Performance Management - Beyond the Numbers
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The document discusses the limitations of traditional financial reporting in assessing organizational success, advocating for the use of broader performance management metrics. It highlights the balanced scorecard approach developed by Kaplan and Norton, which evaluates an organization through financial results, customer satisfaction, internal processes, and employee performance. By incorporating both financial and non-financial metrics, businesses can make more informed decisions and better strategize for future growth.
Performance Management - Beyond the Numbers
- 1. BIZGROWTH IDEAS TO HELP GROW YOUR BUSINESS Article reprinted from Spring 2013 S T R A T E G I E S Management & Performance Performance Management: Looking Beyond the Numbers H istorically, many organizations measure the health of organization and the successful utilization of these areas is their business through traditional financial reporting often not monitored and measured. metrics. Executives tend to evaluate success or failure To better measure an organization’s success in carrying based on high-level results such as revenue growth, net income, out its vision and strategy, many are now looking beyond current ratios and others. There are obvious reasons for this. the numbers and utilizing broader, far-reaching performance First, traditional financial statements provide very specific management measurements that capture both financial and analysis. By comparing current financial statements to prior non-financial performance metrics. financial statements, a stakeholder can easily determine where a business has improved or deteriorated simply by comparing A great example of this is the balanced scorecard approach. current results to prior or budgeted results. Second, many third- Developed by Robert Kaplan and David Norton, the balanced party stakeholders such as banks, outside investors or regulatory scorecard has actually been around for a number years, but groups utilize traditional financial statement results to assess continues to gain traction as many organizations are looking their own compliance needs, creating an obvious incentive for for competitive advantages in this tight, global economy. The management to focus on those metrics. balanced scorecard measures an organization through its financial results, customer satisfaction, internal processes and While financial statement reporting metrics provide value, its own employees. The approach is dictated by the assumption they have certain inherent limitations. First, financial statement that all parts of a business, both financial and non-financial, results are “lagging” indicators; they represent a measurement need to be evaluated and improved. The balanced scorecard of results at a certain time, which can be days or even months approach requires a business to develop its own non-financial behind when that data is being evaluated. These are fine for © Copyright 2013. CBIZ, Inc. NYSE Listed: CBZ. All rights reserved. reporting metrics that can be monitored and evaluated on an evaluating the viability of an enterprise. More valuable for ongoing basis. This is critical as any performance measurement strategic planning purposes are “leading” indicators, which are plan must provide the ability to measure success or failure. generally non-financial metrics that can be produced easily on a real time basis and can provide management with more relevant Regardless of the particular performance measurement plan information in the decision-making process. Second, financial an organization uses, if metrics are to serve as a useful tool, statement metrics only report on a portion of an organization’s they should address all functions that support the success of activities. Many important aspects such as intangible asset the organization, both financial and non-financial. usage, human capital, organizational culture and others are not easily evaluated through the review of financial statements. Yet, they can be some of the most important elements of an JEFF MANWILLER CBIZ MHM, LLC • Bethesda, MD business is growing yours 301.951.3636 • jmanwiller@cbiz.com our