Performance Measures System

Introduction

The purpose of any business enterprise is to make profit and satisfy the needs of its customers. However, in to achieve this, the firm in perspective faces a big number of problems (Kaplan & David 1996). This is mainly because the success of a firm is dependent on many variables. Such variables include the factors of production, their availability and efficiency of use, the market and all its aggregates and the forces of competition (Gamble, Strickland & Thompson 2007). The production process is itself a complex exercise that has a variety of factors that are interrelated but to a certain level autonomous. For the firm to make any reasonable progress, each factor of importance in its operation must and should be varied while the others are held constant and evaluated to what extent the factor affects production or marketing or post marketing activities vital to the firm (Gamble, Strickland & Thompson 2007). It is of great importance that one is able to evaluate how far they go in succeeding in their quest to make profit and satisfy their customers and by extension how successful their business is. There are various methods of achieving the same but one remains the most prominent. That is the use of the performance measure system. World over it has come to be regarded as the ideal way of tackling the challenges that face business enterprises evaluation in every day setting. The system is not only vital in the making decisions connected with the firm but is paramount in the evaluation and analyzing the status and profitability of any given firm (Kaplan & David 1996).

The performance measure system can be defined as a process by which information regarding a firm or an individual is collected. It has a myriad of uses. Key among these is evaluation. The purpose for evaluating a firm is to enable its management formulate achievable and realistic guiding pillars that serve as the driving force to the firm including the motto, mission and vision statements. From these, the firm can easily come up with smart objectives and strategies. During the evaluation process, the management considers two vital variables. These are the data for organizational performance and a framework for data analysis.

Uses of Performance Management Systems

The data obtained and analyzed through the systems gives the firm management the best and most effective way of controlling the control the firm (Manochin, Brignall, Lowe & Howell 2011). Such analysis is not only vital for providing information on loopholes that are leeway for underperformance by the firm, but are also important in the analysis of the opportunities that the firm can exploit and the best way to exploit such opportunities. The data is also vital in determination of the best personnel to carry out specific tasks and provides insight of underperformance and the best way to handle such workers.  The most appropriately structured departments in the firm are revealed and provide the management with ways to structure the other departments (Kaplan & David 1992).  The data obtained also sheds light on where the firm is weakest and hence where to put more emphasis in the running of the firm. The data also evaluates the role performed by each worker need hence the way to control them in the way most favorable to the firm and acceptable to the workers. The evaluation process gives insight on the market situation and hence the best way to control the market. The systems also provides the best way in which to tackle the problems associated with the acquisition of the raw materials used in production hence leading to the control of the same. In aggregate the systems enable the management of a firm to have full control of all that is of importance to their smooth running.

The performance evaluation systems are also used for budgetary allocations. The findings provide the management with a basis on which operation to allocate more money and which to allocate less. The decisions on the use of the revenue collected are vital for the continuity of the firm. A firm that does not use its revenues well more often than not ends up a failure. Unrealistic investments must not be made (Kaplan & David 1993). The expenditure should not exceed income. Since a firm has so many areas that need financing, it is imperative that the firm evolves a way of designating the areas of priority at any given time. The best and easiest way to get to this is through the use of the evaluation systems. For instance the management may opt to allocate their underperforming arms to strengthen them or they may decide to enhance their productivity by enhancing production by increasing the allocation on the arms that perform better. The systems may also be used as basis for determining the level of remuneration for workers in a particular department or in more than one department as the firm may decide to reward its workers according to productivity. Finally the firm may decide to use the data to decide whether to expand in certain areas or in production of some commodities as opposed to others. All these will determine the budgetary allocations made.

The firm can also use the data obtained to decide the levels of motivation for certain workers especially those that are performing well (Kaplan & David 1992). Motivation being an efficient way of retaining one’s best members of staff and maximizing their level of output, it is important that the right criteria is used on exactly who to motivate. The performance based on the workers’ output provides useful information on who is best suited to be rewarded for the good performance of a firm. Motivation fails to achieve its intended purpose when the lazy members of staff are motivated alongside the hardworking ones. This discourages the hardworking personnel and makes them feel unappreciated as they are treated the same way with the underperforming ones and fails to put pressure on the underperforming members of staff to perform better.

