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In: Accounting

Discuss the importance of and various types of performance measures that management can use to focus...

Discuss the importance of and various types of performance measures that management can use to focus its attention on areas that need to be corrected or improved. (250 words)

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Expert Solution

Performance measurement refers to a process by which an organization monitors the vital aspects of its systems, programs, and processes. The importance of a performance measurement system is discussed as below:

1. Performance measurement system improves the bottom line by decreasing the process cost and enhancing the productivity and mission effectiveness.

2. Performance measurement system visibility provide visibility that supports better and faster budget decisions and control of processes in the firm, thus reduce risk.

3. Measurement of process efficiency gives a rational basis in the selection for what business process improvements to choose first.

4. Performance measurement system permits managers to identify best practices in a firm and expand their usage elsewhere.

5. Collection of process cost data for many past projects enhance the learning on how to estimate costs more accurately for future projects.

The various types of performance measures are:

-- Key performance indicators (KPIs) and metrics: It is an approach to measure how well business units are performing in regard to their strategic objectives and goals.

-- 360 degree feedback: The method provides a wider assessment of the performance based on the points of views of those who are around them, such as manager or supervisor, customers, suppliers, direct reports, peers, and so on

-- Management by objectives (MBO): The process involves defining specific goals and then setting out how to attain each individual goal

-- Performance appraisals: It is an incredibly powerful tool for aligning the objectives of individuals with the strategic goals of the company.


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