Basics of Performance Measure

Basics of Performance
Measure
1. Essentials of Performance Management System

(a) Determine the organisational structure - functional or divisional and the level of
decentralisation (S).
(b) Establish the responsibility centers and identify the person responsible for
performance of each such centre (R).
(c) Establish the system to identify performance measures
or KPI against which performance will be measured and
target for each measure (K).
SRK ka Review
(d) Review system for performances (comparison of actual
with target) and required corrective actions (Review).
2. Pros and Cons of the use of Performance Measures

David Otley, Jane Broadbent, and Anthony Berry suggest the pros and cons of the use of
performance measures. The benefits are–
• Develops agreed measures of activity (M).
• Define and clarifies the objectives of the organization
(O).
MOTA PC
• Helps in the setting targets for managers (T).
• Greater understanding of the process (P).
• Facilitate comparison between divisions (C).
• Promotes accountability to stakeholders (A).
Poorly designed performance management system (where performance measures are not
appropriately chosen and applied) may result in wrong signaling. Wrong signals may lead
to inappropriate action and decisions; hence it is important to identify and overcome
the problems associated with the use of performance measures.
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The major problems are–
Tunnel Vision (T)
In literal means tunnel vision is the retention of only central
vision wherein peripheral vision is lost. In similar way business
managers may have central focus on few performance
measures or area which will results in loss of observation MOTI Goes MM
on other important areas for which either performance
indicators not clearly defined or not part of performance
management system.
Sub-optimization (S)
Sub-optimisation occurs when business managers pursue their individual objectives at
the expense of overall objective of organisation. Hence sub-optimisation leads to focus
on few and narrow objectives only.
Myopia (M)
Myopia is the tendency wherein the focus is on short-term measures, which neglecting
the longterm measures; hence the long-term performance of organisation. Business
managers are largely concerned (while making business decision) with the performance
of business over that period only, for which they are expected to have an association with
the organisation, hence their decisions are not always sustainable in nature.
Ossification (O)
Ossification is a kind of paralysis which is resultant from unwillingness of business
managers to change the performance measures which are currently in practice, despite
these measures become outdated. Ossification is simply ignoring the dynamics of business
environment.
Irrelevance (I)
Irrelevance can said to be in existence when business managers trying to attain the desired
indicators but relying upon the irrelevant measures to said indicators.
Gaming (G)
Gaming is basically a deliberate attempt to distort the measures to be in an advantageous
position. It includes the altering of variable to influence the measured performance.
Misrepresentation (M)
Misrepresentation involves the use of creative reporting to depict that performance is
acceptable, whereas in actual it is not. It is different from gaming because it is related to
communicating the incorrect performance rather distorting the measures/indicators.
8.1.2 | “ If you have revised well, you will surely score well ”
Misinterpretation (M)
Misinterpretation is the failure to assign the appropriate and deserving interpretation
either with the intention to deceive or due to inability to decode the complexity involved
in information and environment in which such information needs to be interpreted.
3. Three Basic Rules of Performance Measure

(1) That considers only controllable factors
(2) That provides incentive to the managers who make decisions in the best interest
of the group.
(3) That considers both financial and non - financial aspects.
4. Advantages and Disadvantages of Financial Performance Measures

Advantages Disadvantages
1. Easily understandable 1. Short-term
2. Objective measure 2. Manipulative
3. Popular measures are available 3. Reputation risk
4. Comparable 4. Ignores other stakeholders stakehold-
5. Shareholders wealth maximisation ers
5. Advantages and Disadvantages of Non Financial Performance

Measures
Advantages Disadvantages
1. Focuses on long term sustainability 1. Quantitative or financial information is
2. Considers both internal and external more influential than non-financials
factors (market, customer orientation) 2. Financial or quantitative is quick and
3. Gives importance to other stakehold- easy
ers (employees, society, customer) 3. Difficult to assign meaning and inter-
4. Can measure anything or everything - pretation
leaves no scope for manipulation 4. Not comparable
5. Dynamic or incomplete
6. Costly

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6. Tools of Perfomance Measures
Divisional
Performance Measures
Pure Financial Other Measures
Return on Residual Economic

Investment Income (RI) Value Added
(ROI) (EVA)
Balanced The Building The Triple Value

Scorecard Performance Block Performance Bottom Benchmarking For
Pyramid Model Prism Line (TBL) Money
Economic Value Added (EVA) - (Stern Stewart and Co.)

