lOMoARcPSD|6536636
CPA Australia - SMA - M5
Summary
Strategic Management Accounting (Macquarie
University)
, lOMoARcPSD|6536636
Module 5 PERFORMANCE MANAGEMENT
Part A: The role of performance management
What is 8performance9 and 8performance management9?
Performance
Performance can a discrete event (like achieve a certain level of
profit); can be quantitatively (i.e. a numeric value, achieve $10
million profit); can be qualitatively (more subjectively, quality of a
service). There can be trade off between them, like profitability VS
reputation or short-term VS longer-term performance.
Performance has different meaning at different org levels and by
different stakeholders: organization level VS business unit,
customer VS employee.
Performance can be seen as a process to create value and is usually
interpreted relative to a target, a trend over time or by comparison
to a benchmark. Figure 5.2, performance should be seen from
various dimensions:
Figure 5.2: Performance dimensions
financial Combination of financial measures (e.g. profit before
tax, return on investment)
Financial financial and non-financial quantitative terms (e.g.
and dollar salesper square metre of floor space, earnings
nonfinancial per share (EPS)
1
, lOMoARcPSD|6536636
% Non-financial quantitative (e.g. market share (%), Net
Promoter Score (NPS), quality pass rate)
People Subjective judgments and opinions (e.g. employee
satisfaction, reputationor environmental
awareness)
Aspects of performance:
• Performance monitoring: surveillance of performance.
• Performance reporting: dissemination and interpretation
performance.
• Performance measurement (see below)
• Performance management (see below)
Performance measurement
Performance measurement: a scientific technique involving
comparison to a specific scale, therefore it is quite specific.
Financial performance can be readily measured: it is specific,
clearly defined using clear rules.
Performance indicator: less specific, indicates a direction or trend.
Like, customer satisfaction, which has different meanings and can
be judged in various ways. When comparing with targets,
performance indicators are like8traffic lights9: green for
acceptable, red for unacceptable and amber for borderline
performance.
2
, lOMoARcPSD|6536636
Different terms used to measure performance: KPI or critical
success factors (CSFs) and systems to measure performance are
called dashboard (picture the dials in an aircraft cockpit); traffic
light system or scorecard. They are all about what an organisation
is trying to measure and how that measurement takes place
Performance management
Performance management is an active process to take actions to
effect change in behavior or results. The system involves:
• defining what the performance is that an organisation needs to
achieve
• how to measure performance
• collecting and reporting information
• analysing and understanding performance causes
• monitoring performance
• taking action to improve performance.
Performance management needs MA: synthesise and analyse
complex data sets from different sources + communicate with
evidence and persuade change to improve.
Financial performance management
Accountants can interpret financial performance and discover
trends and opportunities from five perspectives ratios: Shareholder
returns; Profitability; Liquidity; Gearing and Activity or efficiency.
3
CPA Australia - SMA - M5
Summary
Strategic Management Accounting (Macquarie
University)
, lOMoARcPSD|6536636
Module 5 PERFORMANCE MANAGEMENT
Part A: The role of performance management
What is 8performance9 and 8performance management9?
Performance
Performance can a discrete event (like achieve a certain level of
profit); can be quantitatively (i.e. a numeric value, achieve $10
million profit); can be qualitatively (more subjectively, quality of a
service). There can be trade off between them, like profitability VS
reputation or short-term VS longer-term performance.
Performance has different meaning at different org levels and by
different stakeholders: organization level VS business unit,
customer VS employee.
Performance can be seen as a process to create value and is usually
interpreted relative to a target, a trend over time or by comparison
to a benchmark. Figure 5.2, performance should be seen from
various dimensions:
Figure 5.2: Performance dimensions
financial Combination of financial measures (e.g. profit before
tax, return on investment)
Financial financial and non-financial quantitative terms (e.g.
and dollar salesper square metre of floor space, earnings
nonfinancial per share (EPS)
1
, lOMoARcPSD|6536636
% Non-financial quantitative (e.g. market share (%), Net
Promoter Score (NPS), quality pass rate)
People Subjective judgments and opinions (e.g. employee
satisfaction, reputationor environmental
awareness)
Aspects of performance:
• Performance monitoring: surveillance of performance.
• Performance reporting: dissemination and interpretation
performance.
• Performance measurement (see below)
• Performance management (see below)
Performance measurement
Performance measurement: a scientific technique involving
comparison to a specific scale, therefore it is quite specific.
Financial performance can be readily measured: it is specific,
clearly defined using clear rules.
Performance indicator: less specific, indicates a direction or trend.
Like, customer satisfaction, which has different meanings and can
be judged in various ways. When comparing with targets,
performance indicators are like8traffic lights9: green for
acceptable, red for unacceptable and amber for borderline
performance.
2
, lOMoARcPSD|6536636
Different terms used to measure performance: KPI or critical
success factors (CSFs) and systems to measure performance are
called dashboard (picture the dials in an aircraft cockpit); traffic
light system or scorecard. They are all about what an organisation
is trying to measure and how that measurement takes place
Performance management
Performance management is an active process to take actions to
effect change in behavior or results. The system involves:
• defining what the performance is that an organisation needs to
achieve
• how to measure performance
• collecting and reporting information
• analysing and understanding performance causes
• monitoring performance
• taking action to improve performance.
Performance management needs MA: synthesise and analyse
complex data sets from different sources + communicate with
evidence and persuade change to improve.
Financial performance management
Accountants can interpret financial performance and discover
trends and opportunities from five perspectives ratios: Shareholder
returns; Profitability; Liquidity; Gearing and Activity or efficiency.
3
