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					Performance management metrics




Performance metrics measure chosen dimensions of an organization to allow
management to assess its position and take appropriate actions to move it toward target.
The key goal is performance improvement along a whole host of dimensions as selected
by the organization's leadership. Additionally, performance metrics assist management,
increase an organization's effectiveness, efficiency and internal control.

To be of most value to management, performance metrics should ideally be specific,
simply measurable, inexpensive, easy to communicate, and capable of guiding action.
Various software packages are available to help management collate, analyze and report
data required for the task.

The use of performance metrics requires four steps - select key issues, important
processes and customer outcomes that necessitate measurement; develop relevant
metrics; define targets; and, finally, move performance towards those targets.

Perhaps the best-known performance metrics are those that relate to financial
performance. For this purpose, management has available all the line items included in
the externally reported statutory financial statements plus its internal management
reports. Financial statement line items include well-known concepts such as total
revenue, profit before interest and tax, interest expense, profit after tax, total liabilities,
and net cash flow.

These financial line items, in turn, are used for financial ratio analysis. This technique
involves relating two or more line items together in order to examine key areas of
financial performance. These areas include revenue and cost behavior, balance sheet
strength, capital structure, cash flow generation and profitability. The main audience for
financial metrics is management and the owners of the organization, that is, the
shareholders.

Beginning in the 1980s, organizations and their various stakeholder groups began to
articulate a need for a broader set of performance metrics that reached beyond financial
performance. They called for metrics that measured an organization's performance with
respect to customers, employees, and the broader community.

To fill the gap, a performance metric framework known as the balance scorecard emerged
during the early 1990s. Its metrics cover four areas - finance, customers, business
processes plus learning and growth. The balanced scorecard was rapidly adopted by
many organizations in the private sector, government authorities as well as the non-profit
sector. It remains an important performance management tool today.
Corporate governance, the environment, carbon emissions, and climate change have all
became areas of particular focus over recent years prompting organizations to respond by
developing metrics to communicate its performance on these matters.

Performance metrics quantified for an organization need to be routinely compared against
its past values to ensure improvement is being achieved. Additionally, those metrics
should be compared against peer group organizations. This latter comparison is known as
benchmarking and represents an important method for an organization to understand and
monitor its relative competitive position.


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Description: Performance management metrics