It is RI with defined Profit and Investment.
EVA = NOPAT - (Opening Capital employed × Ko)
If EVA is positive, a division is creating wealth, even if its EPS & MPS are declining.
NOPAT - This requires adjustment on the accounting profit as follows:
• Expenses of capital nature are to be added back to the profits and included in closing
capital employed. E.g. Research and Development, Staff Training, Advertisement
Campaign.
• Charge economic depreciation instead of accounting depreciation.
• Interest charge to be added back.
• Tax to be reduced is the Adjusted Tax (Tax charge as per P/L – Increase in Deferred Tax
Provision + Tax shield on Interest) – Added back because tax savings on interest will
be considered in KO.
E.g. PBIT = 100; Int = 10; Tax 30%. ∴ NOPAT = 100 – (27 + 3) = 70 = PBIT (1 – t) when
only interest adjustment is there.
• All non-cash items like depreciation, provisions and any other extra-ordinary item
should be excluded./ Added back in Profits and added in Capital employed.
Opening capital employed - Adjust it with above items if previous year’s profit are given
with items for adjustment.
# Importance of EVA
• A link between decisions, performance measures and rewards, which focuses managers
on performing better.
• Income schemes based on EVA provide quality information & motivation which in turn
maximises shareholders wealth..
• Links operating returns to the assets used for generating such returns.
• Identifies areas of weakness and solution
• Help to appraise divisions
• Educate managers to improve profits
# 3 measures to improve EVA

1. Efficiency - Increase NOPAT without more capital
2. Profitable growth - Invest in projects that return more than its cost of new capital
3. Churn out - Liquidate unproductive capital.
# Assumptions to be checked for EVA

1. Depreciation
2. Capital Expenditures - Marketing, Training, R&D
3. Non Cash items
4. Provision for Bad and Doubtful debt
# If previous year’s income statement are given then the items added back in income
statement in previous year will affect the opening capital employed.
7. Features of Tools of Performance Measures

1. Balances both financial and non-financials
2. Considers all significant factors regardless of ease or difficulties
3. Coordinates external and internal measures
4. Links the measures with corporate strategy
5. Links motivation with performance
6.
7.
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10.
11.
12.
13.
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15.
16.
17.
18.
19.
20.
21.
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8. Responsibility Centres (Four Levels of Decentralisation)
Responsibility Centres
Investment Pr t Revenue
Cost Centres
centres Centres Centres
9. Performance Reports
A. Responsibility Accounting
- Summary of all budgets to show deviations
- Start from bottom and move upwards
- Does correction at bottom and keeps informed at the top
- No uncontrollable costs (E.g. Audit Fees, H.O. Costs, Salary of Managers,
Depreciation are uncontrollable)
A. Integrated reporting
Reports on organisation strategy, governance, performance and prospects lead to
value creation over short, medium and long-term.
Value is created using capital, relationship with stakeholders
Types of Capital
1. Financial - Cash flow - (Equity, Debt, Short term Credits)
2. Manufactured - Manufacturing infrastructure (tools and equipments)
3. Human - Human resource, skills, knowhow, culture
4. Natural - Water, fossil fuels, solar power, Crops
5. Intellectual - Patents, copyrights, procedures
6. Social and Relationship - Communities, government, suppliers, dealers, customers.
# One type of Capital can be transformed into another, so there is a constant flow between
the capital
# Capitals are interlinked
# Not all capitals are equally relevant or applicable in all organisations.
10. CSF vs KPI
Critical Success Factors Key Performance Indicators

