Performance reports

Examples of recent exam questions:

• December 2018, Q1(a): Evaluate the performance reporting system as requested.  (13 marks)
• March/June 2018, Q1(i): Evaluate the performance report in Appendix 1 as requested.  (20 marks)
• September/December 2017 Q1(i): Evaluate why the dashboard in Appendix 1 was award winning, as requested by the CEO.  (8 marks)

Of course, performance means different things to different organisations, so there is certainly no single correct way of measuring or presenting performance. For example, profit-seeking organisations will certainly be interested in sales and profits, but charitable organisations have neither sales nor profit. Furthermore, even within a single organisation different aspects of performance may have to be examined in more detail at different times and for different audiences.

Mission and objectives

An organisation’s mission and subsidiary aims/objectives should define its purpose, and any evaluation of a performance report must address the extent to which these are being measured and allow the organisation’s executive to see if its mission etc. is being achieved.

March/June 2018 Q1 (Chiven) contained the following:

• Its overall aim is: ‘to become the largest clothing retailer in Beeland and deliver exceptional value to its shareholders.’
• The CEO says she plans to achieve this overall aim by ‘maximising our opportunities from new technology and increasing our currently small web presence,’ She also has two other aims which relate to the use of Big Data and simplifying the supply chain.

Using the March/June 2018 Q1 as an example, the first matter to consider is whether the performance report addresses the mission. It is useful here to determine if the mission has multiple parts, which is the case with Chiven. Its mission has two parts – to be the largest clothing retailer and to deliver exceptional value to shareholders. Once the structure of the mission has been determined, it is essential that each of the component parts is considered in turn, in terms of whether the performance report adequately measures them.

Once the mission has been addressed, then each of the subsidiary aims need to be assessed. Once more the focus should be on whether the report measures each of these key areas.

General considerations and layout

The audience for performance reports will normally be the board of directors, managers, owners, government or, more generally, those charged with governance.

Care has to be taken to assess the appropriate level of detail, layout and terminology used in reports so that users will properly understand the information that is provided. It should be considered whether the report has too much or too little information. One of the most common criticisms of reports is that they present too much information and are much too cluttered. There might be valuable information there but it is almost impossible to find and interpret it. There is always the suspicion that large volumes of information have been deliberately provided to obfuscate the facts and to blunt the message.

In addition, the level of the information being reported should be considered i.e. lots of operational details should not be necessary in a report which is for the board and ought to focus on strategic performance indicators.

Layout must help users to understand the information presented and to see quickly the important amounts, trends, results and explanations. Graphical displays can be used to greatly enhance performance information.

The inclusion of a narrative explaining the information is also needed for drawing attention to important matters and explaining their significance or causes. For example, even something as simple as an adverse material price variance needs an explanation about what caused it. If no explanation is given it will simply mean that questions will be raised later. Explanations might be accepted or might be challenged, but simply to report a variance without stating how it might have arisen is rather useless.

As well as the evaluation of whether the report measures the mission and objectives, consideration should be given to whether any other important information is missing, for example, external benchmarks like competitor information.

Types of information

Information can be classified as follows:

Examples are:

• financial: sales, profits, costs, GP%, return on capital employed.
• non-financial quantitative: percentage of product rejects, volume of sales, number of complaints.
• non-financial qualitative: reputation, effectiveness, customer satisfaction, staff morale, innovation.

The information provided must match the purpose of the performance report. In particular, non-financial performance is a very important determinant of the long term success of any enterprise. For a business, short-term financial performance can often be improved by reducing quality, innovation and training. However, a business pursuing these approaches is likely to suffer financially in the long term. It is not so much that a business is interested in making high quality products for their own sake, but if the business positions itself as a high quality manufacturer it must deliver high quality and, therefore, quality needs to be monitored. If the business were known as a ‘cheap and cheerful’ supplier, the measurement of quality would be much less important but costs per unit would become more important.

The need for non-financial information is more obvious in not-for profit organisations and, indeed, in those organisations non-financial performance is often an end in itself, rather than an enabler of profitability.

Non-financial qualitative information is likely to be as important as quantitative information, but is harder to pin-down. Technically, qualitative information is known as a ‘construct’, an attribute that cannot be measured directly. Examples of constructs are enthusiasm and empathy. Both are very important in business, but there is no direct way in which they can be measured. Usually, for communication, assessment and comparative purposes an effort has to be made to try to turn qualitative information into quantified information. For example, in a hospital it would be important for patients to feel that they were treated sensitively and with dignity. Assuming management feels that these are important qualities, targets need to be set for them and performance assessed. Inevitably this will be done by setting up some type of numerical assessment system so that qualitative information becomes quantitative.

The transition from qualitative to quantitative can introduce distortions to the information. For example, does what is measured truly reflect what the undertaking wants to assess? For example, in an effort to measure enthusiasm an organisation might measure when staff arrive in the morning. However, the person who always arrives early might simply be a victim of an hourly train service: arrive 40 minutes early or 20 minutes late.

Question 1(b) in the December 2018 exam is an excellent example of how a performance measurement information can be distorted. This is directly connected to learning outcome C5b in the APM syllabus.

Conclusion

When evaluating a performance report remember to:

• assess whether it measures the components of the organisation’s mission
• assess whether it measures the subsidiary aims and objectives of the organisation
• review its general content, level of detail and layout

As part of the evaluation do not be afraid to recommend changes or alternatives but remember these recommendations should be justified as to why they should be considered.