Definition of Performance Measurement

Performance measurement is how organizations, public and private, measure the quality of their activities and services. An influential 1982 book, "In Search of Excellence," sparked interest in measuring performance. Since then, business, government and other organizations have sought to measure the extent to which they meet organizational goals. Performance measurement may sound simple, but is often a complicated process that requires deep strategic thinking and assessment.

Identification

Performance measurement is the process by which businesses, governments and other organizations establish criteria for determining the quality of their activities, based on organizational goals. It involves creating a simple, but effective, system for determining whether organizations meet objectives. An example is the safety inspection program of the U.S. Department of Agriculture, which uses reduction in foodborne illness from meat products. Examples from business include increases in earnings and profits, reductions in production costs and amount of time required to process customer orders.
All of these examples can be quantitatively measured. Effective performance measurement requires quantitative evidence to determine organizational progress toward achieving its goals.

History

"In Search of Excellence," written by Tom Peters and Bob Waterman, used performance measures to identify the characteristics of successful companies. The book sold millions of copies and ushered in the era of management fads. Many business leaders and scholars read the book and began to think more deeply about issues of organizational performance. Today, performance measurement (also called performance management) is a specialty within the fields of business, management and public administration.

Features

Developing a system of performance measures begins with defining strategic objectives. For a corporation, the most important objective is turning a profit. For government agencies and other organizations, key objectives may be more difficult to define.
Next an organization defines a set of strategic metrics, such as increasing sales and reducing production costs. The organization then sets performance targets, such as increasing sales by 30 percent and cutting production costs by 10 percent.
After setting targets, the organization can begin measuring actual performances. By comparing actual performance against the targets, organizations can identify areas of needed improvement.

Considerations

A variety of factors make performance measurement a complicated process. Sometimes knowing what to measure is unclear. This is especially true of public sector organizations, where managers may complain that they are being held accountable for goals that they cannot fully control. For example, some public school systems object to having their performance measured by student results on standardized tests, pointing out that factors external to schools, such as family environment, can affect test performance.

Warning

The complexity of organizations and business models further complicates performance measurement. In addition, the intangibility of some measures, especially non-financial ones, is a complicating factor, as these measures may be subject to manipulation. This makes performance measurement in the public sector especially difficult.

References

• Effective Performance Management
• Measuring the Performance of Public Programs

Resources

• More About Performance Measurement