Performance measurement

A performance measurement is a numeric outcome of an analysis that indicates how well an organization is achieving its objectives. These measurements can be used to examine the performance of all aspects of a business, including the accounting, engineering, finance, marketing, materials management, production, research, and sales departments. Examples of performance measurements are:

  • Tracking the ability of the accounting department to collect overdue accounts receivable
  • Tracking the speed with which the engineering department can design new products
  • Tracking the liquidity of funds administered by the finance department
  • Tracking the amount of inventory maintained by the materials management department
  • Tracking the amount of scrap produced in the production department
  • Tracking the ability of the sales staff to bring in new sales from existing customers

Performance measurements are typically compiled into a summary sheet that is distributed to the management team on a regular basis. Any measures falling below a trend line or not meeting a standard will be subject to enhanced management attention.

Another form of performance measurement is the use of revenue centers, profit centers, and cost centers to report the results of business segments. A revenue center is responsible solely for the amount of revenue it generates, while a profit center is responsible for both the revenues it generates and the costs it incurs. A cost center is only responsible for the costs it incurs. Nearly all parts of a business can be broken down into one of these classifications.

Related Courses

Business Ratios Guidebook 
The Interpretation of Financial Statements