Chapter 8 - Performance measurement and strategic information management. This chapter explain the use of cost management information for each of the four functions of management and in different types of organizations, with emphasis on the strategic management function; explain the contemporary business environment and how it has influenced cost management; explain contemporary management techniques and how they are used in cost management to respond to the contemporary environment.
Chapter 8 Performance Measurement and Strategic Information Management Information Management If you don’t measure results, you can’t tell success from failure If you can’t see success, you can’t reward it – and if you can’t reward success, you are probably rewarding failure If you can’t recognize failure, you can’t correct it Process Flow Measures and Indicators Data Analysis Information Benefits of Information Management Understand customers and customer satisfaction Provide feedback to workers Establish a basis for reward/recognition Assess progress and the need for corrective action Reduce costs through better planning Three Levels of Quality Info Individual level – Control Process level – Diagnosis Organizational level – Planning Leading Practices (1 of 2) Develop a set of performance indicators that reflect customer requirements and key business drivers Use comparative information and data to improve overall performance and competitive position Continually refine information sources and their uses within the organization Use sound analytical methods to conduct analyses and use the results to support strategic planning and daily decision making Leading Practices (2 of 2) Involve everyone in measurement activities and ensure that information is widely visible Ensure that data are accurate, reliable, timely, secure, and confidential Ensure that hardware and software systems are reliable and userfriendly Systematically manage organizational knowledge and identify and share best practices The Dashboard of Old The Dashboard of Old Performance Measures Performance Measures Capital Expendi tures Costs Cash flow Sales Liabilities Assets Profitability Debt Training Customer Retention Employee Retention Customer Satisfac tion The Dashboard of New The Dashboard of New Performance Measures Performance Measures Defect Rates Profitability Cycle Time Referral Rates Costs Sales Cash flow Quality Capital Expendi tures Assets Debt Liabilities Balanced Scorecard Financial perspective Internal (processes) perspective Customer perspective Innovation and learning perspective Linkages to Strategy Key business drivers (key success factors) Strategies and action plans Measures and indicators Key Idea Linking Measures to Strategy The things an organization needs to do well to accomplish its vision are often called key business drivers or key success factors. They represent things that separate an organization from its competition and define strengths to exploit or weaknesses to correct Effective Measures Simple Measurable Actionable Related Timely Common Process Quality Measures Nonconformities (defects) per unit Errors per opportunity Dpmo – defects per million opportunities Identifying and Selecting Process Measures Identify all customers and their requirements and expectations Define work processes Define valueadding activities and process outputs Develop measures for each key process Evaluate measures for their usefulness 26 Analyzing and Using Data Analysis – an examination of facts and data to provide a basis for effective decisions Examples – Examining trends and changes in key performance indicators – Making comparisons relative to other business units, competitor performance, or bestinclass benchmarks – Calculating means, standard deviations, and other statistical measures – Seeking to understand relationships among different performance indicators using sophisticated statistical tools such as correlation and regression analysis Key Idea Analyzing and Using Performance Data Organizations need a process for transforming data, usually in some integrated fashion, into information that top management can understand and work with Interlinking Quantitative modeling of causeandeffect relationships between external and internal performance measures Facilitated by data mining – the process of of searching large databases to find hidden patterns in data, using analytical approaches and technologies such as cluster analysis, neural networks, and fuzzy logic Managing Data and Information Validity – Does the indicator measure what it says it does? Reliability – How well does an indicator consistently measure the “true value” of the characteristic? Accessibility – Do the right people have access to the data? 30 Key Idea Data Accessibility and Security In many companies, business information is only accessible to top managers and others on a needtoknow basis. In TQ focused companies, business information is accessible to everyone Knowledge Management The process of identifying, capturing, organizing, and using knowledge assets to create and sustain competitive advantage – Explicit knowledge includes information stored in documents or other forms of media. – Tacit knowledge is information that is formed around intangible factors resulting from an individual’s experience, and is personal and contentspecific Key Idea Knowledge Management Knowledge assets refer to the accumulated intellectual resources that an organization possesses, including information, ideas, learning, understanding, memory, insights, cognitive and technical skills, and capabilities Knowledge Management Knowledge management involves the process of identifying, capturing, organizing, and using knowledge assets to create and sustain competitive advantage Knowledge management differs from information management Internal Benchmarking The ability to identify and transfer best practices within the organization Process: – Identify and collect internal knowledge and best practices – Share and understand those practices – Adapt and apply them to new situations and bringing them up to bestpractice performance levels Measurement and Information Management in the Baldrige Award Criteria The Measurement, Analysis, and Knowledge Management Category examines an organization’s information management and performance measurement systems and how the organization analyzes performance data and information 4.1 Measurement and Analysis of Organizational Performance a. Performance Measurement b. Performance Analysis 4.2 Information and Knowledge Management a. Data and Information Availability b. Organizational Knowledge 36 ... Measurement? ?and? ?Information? ? Management? ?in? ?the? ?Baldrige Award Criteria The? ?Measurement, Analysis,? ?and? ?Knowledge Management? ?Category examines an organization’s information? ?management? ?and? ?performance? ?measurement? ?... information? ?management? ?and? ?performance? ?measurement? ? systems? ?and? ?how? ?the? ?organization analyzes? ?performance? ? data? ?and? ?information 4.1? ?Measurement? ?and? ?Analysis? ?of? ?Organizational Performance? ? a.? ?Performance? ?Measurement? ? b.? ?Performance? ?Analysis... Ensure that hardware? ?and? ?software systems are reliable? ?and? ?userfriendly Systematically manage organizational knowledge? ?and? ?identify? ?and? ?share best practices The? ?Dashboard? ?of? ?Old The? ?Dashboard? ?of? ?Old Performance? ?Measures