Sanjivani College of Engineering, Kopargaon

Department of MBA

205 Enterprise Performance Management

Unit No.2 PERFORMANCE MEASUREMENT &
EVALUATION

Presented By:
Prof.Pooja.S.Kawale
MBA(Financial Management), B.com(Cost & Works
Accounting)
Assistant Professor, Dept. of MBA
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 Contents

• Responsibility Accounting
• Performance Management System
• Divisional Performance measure
• Financial Performance Measure
• DuPont Analysis
• Non-Financial Performance Measure-
• Balance score card
• CSF & KPI as Drivers of Strategic Objectives-
Benchmarking-Six Sigma
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 Responsibility accounting
• Responsibility accounting is a kind of management accounting that is accountable
for all the management, budgeting, and internal accounting of a company. The
primary objective of this accounting is to support all the Planning, costing, and
responsibility centers of a company.
• Responsibility Accounting is a system of accounting where specific individuals are
made responsible for accounting in particular areas of cost control. In this
accounting system, responsibility is assigned based on knowledge and skills. If the
costs increase, the person assigned is held accountable and answerable.

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Responsibility accounting

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 PERFORMANCE MEASUREMENT & EVALUATION

• Performance measurement is the process used to assess the efficiency and effectiveness of
projects, programs and initiatives. It is a systematic approach to collecting, analyzing and
evaluating how “on track” a project/program is to achieve its desired outcomes, goals and
objectives.

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• Two commonly used measures of divisional performance are return on investment
(ROI) and residual income (RI). Return on investment (ROI): measures operating
profit as a percentage of the assets employed in the division. ROI needs to be
greater than the cost of capital for a division to be profitable in the long term.

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 Divisional Performance measures
• Divisional Performance measures are a set of metrics that are used to evaluate the
performance of a specific division or department within an organization. These metrics are
typically used in the context of enterprise performance management, which involves the use
of various tools and techniques to monitor, measure, and improve an organization's overall
performance.
• Divisional Performance measures may include financial metrics such as revenue, profit
margins, and return on investment, as well as non-financial metrics such as customer
satisfaction, employee engagement, and productivity. By tracking these metrics over time,
organizations can identify areas where a particular division or department may be
underperforming and take steps to address those issues.
• Divisional Performance measures are particularly useful in large organizations where
individual divisions or departments may have different objectives and goals. By using these
metrics, organizations can ensure that each division is aligned with the overall strategic
objectives of the organization and is contributing to the organization's success.

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Here are some common financial performance measures that organizations use to evaluate their financial
performance:
• Revenue: The total amount of money generated from the sale of goods or services.
• Profit Margin: The percentage of revenue that remains after deducting all expenses, such as production
costs, salaries, and taxes.
• Return on Investment (ROI): The percentage of profit generated from an investment compared to the
initial cost of that investment.
• Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): A measure of a company's
profitability that looks at its earnings before accounting for interest payments, taxes, depreciation, and
amortization.
• Cash Flow: The amount of cash coming in and going out of a business over a given period of time.
• Gross Margin: The percentage of revenue that remains after deducting only the cost of goods sold (COGS).
• Debt-to-Equity Ratio: A measure of a company's leverage that compares its debt to its equity.
• Current Ratio: A measure of a company's liquidity that compares its current assets to its current liabilities.
• Inventory Turnover: A measure of how quickly a company's inventory is sold and replaced over a given
period of time.
• Asset Turnover: A measure of how efficiently a company uses its assets to generate revenue.
These financial performance measures can be used individually or in combination to evaluate the financial
health and performance of an organization.

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 Financial Performance Measure
• Financial Performance Measures are quantitative metrics used to assess an
organization's financial health and success. These measures provide insight into
how well an organization is managing its financial resources and meeting its
financial objectives.
• Here are some common financial performance measures:
• Profitability ratios - measures the ability of an organization to generate profit from
its operations.
• Liquidity ratios - measures the ability of an organization to meet its short-term
obligations and maintain adequate cash reserves.
• Efficiency ratios - measures the effectiveness of an organization in using its assets
to generate revenue.
• Solvency ratios - measures the ability of an organization to meet its long-term
obligations and remain financially stable.
• Return on investment (ROI) - measures the profitability of an investment relative
to its cost.

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 Financial Performance Measure
• Gross margin - measures the profitability of a product or service by calculating the
difference between revenue and cost of goods sold.
• Net present value (NPV) - measures the value of an investment after accounting
for the time value of money.
• Economic value added (EVA) - measures the value created by an organization after
accounting for the cost of capital.
• Debt-to-equity ratio - measures the amount of debt compared to equity and
indicates the level of financial risk an organization has.
• Market value ratios - measures the market value of an organization's shares and
helps investors evaluate the company's future prospects.
• Organizations can use financial performance measures to identify areas for
improvement and develop strategies to optimize their financial performance.