1. CSF’s are the vital areas where things 1. KPI’s are the essential to the achieve-
go right for the business in order to ment of strategy since what gets meas-
achieve their strategic objectives ured gets done.
2. Linked to strategy - defines business 2. Linked to CSF - Achieving it will achieve
objective the CSF
3. Sources by Rockart – 3. One CSF should have at least one KPI,
• Industry Structure KPIs should be –
E.g. Car dealer network S - Specific
• Competitive Strategy
E.g. Differentiation M - Measurable
• Environmental Facts A - Acheivale
E.g. Increasing fuel costs R - Realistic / Relevant
• Temporary influence T - Time bound
E.g. Product recalls
• Functional managerial position
E.g. Production manager’s concern
over quality
4. Represent “What” 4. Represent “How”
Measure versus indicator
Measure quantifies, indicator concludes. E.g. Celsius is a measure but an indicator of
weather.
KPIs must be selected in such a manner that if it meets the threshold, it delivers the
CSF and CSF should ensure that if it is met then it delivers the company’s vision
Relation between CSFs, KPIs, and Corporate Objectives
Ideally, each CSF should have a KPI associated with it. A single CSF can also have more than
one KPI if required. The KPI targets are more formally called thresholds, and the thresholds
must be ascertained with a great deal of industry analysis, as well as internal analysis. KPIs
shall be SMART (specific, measurable, attainable, relevant, and time-bound).
Effective performance management system warrants that,
- KPIs must be selected and designed in such a manner that if meets the threshold then
deliver the CSFs and
- the CSFs, in turn, must be designed and constructed in a way that ensures that the
company’s strategic vision is delivered if the CSFs are met. (i.e., it should cover both
financials & non financials)

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11. Performance Improvement

•• Once the reasons for poor performance have been identified, the management
accountant needs to search the remedies for each of the problems.
•• Each of the remedies will also involve implementation cost. Hence the cost benefit
analysis is advisable.
•• For example -
Problems Remedies
Price of product not matching with Target Costing
competitors
Manufacturing all components by Make or Buy Decision
itself
Quality Defects or Customer Six Sigma, TQM, TPM, PRAISE Analysis
complaints (P = Problem Identification
R = Ranking of problems
A = Analysis - Root cause
I = Innovation - thinking
S = Solution - Implementation
E = Evaluation)
Unskilled Workers Training (Quality Circles) and Kaizen
Inventory - Raw Material or WIP JIT Purchase System, Cellular Manufacturing
Old Processes Value Analysis, BPR
Price Sensitive Customers Redesign to reduce cost by compromising
durability and features
Quality Sensitive Customers unwill- Value Analysis, Functional Analysis
ing to pay high price
12. Productivity Enhancement

A. Productivity
It refers to the efficient and effective use of all resources, such as, time, people,
knowledge, information, finance, equipment, space, energy and material.
It is about studying the time and motion study of workers to reduce the time to
create the value or increasing the value within the same time.
It is the responsibility of the management rather than the worker.
B. Techniques to enhance the productivity

(1) Value Analysis and Engineering
(a) At development stage - redesigning to reduce cost
(b) At maturity stage - replacing costly components with cheaper ones to cater
to price sensitive market.
(2) Quality Circles
Small group of employees that meets regularly to advise management on new
methods and problem solving.
(3) Incentive System
(a) Financial - additional wages, bonus
(b) Non Financial - better working conditions, welfare facilities, worker partici-
pation in management
(4) Operations Research
Using mathematical and scientific methods in planning and decision making.
(5) Training
Enhancing the skills to work more effectively.
(6) Job Enlargement and Job Enrichment
(a) Job enlargement - horizontal expansion - increasing the varieties of job and
work knowledge (E.g. Audit, Tax, ROC etc)
(b) Job enrichment - vertical expansion - complex part of same job (E.g. Vouch-
ing, Verification, Ledger Scrutiny etc.)
(7) Job Evaluation
Fixing the value of each job in the organisation.
(8) Inventory Control
Scientific purchase, systematic store keeping, inventory levels.
(9) Quality Control
Identifying the causes of quality deviation and correction thereof
(10) Human Factor Engineering
Understanding of technology and human requirements of both task and worker,
in order to ensure the best fit of job to men.

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Space For Self Notes
Balanced Score Card
Dr. Robert Kaplan and Dr. David Norton
1. What is BSC
A method which displays organisation’s performance into four dimensions namely -
financial, customer, internal business and innovation, learning and growth.
The four dimensions acknowledge the interest of shareholders, customers and employees
taking into account of both long-term and short-term goals. Appraising managers using
BSC ensures that employees are not short sighted.
2. Format of BSC
Performance
Objective - Critical
Perspective Measures - Key Target Actual Initiatives Rationale
Success Factors
Performance
Financial Improving ROCE, MPS, PE
shareholder’s Ratio
wealth
Capturing Sales volume
Market Share
Customer On time deliv- No. or percentage
eries of on time
deliveries
Customer No. of customer
satisfaction complaints,
Customer
Retention

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Internal Improved No. of rejections

