Introduction
Performance measurement is vital in all organizations because the organizations need to verify the validity of the selection methods; they also need to do performance measurement in order to improve productivity of the organization.
As much as this may seem an important and key aspect of management, still it has a lot more difficulties associated with it. Some of the main factors that may make performance measurement to be more challenging are the measurement problems that make it impossible the supervisors (those in charge of the performance measurement) to tell the juniors or subordinates that they are below the average standards.
How should the organization deal with such situations? In order for organizations to do performance measurement well, then they should carefully study the job, systematically and scientifically, in order to determine the nature and characteristics of the job, knowledge, skills and experience required for the successful performance of the job. They should collect all the vital information related to the job. They should then look at the specific individual tasks that comprise the job and qualifications necessary to do the job. This is called job analysis that involves determining the content of the job in terms of what the worker is expected to do, methods and techniques used, and lastly, the conditions and skills required for the job.
Why Should Companies Do Performance Measurement?
Organizations do performance measurements in order to determine whether a particular job is done according to the required standards. It also helps the organization to improve efficiency due to better placement and frequently suggested methods of improvement.
It also assists management in proper allocation of authority and responsibility by describing duties of each job and the inter-relationships among jobs. This facilitates matching employer skills to the job requirements. All this will facilitate job evaluation and performance appraisal which are necessary for wage evaluation, checking on the working conditions and also it is used as a basis for promotions and transfers. Information about the job is gathered through interviews, observations, sampling and questionnaires.
Financial Performance Measurement
In carrying out the financial Performance of a company, one may use ratios and budgetary control measures. For example if one wants to know how the company performed as compared to other companies then he will use ratios. However if one wants to gauge performance against the budget he will use the actual and the budget. Using Google the performance of
Ratio analysis is as follows
Sept 2007
Sept 2006
Sept 2005
Profitability
Gross profit
= Gross profit
Sales
69%
1,176,903
1,750,597
= 1:1.49
= 67.2%
973,070
1,482,057
= 1:1.52
= 65.66%
Net Profit
= Net Profit
Sales
107,719
1,725,576
= 1:16
= 6.24%
97,226
1,750,597
= 1:18
= 5.55%
40,326
1,482,057
= 1:36.75
= 2.72%
Return on Owner’s Equity
(ROI)
= Net Profit
after tax
Equity
107,719
264,998
= 1:2.46
= 40.65%
97,226
312,224
= 1:3.21
= 31.14%
40,326
327550
1:8.12
= 12.31%
Return on Total Assets
= Net Profit
after Tax
Total Assets
107,719
513,548
= 1:4.77
= 20.96%
97,226
586,654
= 1:6.03
= 16.57%
40,326
536,708
= 1:13.31
= 7.51%
Business Activity
Turnover of Inventory
= Cost of Sales
Average Stock
562,154
[36,852+15,300]/2
= 22 times
573,694
[15,300+12,500]/2
= 41 times
508,987
[12,500+11,200] /2
= 43 times
Accounts Receivable Turnover
= Credit Sales
Average Debtors
1,725,576
[10,053+12,748]/2
= 151 times
1,750,597
[1,748+43,600]/2
= 63 times
1,482,057
[43,600+18076] /2 = 48 times
In this case, I have used performance in areas of gross margin, net profit, return on assets, return on equity. This compares with performance of the of years. This also can be used to measure between companies through the use of industrial average.
Analysis of the results
The audit of inventory reveals a low “buy and sell” frequency of goods. This is shown by high stock turnover ratios. Except in 2006 where this stood at 22, the ratio was 41 and 43 times in 2005 and 2004 respectively. The firm’s efficiency with which it is utilizing its resources (inventory) to generate sales is declining
Process of Job Measurement
For proper job measurement, the management must adopt the following process and the methods of job measurements that follow:
- Management should identify and isolate the component tasks of the job.
- They should examine when, why and the tasks are done.
- Find out the duties and responsibilities involved in the job.
- Identify the working conditions involved in the job.
- Determine the demands which the job has on the job holder.
- Know the job relationships.
After gathering all these, management can now use the methods of job measurement to know whether the job is being done s it is supposed to be done. The various methods of job measurement include:
- Performance rating
- Critical incident
- MBO
Performance Rating
Underperformance rating values such as creativity, initiative, dependability, knowledge etc assigned to the job and the rating is presented on a scale like this and questions are asked.
To what extent does this person demonstrate creativity and then the scores are given for the question give the rating of the employee.
This method has a number of problems like:
- Managers may be inclined to give everyone a high rating and hence fail to differentiate them.
- Managers may tend to be influenced by most recent performance rather than general performance.
Critical Incident
Good and bad performance incidents are recorded at the end of the period. The more the good performance incidents the better the employee. The major problem is that this type of job measurement is comparative and qualitative and cannot determine the actual performance on the job.
MBO
Here the performance of the job is rated as per the objectives set at the begging of the period i.e. sales targets set as 15% and then the sales representative gets 15%, he will get a positive sales performance order and vice versa.
For this method of appraisal to be effective there must be a clear understanding between the employer and the employee at the point of setting the objectives. The authority and recourses necessary to achieve the objectives must be delegated to the managers.
References
Carlson S, (1969); International Financial Decisions; North-Holland Pub.
Choi F.S (2003); International Finance and Accounting Handbook; Wiley.
Christofferson P; ( 2003); Elements of Financial Risk Management; Elsevier, 2003.
Gapenski l, Brigham E; (1994) Financial Management: Theory and Practice; Dryden Press.
Lindsay R; ( 1967); Financial Management, An Analytical Approach; R.D Irwin.
Naciones Unidas N; (1993); Transnational Corporations & Management Division; International Financial Management; Routledge.
Poitras G; (2002); Risk Management; Elsevier.
Vandyck C; (2006), financial ratio analysis, Wiley books.