Measuring Performance

In the control process is to measure performance against standards. It involves comparing what was accomplished with what was intended to be accomplished. Measuring performance follows the setting of a standard and precedes the taking of remedial action.

A standard would be meaningless unless the degree to which it is met is determined. It is pointless to set a per-unit production cost of Kshs.10 and then not measure actual costs.

Measuring performance tells managers when corrective action is required. In other words, measurement of performance helps managers to answer such key questions as "how well are we doing?" and "What should be done to improve performance?"

In some cases performance can be measured objectively with considerable precision. In other cases, it must be measured subjectively. Performance can be measured by strategic devices, ratio analysis, personal observation and level of satisfaction.

Strategic Control Points

Standards should be set for all activities. Performance of each activity should also be measured against the standard set for it. But this is an ideal for in practice it is seldom everything that is being done. The most important thing is for managers to take strategic control points for measurement. That is the activities that can make or break the enterprise. Examples of strategic control points include: income, expenses, inventory, product quality, absenteeism and safety.

Guidelines for measuring performance

Measurement of performance can be made effective if the following guidelines are followed:

1.    Be economical—Although standards should be set for all activities, precise measurement of every activity may cost more than it is worth. It is common to find a firm that requires its personnel to complete lengthy reports that are never used. Another firm may install sophisticated devices to detect minute deviations. Measurement can be made economical by the use of sampling. Also, management should concentrate on strategic control points.

2.    Be prompt—Delays in measuring performance automatically create delays in taking corrective action. The sooner a deviation from the norm is brought to the attention of the manager concerned the more quickly the problem can be rectified.

3.    Be accurate—Accurate measurement leads to the right corrective action. The opposite is true. It is possible to measure the performance of some activities very accurately by machines and devices. However, measuring performance solely by observation may lead to errors.

4.    Be systematic—As much as possible, the information used to measure performance should be collected and disseminated systematically. Through computerisation, a vast amount of needed information can be obtained if the right management information system (MIS) is designed MIS is discussed in the next chapter.