Performance Management Measure and Improve Organizational Performance Presentation by: Ahmad Saleem, FCA Chief Consultant Performance Management Services +92 300 847 1640 saleem@pms.com.pk

Sections Of This Presentation Section I What is Performance Management Section II Business and its Objectives Section III Business Modeling Section IV Factor for Performance Management Section V Business Performance Measurement 02

Section I Performance In this section we will discuss: What is Performance? What is Measurement? What is Performance Measurement? What is Performance Management? Why we need Performance Management? Business Performance Measurement 03

What is Performance? The accomplishment of given task/activity measured against present known standards of accuracy, completeness, cost and speed etc. 04

What is Performance Measurement? Performance Measurement is the Comparison of Actual Measurement with Expected, Specified or Desired Measurement 05

Noting the Quantitative Attributes What is Measurement? Noting the Quantitative Attributes Measurement is a process of obtaining the magnitude of quantity in any unit 06

Measurement Accurate and Fixed Judgmental Variable Length of a nail Distance Cost of Machinery Profit earned Judgmental Variable Taste of Food Movie Fuel Consumption Tyres Consumption

We do lot of Measurements in our Daily Life Dieting Fuel Consumption Studies Games 08

Determining Performance We can determine performance of any Activity, if it is Measureable. We can only improve those activities, which are measureable Examples 09

Performance Management Determination - Once we have determined the Performance of any activity then it is decided that whether there is need for improvement or not Performance Management – When we take steps for the improvement of Performance, that series of actions and steps is called “Performance Management”. Procedure – Through Performance Management Program we can establish the procedure through which measurement results can be improved. Identification of Areas – For this, we need to identify the areas where improvement can be made – set the standards for each area for the improvement, note down the present measurement and periodically measure readings to observe the improvement 10

Why Performance Management? We do need Performance Management for the following reasons Long tern survival and higher return on Investments Achievement of Objectives in most Efficient, Effective and Economical manners Less wastage and lower Operational Cost Better Financial results, Higher Profits and Salaries of Employees Reducing Top Management Pressure and Tension Better Motivation and Team work among Employees A Competitive Advantage and Higher Sales

Business Performance – How to determine? Return on Investment Sales on Fixed Assets Contribution Margin on Sales Positive Financial Position Expansion 12

For the Purpose of this Presentation, we will discuss “Performance Management Program” for Commercial Organizations 13

Section II Business In this section we will discuss: How Business is started? Objectives of Business? What is Success? Roles Required 14

Why Doing Business? Having Knowledge and Experience Resources Opportunity Some Objectives 15

Objectives Earn Profit Social Factor Growth Success 16

What is Success? Achieving Your Objectives in most Effective, Efficient and Economical manners is Success 17

These are Departments of the Company Roles in the Company Company Make Sales of Products Manufacture Goods Purchase Materials Accounting Work Arranging Funds Administrative Issues Your Products Software and Hardware These are Departments of the Company 18

Section III Business Modeling In this section we will discuss: With what we will compare? Potential to Perform? Identification of Correct Areas Critical Factor for Performance Management 19

Compare to? Determine Potential to Perform Similar Companies of same Potential Market Analysis Expectations 20

Resources Opportunities Potential to Perform Potential to Perform Based on Resources Opportunities Potential to Perform 21

Resources Human Resource Time Materials Energy Knowledge Fixed Assets Funds 22

Opportunities Market Buying Power Product 23

Resources Opportunities Potential to Perform Potential to Perform Based on Resources Opportunities Potential to Perform 24

Identification of Correct Areas Sales or Contribution Margin Determining the Potential - Production Assets Utilization Fund Requirement Planning Culture 25

SCORING Critical Factors in Performance Management Identification of Correct Areas Information & Knowledge SCORING Documentation Applying Correct Solutions Cross Checking of Results Accurate Measurement 26

Factors for Performance Management Section IV Factors for Performance Management In this section we will discuss: Measurement Methodology – Scoring Impact of Factors Factors – detailed discussion 27

Measurement – Scoring Scoring is based on three Elements: Knowledge Documentation Awareness Example of Strategic Planning Strategic Plan? – give marks out of 10 Documentation – available or not Awareness – related persons aware or not 28

