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8/2/2019 PM Presentation 1-19-03 12

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PERFORMANCE MEASUREMENT:

AN INTRODUCTION TO THE COURSE

Spring semester, 2012


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Course aim and objectives

Providing the students with a knowledge of: modern concepts of organizational performance,

advanced models for measuring the organizational performance

sophisticated tools for measuring the organizational performance(aggregate index methodology, stochastic frontier analysis, data

envelopment analysis) Developing students skills in:

constructing a model for measuring the units performance adequateto specific perspective and goals of the analysis;

correct application of empirical data on the units performance for

evaluation of specific types of efficiency; using the software for estimation of the respective performance

measures;

making an adequate judgments on the units performance accordingto results obtained from respective quantitative model.


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Course content

Topic 1. Performance Management System: the elements and

internal structure

Topic 2. Performance Measurement: Basic Concepts and Glossary

Topic 3. Performance Measurement: Processes and Analytic

Frameworks

Topic 4. Economic Underpinnings for Performance Measurement:

Technology Modeling Basics of Production Economics

Topic 5. Production Efficiency Analysis: Parametric Models of Technology: Average Production Function vs. Frontier

Production Function

Farell Model Topic 6. Efficiency Measurement Using Data Envelopment Analysis

(DEA)

Topic 7. Measuring Efficiency with the Aggregate Index Numbers

Topic 8. Efficiency Measurement Using the Stochastic Production

Frontier Analysis.


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Grading rules

Final exam 50%Course work: 50%

Course work includes:Type of assignment Number of

assignments per typePart of

final gradeProblem solving 2 20%Case study: assessment of DMUsperformance from sample data

(group assignment)2 20%

Writing a summary on researcharticle on performance measurement 1 10%


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Evaluation system Course work maximum of 50 points in finale valuation:

1st individual assignment maximum 10 points;

2nd individual assignment maximum 10 points; 1st group assignment maximum 10 points;

2nd group assignment maximum 10 points;

3rd individual assignment maximum 10 points.

Final exam (open book, 90 minutes, Maximum number of points 50,

5 tasks, examination grade is estimated as total sum of points earnedfor questions 1-5, the exam is not passed in case the sum of points

earned is less than 20): the question 1may yield up to 5 points;

the question 2 may yield up to 10 points;



the question 5 may yield up to 15 points.

Final course evaluation: students final mark for the course is

determined by the sum of points earned through the class work

(maximum 50) and final examination (maximum 50).


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Literature Books:

1. Business performance measurement: Unifying theory and integrating practice/Edited by Andy Neely. 2nd edition, (2008). Cambridge: Cambridge University

Press. 528 p.2. Coelli Tim, D. S. Prasada Rao, George E. Battese. An introduction to efficiency and

productivity analysis, 2nd edition. New York: Springer, 2005. 356 p.

3. Cooper W.W., Seiford L.M., Tone K. Data envelopment analysis: A comprehensive textwith models, applications, references and DEA-Solver Software. 2nd edition. NewYork: Springer, 2007. 490 p.

4. Fisher F.M., Shell K. (1998). Economic Analysis of Production Price Indexes. Cambridge: Cambridge University Press. 226 p.

5. Harbour J.L. The basics of performance measurement, 2nd edition. London andNew York: Taylor and Francis, 2009. 93 p.

6. Performance Management: Multidisciplinary Perspectives. //Ed. By Richard Thorpeand Jacky Holloway . New York: Palgrave Macmillan, 2008. 331 p

Journal articles:1. Farrell M. J. (1957). The Measurement of Productive Efficiency. //Journal of the Royal

Statistical Society. Series A (General), Vol. 120, No. 3. pp. 253 290

2. Forsund F.R., Sarafoglou N. (2002). On the Origins of Data Envelopment Analysis.//Journal of Productivity Analysis, 17, 2340

3. Hammer M. (2007). The 7 Deadly Sins of Performance Measurement and How toAvoid Them. // MIT Sloan Management Review, Vol.48, No. 3. pp. 18 28

4. Ittner C.D., Larcker D.F. (2003). Coming Up Short on On Nonfinancial PerformanceMeasurement. //Harvard Business Review (November): pp. 88 95.


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Performance Management System:

the elements and internal structure


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Performance Management

Performance management is a relatively new concept to thefield of management. Simply put, performance managementincludes activities to ensure that goals are consistently beingmet in an effective and efficient manner.

Performance management literature typically starts out withvarious examinations of the term "performance.

Performance management is about running the business. It isabout doing the right things, and doing the things right. Whatthis means in practice can differ from organization to

organization: there is no one way of managing performance. [7,p.8]


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Performance Management:An Application Domain

the organization (private, public, government agencies, non forprofit);

departments (computer support, administration, sales, etc.)

processes (billing, budgeting, product development, financial

management, etc.);

programs (implementing new policies and procedures to ensure a

safe workplace; or, for a nonprofit, ongoing delivery of services to a

community);

products or services to internal or external customers

projects (automating the billing process, moving to a new building,

etc.); teams or groups organized to accomplish a result for internal or

external customers;

employee assigned to accomplish a job task assigned at a

workplace.