The data obtained is used to form the basis for celebrating excellence. When a firm has been proved to be performing well, it is only fair that all those involved in achieving the excellence are called upon to celebrate the fruit of their labor (Manochin, Brignall, Lowe & Howell 2011). Without the performance evaluation systems it would be really difficult if not impossible to know when to celebrate as it would be impossible to know when a firm is underperforming or performing in the expected manner. It is important that the celebrations take place only when the firm has made san important achievement and not at regular intervals (Epstein & Manzoni 2004). If the latter is the trend, the celebrations fail to inspire the expected pride and sense of ownership to all stakeholders as the case should be as the stakeholders fail to feel that its their effort that has led the firm to its level but attribute the same to the hand of nature. Performance- based celebrations on the other hand make all those involved in the achievement of the factors being celebrated to feel the pride and honor of their work. It is therefore important that celebrations are carried out only when they are due and that they are proportional to the level of achievement made (Kaplan & David 1993).

The performance measure systems are also used to determine who should be promoted to what rank and who should be demoted accordingly (Harbour 1997). The level of performance is the main reason that firms decide to promote some members of staff while failing to promote others. Promotion by merit demands that all the achievements of the employees are placed side by side and evaluated who is the best to promote. Promoting the wrong employee has disastrous effects on the morale of the right employee. It is therefore important to use the performance systems to the letter to achieve this. The same is only achievable in cases where there many employees exist at the same level. The performance is also used to give some departments prominence over others. The analysis of the systems is also used in the determination of which products to give more prominence than others. The systems are also used in determination of which operations to give preference to others (Meyer 2004).

The data from the systems is used for improvement of the operations of the firm. Through the data obtained, one is able to decide on which improvements to make to their products (Harbour 1997). Through the evaluation systems, a firm can learn of which of their products or building factors of their products that the consumers are not satisfied with (Manochin, Brignall, Lowe & Howell 2011).  This enables the firm produce what is best for them to produce with the resources available to them. The systems also give the management of a firm the best way to produce thus leading to the improvement of the production systems. The performance systems are also used to evaluate the market structure thus leading to the firm coming up with the most ideal methods for marketing their products. The systems also provide data on the best factors of production to use in the production process (Kaplan & David 1992).

The systems have a combined effect of bringing the firm under good control as they provide the best ways of running any firm (Epstein & Manzoni 2004). They must be employed regularly by the managers of corporations if the corporations are to make a profit. The systems have an important role in the history of the success stories in many big corporations.  Good managers must constantly evaluate their performance and take any necessary corrective measures (Meyer 2004). Failure to use the findings of the systems as well as obtaining the wrong data, which eventually leads to the arrival of the wrong recommendations or even misinterpretation of data has effects that are disastrous to the well being of the organization and its social corporate responsibility. This can result to the loss off reputation to the organization and eventually lose its customer base.

The performance systems however face challenges that make them less effective than they should be (Kaplan & David 1993). These include among others their heavy reliance on summarized data which emphasizes on discounts and outliers and averages. The said overreliance make the systems fail to provide result if the data provided is faulty. Wrong inferences may also be made if the averages are derived from a wide range of figures that differ greatly (Epstein & Manzoni 2004). The systems also rely on gross aggregates thus ignoring distributional contributions.  This by far reduces their effectiveness since to tackle the daily problems one needs to specifically pinpoint which area is bringing the problems. If the problems are summarized, the corrective measures taken may fail to effectively correct the anomaly. The systems have also been accused of being inflexible and relying on the historical occurrences while failing to accept structural changes.  The failure to accommodate new factors that have great implications in the performance of the firm leads to making uninformed decisions that may lead to disastrous results for the firm (Gamble, Strickland & Thompson 2007).

Conclusion

Evaluating the performance of any firm is vital and paramount in its daily operations. This ensures that the best management decisions are put used. It is therefore vital for any firm to devise means and ways to evaluate their management systems. This means that poor evaluation would result to poor results and consequently poor decisions are arrived. These performance analysis systems have a major role to play in the running of all business enterprises today ranging from the greatest multinational corporations to the smallest kiosks. Without effective use of the performance systems, failure is eminent in any corporation.  The management of firms should make sure that the data used in reaching the decisions is correct thus the decisions made are rational and for the enhancement of the achievement of the firm’s leading ideals. The performance systems can be used to come up with an index that measures the level of development of the firm’s various operations arriving at an aggregate. The aggregates of different periods can be compared to give provide information on the development of the firm.

If a firm does not measure its performance, it will have no ides on where to improve or where to allocate more money or any other resources. Further, there would be no way to determine the performance of the firm with the others that are in the industry, or determine the areas that are improving or those that are declining. Measuring performance is therefore an important tool that ensures that firms individually grow and their social corporate responsibility is appealing. Individual growth of firms in the larger picture results to improvement of the economy as well as other economic benefits to a region such as employment.

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