Business process
and Average set-up
Innovation time, Production
Cycle time
Increase product No. of products in
portfolio catalogue
(Innovation)
Learning Employee Labour turnover
and Retention rate
Growth Employee No. of training
motivation and sessions
growth
# The targets & actual can be compared and if achieved, points can be alloted to that
performance measure. (E.g., 1 point if achieved, 0 point if not achieved). This way an
overall score can be derived.
3. Four Perspectives
A company thrives for creating wealth for its shareholder as its overall strategy. Hence,
finance is the first perspective.
A. Financial Perspective - (How should we appear to our shareholders?)
Financial performance measures indicate whether the company’s strategy are
contributing to its revenue and earnings. These measures are set at the onset of BSC
implementation.
It serves two purposes -
• To provide definite performance that was expected at the time of strategies
selection.
• To provide a focus for objectives and appropriate measures in each of the other
three perspectives.
B. Customer Perspective - (How should we appear to our customers?)
Identifying customers and market segments in which the companies compete and
also the means by which they provide value to these customers.
Managers identify the lead indicators (e.g. on time delivery) which make a particular
business unit or product different from that of others (competitive advantage)
C. Internal Business Perspective - (To satisfy our shareholders & customers

what business process we must excel at?)
In this stage companies identify processes and activities which are necessary to
achieve the objectives as identified at financial perspectives and customer perspective
stage. These objectives may be achieved by reassessing the value chain and making
necessary changes to the existing operating activities.
D. Learning and Growth Perspective - (To achieve our vision, how will we
sustain our ability to change & improve?)
Determining the activities and infrastructure that the company must build to create
long term growth, which are necessary to achieve the objectives set in the previous
three perspectives. It comes from three sources - Employee capabilities, system,
organisational culture and procedures.
4. Benefits of BSC
(a) Focus on both financial and non - financial performance
(b) Considers need of all stakeholders
(c) Long term impact
(d) Management tool for internal and external reporting purposes
5. Limitations of BSC
(a) Non delegatable
(b) Non copiable
(c) Difficulties in ascertaining KPIs for each objectives
(d) Manages too much measures
6. Steps in Developing BSC

(a) Identify the key outcomes to the success (CSF) of the organization.
(b) Identify the process that leads to these outcomes.
(c) Develop key performance indicators for these processes.
(d) Develop reliable data capture and measurement systems for actual outcomes.
(e) Develop a mechanism for reporting these to the relevant managers and staff.
(f ) Enact improvement programs to ensure that performance improves.

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7. Analysis of Performance using BSC

The analysis should cover the following :
1. Comparison between target & actual (vs competitor).
2. Reasons for deviation - interlink the deviation with other measures.
3. Impact of the deviation.
4. Suggestions to improve.
5. Cover all the given KPIs in different perspectives.

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Benchmarking
1. Meaning
It is a technique for continuous improvement in performance by comparing against the
best performing organisation (Within/Outside of Industry). It deals with best practice
(forever), not the best performance (one time).
Focus of Benchmarking
(a) Scope of improvement - BPR, quality, culture, customer orientation or finance
(b) Implementation
In 1982, Xerox had defects rate of 30,000 parts per million. By 1983, they
benchmarked 230 processes & achieved a defect rate of 150 parts per
million.
2. Types of Benchmarking
Based on content and scope
1. Process benchmarking Comparing the process – e.g. order processing
2. Functional benchmarking Involving experts from different functional areas.
This may lead to innovation.
3. Performance benchmarking Comparing performance measures - internal or
external
4. Strategic benchmarking Comparing strategic vision with other companies
e.g. developing new products, core competencies.
5. Product benchmarking or Re- Buying competitor’s product & tearing it down to
verse engineering (Tear down understand the process of making it.
analysis
Based upon role of benchmarking partners
1. Competitive benchmarking To gain over another i.e. comparing with competi-
tive firms’ products, processes and business results
(Win-Loose).
2. Collaborative benchmarking To share knowledge (Win-Win).

