Performance measurement is extremely important to any business. It not only aids greatly to improve the functioning state of a business, but leads to greater productivity. Below article discusses the importance of performance measurement in business organizations.
Performance measurement is the process of collecting, analyzing and reporting information regarding the performance of an individual, group, organization, system or component. One of the most important aspects to be considered in relation to performance measurement process is that the performance measures work qualitatively to provide the useful information about products, processes and services that are produced in a business. Hence, implementing performance measures is a great way to understand and manage and improve what a a business organization does.
The measurement of performance is a continuous process which involves checking the performance against the standards that have been fixed to be followed. It leads to compare the actual performance with the established standards. A manager needs to supervise, observe and control the activities of his subordinates while he is involved in studying various summaries or reports, so that he may manage the work in an effective manner getting the things accomplished in a desirable manner. It requires the manager to constantly check the performance in order to take corrective actions in case of deviations ensuring that such deviations do not occur gain.
Thus the Performance measurement is an ongoing, continuous improvement operation.
As stated above, the process of performance measurement leads to compare the actual performance with the standards. This in turn helps managers to understand the extent at which the performance is getting deviated from the expected ones. This way determining whether performance matches standards entails evaluating the differences and take necessary actions to improve the performance. However, while analyzing deviations, it is important to consider that some deviations in performance can be expected and so controlling by exception is useful in this way. It is therefore important that a manager should concentrate on exceptional deviations instead of trying to control each and every deviation. According to management by exception principle by Fredrick W. Taylor, Managers should concentrate on only exceptional deviations instead of trying to correct each and every deviation. It is also worth mentioning the saying, “If you try to control everything, you may end up controlling nothing.”
The importance of performance measurement system lies in the fact that it not only improves the performance, but also the productivity of a business entity by reducing costs. It is a good way to align the activities with the plans being established. It provides necessary feedback that the activities may be guided accordingly by allowing managers to implement best practices. It may thus be said that performance measurement process is a great way to understand, manage and improve the overall functioning state of a business organization. If done effectively and efficiently, it drives success in business definitely.
K. A. Fareed (Fareed Siddiqui)
Writer, Trainer, Author, blogger, Software Developer
BBA, MBA-Finance, MPhil-Financial Management, (PhD-Management)
Post Graduate Diploma in Computer Applications and Programming
Level 1 - Leadership and Management ILM – UK
Individual Member of Institute of Management Consultants of India
You may also be interested to read other articles:
Ordinary interest is calculated on the basis of a 360-day year or a 30-day month; exact interest is calculated on a 365-day year. The interest formulas for both ordinary and exact interest are actually the same, with time slightly differing when given as number of days..
Publicity and advertising both are popular techniques used for market promotion. Advertising is when you pay for space or time to promote your product or service whereas Publicity is something you hope you'll get..
Generally, the users of accounting information in the society can be classified into two categories, which include the internal users and external users. Internal users refer to the people in the organization producing the accounting reports while the external users are the people, institutions and entities outside the organization’s boundaries who use the information for the purpose of decision-making..