In today's competitive and volatile market it is imperative that companies truly understand how they do what they do, as well as how well they do what they do. Without this knowledge it is virtually impossible for management to make needed adjustments for better positioning in the market. Companies that don't start practicing performance management probably won't be around very long.

A company is the sum of its businesses processes. Performance Management is the sum of strategic management practices that keep a finger on the pulse of key business processes and utilizes that information to strengthen the overall company.

Specifically, performance management is a system of measuring key performance indicators that are created for multiple areas of the company, analyzing this information and making necessary adjustments to improve the performance.

Typically, performance measurement falls into three basic business process categories: customer satisfaction, productivity and financial results. Precisely what business processes make up these categories is specific to each company and becomes clear when the company clearly identifies it business process and aligns them with the corporate goals of the company.

So what should you be measuring? The answer to that question is different for each organization. It can only truly be answered if the company has gone through the exercises of mapping its processes and clearly articulating its corporate vision via strategy mapping. Without the information that comes from these strategic management exercises, it will be difficult to define exactly what to measure and how.

Once a company fully understands how it does what it does, it can start asking some key performance measurement design questions: What aspects of our business need to be tracked? Why should each one of these areas be tracked? What value will this information provide to strengthen our company? How could management use this information to make strategic decisions? Who will receive/use this information? How will we track each piece of this information? How often should we track each one? Once it is possible to articulate an answer to these questions, a company is well on its way to implementing an important stage of effective performance management - effective performance measurement.

A lot of value comes through performance measurement; however it is important that measuring performance does not become a company's main reason for existence. An effective performance measurement system should be part of any company's strategic management tools for the focal purpose of assisting the company to identify and practice meaningful continuous improvement initiatives where and when the company requires it.

Any system is created, built and maintained by people. Performance measurement systems are no different. They rely wholly the human equation of a company. Managers who ignore this fact will find performance measurement or management an impossible task if they do not factor in the human equation.

Implementing a performance measurement system takes time and patience. As with any other fundamental change within a company, it may cause a great deal of anxiety amongst the employees. It will bring with it a lot of new ideas, approaches, reporting responsibilities and staff performance expectations. This is why it is important to involve employees in the creation of specific performance indicators because it will be them who tracks, reports and potentially be impacted by the resulting decisions. It is important to ensure that your employee recognition programs always align with the specifics of your performance management system, otherwise you will be sending mixed messages to the staff and making the prolonged effectiveness of this system a certainty for failure.

The road to implementing an effective performance management system is a long and often bumpy one. But along the way you will become increasing used to the terrain and move more quickly and purposefully. And with a few good miles under your belt you will be able to truly answer the question: How well are we making the grade?

Copyright - Kelly Melanson, Certified Management Accountant