Financial Performance Measurement System

What cannot be measured cannot be planned. It therefore means that for a firm to effectively plan for its resource utilization, effective metrics need to be put in place to measure present performance and compare it with past performance. The variance, whether positive or negative gives an indication of the strategies to be adopted. Performance measurement systems are systems put in place to quantify the efficiency and effectiveness of past actions. The information is used to inform organizational decision making in a way that optimizes people performance.

Return on capital employed (ROCE) is one of the key performance measurement systems that has a strong influence on the behavior of people. At the micro level, ROCE can be used to measure performance of individual units in an organization. A department for example will be required to justify the its budgetary demand by proving that the investment that goes into it will generate reasonable returns. In this regards, the departmental members may choose to enhance their team cohesion. Better teamwork for the department may mean better utilization of the capital employed and therefore better returns.

Performance measurement is basically the basis of every system in the organization. An organization employs resources and engage in enterprise of converting the raw materials into valuable output. Every process in the organization will need some metrics to indicate the levels f efficiency achieved. The rate of investment per unit, through technology should be constantly reduced, while value to the customers should be improved constantly. In the organizational processes, people processes are more crucial than any other process.

ROCE strongly affects the behavior of people both inside and outside the organization. Most significantly, inside the organization, the employees have to align their performance to the performance measurement framework. The employees for example need to justify their value in the organization. Their output should outdo the investment of the firm on them. Work for example should be executed in the normal working hours to avoid overtime hours. People inside the organization therefore will be required to upgrade to a high performance culture.

Outside the organization, the system will be required to be as effective as possible to give a conducive environment for performance to meet the performance measurement framework in place. The suppliers will for example need to align their delivery systems to avail the needed ware as per demand. Basically, outside the environment, influence will be towards providing the right context for the performance measurement framework.…