For instructional purposes only.

Lesson No: 3

Lesson Title: Business Performance Evaluation Tools and Techniques

Let’s hit these:

At the end of this lesson, you should be able to:
1. Explain the importance of evaluating business performance.
2. Describe some techniques that can be applied in evaluating business performance.
3. Identify and describe the commonly used tools in evaluating business performance.

Let’s read:
Managing and evaluating the performance of the business helps organisations become more
successful and stay ahead of the competition. By evaluating business performance, issues and
opportunities can be addressed before they negatively impact the business. In evaluating business
performance, there are several tools and techniques that can be used. These tools and techniques are
designed to make the business more effective and efficient. Some of the common tools and techniques
are discussed in the succeeding sections of this lesson.

Evaluating Business Performance in 4 Simple Steps

Success in business isn’t usually down to luck. Instead, it requires good strategic decisions, informed
by a detailed understanding of the company’s own business performance and the wider market.
Evaluating business performance doesn’t need to be a complicated process, but it should be regular.
Below are the four steps in evaluating business performance.
1. Review the business activity: have the organization done what it is wanted to do?
Business goals should always be the focus. Targets should be set and then conduct a regular
business performance review to ensure where the business wants to be.
Areas to focus on include:
 Sales: have the business performed as expected?
 Innovation: are new ideas developing on target?
 People: have employees and teams achieved their individual targets? Is there retaining of staff
or is staff turnover too high?

2. Efficiency: could profit margin be improved?

The efficiency of the business operations is about the best use of resources; how are the costs
managed and how can income be increased.
 Operational costs: could these be reduced? Consider the utility bills, rent, staffing costs and
other expenses.
 Time: is the organization wasting too much staff time on inefficient processes? For example,
could the finance function be streamlined so that time can be better spent on more profitable
activities?
 Do the product prices or hourly rates bring in enough income? Is there a need to put the prices
up?
 Finance: are the sources of funding secure? Are there other ways to bring in money?

3. Look at the competition: can the company take ideas from them?
Business performance doesn’t just depend on what is done within the company. Competing
businesses could seriously affect the bottom line. It’s vital to keep a regular eye on other
businesses in the same field.

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 How much do they pay their staff? Could it be acceptable to lose the best talent to a
competing firm?
 What’s their pricing like?
 What is their target market?
 Are they offering anything that the company don’t have? And should the company be doing
it, too?

4. Keep an eye on wider trends: do the company need to adapt?

The wider world needs to be considered when evaluating business performance. That could
include the local and international economy, the market the company is part of, and technological
progress.
 Have prices gone up or down? The cost of raw materials could dramatically affect the profit
you make on your products.
 The exchange rate: is it affecting your profits? Could you source materials from elsewhere?
 What’s the next big thing in your field? Are you keeping up with new developments, or are
customers likely to look elsewhere for what they need?

Using KPIs to assess business performance

Assessing the business performance should be an ongoing process. It helps organizations identify
areas that need to be improved before they become major issues, as well as giving them the
opportunity to consider how to respond.
Key performance indicators, also known as KPIs, help organizations measure and evaluate the
effectiveness of solutions, functions and processes in their business. Measuring KPIs can help
organizations determine if they’re likely to achieve their business' objectives. Because every business
is unique, the appropriate KPIs should be considered. Selecting the right KPIs and using them
effectively will help improve the business performance.

Types of KPIs
Many types of KPIs exist and can be used in business. The ones that make the most sense for the
business and strategy should be used. Most KPIs will focus on one of these objectives:
 improving revenue
 reducing costs
 increasing efficiency
 improving customer satisfaction

Some examples of KPIs include:

 average time to complete a task
 percentage of tasks completed on time
 percentage of overdue tasks
 cost of service delivery
 cost of managing processes
 downtime and availability
 number of complaints received
 volume of tasks per staff
 customer ratings of service
 number of process errors
 return on Investment
 debt-equity ratio
 operating margin
 revenue per employee
 employee satisfaction index
 order fulfilment cycle time
 production yield

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 customer satisfaction index

 customer acquisition cost

The KPIs should relate to aspects of the business environment over which the organization have some

Why are key performance indicators important?

The purpose of performance measurement is ultimately to drive improvements in performance.
KPIs can help achieve this by allowing the organization to:
 spot potential problems or opportunities
 set targets for business and staff that will deliver your strategic goals

Let’s remember:

Evaluating business performance helps identify opportunities and address issues before they
negatively impact the business. There are several tools and techniques that can be used in evaluating
business performance. These tools and techniques are designed to make the business more effective
and efficient. The evaluation of business performance doesn’t need to be a complicated process, but it
should be regular. Business performance evaluation can be simply performed through the following
steps: review the business activity, consider efficiency, look at the competition, and keep an eye on
wider trends. Moreover, assessing business performance normally uses the key performance
indicators or KPIs. These KPIs help organizations measure and evaluate the effectiveness of solutions,
functions and processes of the business.

References/Suggested Readings:

o “Key Tools and Techniques for Performance Management”. Retrieved from,

https://www.bernardmarr.com/default.asp?contentID=772

o “How to Measure Performance in Business: Tools & Examples.” Retrieved from,

https://study.com/academy/lesson/how-to-measure-performance-in-business-tools-examples-
quiz.html

o “Assess business performance”. Retrieved from, https://www.business.qld.gov.au/running-

business/protecting-business/risk-management/surviving-downturn/assess-performance

o “Evaluating Business Performance in 4 Simple Steps.” Retrieved from

https://accountsiq.com/blog/evaluating-business-performance/

o “Measure performance and set targets”. Retrieved from,

https://www.nibusinessinfo.co.uk/content/use-kpis-assess-business-performance

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