Performance Measurement
Performance Measurement in a Modern Business Environment________________________________________
In the past, performance measures were primarily based on financial measures (Bruns, 1998) where the double entry accounting systems was used to avoid disputes and settle trades between traders (Johnson, 1983). As businesses began to grow, their nature and structure also began to change, reducing the control and the close relationship that existed between the owners and management. Consequently, the measure of return of Investment was developed so that business owners can monitor the performance of management (Johnson, 1983). After this, other financial measures such as the Residual Income and ratio analysis were used. As businesses expand further, there was an increasing observation that the traditional performance measures do not adequately measure the whole performance of an organisation competing in current markets (Johnson and Kaplan, 1987). This brought about the introduction of alternative performance measures such as the Balance scorecard, performance prism, Fitzgerald and Moon building block model, etc. which reflect the changing conditions in the market and considers factors like customer satisfactions, innovation, globalisation, resource utilisation, competition, flexibility and quality of service. Empirical research has shown that managers are not content with traditional performance measurement system because they are considered quite too financial, inapt and sometimes difficult to understand. As a result there is poor correlation between the activities that it’s been measured and the organisation’s strategic objectives.
Performance measurement measures how well something or somebody is doing in relation to a plan. (ACCA et al). This means that performance must be measured in relation to something; otherwise measurement has no useful meaning. Generally, performance should be measured against the objectives of an organisation and the plans that results
In the past, performance measures were primarily based on financial measures (Bruns, 1998) where the double entry accounting systems was used to avoid disputes and settle trades between traders (Johnson, 1983). As businesses began to grow, their nature and structure also began to change, reducing the control and the close relationship that existed between the owners and management. Consequently, the measure of return of Investment was developed so that business owners can monitor the performance of management (Johnson, 1983). After this, other financial measures such as the Residual Income and ratio analysis were used. As businesses expand further, there was an increasing observation that the traditional performance measures do not adequately measure the whole performance of an organisation competing in current markets (Johnson and Kaplan, 1987). This brought about the introduction of alternative performance measures such as the Balance scorecard, performance prism, Fitzgerald and Moon building block model, etc. which reflect the changing conditions in the market and considers factors like customer satisfactions, innovation, globalisation, resource utilisation, competition, flexibility and quality of service. Empirical research has shown that managers are not content with traditional performance measurement system because they are considered quite too financial, inapt and sometimes difficult to understand. As a result there is poor correlation between the activities that it’s been measured and the organisation’s strategic objectives.
Performance measurement measures how well something or somebody is doing in relation to a plan. (ACCA et al). This means that performance must be measured in relation to something; otherwise measurement has no useful meaning. Generally, performance should be measured against the objectives of an organisation and the plans that results
Bibliography: ACCA Paper F5 (2011) Performance Management, fifth edition, London, BBP learning media Ltd Daft, R., Kendrick, M. and Vershinina, N. (2008) Management, Hampshire, Cengage Learning EMEA Drury, C. (2012) Management and Cost Accounting, Eight Edition, Hampshire, Cengage Learning EMEA. Illidge, B., Patel, A. and Sparkes, D. (2012) Advanced Decision Management, De Montfort University McGraw-Hill Custom Publishing UK Willie, S., Ray, G. and Eric N. (2006) Management Accounting, 2rd edition, Berkshire, McGraw-Hill Education