Performance Management
Question 1
Performance measures are particular values or characteristics used to measure/examine a result or performance criteria. It may be expressed in a qualitative or quantitative way which helps institution to understand, manage and improve what they do. Performance measures inform the institution:
how well it is doing
if it is meeting its goals
if its customers are satisfied
if its processes are in statistical control
In the early 1990 's, Dr. Robert Kaplan (Harvard Business School) and Dr. David Norton, developed a new system for performance measurement, called the balanced scorecard. The balanced scorecard is a management system (not only a measurement system) that enables institutions to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. The balanced scorecard suggests that institution or organization should be viewed from four perspectives including both financial and non-financial measure:
1) Financial perspective.
This perspective evaluates the profitability of the institution 's strategy. It focuses on profit targets, cost avoidance, and cost-efficiency (i.e. the ability to deliver maximum value to the customer). It involves:
Operating Income :
Operating income can be used to gauge the general health of the core institution.
Return on Investment :
ROI is a backward-looking metric that yields no insights into how to improve the institution 's results in the future. ROI has been used primarily for self-justification. Net Earnings :
Net Earning shows what the company has earned (or lost) in a given period of time.
Earnings per share (EPS) :
EPS is a measure which fundamentally shows how well the shareholder is doing. Cash flow : Cash flow is a measure of a company 's worth and its ability to
Performance measures are particular values or characteristics used to measure/examine a result or performance criteria. It may be expressed in a qualitative or quantitative way which helps institution to understand, manage and improve what they do. Performance measures inform the institution:
how well it is doing
if it is meeting its goals
if its customers are satisfied
if its processes are in statistical control
In the early 1990 's, Dr. Robert Kaplan (Harvard Business School) and Dr. David Norton, developed a new system for performance measurement, called the balanced scorecard. The balanced scorecard is a management system (not only a measurement system) that enables institutions to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. The balanced scorecard suggests that institution or organization should be viewed from four perspectives including both financial and non-financial measure:
1) Financial perspective.
This perspective evaluates the profitability of the institution 's strategy. It focuses on profit targets, cost avoidance, and cost-efficiency (i.e. the ability to deliver maximum value to the customer). It involves:
Operating Income :
Operating income can be used to gauge the general health of the core institution.
Return on Investment :
ROI is a backward-looking metric that yields no insights into how to improve the institution 's results in the future. ROI has been used primarily for self-justification. Net Earnings :
Net Earning shows what the company has earned (or lost) in a given period of time.
Earnings per share (EPS) :
EPS is a measure which fundamentally shows how well the shareholder is doing. Cash flow : Cash flow is a measure of a company 's worth and its ability to
Bibliography: Books:  Horngren CT, Bhimani A, Datar SM, Foster G, (2nd ed, 2002), Management and cost accounting, Financial Times/Prentice Hall, Harlow  Drury C, (2005), Management accounting for business, Thomson, Australia.  Hoque Z, (2001), Strategic management accounting : concepts, processes and issues, Chandos, Oxford.  (2001) ACCA study text 3.3: Performance management, London BPP  Wilson R.M.S, Chua W.F, (1993), Managerial accounting : method and meaning,: Chapman & Hall, London, New York.