Measurement – Scoring Your Score Knowledge - 07 Documentation - 01 Awareness - 05 Multiply above three scores 07 x 01 x 05 = 35 = Score 35/10 = 3.50 % 09 x 09 x 09 = 729 =Score 729/10 = 72.9 % Over 50% is good score 29

Factors for High Performance Costing, Contribution Margin & Breakeven Analysis Strategic Planning and Management Potential to Perform Budgeting Roles required for Operations Business Rules Business Plan Systems, Policies and SOPs Departmental Profiles Risks & Controls Critical Success Factors Knowledge Management Organization’s Culture Role of IT Resource Management Role of Accounts Department Human Resource Materials Fixed Assets Funds Time Energy Knowledge 30

Type of Impacts The impact of factors can be grouped in four categories: Planning Operations Financial Controls 31

Strategic Planning & Management For Long Term Establishes major scope of working Strategic Planning and Management is defined as the set of decisions and actions that result in formation and implementation of plans to achieve a Company’s objectives Mid and short term planning based on it Cannot be changed easily Based on Size, product, market etc. Determined by Top Management 32

Resources Opportunities Potential to Perform Potential to Perform Based on Resources Opportunities Potential to Perform 33

Business Plan For shorter time period Based on the resources Business Plan is the overall plan for the Organization, which ties all the Organizational functions together Have Departmental Goals Can be changed easily Prepared by Senior and Middle Management Examples 34

Departmental Profile Roles of the Department Objectives of the Department Job Description of the Department Need to establish very clear role of each department as what they are expected to perform, what re their objectives, resources required and their Key Performance Indicators Key Performance Indicators Benchmarking Human resource Requirement Resources Required Information and Knowledge to be maintained 35

Critical Success Factors There are always some factors, which play very critical role in the growth and success of the Organizations, we need to determine those factors Example: As customer your Critical Factor: On Time Safety Customer Satisfaction Controls on Material Assets Utilization Human Resource Funds Knowledge 36

Organization’s Culture and Behavior Authority Responsibility This is Character of the Organization, as how it behave in different circumstances. Change of Culture is one of the most important Element. Empowerment Trust No Interference Result Oriented Ownership Respect Reward Accountability 37

Manages all other Resources Resource Management – Human Resource Most Important Resource Manage all other Resources The Resource, which… Manages all other Resources Competence Training Information & Knowledge With right skills Should know Expectations 38

Materials How much Material is required? Wastage and excessive Buying Materials and Stocks are one of the most important element – Especially for Blocking your Finances Record keeping Post Production Analysis – Price and Volume Variances Carrying Cost 39

Watch that Investment….. Fixed Assets Complete record of Fixed Assets Differentiate between Productive and Supportive Assets In most of the cases, Fixed Assets are the major part of total Investment of the Company. Watch that Investment….. Calculate return on Assets with Sales and Contribution Margin Record of Insurance and Warranties Repair & Maintenance Preventive Maintenance Disposal of Assets Assets Condition 40

Finances One needs a very tight control on Finances.. Keep Financial Burden minimum Establish accurate Financial Requirement Look for high Material Cost and Receivables One needs a very tight control on Finances.. It’s the single major cause of Company’s poor Performance Avail maximum benefit from Suppliers and Creditors Never go for Capital Investment from Working Capital Facilities Accurate projected Fund Flow Statement involving all departments and making them responsible 41

One of the MOST Important Resource.. Energy Energy Audits Availability of Energy In present Scenario One of the MOST Important Resource.. Cost Management of Energy 42

Time 24 hours are available to all… Utilization of all resource effectively Time in Production Processes 24 hours are available to all… Effective utilization makes the difference 43

Knowledge Knowledge Is Power What type of Knowledge is required? How to update? Who is Responsible? How to Apply? 44

Costing, Contribution Margin and Breakeven Complete record of cost including direct and indirect cost, fixed cost etc. Computation of Contribution Margin, linking with Sales and Profit Cost incurs when resources are utilized… Keep complete record of Costs, Contribution Margin and Breakeven Product wise Contribution Margin Compare return with relation to investment, time consumption etc. Breakeven analysis, simple and based on cash return 45

