Setting Standards

Many managers fail to set standards. More often than not, what constitutes "an honest day's work" or "good service" is not clear. The failure in clearly defining performance standards make effective control impossible. Performance standards are needed for all activities performed by a firm. Standards are performance targets. Managers attempt to at least meet them and perhaps, exceed them. They may be either quantitative or qualitative.

Quantitative Standards

Quantitative standards are criteria for judging performance that can be expressed in money time exposed, proportions and percentages, weights, distance or some other numerical style. Quantitative standards have two major advantages; they are reasonably precise. That is required level of performance is stated in terms managers understand, they are relatively easy to measure. This is simply because quantitative standards mean about the same thing to all supervisors. Some of the most common quantitative standards are discussed below:

Time Standards

They indicate how much time is needed for a specific result. Each employee will work 40 hours per week; interview time per employee is 30 minutes; and each semester should take 17 weeks are examples of time standards.

Cost Standards

Cost standards indicate how much money should be spent to perform a particular task. Material cost per unit should be Kshs.100; labour cost per unit should be Kshs.250.50 are examples of cost standards.

Revenue Standards

Revenue standards show how much income should be earned from specific activities. For example, revenue per sales person per month should be Ksh.500,000.

Historical Data

Organizations often use past performance as a basis for estimating future satisfactory performance. A farmer may know from past records that average maize production per hectare is 50 bags. He may then use 50 bags as the standard for future years. Although historical standards are easy to establish, they do not take into consideration changes that may occur in future.

Market Share

This standard concerns the percentage of the total market that a firm would want to acquire and maintain. A toilet soap company like EAI may seek to attain a market share of 30 per cent of all units sold. The problem with using the market share is that it does not by itself indicate profitability. To acquire or maintain a certain market share may require an organization to spend so much on promotional campaigns such that the action may greatly reduce profits.

Productivity

Productivity standards are needed in all activities in an organization. Productivity is a key standard, since it indicates the efficiency with which activities are conducted.

Standards for measuring sales productivity may be expressed as sales per sales person per day week or other time period like sales per distribution outlet. On the other hand, productivity standards might be stated as units produced per machine per shift, units produced per man-hour worked etc.

Return on Investment (ROI)

Is the ratio of net income to invested capital. Firms with several divisions often use ROI as a measuring device for different divisions as well as for the company as a whole. It helps to show managers of divisions how well they have employed the capital assets assigned to them.

Profitability (Return on Sales)

Can be expressed as a ratio of net profits to sales. If a firm falls below what management considers a fair return on sales, corrective action is indicated. Profitability standards may be based on past experience, performance of other similar firms, and judgement.

Quantitative Personnel Standards

Personnel standards can be set for such items as employee turnover, accidents, absenteeism, and suggestions received from employees. Setting personnel standards is not easy. However, personnel factors should be set for them even if such standards are based only on "good judgement". Without standards, there is no basis for measurement.

Qualitative Standards

A basic drawback of qualitative standards is that it is difficult to apply them to all operations in a firm. Not all standards can be expressed in time, weights, percentages, money. or other measures. For examples the goal of an organization may be "to maintain a good relationship with the trade union". Does the absence of a strike or showdown necessarily indicate existence of a good relationship with the union? Because of this basic drawback, qualitative standards are also needed.

Qualitative standards are subjective standards used to evaluate situations that cannot be expressed numerically. For example, "employees are expected to be neatly dressed". Because they are subjective, qualitative standards are difficult to use in performance evaluation.

Guidelines for setting standards

These guidelines can help in choosing appropriate standards and winning support for them:

(a)    Set standards at appropriate levels

Standards should be set at a reasonably attainable level under the prevailing conditions. If work standards are set too low, resources (human and non-human) are wasted; if they are set too high, mistakes, frustration and a host of other problems will result. Managers should carry out time-and-motion studies of production activities in order to develop realistic standards.

(b)    Keep standards to a reasonable number

In many cases an excessive number of standards are set. This wastes managers time and creates resentment. Some jobs are "over-engineered". So many standards are set that it becomes too time-consuming. This interferes with managers "real" or important activities.

(c)    Have people expected to meet standards, help set them.

Many people do not like standards that are imposed on them without their having any say in the matter. Participation in setting standards goes a long way in making them acceptable.

(d)    Communicate standards effectively

In well-managed organizations, each employee knows what standards have been set for his/her performance and the degree to which he/she is meeting them.

(e)    Explain why standards are required

People accept standards much more readily when they understand why more standards are needed.

(f)    Condition people to want higher standards

An important art in managing is to motivate personnel to want even higher, though attainable standards.