Traditional Performance Criteria:

Most criteria utilized today in performance-monitoring systems were developed in the early

Year 1900s.The cause of these criteria and systems was to provide a standardized means of reporting performance to external groups such like the Securities, Internal Revenue Service, and Exchange Commission, and shareholders. Businesses maintain gross financial statistics such like net sales, liabilities, fixed assets, and so forth, for periodic reporting in places such as the profit-and-loss statement and the balance sheet. Quantities like these can be utilized for making decisions that would improve competitive standing.

Traditional performance criteria frequently convey an image more contrived than real. The usual way for computing product cost is to add the direct cost of labour and materials to a percentage of the overhead cost. The overhead cost allocation is usually depending on a percentage of the direct labour hours. A decade ago, given the significance of direct costs, companies established standards for labour rates and materials to help control these costs. Industrial engineers developed rate standards for every operation using time and motion study and these rates became the standards by which performance was measured. Managers saw their primary goal as trying to achieve these standards.

Today mostly cost of a product no longer comes from direct labour, but from overhead. Yet managers still pay plenty of attention to the former due to the attached overhead cost allocation. Each direct labour hour saved results in an overhead cost savings on the books.

Following are traditional criteria commonly utilized for making decisions and measuring performance.