Contribution Margin – How to improve? By increasing Selling Price Cost incurs when resources are utilized… Keep complete record of Costs, Contribution Margin and Breakeven By reducing material cost – change in Design By reducing Overheads and other expenses Create awareness in all departments 46

Budgeting Budgets should be prepared for every activity Involve all the departments and introduce the culture of Budgeting Budgeting is a process of making best estimate regarding a future activity and then following the initial estimate. People are reluctant in making budgets. Why? Periodic Comparison of Actual data and Budgeted data Check for reasons for variations 47

Budgeting Cost incurs when resources are utilized… Production Budgets Time Budgets Cost incurs when resources are utilized… Keep complete record of Costs, Contribution Margin and Breakeven Wastage Budgets Breakdown Budgets Energy Budgets Financial Budgets 48

Systems, Policies and Procedures Ensure system for every activity Policies should be available for all scenarios Performing any activity in a similar way all the time and all users have same understanding is called system. This also include processes, policies & procedure. Standard Operating Procedures – SOPs Should be Documented 49

Risks & Controls – Risks Nature of Risk Impact With every activity there are risks – Inherent, intentional, un-intentional etc. Frequency Responsible 50

Risks & Controls – Risks Production Risks Planning Risks Marketing Risks With every activity there are risks – Inherent, intentional, un-intentional etc. Sales Risks Human Resource Risks Fixed Assets Risks Stocks Risks Expenses Risks Purchasing Risks Quality Risks 51

For prevention of Risks, you need to implement certain Controls Risks & Controls – Controls Controls Preventive Detective For prevention of Risks, you need to implement certain Controls Authorization Documentation Physical Checking Access Controls Reporting Budgets 52

Knowledge Management Data Organizations need to have full information and knowledge regarding all related activities. Documents and Forms Reports Information Knowledge 53

Knowledge Management Data Documents and Forms Data is the raw facts, attributes of any transaction or activities, normally relates to one single transaction and maintained and recorded on certain documents and forms Documents and Forms Documents and different forms are used to record the data related to activities and transactions. There can be multiple types of documents used to record the basic data 54

Knowledge Management Reports Information Knowledge A report normally represents the compiled and consolidated data taken for a particular time period. Information Information is anything that someone is capable of perceiving. This can be written communication, spoken communication, art, music, signals Knowledge Conversion of information in to actionable process is called knowledge. 55

Knowledge Management – Discussion Production Marketing Sales Fixed Assets Operations Purchasing 56

Role of Software What can be controlled? Through Software / Automation Software can play vital role in Organizational Success – this may include every possibility of Automation Basic system is a MUST requirement Objectives and Benefits Implementation 57

Software – Usage and Benefits Processing through Software Magnetic Cards, Bar Codes etc. Software can play vital role in Organizational Success – this may include every possibility of Automation Sensors, timers etc. Programmable Logic Controllers Benefits Accuracy Consistency Speed Control 58

Role of Accounts Department Business Cockpit 59

Role of Accounts Department MOST Important and Critical Role Responsible to keep Company on track The role of Accounts Department to keep Organization on track and provide full control on activities Custodian of Systems, Policies and SOPs Responsible for Analysis Responsible for detailed Checking 60

Section IV Business Measurement In this section we will discuss: What to Measurement? How to Measure? Who will Measure? 61

One must know as what to measure Decide – what to measure? Trend – What is Easy to measure? One must know as what to measure Required – what is important? Relevance Sales vs Contribution Margin Employees Performance 62

It is better to be Approximately right than precisely wrong How to Measure? One of the Most Complex part Make best Estimate / Judgment It is better to be Approximately right than precisely wrong Expensive tools not required Through feedback Take a small sample 63

Who will be responsible to provide measurement Who will Measure? Decide – who will measure? Directly involved ? Who will be responsible to provide measurement Who can make judgment Know what to measure Know how to measure 64

Auto System of Measurement? Establish an Auto System Auto recording of relevant activities Cross Checking of information Reconciliation Checking and monitor each other 65

SCORING Critical Factors in Performance Management Identification of Correct Areas Information & Knowledge SCORING Documentation Applying Correct Solutions Cross Checking of Results Accurate Measurement 66

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