EVALUATING PERFORMANCE, EVALUATING PERFORMANCE, MONITORING NEW MONITORING NEW DEVELOPMENTS DEVELOPMENTS

AND INITIATING CORRECTIVE AND INITIATING CORRECTIVE ADJUSTMENTSADJUSTMENTS

By: SANDRA G DOFITASBy: SANDRA G DOFITAS MBA-Ex11MBA-Ex11

PERFORMANCE PERFORMANCE EVALUATIONEVALUATION

a periodical assessment & analysis a periodical assessment & analysis of the performance of an of the performance of an organization or some of its unitsorganization or some of its units

look for ways to measure the look for ways to measure the financial & economic consequences financial & economic consequences of past management decisions that of past management decisions that shaped investments, operations & shaped investments, operations & financing over timefinancing over time

PERFORMANCE PERFORMANCE EVALUATIONEVALUATION

Important Questions:Important Questions:– Were all resources used effectively?Were all resources used effectively?– Was the profitability of the business Was the profitability of the business

met? Or did it exceed expectations?met? Or did it exceed expectations?– Were the financing choices made Were the financing choices made

prudently?prudently?

Performance Performance Evaluation (Internal):Evaluation (Internal):

ACTIVITIESACTIVITIES

Financial AnalysisFinancial Analysis

Organization’s Performance, Organization’s Performance, Review and Analysis (PRA)Review and Analysis (PRA)

PERFORMANCE PERFORMANCE EVALUATIONEVALUATION

basis for the evaluation is the pre-basis for the evaluation is the pre-determined determined performance performance standardstandard set by the organization set by the organization

Ratio AnalysisRatio Analysis Ratio analysis is primarily used to Ratio analysis is primarily used to

compare a company's financial figures compare a company's financial figures over a period of timeover a period of time

an excellent method for determining the an excellent method for determining the overall financial condition of a business overall financial condition of a business

puts the information from a financial puts the information from a financial statement into perspective, helping to statement into perspective, helping to spot financial patterns that may spot financial patterns that may threaten the health of your company. threaten the health of your company.

In isolation, a financial ratio is a useless In isolation, a financial ratio is a useless piece of information piece of information

By definition, a ratio can relate By definition, a ratio can relate any magnitude to any other – the any magnitude to any other – the choices are limited only by the choices are limited only by the imagination.imagination.

To be useful, its meaning & To be useful, its meaning & limitations have to be understood.limitations have to be understood.

RatioRatio

Ratio AnalysisRatio Analysis Analyst must first define the Analyst must first define the

following elements:following elements:– The viewpoint takenThe viewpoint taken– The objective of the analysisThe objective of the analysis– The potential standards of The potential standards of

comparisoncomparison

Ratio AnalysisRatio Analysis 3 Major Viewpoints of Financial 3 Major Viewpoints of Financial

Performance:Performance:– The ManagersThe Managers– The Owners (Investors)The Owners (Investors)– The Lenders & CreditorsThe Lenders & Creditors

Ratio AnalysisRatio Analysis Manager’s Point of View:Manager’s Point of View:

– Operational AnalysisOperational Analysis– Resource ManagementResource Management– ProfitabilityProfitability

Ratio AnalysisRatio Analysis Owner’s Point of View:Owner’s Point of View:

– Investment ReturnInvestment Return– Disposition of EarningsDisposition of Earnings– Market IndicatorsMarket Indicators

Ratio AnalysisRatio Analysis Lender’s Point of View:Lender’s Point of View:

– LiquidityLiquidity– Financial Leverage (the use of Financial Leverage (the use of

borrowed funds to acquire borrowed funds to acquire investments)investments)

– Debt ServiceDebt Service

Monitoring New Monitoring New DevelopmentsDevelopments

ACTIVITIESACTIVITIES

Organization’s Performance, Review Organization’s Performance, Review and Analysis (PRA)and Analysis (PRA)

Appraisal of Employees’ PerformancesAppraisal of Employees’ Performances

Regular AuditingRegular Auditing

Implement Computer System to Implement Computer System to Manage the Company’s PerformanceManage the Company’s Performance

Performance Performance Evaluation (External):Evaluation (External):

Turbulent Changes in the Turbulent Changes in the organization’s external environmentorganization’s external environment- competitor’s tactical moves- competitor’s tactical moves- disruptive technology- disruptive technology- changes in economic & political - changes in economic & political

conditionsconditions- sudden regulatory changes- sudden regulatory changes

Performance Evaluation Performance Evaluation (External):(External):

Competitive-ResponseCompetitive-Response

– to “sense & respond” to changes in to “sense & respond” to changes in its external environmentits external environment

Competitive-ResponseCompetitive-Response

Sense & CaptureSense & Capture

Create IntelligenceCreate Intelligence

Analyze & InformAnalyze & Inform

Deliberate & DecideDeliberate & Decide

Respond & EngageRespond & Engage

Measure & CorrectMeasure & Correct

Intelligence RepositoriesIntelligence Repositories

Alerts & Broad AccessAlerts & Broad Access

Reporting Based on Pattern Reporting Based on Pattern RecognitionRecognition

EscalationEscalation

ScriptingScripting

Competitive ScorecardsCompetitive Scorecards

ACTIVITIES BEST PRACTICES

Identification of DeviationsIdentification of Deviations(Actual Performance vs (Actual Performance vs

Standards)Standards) Pay attention only to exception Pay attention only to exception

(ex. areas where deviations are (ex. areas where deviations are significant)significant)

Analyze the underlying causes of Analyze the underlying causes of deviations from the required level deviations from the required level of performanceof performance

Corrective Corrective Adjustments/ActionsAdjustments/Actions

Changing certain conditions (like Changing certain conditions (like replacement of a machine, better replacement of a machine, better service to customers, search for more service to customers, search for more reliable suppliers)reliable suppliers)

Training, transfers, organizational Training, transfers, organizational adjustments in authority (deviations adjustments in authority (deviations caused by ineffective supervision or caused by ineffective supervision or lack of adequate expertise, lack of adequate expertise, interpersonal conflicts, etc.)interpersonal conflicts, etc.)

Corrective Corrective Adjustments/ActionsAdjustments/Actions

Revision of objectives, strategies, policies, Revision of objectives, strategies, policies, procedures, etc. (deviation caused by procedures, etc. (deviation caused by defective standard of performance)defective standard of performance)

Note: Changes in standards may be required Note: Changes in standards may be required by factors beyond management’s control – by factors beyond management’s control – e.g. net profit fell below expectation due to e.g. net profit fell below expectation due to rise in prices of raw materials)rise in prices of raw materials)

““I am careful not to confuse I am careful not to confuse excellence with perfection. excellence with perfection. Excellence, I can reach for; Excellence, I can reach for; perfection is God's perfection is God's business.”business.”

Michael J. FoxMichael J. Fox