Performance measurement – Why is it important to the success of businesses?

What is the importance of performance management?

Performance measurement – Why is it important to the success of businesses?
Image Source -
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.


Let us know how you like this article. Like it and Rate it below.
957 0
0 stars - by 0 user(s)

Related Articles

This article speaks about the concepts and principles of accounting. It also discusses as to how they are important in accounting field..

Secretial audit is the way of checking various company compliances that are made by the Company such as rules and regulations. In this article we will discuss secretial audit in detail..

Accounting is very much essential for calculating profit and loss and to prepare the balance sheets. Generally, their are two types of users of accounting information in the society i.e.