M5 Part A: Role of Performance Management
Monday, 6 April, 2026 9:44 AM
Performance
- Discrete event as in achieving certain level of profit / customer satisfaction
- May be considered:
1. Quantitatively (numeric value)
- Exp. Profit is $10mil
- 85% of customers r satisfied
2. Qualitatively (more subjectively)
- Exp. Quality of service / org's reputation
- There may be trade-off between quantitative & qualitative aspect of performance
- Exp. Between achieving certain level of profitability & org's reputation
- Exp. Trade-off between ST performance & longer term sustainable performance, whether that can be financial, social,
environmental / reputational
- May be understood at either:
1. Level of whole org
2. Diff business units
3. Diff products / services
4. Geographic areas
5. Distribution channel
6. Customer segment within org
- At each level of analysis, performance can interpreted differently
- Exp. Aus airline Qantas achieve diff result between its domestic, international & low cost subsidiary (Jetstar) business segments
- Diff strategies & measure of performance apply across each of diff segment
- Diff stakeholders interpret performance in diff ways
- Exp. Qantas customer see Qantas's performance in terms of on time departures / comfort of cabin seating
- Investor: interest in fin performance
- Public living near airport: interest in airline's env performance
Performance measurement Performance indicator
- Imply scientific technique involving comparison to specific - Less specific
area - Presented as trend / in comparison to target as traffic lights
- Exp. Metre in length - Green: acceptable; Red: unacceptable ; amber: borderline
- Tonne of weight performance
- One thousand dollar - It is signal indicating general direction / trend rather than exact
- Hence, performance measure is specific comparison against scale
- Fin performance eg. Profit / return on investment can be - Exp. Customer satisfaction classified as indicator as:
readily measured as it is : 1. It mean diff things to diff people
1. Specified in single unit 2. Can be judged in diff ways
- Exp. Dollar - Exp. Sales to returning customers
2. Clearly defined - Survey of sample of customer
3. Based on clear application of rules
- Exp. Accounting std / generally accepted accounting
principles
Other aspect of performance
- Other functions relevant to concept of performance
SMA Page 1
, - Other functions relevant to concept of performance
1. Performance monitoring involve surveillance of performance
2. Performance reporting involve dissemination & interpretation of info about performance to those inside &/ outside org
Performance management
- Active rather than passive process whereby action r taken to effect change in behaviour / result
- Far more than collecting / reporting info
- It extend to analysing performance with view to understanding its causes
- Only when there is understanding of causality can change/ recommendation for change, be implemented
- It is starting point, management accountant need to analyse complex data set from diff sources & analyses that data
- Then needs skills of persuasion & communication, backed by evidence to put in place action/ recommendation for change with
purpose of improving future performance
- Imply changing behaviour to improve performance to achieve absolute / relative target
- Exp. ROI of 12% / mkt share that is greater than competitor
Performance management & its link to strategy
- Org's strategy is concerned with value creation that is sustainable over time
- Hence, idea of management control to ensure strategy is achieved is important to understanding of performance mgmt
- Performance management process incorporate all of the aspect of performance
- These r:
1. Define what the performance is that org need to achieve
2. How to measure performance
3. Reporting & monitoring performance
4. Take deliberate action to improve performance
- Performance can be seen as method of value creation in terms of process / reuslt of process
- (if we r not creating value, what r we doing?)
