Performance Measurement and Management
The performance measurement mix
Performance measurement links objectives, critical success factors (CSFs), key performance indicators (KPIs) and targets. CSFs are what must go right; KPIs are the measures that tell you whether they are going right. Candidates must distinguish financial and non-financial measures and explain why a balanced set is needed.
The Balanced Scorecard
Know the four perspectives: financial, customer, internal business process, learning and growth. Understand cause-and-effect linkages (learning and growth drives process improvement, which drives customer satisfaction, which drives financial results). The trap is treating the four perspectives as a checklist rather than a linked model.
The Performance Prism and other frameworks
Understand the Performance Prism (stakeholder satisfaction, strategies, processes, capabilities, stakeholder contribution) and the building block model (dimensions, standards, rewards). Know the characteristics of good measures: relevant, reliable, comparable, controllable, timely, understandable.
Behavioural consequences
Understand goal congruence, dysfunctional behaviour, and the risks of measuring only what is easy. Kaplan and Norton's work on strategy maps and the distinction between diagnostic and interactive control systems are examinable.
Worked rule of thumb
When designing KPIs for a scenario, test each against the SMART and controllability criteria, then ask: could a manager improve this measure without improving the underlying performance? If yes, the measure invites gaming.
Exam traps
- Confusing CSFs with KPIs.
- Proposing measures that are not controllable by the manager assessed.
- Ignoring unintended behavioural consequences of targets.