For instructional purposes only.

Lesson No: 2

Lesson Title: Evaluating Business Performance

Let’s hit these:

At the end of this lesson, you should be able to:
1. Explain the term business performance.
2. Discuss the impact of evaluating business performance.
3. Identify and explain the benefits of measuring business performance.
4. Identify and explain the criteria used to evaluate business performance.

Let’s read:
Business performance greatly influences the growth and development of an organization. It’s been
considered as an important gauge in determining the efficiency and effectiveness of the business. By
measuring the business performance, it would make organizations understand whether the resources
were properly utilized and eventually come up with strategic decisions and actions and to further
improve the business.

Measuring Business Performance

Success in business is not easy to achieve. It requires good strategic decisions that are based on
understanding of the organization’s own business performance.
To measure business performance, relevant business metrics, also known as key performance
indicators or KPIs, which shows a measurable value and shows the progress of the business goals
need to be tracked. Measuring performance is an essential component of monitoring the growth and
progress of the business. Knowing how the different areas of the business are performing can help
organization to assess where its business is strong, where it is weaker and factors that can be changed
for the better.
Measuring performance basically involves measuring the actual performance of a business against
intended goals. Also, the performance can be measured by comparing the results of initiatives to
objectives and evaluating to what extent the organization has met its targets.
By regularly checking the business performance, the business is protected from any
organizational problems. It helps businesses in lowering process cost and improving productivity and
mission effectiveness. Reviewing the progress of the business will help assess its current market,
access new customers and find new business opportunities.
In measuring business performance, non-financial targets and well as financial ones are
considered. However, some other areas should be considered also such as customers, customer
service, market share, and staff. All these factors will be discussed in the next section.

How to Evaluate Business Performance

Business is unpredictable. Because everything continuously change, organizations need to constantly

measure their business performance in order to determine what’s successful and what isn’t. So, how is
business performance measured?
Here are some criteria that can help evaluate business performance of a company or any
organization:

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 For instructional purposes only.

 Overall Market Performance. Performance in the marketplace influences profitability, which

is one of the most important company financial health indicators. The key indicators of
market performance are market share and market ranking by sales volume.
 Performance in Customer Satisfaction. Performance in customer satisfaction is a key factor in
long-term success. The key performance variables are repeat orders and the rate of customer
acquisition. If customers are satisfied, they will be retained and attract new ones. Evaluation
of performance in customer satisfaction highlights potential problems for overall
performance.
 Product Quality and Returns. Quality products lie at the root of superior company
performance. Two variables indicating whether your products are high quality are returns and
warranty claims. These product indicators measure company performance on quality but also
impact profitability directly.
 Employee Job Satisfaction and Training. Two indicators of a company's performance
internally are employee job satisfaction and training levels. These impact overall performance
through the ability of the company to offer high levels of service to its customers. Employee
job satisfaction can be evaluated by measuring changes in the average length of service. A
measure of training levels is the percent of employees who received training each month.
 Numerical and Financial Factors. In addition to numerical factors such as profit margin,
there are other indicators that allow company's performance on purely financial terms.
Liquidity and solvency ratios evaluate company's performance with regard to ensuring that it
can continue its operations. Liquidity is the ratio of current assets minus current liabilities
divided by total assets and measures how quickly a company can raise cash. Solvency is the
ratio of net profit plus depreciation divided by total liabilities and measures your company's
ability to continue to service its debt.

Evaluating 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 the opportunity to
respond in those issues.

Let’s remember:

Evaluation of business performance is indeed very important. As mentioned, business performance

greatly influences the growth and development of an organization. It is an important gauge in
determining the efficiency and effectiveness of the business. To measure business performance, there
are important metrics to consider. These metrics are commonly known as as key performance
indicators or KPIs which are quantifiable measures used to evaluate the success of an organization.
In evaluating business performance, there are factors that need to be considered, these include overall
market performance, customer satisfaction, product quality and returns, employee job satisfaction and
training, and other numerical and financial factors.

References/Suggested Readings:

o “How to Measure Business Performance in 3 Steps”. Retrieved from,

https://www.freshbooks.com/hub/reports/measure-business-performance

o “How to Evaluate a Company's Performance”. Retrieved from,

https://smallbusiness.chron.com/evaluate-companys-performance-67095.html

o Evaluating Business Performance in 4 Simple Steps. Retrieved from,

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

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o “Measuring business performance”. Retrieved from

https://www.bgateway.com/resources/measuring-performance

o How to Evaluate your Business Performance. Retrieved from

https://news.badabusiness.com/hr-people-management/how-to-evaluate-your-business-
performance-771.html

o “7 reasons why performance reviews are still important for your small business”. Retrieved from
https://hiring.workopolis.com/article/7-reasons-performance-reviews-still-important-small-
business/

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