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Revenue growth as a key priority for executives

(Bain & Company Management Tools & Trends, 2011)


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25 of the most popular management tools(Bain & Company Management Tools & Trends, 2011)


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Downsizing definitions

1. Reducing the total number of employees at acompany through terminations, retirements, or

spinoffs.Source: http://www.investorwords.com/1571/downsizing.html

2. Intentional reduction in the size of a workforce at all

staffing levels, to survive a downturn, improve

efficiencies, or become a more attractive candidate for

acquisition or merger. Used often as a euphemism forindiscriminately firing the employees

Source: http://www.businessdictionary.com/definition/downsizing.html
http://www.investorwords.com/1571/downsizing.htmlhttp://www.businessdictionary.com/definition/downsizing.htmlhttp://www.businessdictionary.com/definition/downsizing.htmlhttp://www.investorwords.com/1571/downsizing.html


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Top 10 most used management tools(Bain & Company Management Tools & Trends, 2011)


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Performance management is a building on the process ofgoals attainment, adding the relevant communication and

action on the progress achieved against these predetermined

goals

Overall Goal and Focuses of Performance Management: toensure that the organization and all of its subsystems

(processes, departments, teams, employees, etc.) are working

together in an optimum fashion to achieve the results desired

by the organization.


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The starting point for Barneys (1997) conceptualization isthat an organization is an association of productive assets

which come together to obtain economic advantages. For

organization to continue to exist, the owners of these assets

must be satisfied with their use. The owners will only be

inclined to provide these assets if they are satisfied with the

returns they are receiving. So, organizational performance is

defined in terms of the value that an organization creates

using its productive assets in comparison with the value that

owners of these assets expect to obtain.


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Ongoing Activities of Performance Management

Achieving the overall goal requires several ongoing activities:

including identification and prioritization of desired results,

establishing means to measure results,

establishing means to measure progress toward those results,

setting standards for assessing how well results were achieved,

tracking and measuring progress toward results,

exchanging ongoing feedback among those participants working to

achieve results,

periodically reviewing progress,

reinforcing activities that achieve results,

intervening to improve progress where needed.


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Key Steps & Critical Practices in Performance-

Based Management

Define Mission and Goals (including Outcome-Related Goals) Involve key stakeholders in defining missions and goals.

Identify key factors that could significantly affect the achievement of thegoals.

Align activities, core processes, and resources to help achieve the goals.

Measure Performance Develop a set of performance measures at each organizational level that

demonstrate results, are limited to the vital few indicators for each goalat each organizational level, respond to multiple priorities, link toresponsible programs, and are not too costly.

Collect sufficiently complete, accurate, and consistent data to documentperformance and support decision making at various organizationallevels.

Report performance information in a way that is useful.


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Key Steps & Critical Practices in Performance-

Based Management

Use Performance Information Use performance information in systems for managing the organization

(firm,agency or program) to achieve performance goals.

Communicate performance information to key stakeholders and the

public.

Demonstrate effective or improved program performance.

Support resource allocation and other policy decision making.

Reinforce Performance-Based Management

Devolve decision making with accountability for results.

Create incentives for improved management and performance.

Build expertise in strategic planning, performance measurement, and use

of performance information in decision making.

Integrate performance-based management into the culture and day-to-

day activities of the organization.


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The Performance Management Pillars


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The Performance Management

System Internal Structure


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Strategy: the terms of expression

Mission:An organisations mission is its basic function in

society, and is reflected in the products and services that it

provides for its customers and clients.

Goals:An organisations goals are the intensions behind its

decisions or actions. Goals will frequently never be achieved

and may be incapable of being measured.

Objectives: Objectives are goals expressed in a form in which

they can be measured.


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The Pyramid of Organizational Targets


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Performance Reference Model of the Federal

Enterprise Architecture, 2005


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Performance Measurement Dilemma

Ex.: pin-making factory from Adam Smiths Wealth of

Nations. Technological process includes 4 stages: cutting wire, sharpening wire,

putting pin-heads on the sharpened wire, packaging pins into boxes

4 workers each employed at one stage

2 possible organizational setups of the business process: 4 independent business units running a separate stage

Single business unit (a factory) with technologically separated

production units (departments)

What are the performance measures for the 4 workers in

different organizational setups?

What are they about?

What is the performance measurement dilemma?


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Ex.:the CEOs task to cut the averageproduction cycle by 50% during 12 months

You are a linear manager responsible for operation of theproduction unit.

You have got the task from the CEO.

Describe your action plan to reach the goal.

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