This document discusses performance measurement and management in organizations. It covers: 1. Performance measurement involves identifying key areas to focus on and how to measure performance in those areas, which varies by sector and business. 2. Financial performance measures include gross profit margin, operating margin, net profit margin, and return on capital employed. 3. Non-financial measures also provide useful business performance insights. 4. Employee performance can be measured both qualitatively through meetings and appraisals, and quantitatively by expressing performance in financial metrics like sales or profit per employee.

1. • This is part of the planning and control cycle of an organisation, based on
corporate objectives, expected levels of achievement.
• Getting performance measurement right involves identifying the areas of
a firms it makes most sense to focus on and then deciding how best to
measure your performance in those areas.
• This will vary from sector to sector and from business to business.
• Performance measures can be divided into two groups:
1. Financial performance measures
2. Non-financial performance measures
9. Performance Management

2. The key standard measures are:
• Gross profit margin - this measures how much
money is made after direct costs of sales have
been taken into account, or the contribution as
it is also known.
• Operating margin - the operating margin lies
between the gross and net (see below)
measures of profitability. Overheads are taken
into account, but interest and tax payments are
not. For this reason, it is also known as the EBIT
(earnings before interest and taxes) margin.
• Net profit margin - this is a much narrower
measure of profits, as it takes all costs into
account, not just direct ones. So all overheads,
as well as interest and tax payments, are
included in the profit calculation.
• Return on capital employed (ROCE) - this
calculates net profit as a percentage of the total
capital employed in a business. This allows you
to see how well the money invested in your
business is performing compared to other
investments you could make with it, like putting
it in the bank.
9.1 Measuring profitability

3. • There are a number of other commonly used
accounting ratios that provide useful measures of
business performance. These include:
• liquidity ratios, which tell you about your ability
to meet your short-term financial obligations
• efficiency ratios, which tell you how well you are
using your business assets
• financial leverage or gearing ratios, which tell you
how sustainable your exposure to long-term debt
is

4. • As your business grows the number of people you employ is likely
to increase. To keep on top of how staff are doing, you may need to
find slightly more formal ways of measuring their performance.
• Measuring through meetings and appraisals
• Informal meetings and more formal appraisals provide a very
practical and direct way of monitoring and encouraging the
progress of individual employees. They allow frank exchanges of
views by both sides and they can also be used to drive up
productivity and performance through setting employee targets
and measuring progress towards achieving them.
• Regular staff meetings can also be a very useful way of keeping tabs
on wider developments across your business. These meetings often
give an early indicator of important concerns or developments that
might otherwise take some time to come to the attention of your
management team.
9.2 Employee measurement

5. Quantitative measurement of employee performance
• Looking at employee performance from a financial perspective can be a very
valuable management tool. At the level of reporting for the overall business, the
most commonly-used measures are sales per employee, contribution per
employee and profit per employee. These measures shouldn't be thought of as an
alternative to the broader appraisals outlined above, but can flag up issues that
might later be explored in more detail in those meetings.
• Expressing employee performance quantitatively is easier for some sectors and for
some types of worker. For example, it should be quite easy to see what kind of
sales an individual sales person has generated, or how many units manufacturing
employees produce per hour at work.
• But with a bit more effort, these kinds of measures can be applied in almost any
business or sector. For example, using timesheets to assess how many hours an
employee devotes each month to different projects or customers under their
responsibility gives you a way of assessing what the most profitable use of their
time is.

6. Benchmarking – Measurement a
Benchmarking is a valuable way of improving your
understanding of your business performance and
potential by making comparisons with other
businesses.
Who to benchmark against?:
• It is usually helpful to compare yourself against
businesses in the same sector. But your market
position and your objectives, among other things,
will affect the specific comparisons you want to
make.
• For example, a small business in a crowded sector
may want to benchmark itself against average
performance levels in the sector. But a business
targeting rapid and significant growth may choose
comparisons with an established market leader.
• You can also benchmark internally within your
business. For example, comparing absenteeism
rates between departments may enable you to
spread good working practices from the best-
performing areas of your business.
9.3 Measurement against other businesses

7. What to benchmark:
In general, the same rule applies to benchmarking as to choosing which performance measures
to use. You should focus on those areas that drive business success in your sector - your key
drivers.
How to benchmark
You should have ready access to all the figures for your own business, so the main challenge with
benchmarking is often the process of finding external data for your comparisons.
There are a number of sources for this kind of information:
Your trade association is a useful starting point, as these organisations often collate sector-wide
statistics.
Commercial market reports may provide greater detail, although these can be costly.
Using your benchmarking data
Benchmarking data should be used in the same way as any other performance measurement
data you generate - as a spur to improve the way your business operates.
9.4 Benchmarking

8. Thank You!!
We hope you have
enjoyed this
course.