Page 190 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 9: Performance Measurement Systems

Introduction Notes

Management Information System can be developed as an act of interrelated components that
collect (or retrieve), process, store and distribute information to support decision making,
co-ordinate and control an organisation. Information means data have been shaped into a form
that is meaningful and useful to human being. Data are stream of raw facts reporting events
occurring in organisation or physical environment before they have been organized and
rearranged into a form that people can understand and use.

9.1 Performance Measures

Performance measures are a central component of management information and reporting
system. It deals with performance measures for different levels of an organisation and for
managers at these levels - both financial and non-financial performance measures.
Performance measurements of organisation units should be a prerequisite for allocating resources
within that organisation. When a unit undertakes new activities, projections of revenues, costs
and investments are made. An ongoing comparison of the actual revenues, costs and investments
with the budgeted amounts can help guide top management’s decisions about future allocations.

Did u know? Performance measurement of manager is used in decisions about their salaries,
bonus future assignments and status, which motivate managers to strive for the goals
used in their evaluations.

9.1.1 Five Level Performance Measures

These are given below:

Representative area at which Financial Measures Non-Financial Measures
data gathered
A) Customer / Market level i) Prices of company’s products i) Market share held by
compared with competition company’s products
ii) Prices of company’s traded ii) Third party quality ratings
securities for all products in the industry
B) Total organizational level i) Return on investment (ROI) i) No. of new products
ii) Residual income (RI)/EVA introduced
iii) Return on sales ii) No. of new patents filed
Cost and revenue
measurements for each
responsibility centre according
to measure of performance used
(that is cost, revenue, profit,
and return on investments) this
is known as responsibility
accounting. Financial measures
includes flexible budget
variances)
C) Individual facility level i) Capacity utilization
(includes manufacturing plants, ii) Throughput time for
distribution sales, customer products
service centers, R & D center) iii) Percentage of times
promised delivery dates met
(schedule attainment)
D) Individual Activity level i) Direct material variance and i) Time taken to set up
Contd...
(e.g. activities in a warehouse direct labour variances machinery for new production
facility include receiving, ii) Manufacturing overhead run.
storing, dispatching, etc. variances ii) No. of accounts receivables
iii) Cost per activity level processed per hour
LOVELY PROFESSIONAL UNIVERSITY 185
iii) Inventory level not to
exceed certain amounts
iv) Abiding by Plant
Maintenance schedules. Time
period for completion i.e.,
break even time is the time
from initial idea date to the
time when the cumulative
present value of cash inflows of
the project equals the present
value of total (to market) cash
outflows
E) By Product / Programme Cost and Revenues and
Investments across
responsibility centers as far as
they pertain to program or
product (compares to budgeted
/ target amounts). This is
sometimes referred to as
activity costing.