- Is interpreted relative to:
1. Target
2. Trend over time
3. Comparison to benchmark
Performance dimension
- Performance shouldn’t be viewed from one dimension only
1. Combination of fin measures - Exp. Profit before tax
- Return on investment
2. Non-financial but quantitative - Mkt share (%)
- Net promoter score (NPS)
SMA Page 2
, - Quality pass rate
3. Combination of fin & non-financial quantitative terms - Dollar sales per square metre
- Floor space
- Earnings per share (EPS)
4. Subjective judgement & opinion - Employee satisfaction
- Reputation
- Env awareness
- Org use diff terms for performance measure
- Exp. Key performance indicator (KPIs)
- Critical success factor (CSFs)
- Org may call their performance management system a:
1. dashboard /
2. traffic light system
3. Scorecard
- Performance need to be understood relative to org's strategy
Exp. 5.1 performance reporting by Event Hospitality and Entertainment Ltd
Financial performance management
- Accountants r familiar with:
1. Measuring
2. Monitoring
3. Managing
SMA Page 3
Monday, 6 April, 2026 9:44 AM
Performance
- Discrete event as in achieving certain level of profit / customer satisfaction
- May be considered:
1. Quantitatively (numeric value)
- Exp. Profit is $10mil
- 85% of customers r satisfied
2. Qualitatively (more subjectively)
- Exp. Quality of service / org's reputation
- There may be trade-off between quantitative & qualitative aspect of performance
- Exp. Between achieving certain level of profitability & org's reputation
- Exp. Trade-off between ST performance & longer term sustainable performance, whether that can be financial, social,
environmental / reputational
- May be understood at either:
1. Level of whole org
2. Diff business units
3. Diff products / services
4. Geographic areas
5. Distribution channel
6. Customer segment within org
- At each level of analysis, performance can interpreted differently
- Exp. Aus airline Qantas achieve diff result between its domestic, international & low cost subsidiary (Jetstar) business segments
- Diff strategies & measure of performance apply across each of diff segment
- Diff stakeholders interpret performance in diff ways
- Exp. Qantas customer see Qantas's performance in terms of on time departures / comfort of cabin seating
- Investor: interest in fin performance
- Public living near airport: interest in airline's env performance
Performance measurement Performance indicator
- Imply scientific technique involving comparison to specific - Less specific
area - Presented as trend / in comparison to target as traffic lights
- Exp. Metre in length - Green: acceptable; Red: unacceptable ; amber: borderline
- Tonne of weight performance
- One thousand dollar - It is signal indicating general direction / trend rather than exact
- Hence, performance measure is specific comparison against scale
- Fin performance eg. Profit / return on investment can be - Exp. Customer satisfaction classified as indicator as:
readily measured as it is : 1. It mean diff things to diff people
1. Specified in single unit 2. Can be judged in diff ways
- Exp. Dollar - Exp. Sales to returning customers
2. Clearly defined - Survey of sample of customer
3. Based on clear application of rules
- Exp. Accounting std / generally accepted accounting
principles
Other aspect of performance
- Other functions relevant to concept of performance
SMA Page 1
, - Other functions relevant to concept of performance
1. Performance monitoring involve surveillance of performance
2. Performance reporting involve dissemination & interpretation of info about performance to those inside &/ outside org
Performance management
- Active rather than passive process whereby action r taken to effect change in behaviour / result
- Far more than collecting / reporting info
- It extend to analysing performance with view to understanding its causes
- Only when there is understanding of causality can change/ recommendation for change, be implemented
- It is starting point, management accountant need to analyse complex data set from diff sources & analyses that data
- Then needs skills of persuasion & communication, backed by evidence to put in place action/ recommendation for change with
purpose of improving future performance
- Imply changing behaviour to improve performance to achieve absolute / relative target
- Exp. ROI of 12% / mkt share that is greater than competitor
Performance management & its link to strategy
- Org's strategy is concerned with value creation that is sustainable over time
- Hence, idea of management control to ensure strategy is achieved is important to understanding of performance mgmt
- Performance management process incorporate all of the aspect of performance
- These r:
1. Define what the performance is that org need to achieve
2. How to measure performance
3. Reporting & monitoring performance
4. Take deliberate action to improve performance
- Performance can be seen as method of value creation in terms of process / reuslt of process
- (if we r not creating value, what r we doing?)
- Is interpreted relative to:
1. Target
2. Trend over time
3. Comparison to benchmark
Performance dimension
- Performance shouldn’t be viewed from one dimension only
1. Combination of fin measures - Exp. Profit before tax
- Return on investment
2. Non-financial but quantitative - Mkt share (%)
- Net promoter score (NPS)
SMA Page 2
, - Quality pass rate
3. Combination of fin & non-financial quantitative terms - Dollar sales per square metre
- Floor space
- Earnings per share (EPS)
4. Subjective judgement & opinion - Employee satisfaction
- Reputation
- Env awareness
- Org use diff terms for performance measure
- Exp. Key performance indicator (KPIs)
- Critical success factor (CSFs)
- Org may call their performance management system a:
1. dashboard /
2. traffic light system
3. Scorecard
- Performance need to be understood relative to org's strategy
Exp. 5.1 performance reporting by Event Hospitality and Entertainment Ltd
Financial performance management
- Accountants r familiar with:
1. Measuring
2. Monitoring
3. Managing
SMA Page 3
