performance measurement

performance measurement
The process of (a) developing indicators to assess progress towards certain predefined goals and (b) reviewing performance against these measures. Performance measures can be applied to the whole organization or to particular departments, branches, or individuals. Many different measures can be used:
financial measures
non-financial measures
• delivery time
• customer retention
• employee absenteeism
• staff turnover
Management accountants will be interested in identifying how different performance measures influence the behaviour of managers. For example, using return on capital employed as a measure will probably encourage managers to reduce investment; this may improve short-term performance figures but will damage the long-term performance of the company. Another problem may arise if managers improve delivery times to meet targets but significantly increase costs in the process. These two examples emphasize the importance of understanding the behavioral aspects of management accounting. Another issue is how to link non-financial and financial measures. The balanced scorecard is a recent development that connects non-financial and financial performance measures to a company's overall strategy.

Accounting dictionary. 2014.

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