Question

There is an old business saying, "If you can't measure it, you can't manage it."    Companies set standards for how much time, material, overhead and prices are needed to complete a product for the market. What are your experiences or insights in 1) how these standards are established, 2) who determines what the standards should be, and finally 3) what examples of performance measurement can you think of that is difficult or impossible to accurately determine?

Answer 1

Standards( or Budgets) are set before the start of business activity so as to control and manage the business activities

1. How these standard are established

These standards are generally established on the basis of previous experience or considering relevant industry standards. Another way to set such standards is to have trail runs done before the actual business activity starts in full run. Learning Curve can be used to set up standards if it applies.

2. Who determines the standard should be

It is the task of Management to decided upon the standards. Management may set up a committee to consider and adopt such standards.

3. What examples of performance measurement can you think of that is difficult or impossible to accurately determine

One such example is Sale of New Product in the market, When new and unique product is launched, it is difficult to predict customer response. Sales Standards are difficult to establish in such situation.

Another situation is when labour is Casual,it is difficult to establish performance standards for them on daily basis.