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Based upon industry

1. Global benchmarking Comparing with global best practices – interna-
tional culture, business processes.
2. Intra group Benchmarking Within the same companies of the group
3. Internal Benchmarking With internal divisions or group companies e.g.
business units located in different areas
4. Inter group Benchmarking With the groups in the same industry
5. External Benchmarking With external companies that are leading in the
industry.
6. Inter Industry Benchmarking With the companies in different industries
3. Process of Benchmarking
Phase 1 Planning What to benchmark-CSF, find partners, data collection method,

Collection of data
Phase 2 Analysis Analyse current gap, project future performance levels
Phase 3 Integration Communicate findings and gain acceptance, establish functional
goals
Phase 4 Action Develop action plans, implement specific actions and monitor
progress, recalibrate benchmarks
Phase 5 Maturity Attain leadership position, integrate practises into process
4. Principles of Benchmarking or Code of Conduct

(a) Legality
(b) Confidentiality
(c) Exchange
(d) Use
(e) First party contact
(f ) Third party contact
5. Goals for Benchmarking

(a) Significant performance improvements based on efficiency, cost savings and new
revenue.
(b) Targets – cycle time, productivity, customer service, quality and production costs.
6. Prerequisites for Benchmarking

(a) Senior management support (S)
(b) Clearly defined objectives (O)
(c) Appropriate scope of work (S) SOSuR Ji Police Station
Submit
(d) Sufficient resources (R)
(e) Clear picture of organisation performance (P)
(f ) Right skills and competence (S)
(g) Stakeholders and staff are well informed (S)
7. Difficulties in Benchmarking
(a) Time consuming and difficult (T)
(b) Cannot be delegated (D)
(c) Resistance from employees (E)
DATE Diya Tha
(d) Waste time in non - critical functions (NC) Nahi Chali
(e) Adaptation of best practice, not merely copy it (A)
(f ) Reliability of data (D)
(g) Requires skilled team & competencies (T)

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Performance Pyramid
- Cross and Lynch 1991
To measure External Effectiveness and Internal Efficiency of a business
- For shareholders and customers
L1
Objectives Measures
Corporate
Vision
Business
L2 Market Financial Unit
Business
L3 Customer Flexibility Productivity Operating
Satisfaction Systems
Cycle Departments and

L4 Quality Delivery Waste
Time Workcenters
Operations
External Effectiveness Internal Efficiency

(Non Financials) (Financials)

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1. Levels in Pyramid
2. Flow of Pyramid and the Nature of External and Internal Forces

• The flow of objectives are from top to bottom whereas the flow of measures are from
bottom to top
• The left hand side of the pyramid contains external forces which are non-financial
whereas the right hand side of the pyramid contains internal efficiency which is
predominantly financial in nature
• Begin with the overall corporate objective or vision.
• Use objectives to establish targets at the next level down in the hierarchy.

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Building Block Model
# Fitzgerald and Moon Model

# For performance appraisal in service industries
1. Building Block Model

It requires -
• setting the fair standards against which performance will be measured.
• linking the same to controllable factors in order to motivate staff.
• Establishment of determinants & results that reflects the success & failure of determinants.

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employees
& measure its performance)
,
No. of errors,
Customer Rating,
% of repeat
customers
, % of
conversion on total
, hits in website, converting
Technical areas enquiries into revenue
handled per
employee. Time
per job, No. of visits
for specific
assignment
No. of new process

and product, Revenue
per new product
, % of hours
charged on total hours,
Revenue per employee,
Clients per employee,
Productivity (units per
hour)
# If standards & rewards are set appropriately, the dimensions of the organisation are
achieved easily.
# To analyse performance - Compare → Reasons → Impact → Suggestions

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Performance Prism
# Andy Neely and Chris Adams

# An approach to effectively meet the needs and requirement of all stakeholders.
Comprehensiveness of Performance Prism

(1)
Stakeholder
Satisfaction/Identi ation
(Mendelow’s Matrix)
(4)
Processes
(5) Capabilities
(Resources)
(3)
Strategies
(Objective)
(2) Stakeholder
Contribution
(Quantify)
Mendelow’s Matrix
- To identify the key stakeholders

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1. Five Facets of Performance Prism

