Performance Measures in Operation Management

Topics: Better, Management, Strategic management Pages: 6 (1706 words) Published: January 19, 2011
Performance Measures
1. Measuring and improving performance
1.1 Performance measurement
The activity of measuring and assessing the various aspects of a process or whole operation’s performance. Performance here is defined as the degree to which an operation fulfils the five performance objectives at any point in time, in order to satisfy its customers. A polar diagram can be used to see how well the 5 dimensions of performance of the operation meet requirements of the market. It is unlikely that for any operation a single measure of performance will adequately reflect the whole of a performance objective. Usually operations have to collect a whole bundle of partial measures of performance. What factors to include as performance measures?

The five generic performance objectives – quality, speed, dependability, flexibility and cost –can be broken down into more detailed measures, or they can be aggregated into ‘composite’ measures. The more aggregated performance measures have greater strategic relevance. The more detailed performance measures are usually monitored more closely and more often. In practice, most organizations will choose to use performance targets from throughout the range.

What are the most important performance measures?
One problem to devise performance measurement system is to achieve some balance between having a few key measures on one hand, or, on the other hand, having many detailed measures. Broadly, a compromise is reached by making sure that there is a clear link between the operation’s overall strategy, the ‘key’ performance indicators (KPIs) that reflect strategic objectives, and the bundle of detailed measures that are used to ‘flesh out’ each key performance indicator.

What detailed measures to use?
The five performance objectives – quality, speed, dependability, flexibility and cost – are really composites of many smaller measures. All of these measures individually give a partial view of the operation’s cost performance, and each of them does give a perspective on the cost performance of an operation that could be useful either to identify areas for improvement or to monitor the extent of improvement.

The balanced scorecard approach
The balanced scorecard attempts to bring together the elements that reflect a business’s strategic position, at the same time it restricts the number of measures and focus especially on those seen to be essential. It presents an overall picture of the organization’s performance in a single report, and by being comprehensive in the measures of performance it uses, encourages companies to take decisions in the interests of the whole organization rather than sub-optimizing around narrow measures.

1.2 Setting target performance
After identified each partial measure, it has to be compared against some performance standard to make it meaningful. There are four types of performance standard commonly used: * Historical standards, which compare performance now against performance sometime in the past; * Strategic target standards, which compare current performance against some desired level of performance; * Competitor performance standards, which compare current performance against competitors’ performance; * Absolute performance standards, which compare current performance against its theoretically perfect state.

1.3 Benchmarking
Benchmarking is ‘the process of learning from others’ and involves comparing one’s own performance or methods against other comparable operations (obtaining competitor performance standards). It’s based on the idea that (a) problems in managing processes are almost certainly shared by processes elsewhere, and (b) there is probably another operation somewhere that has developed a better way of doing things. Types of benchmarking

* Internal benchmarking - a comparison between operations or parts of operations which are within the same total organization. E.g. a manufacturer with several factories...
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