Question

What is meant by performance criteria? Discuss at least four types of performance criteria.

Answer 1

Performance criteria is the process of collecting, analysing and reporting information about the performance of an individual, group, organization, system and component. There are various definitions of performance criteria which tend to be predicted upon an assumption about why the performance is being measured.

• Moullin- Performance criteria is the process of evaluating how well the organizations are managed and the value that they deliver for customers and the other stakeholders.
• Neely et al- The process of quantifying the efficiency and effectiveness of past action.
• Performance criteria estimates the parameters under which programs, investments, and acquisitions are reaching the targeted results.

For each measure, a performance criteria will be used to determine the level of performance necessary to ascertain whether someone's performance on the measure indicates that the program outcome has been achieved. Performance criteria must be identified prior to the collection and analysis of assessment data. When setting performance criteria, it can be tempting to set unreasonably high "nothing but the best" standards or to set unreasonably low "guaranteed to show success" standards. Both of these practices can be defeating.

Relevancy is the most important concern in selecting performance variables. Traditionally, the overriding concern has been with the accuracy of measures, because it is very hard to accurately measure what we want, we have chosen to want what we accurately measure. Unfortunately, the more accurate the measure of the wrong criteria, the faster the road to disaster. Any performance criteria shoud be very specific, clearly stated and observable.

The 4 types of performance criteria are-

1. Impact of the performance

2. Work quality and craftsmanship

3. Adequacy of method and behaviour

4. Validity of content

Performance measures can be grouped into two basic types: those that relate to results (outputs or outcomes such as competitiveness or financial performance) and those that focus on the determinants of the results (inputs such as quality, flexibility, resource utilization, and innovation). This suggests that performance measurement frameworks can be built around the concepts of results and determinants.

Measures of performance of a business usually embrace five fundamental, but interlinking areas:

1. Money, usually measured as profit
2. Output/input relationships or productivity
3. Customer emphasis such as quality
4. Innovation and adaptation to change
5. Human resources

Within the operations area, standard individual performance measures could be productivity measures, quality measures, inventory measures, lead-time measures, preventive maintenance, performance to schedule, and utilization. Specific measures could include:

1. Cost of quality: measured as budgeted versus actual.
2. Variances: measured as standard absorbed cost versus actual expenses.
3. Period expenses: measured as budgeted versus actual expenses.
4. Safety: measured on some common scale such as number of hours without an accident.
5. Profit contribution: measured in dollars or some common scale.
6. Inventory turnover: measured as actual versus budgeted turnover.

While financial measures of performance are often used to gauge organizational performance, some firms have experienced negative consequences from relying solely on these measures. Traditional financial measures are better at measuring the consequences of yesterday's actions than at projecting tomorrow's performance. Therefore, it is better that managers not rely on one set of measures to provide a clear performance target. Many firms still rely on measures of cost and efficiency, when at times such indicators as time, quality, and service would be more appropriate measures.