Managers measured quantitative and qualitative KPIs of humans and other resources used in achieving their actual output. Performance measurement is part of controlling. It helps managers know where they can improve both in strategy and in future planning.
The following are some of the key performance indices managers use in measuring performance.
1. Labour productivity
This measures the effort of humans in the production output. It is computed as total output divided by the number of employees. If the company makes different products in different units, then each unit and its employees can be separately measured.
2. Machine productivity
Similar to labour productivity, but this is based on machine hours. Mathematically, it is total output divided by machine hours. A higher figure tells managers how efficiently the machines were utilised. And a lower figure shows there might be frequent machine breakdowns.
3. Financial capital ratio
This is measured as total output divided by total assets in the balance sheet. The shareholders and debt holders provide the funds used to finance production. How does the fund aid output? The indicator explains it to managers.
4. Efficiency
Efficiency implies achieving better results with a reduced cost. It is a cost-benefit analysis. It helps explain if employees are wasteful spenders or conservative. Efficiency occurs when there is increased output with the same input cost.
Also, it can be measured by an increase in output with less than a proportional increase in input cost. Or a decrease in output with less than a proportional decrease in input. Efficiency can lead to earnings growth. A company team that has perfect efficiency may sell its product at a lower price than its competitors.
5. Effectiveness
This means getting things done in the right way and making the right choices. Effectiveness reveals if the company meets its objectives and goals.
To illustrate, if a company plans to increase market share by 10%, and its core product is underperforming due to unfavourable market conditions. If the company switches to a similar product that has favourable market conditions, it can reach 10% market share on time.