Performance Accounting & Measurement

How to use accounting for performance measurement.

1. Accounting reports should be used in performance measurement not only because it is already available but it is more precise, comparable, creditable, consistent, integrated and universal.
2. Profit center accounting is a good performance measurement that promote accountability as well.
3. Accounting ratios are good efficiency or performance indicators.  They are better than round figures which has less meaning than meaningful ratios.
4. Accounting ratios could broken into component ratios which should explain the cause effect relationship.
5. As usual, performance gaps are easily identified by comparing against benchmarked performance. (internal or external or both)
6. Initially, the critical performance gaps are drawn from the Du Pont ROE Chart.
7. Then, using input output ratios, we identify the appropriate key performance indicators.
8. Thereafter, a detailed gaps analysis should narrow to the most critical group or worker.
9. Therefore,  an understanding of accounting is essentia to conduct a reliable TNA.
10. Please note however that to confirm competency gaps, some task analysis of the jobs of the persons identified is needed.
11. Best practices are identified by performance benchmarking.
12. Draw the competencies from best practices.
13. Strategic mapping could also be drawn from accounting figures.
14. Input phase involves materials, labour and overhead costs identified as the expense accounts.
15. Outputs are the results of the functional departments such as marketing, Production, HR and Finance -  profit centre accounting is preferred.
16. To check process efficiency requires input output analysis.
17. When output is translated into sales ringgit or values, it is called the outcome phase.
18. Dynamic ratios could be applied to measure real change including opportunity costs or gains.
19. Individual performance is measurable if proper transfer pricing policy is in place.
20. One way to measure performance is return on pay.  (ROP) -  how much a worker generate in value for every dollar of his pay.

 computerised accounting

Competency vs Innovation

Performance improvement could be attributed by either a)  competency or b)  innovation

• Competency improvement is made possible to identifying best practices followed by regimented training. 

•  Innovation is normally attributed by new inventions, methods and procedures that contributed to better results.  Innovation should produce an outcome higher than those impacted by training.

It is only through innovation that a firm could be a leader in the industry.

(c)  Arriffin Mansor 012-2786282

INPUT OUTPUT ANALYSIS

Use input output analysis to measure efficiency.

Use graph to present and show the change.

Normally,  the change is contributed by two major factors:  volume and efficiency.
We use either graphic OR excel template solutions.


The change contributed by volume is identified and eliminated.

The change impacted by efficiency is thus isolated and measured.

(use excel template on input/output analysis or before and after training performance)
Inputs 1 = expenses or costs
Outputs 1= Revenue / Sales
Profits 1 = Outputs minus Inputs

Inputs 2
Output 2
Profits 2

Arriffin Mansor 012-2786282

Training need surveys are a waste?

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Many are conducting surveys throughout the world and lots on money has been spent to collect data for training need assessments.

However these survey data are purely perceptions and opinion in nature.  It is analogous to a doctor asking the patient on his sickness.  He may get the wrong answers such as the symptoms and not the causes.  The respond from the patient may be influenced by how the doctor has phrased the questions.  More often, the patients may not know his own problem.  Thus, they give the wrong signals and  messages to the doctor.

The first step in TNA should be identifying the critical performance gaps.  Performance analysis could be done on the company's financial statements.  ROE chart could be used to zero down on on non performance management areas.  Gaps are drawn by comparing the companies performance with industry standards.

From the performance gaps, we could zero down to the relevant job holders.

The second step in TNA is to determine whether performance gaps were caused by incompetency or other factors.  Training would not be necessary if the cause is other than lack of competency.

The third step is to determine if performance was due to or contributed by either team effort or individual job holders.

The fourth step in TNA is profiling the competency of job holders based on best practices of the standards.  The bosses and the job holders are interviewed and observed to determine the depth and breath of their competencies.  Competency gaps of each relevant job holders are identified.

The fifth step in TNA is choosing the right delivery strategies and matched them with the accrued benefits to justify the training.

Indeed, perception and opinion surveys would not help in identifying training needs.  Meaningless data are being processed and results churned into unrelated training activities to establish set performance goals.

Opinion and perception surveys to obtain training needs are definitely a waste. Please stop them.
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Our approach has always been benchmarking
Overall Performance - Performance gaps - key job holders - competency gaps - training needs

Arriffin Mansor 012-2786282

SWOT analysis

Using KPI metrics to measure/identify SWOT
Compare with Industry Best  -  categorise them into Strength ---Normal---Weaknesses.

INTERNAL
Strength =  positive trends = critical success factors
Weaknesses = critical performance gaps = negative gaps
(use company ROE figures)

EXTERNAL
Opportunities = market growth + company improved strengths
Threats = market shrinkage +  competitors getting stronger /laws regulations
Market Environment / Market Positioning /  Competitive Edge
(use industry figures)

Arriffin Mansor 012-2786282


                                 ACTUAL        INDUSTRY STANDARDS              VARIANCE 


inputs                            xxx                              xxx                                         xxx
process                          xxxx                            xx                                          xxx
outputs                          xx                                xx                                           xxx
outcome                         xx                               xx                                           xxx

Training Need Analysis****5

5  KEY STEPS to the annual training plans

1. Critical performance gaps through Du Pont ROE chart
• compare against industry standards
• Identify non-performers and group of non-performers
• confirm gaps with input - output analysis on the job holders.
• Sensitivity analysis to identify criticality
2. Competency gaps by personal profiling and best practices through industry standard competencies
• identify relevant tasks
• interview job holder, bosses and check personal files for competencies
• Technical and management competencies
• Check breath and depth
• BSC perspectives to identify learning and growth
3. Training Delivery Strategies - on and off
• costs
• Training vs other interventions
• on the job, coaching and mentoring
• off the job. 
4. Training justification
• Expected ROI
5. Annual Training Plans
• budget and priority

POSITIVE GAPS ARE STRENGTHS

NEGATIVE GAPS ARE WEAKNESSES

OPPORTUNITIES -   MARKET VACUUM NOT TAKEN UP BY OTHERS

THREATS  -   MARKET POSITION THREATENED BY  COMPETITORS

Need Statement

Need Statement

What is the key problem -  critical performance gaps

·         Under performance based on industry standards?

·         Under performance by your standards

What are your current critical performacne gaps?
(use the ROE chart)

• ·         Marketing
• ·         Finance
• ·         HR
• ·         Operations

Why the performance gaps?

• ·         Competency gaps  (training solutions)
• ·         Lack of motivation
• ·         Lack of resources
• ·         Lack of information
• ·         Lack of authority

What are the root cause of the problems?

·       -  competency gaps

• ·         System change
• ·         Others............
• ·         People
• How much does it costs?
• ·         Hardware ...............
• ·         Software ...................
• ·         Training ........................

·        ........

What are the targeted improvement change?

• ·         Profits growth
• ·         Sales growth
• ·         Cost reduction
• ·         Quality improvement

Justifying the proposed change with ROI

Arriffin Mansor 012-2786282  arriffin@gmail.com