Performance Measurement

Performance measurement is a management function. It helps in detecting, preventing or eliminating distortions in the process or product. The aim is to match the product to the customer's requirements. Performance measurement makes the organization capable of taking sound decisions about the action to be taken to ensure appropriate processes and products.

i.Need for Measuring Performance
If an activity cannot be measured, its effect cannot be seen and suitable correctives cannot be applied. The activity cannot then be controlled and managed.What are performance measures

A performance measure is composed of a 'number' and a 'unit of measure'. The number gives us a magnitude (how much) and the unit gives the number a meaning (what). Performance measures are always tied to a goal (the target). These can be represented by hours, meters, number of reports, units of product manufactured etc. They can show the variation from the standards set.

Two types of unit of measures are used:

i)single-dimensional unit of measure;

ii) multi-dimensional units of measure.

In case of single dimensional units, performance measures can be represented by units like hours, meters, rupees, number of reports, etc. They can show the variation in a process. Single-dimensional units of measure usually represent basic measures of some process or product.

In case of multidimensional units of measure, performance measures are expressed as ratios of two or more basic units. These may be units like number of bottles of jam produced per month, number of hours worked to produce a packet of papads, etc. Performance measures expressed this way convey more information than the single-dimensional or single-unit performance measures.

ii. Principles for a Performance Measurement System

Successful performance measurement systems are based on the following principles:

1. A businessman should focus on customer needs and based on these must-decide what is needed to be measured.

2. A businessman should measure only that those activities, which are important and will affect customers' satisfaction.3. A businessman should involve employees/workers in the design and implementation of the measurement system. He should give them a sense of
purposeful control, which will lead to improvement in the quality of the measurement system.

iii. Benefits of Performance Measurement

1. To ensure that the decisions are based on facts

The businessman can ensure that his decisions are based upon well-documented facts and figures and not on intuition and gut feelings.

2. To show the areas of improvements

Performance measurement can show the areas where improvements need to be made. The businessman can come to know where he can do better or how he can improve.

3. To reveal the clear picture of improvements

Based on measurement of performance the businessman can have a clear picture whether the improvements have actually occurred or not.

4. To reveal incorrect assumptions

If the businessman has been doing his business for a long time, he might have been assuming incorrectly that things are going well, whereas in reality that may not be the case. Thus, without measurements there is no way to tell whether the business cannot do better.

iv. Performance Measures

Performance measures are generally expressed in terms of quantity. They provide useful information to the businessman so that he may make intelligent decisions about his business. They tell him something important quantitatively about the processes with the help of which products are manufactured. In a nutshell,performance measures indicate:
how well he is doing;
  •  whether he is meeting his goals;
  •  whether his customers are satisfied;
  •  whether his processes are well in control;
  •  where improvements are necessary.
Features of an ideal unit of measure

Following are the features of an ideal unit of measure:

1. It should be understandable.

2. It should reflect the needs of the business.

3. It should reflect the customer's needs.

4. It should be capable of wide application.

5. It should be interpreted uniformly.

6. It should be precise in interpreting the results.

7. It should be economical to apply i.e. its should be cost effective.

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