Performance Management SystemPerformance management is a wide subject, that refers to measuring and gathering data, processing and analyzing it, understanding it and generating reports for leaders to make well informed decisions that move the company forward in its efficiency and productivity. It combines many methods from mathematics, statistics, business management and other studies and builds up a complex reporting system out of them.
It is important to realize that up to a certain point you can use a common, general performance management system, but from then on you need to tailor it to your needs. The underlying methods and principles are the same, but the data needs and the way the system puts it to use could be very different.
Just through a simple example, let me show you what I mean. Let's think of a company that produces food for customers and a company that produces food for the poor in Africa. The former is a Plc, while the latter is a non-profit organization. Both companies rely on the same data. They have expenses because they need to hire labor, pay utility bills, and so on, and their product is the same.
Despite this, the non-profit organization, as the name states, is not profit oriented. So while a 4% profitability for the Plc. may be a huge disappointment to its shareholders, the main concern for the non-profit organization is how many people they fed.
This is the reason for the lack of unified management systems. We can however categorize businesses, and thus performance management systems too, into a few orientations. We can speak of profit oriented, cost oriented, investment oriented, and other orientation systems.
All these require a different performance management system, since light through which we view the company is very different. A cost oriented performance management system's goals are to analyze cost structure through consecutive years and minimize them. The objective of an investment oriented system is quite different, since initial costs are very high there, the system has to have a more long-term view.
The actual performance management system is built up of two fundamental parts with regards to business structure. The first part is the process of gathering data. In most cases this process is already in place in a company, since adequate data can be peeled out from the balance sheet, cash flow analysis, and so on.
The second fundamental part is the controlling department of the company which takes this data and analyzes it with the methods that are best suited for the company.
On the IT side of things, performance management systems, from the software side, have to be implemented by the controlling department, coupled with IT. Many of these functions are built in to the reporting and accounting software that the firm uses, since it already assembles the balance sheet, it is very easy to extract information with it.
The methods that the company uses to manage its performance can also be coded and added to the software to make the data analysis automatic. The analysts job is then to make recommendations based on the data to the leadership.
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