Performance Measurement Systems of Organizations Essay

Performance Measurement Systems of Organizations - Essay Example The different types of performance measures are input measures, process measures, output measures, outcome measures and impact measures. The organizations can develop their own customised systems to meet their specific requirements and circumstances or utilize a number of performance management models and tools to develop their framework. The major performance measurement systems in use today are Balanced scorecard, Activity-based Costing and Management, Investors in People Standard, Quality Management, Charter Mark and Performance Prism. The frameworks are explained in the following sections. A Balanced scorecard defines what management means by "performance" and measures whether management is achieving desired results. Kaplan and Norton (1992) noted that it was designed to improve current performance measurement systems by providing alternatives to managing organizational performance exclusively through financial measures. According to them (1996), "the name reflected the balance between short- and long-term objectives, between financial and non-financial measures, between lagging and leading indicators, and between external and internal performance perspectives." According to CIMA (2005) official definition, the Balanced scorecard is "an approach to the provision of information to the management to assist strategic policy formulation and achievement". A Balanced scorecard is used to clarify or update a business's strategy, link strategic objectives to long-term targets and annual budgets, track the key elements of the business strategy, incorporate strategic objectives into resource allocation processes, facilitate organizational change, compare performance of geographically diverse business units and increase companywide understanding of the corporate vision and strategy. Evolution of the concept The concept was originated by Robert Kaplan and David Norton (1992) as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance.The developments in the concept are as follows: a. 1st generation- The Balanced scorecard designs feature a small number of performance measures typically spread across four perspectives, namely; financial, customer, internal processes and learning and growth, as proposed by Kaplan & Norton (1996). b. 2nd generation- New Balanced scorecard designs illustrate how the various objectives are related using a diagram called the 'strategic linkage model' or 'strategy map' (Kaplan & Norton, 2004). Using objectives and linkages helps to provide a stronger basis for choosing measures and for justifying these choices to others. c. 3rd generation- The third generation of Balanced scorecard designs were developed in 2000. These are easier to develop, implement and use than any earlier version. Balanced scorecard has become the focus of a wider strategic management process - a framework for strategic management and control rather than just a performance measurement device. Perspectives The Balanced scorecard sets out a framework of four key perspectives (Kaplan and Norton, 1996), as shown in the following figure. Figure 1 - Perspectives of Balanced