Performance measurement is the process of collecting, analyzing and/or reporting information regarding the performance of an individual, group, organization, system or component. It can involve studying processes/strategies within organizations, or studying engineering processes/parameters/phenomena, to see whether output are in line with what was intended or should have been achieved.
Performance measurement has been defined by Neely as "the process of quantifying the efficiency and effectiveness of past actions", while Moullin defines it as "the process of evaluating how well organisations are managed and the value they deliver for customers and other stakeholders”. Discussion on the relative merits of these definitions appeared in several articles in the newsletter of the Performance Management Association.
Good performance is the criterion whereby an organization determines its capability to prevail.
Performance measurement estimates the parameters under which programs, investments, and acquisitions are reaching the targeted results.
All process of measuring performance requires the use of statistical modeling to determine results. A full scope copy of the performance of an organization can never be obtained, as generally some of the parameters cannot be measured directly but must be estimated via indirect observation and as a complete set of records never delivers an assessment without compression to key figures.
Several performance measurement systems are in use today, and each has its own group of supporters. For example, the Balanced Scorecard (Kaplan and Norton, 1993, 1996, 2001), Performance Prism (Neely, 2002), action-profit linkage APL (Epstein & Westbrook, 2001) and the Cambridge Performance Measurement Process (Neely, 1996) are designed for business-wide implementation; and the approaches of the TPM Process (Jones and Schilling, 2000), 7-step TPM Process (Zigon, 1999), and Total Measurement Development Method (TMDM) (Tarkenton Productivity Group, 2000) are specific for team-based structures. With continued research efforts and the test of time, the best-of-breed theories that help organizations structure and implement its performance measurement system should emerge.
Although the Balanced Scorecard has become very popular, there is no single version of the model that has been universally accepted. The diversity and unique requirements of different enterprises suggest that no one-size-fits-all approach will ever do the job. Gamble, Strickland and Thompson (2007, p. 31) list ten financial objectives and nine strategic objectives involved with a balanced scorecard.
Performance measurement are carried out in the design, building, operation and maintenance of systems, machines, devices, structures, materials and processes. In design, performance measurement can be of physical properties, parameters, etc., while in maintenance, repair, and operations, and reliability engineering, failures, availability, maintainability and OEE are common measures. Within maintenance, EN 15341 lists 71 performance indicators, whereof 21 are technical indicators. Based upon the structure of EN 15341, a review of railway infrastructure indicators is offered by Stenström et al.
According to the National Center for Charitable Statistics, there are more than 1.4 million nonprofit organizations in the United States alone. Measuring the success of a nonprofit at achieving its mission is a common practice and at times is needed in order to secure funding. It is important to measure the success of nonprofit organizations in order to improve its performance and ensure accountability. However, there is no standard method used to measure the success of nonprofits since they vary in their size, structure, and mission. A survey conducted by the Social Enterprise program at Harvard Business School found that nonprofit organizations' board members frequently considered performance measurement to be one of their top three concerns.
Performance measurement is not a new concept, but rather an old concept of renewed importance today. In 1943, the International City Management Association published an article on measuring the performance of municipal activities. During the Kennedy administration, systems analysis processes were introduced to the Department of Defense which fueled interest in performance measurement in the federal government. Other agencies began experimenting in performance measurement when the Johnson administration introduced what they called planning-programming-budgeting system (PPB). Eventually more and more state and local governments began using performance measurement to improve their management and budgeting. The use of performance measurement became a common practice in the 1970s with the introduction of new social programs that needed to be assessed. However, interest in performance measurement did dwindle in the 1980s, as people did not perceive benefits of using performance measurements in making decisions. In the 1990s, performance measurement was reenergized as the demands for holding government entities accountable to public increased. A number of resolutions were passed by associations such as the National Academy for Public Administration, urging government to set goals and measure their performance and in 1993, The Government Performance and Results Act was passed by the federal government requiring their agencies to become involved in strategic planning, goal-setting, and performance measurement.
The Balanced Scorecard "translates an organization's mission and strategy into a comprehensive set of performance measures that provide the framework for a strategic measurement and management system". It was originally made for the private sector to "overcome deficiencies in the financial accounting model".
While it is difficult to assign a financial value to social benefits many nonprofit work to produce, nonprofits feel the need to measure their performance. Social return on investment (SROI) is a form of measurement that can be used by nonprofits. SROI assigns a financial value to charitable activities so that nonprofits can measure their social benefits. For example, the nonprofit Crises employs the SROI method to measure the value of their activities by trying to show how helping the homeless population access education and training has benefits such as creating tax revenue and reducing the cost of welfare.
Evaluating programs can help figure out what works for the organization and what does not. However, evaluation takes time and is costly. Performance Measurement on the other hand is less time-consuming and can provide information in time for day-to-day decisions. While both evaluation and performance measurement are necessary, they each have their own advantages and disadvantages. A detrimental aspect of performance measurement is that the validity of the results can be questioned, and it is not clear as to whether or not positive outcomes were due to a specific program.