Performance Measurement Overview

1 Introduction

This chapter introduces the idea of performance measurement and its importance for the management accountant.

2 The Mission Statement

This statement expresses the overall purpose of the organisation.

It will generally contain four elements:

• a purpose     why the company exists

• a strategy     the range of activities in which the business intends to compete, and how it intends to compete

• policies and standards     guidelines which help staff decide what to do to carry out the strategy

• values     the beliefs and moral principles which lie behind the firm’s culture

Here is an example of an actual mission statement:

“McDonalds’ vision is to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile”

3 Goals and Objectives

Having decided on the company’s mission, it is then necessary to have goals and objectives.

Goals are statements of general intentions, whereas objectives are more specific.

An example of a goal is:     to improve profits

An example of an objective is:   to increase the profit by 20% within 2 years.

4 Critical Success Factors and Key Performance Indicators

Having decided on the objectives of the business, it is important that we measure how well they are achieving these objectives.

There are two parts to this. First they must decide what are the critical success factors (CSF’s) – the performance requirements that are most fundamental to being successful.

For example, two of McDonalds’ CSF’s could be quality, and speed of service.

Secondly, they must then decide how they are going to measure their performance in these areas. For this they need key performance indicators (KPI’s) – aspects to which they can actually put numbers to, that indicate whether they are doing better or worse.

For example, McDonalds might decide to measure quality by asking customers to complete a form scoring the quality between 1 to 5, and then recording the average score. They could decide to measure speed of service by keeping records of the time taken to serve each customer and recording the average service time in minutes.

• As you will see in later chapters, it is important that a company has a range of KPI’s – both financial (measuring, for example, profitability) and non-financial (measuring, for example, quality).