageous because of the failure to measure all the factors that will create value
- The performance measures are considered disadvantageous as it does not take into account asset creation and growth
The performance measurement methods are described as a tool to create measurable indicators to establish whether progress has been made while achieving predetermined goals.
It helps to monitor budgets against progress so that the organization can understand how the workforce is functioning individually and a team. Organizations have realized the importance of implementing the concept of performance measures in their system and the critical role it is going to play in their growth and development.