Performance Management

From CAM-I Wiki
Jump to: navigation, search

Establishing clearly defined objectives and accountability for the Planning/Budgeting process and the use of the data is key to a successful process. Including participants and stakeholders in establishing standards that dictate both the objectives and accountability will ensure buy-in to the process and results. Finally, having standards that are flexible and/or dynamic enough to allow for variations in the business environment will extend the life of the results.

Viewpoint A

Summary: The planning and budgeting process must have clearly defined objectives and accountabilities that are documented and communicated to both participants and those accountable for meeting the resulting targets. Establishing accountability can raise several significant issues related to Planning/Budgeting assumptions, relevance of data used, and flexibility of the process to reflect more current information. Whether a centralized or decentralized process is used, clear communication is required to ensure common understanding and ownership is established. More...

Viewpoint B

Summary: Establishing accountability goes beyond determining who is accountable, but must also address the standards that are used for determining that accountability. Standards must be relevant to the individual or organization being measured, or there is risk of the results being ignored or worse dysfunctional behavior created. Use of rates or ratios in establishing standards should be reviewed to ensure they are flexible enough given the volatility of the business environment. More...

Benchmarks, Resources, Recommendations, Implications

Viewpoint A

One of the objectives of the planning/budgeting process is to establish goals and objectives for the organization. Once these are defined, individuals must be held accountable to the defined performance standards/measures. There are several significant issues involved in this “accountability process."

  • The assumptions or estimates in the budget may be outdated by the time the budget is being executed. Alternatively, the budget may be structured in a manner that is lacking transparency or does not reflect business operations. This lack of relevance makes it difficult for a manager to meet expectations if there has been a significant change in the business environment.
  • If the budget is considered to be “cast in stone”, then it may be difficult to address the situation described above in a fair and flexible manner. Holding individuals to unreasonable or outdated performance measures can damage morale or create dysfunctional behavior during formulation and execution of the budget. Conversely, if the environment has changed such that the performance measures should be increased, then the individual is getting somewhat of a free ride and the organization is underperforming.
  • If those held accountable had no input into the objectives and related performance targets, they might not understand the expectations or feel a sense of ownership.
  • The planning/budget process may be highly centralized or more decentralized to develop a sense of ownership. Either way, there should be clear rules and guidelines around the planning/budgeting process so participants have some common understanding and expectations of the process.

(rb)

Viewpoint B

Managers of organizations are accountable. The questions are “Accountable to what standard?” or “Accountable to whom?” or “What are the consequences?”. If there is not an apparent accountability process, then the organization is in a dysfunctional state that must be remedied.

Accountable to what standard? Budgets can be an important part of the accountability process when they are used to determine available resources. However, when the accountability process goes so far as to include incentive compensation based on the budget, the budget process is likely to be severely impaired.

A standard must be relevant to the individual that is accountable. Standards, particularly performance measures that the individual cannot relate to, will (at best) be ignored or (at worst) create dysfunctional behavior. To be effective as a standard, a standard must remain constant in several important dimensions. Time is one of these dimensions. Business operations are dynamic, constantly changing. The organization must set an appropriate time horizon. A common complaint is that the budget is “Cast in Stone” despite significant changes in the operating climate. This complaint indicates that the time horizon may be too long for the organization’s climate.

A standard does not require that amounts be in absolute terms. Standards may consist of rates or ratios that are fixed but that are applied to dynamic bases that are either internal or external. Appropriate usage of fixed rates against dynamic bases may well answer the “Cast in Stone” complaint.

Accountable to whom? Ultimate accountability is to the organization’s stakeholders. Every organization, small or large, for profit or not for profit has stakeholders. While these stakeholders must be kept in mind, most organizations have internal stakeholders who should act as proxies for the eternal stakeholders. These may be centralized or decentralized and/or matrixed depending on the organization’s structure. Whatever the organizational structure, the fact remains that they must be carefully defined and understood. This can be done by incorporating their input and accomodating their requirements. (ajs)

Benchmarks

  • Your input is welcome here.

Resources

  • Your input is welcome here.

Recommendations

  • Ensure that those held accountable have input into objectives and related performance targets in order that they understand the expectations and feel a sense of ownership.
  • Match the primary planning and budgeting periodicity to the organization's operating horizon.
  • Use "frozen" rates instead of "frozen" monetary measures where volume changes significantly. These rates should be updated in synch with planning intervals.
  • Identify and understand stakeholders to ensure proper accountability, incorporate their input, and accomodate their requirements.

Implications

(1) “Ye Olde” question. Centralized Function or Decentralized (2) Lack of central governance or guidelines (3) No prior understanding of customer affordability (4) How does revenue get allocated for performance (5) Lack of relevance during execution (6) “Cast in Stone” is a choice (7) Budgets include objectives that are important (8) Budgets include objectives that are not “mine” (9) There is an accountability process (10) The accountability process involves budgets (11) Managers should feel accountable to something

Top of Page