Measuring Performance In Business

The WHO of Performance

Performance measurement and performance management plays a vital part in business success, sustainability and growth.  It is not a onetime event rather it is a continuous process.

Successful Business Performance Measurement and Management can be summarised in the pneumonic Who.  ‘Who’ stands for the following:

What
How 
Outcome

What: is all about what is measured, and more importantly what we should measure? What are we measuring? Are we measuring profitability? Liquidity? Customer satisfaction? Employee satisfaction?

What:

We should measure is based on what is critical for our business success.  Our mission statement tells the world what our aspirations are, how we hope to achieve them, and who will be benefit from this.  Our mission statement helps generate critical success factors (CSFs). CSFs are the cause of our success, those areas in which we need to perform best if we are to achieve overall success and ultimately achieve our objectives.  For example, CSFs for a retailer would typically be the right product mix, product availability, effective marketing to attract customers and correct pricing.  CSFs help us generate measures to monitor and manage the achievement of those CSFs; these measures are also referred to as Key Performance Indicators (KPIs).

KPIs should normally be a blend of numbers (quantitative) and non-numbers (qualitative).  Targets can be set for these KPIs, and progress measured against these targets. Any variations against these targets prompts investigation and ultimately action taken to rectify the situation.  There is a general rule in business that you cannot manage what you cannot measure; we need clues/milestones to identify if we are progressing on our journey.   Take the example of an individual who decides that their aspiration (mission) is to lead a healthier life style. One identified objective is to reduce their blood pressure to a certain level. A CSF is change of diet; a KPI to monitor this is body weight.  If we measure weight loss against a pre-set target then if that weight loss is not achieved, we can have a closer look at what and when we are eating, and then hopefully put this right. 

In the example of the retailer quoted above, appropriate KPIs may be levels of gross profit achieved; customer feedback, repeat purchases, and levels of spend per customer.

How:

Is about how we should measure what is important.  The measures, or KPIs can be observations, surveys, financial measures, ratios, and non-financial KPIs.  Management information systems play an important role and the power of online accounting systems play a key role.  Data capture and reporting is more powerful and can be blended with other business systems, such as our website and CRM systems.

Outcome:

Is about actually using what we are measuring and reacting to.  It’s about acting and doing something with the information that we have gathered.  We can see which customers aren’t paying on time, what our cash flow is, level of profitability, what customers value. We need to act on that information, whether it is having a more effective credit control policy, improving efficiency, cutting down on waste and improving customer value.  It’s all about Outcomes and Actions.

Knowledge and understanding helps all businesses, regardless of size, to maximise their potential. It puts them in a firmer position to shape and control their own destiny.

SUMMARY

The process of performance measurement and management includes the following:

  • Identify what is critical and important for your business to measure.
  • Understand the performance standards or goals set by the organization.
  • Apply performance measurements.
  • Collect information.
  • Analyse and report actual performance.
  • Compare actual performance with standard set.
  • Take action

If you would like us to help you understand, appreciate and develop your business performance then please contact us. We can have a cup of (virtual or real) coffee, biscuit and a chat as to how we can help.

Pro Active Resolutions- Your Accounting Solution and Business Friend

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