Performance Measurement and Management Information
Financial vs non-financial measures
Financial measures (profit, ROCE, margins, cash flow) are lagging and historical; non-financial measures (quality, customer satisfaction, cycle time) are often leading. The balanced scorecard (Kaplan and Norton) integrates four perspectives: financial, customer, internal process, and learning and growth. A common trap is treating the scorecard as four separate lists - it must show cause-and-effect links from learning/growth through processes and customers to financial outcomes.
The performance measurement cycle
Set objectives and targets → measure → compare → act (feedback and feed-forward). Distinguish feedback (correcting after the event) from feed-forward (anticipating and adjusting). Management information must be relevant, timely, accurate and cost-effective - the classic 'information qualities' checklist.
Behavioural consequences
Measurement drives behaviour: 'what gets measured gets managed' and can be gamed (Goodhart's law). Beware tunnel vision, sub-optimisation and short-termism. Variance analysis should separate price/rate and efficiency/volume effects, and distinguish controllable from uncontrollable variances.
Worked rule of thumb
When designing a measure, test it against the 'SMART-plus' criteria - specific, measurable, achievable, relevant, time-bound - plus behavioural safety: could a manager hit the target while harming the business? If yes, add a counterbalancing measure.
Benchmarking and KPIs
Choose a small set of critical success factors and KPIs; too many measures dilute focus.