Facets Description KPI
1. Stakeholder Identify all stakeholders, determine If employees are the
Satisfaction/ relative importance of each and key stakeholder then,
Identification then identify that stakeholder employee turnover ratio,
whose power and interest are high, average employment
who must be kept satisfied. (Use duration, No. of strikes
Mendelow’s Matrix), Requirements (Current performance)
of each stakeholder group, what
must be done to ensure stakeholder
satisfaction.
2. Stakeholder’s Identify the contribution required Efficiency of employees,
Contribution from the stakeholders in return of productivity, on time
steps taken for their satisfaction delivery, increase in
(quid pro quo) profitability (Desired
performance)
3. Strategies Strategies to ensure that both the Number of employees
stakeholders and the organisation leaving or Efficiency after
need and requirements are the strategy
satisfied. Communicate, implement,
and evaluate the strategies
continuously.
E.g. Improving Working Condition,
Remuneration, Grievance Redressal,
Hiring. Use performance measures
to confirm that the strategies are
working
4. Processes The processes and sub processes No. of new processes
headed by a manager to be created, No. of days
developed to support the strategies required to execute a
and must be continuously process
evaluated.
E.g. recruitment process under HR
manager. Use Porter’s Value Chain
to identify & evaluate the processes.
5. Capabilities The resources, practices, technology Cost per employee of new
and infrastructure required to initiative, No. of men to be
execute the process engaged in a process
2. Balanced Score Card vs Performance Prism

Balanced Score Card Performance Prism
1. Focus on Shareholders, Customers and 1. Focus on all Stakeholders with high
Employees power and high interest on quid pro quo
basis
2. Does not propose alteration in strategies 2. Alters strategies, develop processes to
for the Stakeholders satisfy the stakeholders.
3. Measures too many things 3. Measures limited factors.
4. Give, do not expect, financials will follow 4. Quid pro quo relationship

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Performance
Measure in Non Profit
Sector
1. Key Characteristics of Non Profit Sectors
1. Perform non profit activities
2. Needs funds (from members /external contributors)
3. Wealth creation for shareholders is not the objective
4. Cannot distribute the surplus among the stakeholders
2. Key Challenges for Measuring Performance in Not for Profit

Organisations
Challenges Way out
(1) Difficult to quantify the cost and Attempt shall be made to trade off costs and
benefits of its activities benefits based upon opportunity value and cost.
(2) Performance and Commitment of Its an external factor. No way out. Can just predict
State or Governments of State or forecast. Have a flexible performance matrix
that is adjustable depending upon the State’s
perfomance
(3) Multiple Objectives Prioritisation of objective, based upon importance
(utility) and urgency (time)
(4) Measuring the utility of Funds Use 3E framework
3. Value for Money Framework

It is also known as ‘Three E’ model. Not for profit organizations are expected to provide
value for money which is demonstrated by:
A. Economy
To produce quality outputs at lowest cost possible. Without compromising quality.
KPI - Average Cost per unit
(can be achieved through cost cutting)

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B. Efficiency
To produce maximum output by using minimum input thereby reducing wastage.
KPI - Input Output Ratio
(can be achieved through tenders, business process improvements, shared ser-
vices, efficient asset management)
C. Effectiveness
Whether the organization have achieved its desired mission and objective? KPI -
Beneficiary Satisfaction Rate
(can be achieved through friendly staffs, safety standards, meeting the require-
ments of beneficieries)
Economy
Efficiency
Effectiveness
# All 3Es are interlinked
ASSESSING THE 3 E’S

Economy
• Financial aspects
• Bifurcation of expenses/ Subcategories of expenses/ Comparison over a period
• Approval of expenses
• Comparison of actual with budget
• Quality of resources-KPI
To conclude, the economy is achieved if the organisation is within the budget as well as
have maintained quality.
If actual > budget → Compare with similar activities → Still higher → Conclude non
economical & inefficient
Efficiency
• Log records of KPI (E.g. Hours of teachers, Hours of cleaning)
• Cost drivers volume (E.g. Kms of road cleaned)
• Disproportionate use of resources - compare with past trend
• Investigate the deviations
• Check whether quality has been achieved (E.g. Frequency of complaints)
To conclude,if lesser proportion of has been used without compromising quality then
organisation is efficient
Effectiveness
• Guidelines or objectives or mission to be checked
• KPIs – feedbacks or ratings or complaints
• Surprise visits
OVERALL ASSESSMENT OF 3 E’S

To conclude, only from feedback or satisfaction of beneficiaries effectiveness can be
known
(Yes) (Yes) (No) (No)
and the
target is marginal difference is huge
4. Adapted Balanced Scorecard Approach

Kaplan developed the Adopted Balance Scorecard for measuring performance in NGOs.
Here, Customer satisfaction replaces Financial in the first perspective.
E ectiveness
Economy
E ciency

