Performance measurement systems quantify outputs, efficiency, and other workplace determinants so program managers can qualify an employee’s performance and build a sound business strategy.
What Is Performance Measurement?
Performance measurement refers to the efficiency and effectiveness of employees, projects, and workplace structures. Performance measurement usually is quantitative in that it measures the effectiveness and sustainability of a business process in numbers, dollars, and scores. Measurements can be qualitative in nature (such as an employee’s teamwork skills). Still, managers scale competencies to numbers or figures to measure one’s work performance more reductively but clearly.
An organization sets performance metrics as benchmarks so employees know what quotas to meet, and owners and stakeholders can better assess business performance and customer satisfaction. Incentives for good performance measurement can be an employee’s raise or a portion of a company’s market share. Managers note these measurements in performance reviews to identify whether the work matches the employee or a strategic plan is necessary for performance improvement.
What Is a Performance Management System?
A performance management system provides higher-ups with a clear set of KPI (key performance indicators) and streamlines data collection. Top management maintains balance scorecards on these systems to track the pace and efficiency of work so department leaders have a clear picture of their team’s rhythms. Larger corporations commonly use performance management systems, but small businesses and nonprofits can also employ these tools.
4 Types of Performance Measures
Organizations can create a performance measurement framework to understand the business environment and its organizational performance. Effective performance measures might include these categories:
- Effectiveness: Measuring the effectiveness of a company involves analyzing the quality of service. For example, a health care company might use surveys about customer service calls to measure the effectiveness of representatives’ assistance. The effectiveness of specific workflows or initiatives can also inform the allocation of company resources.
- Efficiency: This performance data measures the relationship between the work employees perform and the cost of execution. When considering promotions, how quickly an employee picks up tasks or understands new information is essential to managers’ decision-making. Senior management will also want to know how long it takes to complete a task to better plan for the organization’s long-term and short-term goals.
- Output: This data quantifies how often machinery or employees completes a task, such as filing invoices or building car parts. Knowing this performance information enables senior management to create more specific and predictable strategic objectives. For sales teams, an important quantitative KPI is the financial performance of the representative. These financial measures can inform the profitability of a company.
- Productivity: This metric bridges efficiency and effectiveness measurements, such as the cost of interviewing a fixed number of successful candidates within a month’s window of the previous employees’ departure. Measuring productivity can help business leaders make decisions that drive continuous improvement.
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