Why is Performance Management important?

One of the biggest issues facing many owner managers is that they are so involved in their day to day activities that they rarely have the time or resources to think strategically about their business. One of the key elements to an organisation's success is to have a strategic plan and to ensure that it is effectively communicated and embraced by all staff. The best way to achieve this is to implement a Performance Management system.

At this point it is worth dispelling some myths; a strategic plan is not a business plan. A strategic plan is the model for how the business needs to be run in order to achieve its objectives and should involve everyone. A business plan is usually used to communicate with external bodies to justify funding or investment. Secondly; business performance management is just for large companies – usually termed a balanced scorecard in this sector. Performance management can be extremely valuable to SMEs.

So how do you go about implementing a Performance Management system? The starting point is to define the critical success factors and to develop performance measures that are aligned to the strategic plan. These measures usually fall into one of the four following areas and should be developed in conjunction with all staff: Customer, Financial, Business Processes and Business Development. For example in a service type business, under the Customer area, the critical success factor could be customer satisfaction with the measure being the outcome of job reviews and under the Financial area, the critical success factor could be the contract margins with the measure being the proportion of contracts above a defined percentage margin. Depending on the type of business, the typical number of performance measures would be four in each area, sixteen in total.

The performance measures and targets need to be documented and a simple scorecard and then used to measure the monthly performance for each criteria. The monthly performance scorecard should then be communicated to all staff, used as a management tool and be the basis of the agenda at management meetings. Responsibility for each criteria can then be cascaded to management and staff in the appropriate functional areas of the business.

The benefits of implementing an effective Performance Management system are:

  • It provides a focus for everyone in the business
  • Causes of success are identified
  • The business strategy is effectively communicated to all staff
  • Areas for improvement are targeted quickly
  • It provides control for the directors and managers
  • What gets measured gets done

For further information please contact PEM

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