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5. Triple Bottom Line

- 3P Model - John Brett Elkington (1994)
To ensure sustainability & informational need of other stakeholders
It encourages companies to measure the impact of its operations on society,
environment and also the financials.
Manufacturing process - Philanthrophy

management that have less efforts
environmental impact
Advantage :
Operational Efficiency Advantage :
Brand images, Strong bonding with stakeholders
Competitive edge Public trust
# Some organisations have a separate business responsibility reporting system and

they apply the standard of sustainability reporting pronounced by Global Reporting
Initiative which is an independent international organisation that provides framework
(standards) to report those impacts.
Traditional Accounting Triple Bottom Line
1. Only Financial - Single bottom line 1. Financial, Society, Environment - Triple
bottom line
2. Shareholder is the only Stakeholder 2. Other Stakeholders are also important
3. Actual costs of doing business are 3. True cost of doing business are reported
reported includes cost borne by society (E.g waste)
4. Focuses on Financial performance 4. Focuses on sustainability & overall
strategy
5. Materiality is based on monetary 5 . No concept of Materiality
terms
6. Established framework 6. No established framework. Though,
Global Reporting Initiative - Business
Responsibility Report (SEBI) being
available
# True Cost = Actual Cost + Cost borne by Society/ Govt.
# TBL is a substitute of Full Cost Accounting
# Two types of TBL Report - (a) Core Reporting - Selective metrics
(b) Comprehensive Reporting
- detailed based or GRI standards
Dimensions or Sets of TBL
Social
Bearable Equitable
Sustain
-able
Environmental Economic
Viable
Sl Planet People Profit Performance of Subset

1 Acceptable Acceptable Not Acceptable Bearable
2 Not Acceptable Acceptable Acceptable Equitable (e.g. Plastics,
Cracker)
3 Acceptable Not Acceptable Acceptable Viable (e.g. Tobacco)
4 Acceptable Acceptable Acceptable Sustainable

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Basics of Performance Measure

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Basics of Performance

1. Essentials of Performance Management System

2. Pros and Cons of the use of Performance Measures

SCMPE Classes by Satish Jalan Sir -

3. Three Basic Rules of Performance Measure

4. Advantages and Disadvantages of Financial Performance Measures

5. Advantages and Disadvantages of Non Financial Performance

SCMPE Classes by Satish Jalan Sir -

6. Tools of Perfomance Measures

Pure Financial Other Measures

Return on Residual Economic

Balanced The Building The Triple Value

Economic Value Added (EVA) - (Stern Stewart and Co.)

# 3 measures to improve EVA

# Assumptions to be checked for EVA

7. Features of Tools of Performance Measures

SCMPE Classes by Satish Jalan Sir -

8. Responsibility Centres (Four Levels of Decentralisation)

10. CSF vs KPI

Critical Success Factors Key Performance Indicators

SCMPE Classes by Satish Jalan Sir -

11. Performance Improvement

12. Productivity Enhancement

B. Techniques to enhance the productivity

SCMPE Classes by Satish Jalan Sir -

Space For Self Notes

Dr. Robert Kaplan and Dr. David Norton

SCMPE Classes by Satish Jalan Sir -

Internal Improved No. of rejections

C. Internal Business Perspective - (To satisfy our shareholders & customers

6. Steps in Developing BSC

SCMPE Classes by Satish Jalan Sir -

7. Analysis of Performance using BSC

Space For Self Notes

SCMPE Classes by Satish Jalan Sir -

Space For Self Notes

SCMPE Classes by Satish Jalan Sir -

Based upon industry

Phase 1 Planning What to benchmark-CSF, find partners, data collection method,

4. Principles of Benchmarking or Code of Conduct

5. Goals for Benchmarking

6. Prerequisites for Benchmarking

SCMPE Classes by Satish Jalan Sir -

Space For Self Notes

Cycle Departments and

External Effectiveness Internal Efficiency

SCMPE Classes by Satish Jalan Sir -

2. Flow of Pyramid and the Nature of External and Internal Forces

Space For Self Notes

SCMPE Classes by Satish Jalan Sir -

Space For Self Notes

# Fitzgerald and Moon Model

1. Building Block Model

SCMPE Classes by Satish Jalan Sir -

No. of new process

Space For Self Notes

SCMPE Classes by Satish Jalan Sir -

Space For Self Notes

# Andy Neely and Chris Adams

Comprehensiveness of Performance Prism

SCMPE Classes by Satish Jalan Sir -

1. Five Facets of Performance Prism

2. Balanced Score Card vs Performance Prism