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Performance Management Basics
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ROLE OF PERFORMANCE MEASUREMENT

Measurement is a critical part of gaining results. Set­ting goals and objectives, measuring performance, iden­tifying corrective actions, and developing action plans are key to continuous improvement in any business. In fact, a definitive set of performance metrics (the "vital signs") is necessary to ensure that business objectives are met. A wise executive once said, "You can't expect what you don't inspect."

 

Financial performance has traditionallybeen the pri­mary measure of success in most manufacturing com­panies. Companies have developed financial planning systems for measuring their performance on a regular monthly, quarterly, and annual basis. The measures have been developed and documented by the account­ing profession and are well accepted by managers and shareholders.

Unlike financial measures, the performance mea­sures described in this presentation assess operating performance. Management needs to establish effective operating processes to meet business objectives. Op­erational measures emphasize the role of the total team in improving company performance when using those processes.

ELEMENTS OF PERFORMANCE MEASUREMENT

Important elements of the performance measurement process include the following:

1.      Accountability

2.      Targets

3.      Communication

4.      Tolerances.

Accountability

A fundamental principle of performance measurement is to clearly assign accountability in each operational area. The intention is not to fix blame, but to identify and solve problems when performance targets are not being achieved.

Accountability means that a person is responsible to perform the measure, determine the reasons when per­formance is not at the target level, suggest actions for improvement, and coordinate any improvement activ­ity. Most corrective activities will necessarily involve a total company approach with participation across many functional areas.

Targets

The targets set for each performance measure should be clearly defined, easily understood, measurable, and realistic. The frequency of reporting and the tolerances in the calculations (if applicable) must be sufficient to allow effective control over the operation. Targets must be achievable and at the same time set the tone for ag­gressive improvement of the process being measured.

Communication

Measures must be explained and understood by all per­sons affected by or involved in performing the measure­ment. Once performance is measured, the results should be made available to all employees by displaying them in prominent places throughout the company. Action plans for improvement should be presented in a formal review of company performance, conducted monthly.

Tolerances

When the performance measures are initially set up, it may be appropriate to establish tolerances. Once the target performance levels have been achieved using the tolerances, these should be tightened so as to generate a continuous improvement process.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 13


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