Performance Management

1. 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

2. 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

3. 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

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

5. What is Performance Measurement? Performance Measurement is the Comparison of Actual Measurement with Expected, Specified or DesiredMeasurement 05

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

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

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

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

10. 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

11. 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

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

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

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

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

16. Objectives Earn Profit Growth Social Factor Success 16

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

18. 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

19. 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

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

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

22. Resources Human Resource Time Materials Energy Knowledge Fixed Assets Funds 22

23. Opportunities Market Buying Power Product 23

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

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

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

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

28. 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

29. 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

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

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

32. 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

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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. 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

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

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

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

45. 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

46. 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

47. 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

48. Budgeting 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

49. 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

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