Performance Management is a Critical Success Factor
The past several blogs have focused on business process mapping that involves reviewing all of your business processes to determine the areas that have risks or gaps and will need improvement. Now that you know how you do things you can begin assessing whether your overall goals, strategies and specific objectives are being met – that is called performance management. Whether you are a small, medium or large company, you should be practicing performance measurement.
Performance metrics give you the ability to know how well your company is hitting its main targets and goals. In order to do this you need to create performance indicators for all key business processes so you can track performance attainment levels all along the process path to monitor all elements’ performance levels to the summative goal outcome. That way you can ‘diagnose’ issues at source and make proportional adjustments that will more swiftly align the process outcomes to meet your goals.
Create Your Measuring Sticks to Check Your Performance
To measure properly you need to create relational performance indicators. Basically that means defining how each part of the process should be operating in order to make its contribution to the overall goal that it is part of delivery. These performance indicators are unique to each company. This may seem like a daunting task but you will see that once you get started the process will begin to flow quite naturally.
Here are a few tips to get you started:
First, make a list of all of your company’s goals i.e.) % market penetration increases, customer satisfaction levels or increases, quality attainment levels (first define what quality is to you) , cost of good sold decreases, new product line launches, expansion levels: employees, geographic markets, online business…
See, it all depends on what you do, how you do it and what goals you have set as a company and don’t forget your target timelines! So, as you can see, there is no such thing as a one size fits all indicator but are are a few rules of thumb…
You need to make sure that the objectives are clear: If your company believes that the key to long term success is customer satisfaction, high employee morale and reputation, then it is important that these performance indicators be tracked to measure these objectives and share the results with your entire company so they are all following the same direction. When a company clearly articulates its strategic objectives to the entire company, it creates focus and commitment to that initiative.
Focus on the critical success factors: Performance indicators focus a company on critical success factors. If the key success factor of your company is measured by customer satisfaction, (quality, timely delivery, low cost) then your company’s performance indicator system should measure these results.
Critical success factors are factors that drive success in your company: Critical Success Factors also change over the life of a company. In the first few years of your company, market penetration may have been the most important factor but after a few years of operation it could change to customer retention, new product development or low cost would be the most important. It’s important to ensure that your performance indicator systems remain relevant with any changes.
Performance Management Makes You Stronger as an Organization
Performance indicators act as alarms when early signs of potential problems occur, so implementing a performance system is critical if you want to meet your companies overall goals, strategies and objectives. The system does not solve problems, it only flags potential problems or confirms that all is functioning as it should.
After a system is implemented you need to reevaluate your performance evaluation and reward system so it coincides with your new performance indicators. Your employees will not be motivated by the new system if they are still be evaluated and rewarded based on the old system. Here’s a few ideas to get you started:
- Environmental indicators – accidents and injuries resulting from products or service,
- Market/customer indicators – share of market,
- Competitive indicators – proportion of new products,
- Internal business process indicators – product-development cycle time,
- Human resource indicators – employee morale
- Financial indicators – revenue growth.
Within these categories you can have several different indicators at different levels as well. When developing new indicators there are some essential questions that can be asked such as; what are the important areas of the business that need to be tracked? Why should they be tracked? What decisions will be made from these results? How often should we have this system track this information? How should this information be accumulated and reported? These questions will assist you in the development stages so the tracking system is accumulating relevant data and can be presented to the management involved so it is most useful. Remember that old saying “garbage in, garbage out” well it applies to this system as well. You always have to remember to think about what drives the success of the company. The key indicators should embrace management’s highest priorities including customer satisfaction, productivity and the financial results. This system should address the issues of hierarchy and processes internally and externally. All the needs of senior managers, process managers and individual operators should be met.
As I mentioned above a lot of the indicators will be at different levels and at specific points along business processes. An example is, some may be done for each shift or daily and others may be gathered and dispersed biweekly, monthly etc. The higher level of the performance indicator the less frequent it will be dispersed. Depending on the type of indicator such as competitor information, it may take longer to accumulate the data and therefore it would be less frequent then an indicator that is from an internal operation that can be gathered quickly.
You now have the key building blocks for launching your own Performance Measurement system. It will take some effort to get started but you will reap the benefits of it in your profits, growth, quality of your employees and market share. So what are you waiting for? Good luck! And if you need any assistance give me a call as we have assisted many clients with their performance management initiatives and we can help you too!
Kelly Melanson, CPA, CMA is the founder and owner of Kelly Melanson Professional Corporation. She and her team specialize in helping companies grow via strategic financial management practices. For almost 25 years, Kelly Melanson, Chartered Professional Accountant (CPA, CMA) has been helping businesses in Whitby, Oshawa, Ajax, Durham Region and the Greater Toronto Area (GTA) to reach and surpass their profit goals.
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Kelly Melanson Professional Corporation – Chartered Professional Accountant, CPA 11 Stanley Ct, #13 Whitby, ON L1N 8P9 – Local: (905) 666-5071 Toll-free: 1-800-942-5558 – Email: firstname.lastname@example.org Web: https://kmpc.ca