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 DuPont Analysis
DuPont Analysis is a financial analysis technique used in enterprise performance management to evaluate
a company's profitability and return on equity (ROE). It was developed by the DuPont Corporation in the
early 20th century and is also known as the DuPont identity.
The analysis breaks down the company's ROE into three components: net profit margin, asset turnover,
and financial leverage. This breakdown helps to identify the factors that are driving the company's ROE
and provides insights into the company's financial health.
Here is how the DuPont Analysis formula works:
• ROE = Net Profit Margin x Asset Turnover x Financial Leverage
• Net Profit Margin: This measures the percentage of revenue that is left after deducting all expenses,
including taxes and interest. A higher net profit margin indicates that the company is better at
controlling costs and generating profits from its sales.
• Asset Turnover: This measures how efficiently a company uses its assets to generate sales. A higher
asset turnover indicates that the company is better at generating sales from its assets.
• Financial Leverage: This measures how much debt a company uses to finance its operations. A higher
financial leverage indicates that the company is more reliant on debt to finance its operations.
By breaking down ROE into these three components, the DuPont Analysis helps to identify which factors
are driving the company's profitability and whether the company is using debt responsibly. This analysis
can be used to compare the performance of different companies in the same industry or to evaluate a
company's performance over time.

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Components of DuPont Analysis

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 Non-Financial Performance Measure-

Non-financial performance measures are metrics used by

organizations to assess their performance in areas that are not
directly related to financial results. These measures can include a
wide variety of qualitative and quantitative indicators, such as
• Customer satisfaction,
• Employee engagement,
• Product quality,
• Safety,
• Environmental impact,
• Innovation, and
• Social responsibility.

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Non-Financial Performance Measure-

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 Balance score card
The Balanced Scorecard is a strategic management framework used by organizations to align their
strategic objectives with their performance metrics. It was developed by Robert Kaplan and David
Norton in the early 1990s. The Balanced Scorecard approach uses a set of performance metrics that are
divided into four categories, which are:
• Financial Perspective: This category focuses on the financial outcomes of the organization, such as
revenue growth, profitability, and return on investment.
• Customer Perspective: This category focuses on the organization's customer-related objectives,
such as customer satisfaction, retention, and market share.
• Internal Process Perspective: This category focuses on the organization's internal processes, such
as production efficiency, product quality, and innovation.
• Learning and Growth Perspective: This category focuses on the organization's human and
intellectual capital, such as employee engagement, training and development, and knowledge
management.
Each of these four categories contains a set of key performance indicators (KPIs) that are selected
based on the organization's strategic objectives. By using the Balanced Scorecard approach,
organizations can ensure that their performance metrics are aligned with their strategic goals and
objectives, and that they are measuring the right things to drive success.
The Balanced Scorecard also helps organizations to communicate their strategy and performance to
stakeholders, including employees, investors, and customers. By presenting a balanced view of the
organization's performance across different perspectives, the Balanced Scorecard can provide a more
complete picture of the organization's overall health and success.
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Balance score card

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 CSF & KPI as Drivers of Strategic Objectives
Critical Success Factors (CSFs) and Key Performance Indicators (KPIs) are both important drivers
of strategic objectives in an organization. CSFs are the key areas in which an organization must
perform well to achieve its strategic goals, while KPIs are the specific metrics used to measure
progress towards achieving those goals.
• CSFs are derived from an organization's overall strategic objectives and are determined by
identifying the areas in which the organization must excel in order to achieve its goals. For
example, a CSF for a company that wants to increase its market share might be product
innovation or customer service excellence. These CSFs are then used to guide the selection of
KPIs.
• KPIs are specific, measurable indicators that are used to track progress towards achieving the
CSFs and overall strategic objectives. For example, if the CSF is customer service excellence,
KPIs might include customer satisfaction scores, average response times for customer inquiries,
and the number of customer complaints.
• By aligning CSFs and KPIs with strategic objectives, organizations can ensure that they are
measuring the right things and making progress towards achieving their goals. By regularly
tracking and reporting on KPIs, organizations can also identify areas where they need to improve
performance and take action to make changes to achieve their objectives.
Overall, CSFs and KPIs are critical drivers of strategic objectives, helping organizations
to measure and improve performance in the key areas that are essential for achieving
success.

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CSF & KPI as Drivers of Strategic Objectives

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 Objectives-Benchmarking-Six Sigma
• Benchmarking is a process of comparing an organization's performance to
that of other organizations or industry standards. By identifying best
practices and areas for improvement, benchmarking helps organizations to
identify opportunities for improvement and make changes to improve
performance.
• Six Sigma is a data-driven approach to quality management that seeks to
minimize variability and defects in processes. Six Sigma uses statistical
methods and process improvement techniques to identify and eliminate the
causes of defects, resulting in improved quality, increased efficiency, and
reduced costs.

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Benchmarking

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 Assignment Questions
1. What is responsibility accounting, and how can it be used to improve organizational performance?
2. How does a performance management system help organizations to achieve their strategic goals?
3. What are some common divisional performance measures used in organizations, and how can they
be used to improve performance?
4. What are some common financial performance measures used in organizations, and how can they
be used to evaluate performance?
5. What is the DuPont analysis, and how can it be used to assess a company's financial performance?
6. What are some common non-financial performance measures used in organizations, and how can
they be used to improve performance?
7. How does the Balanced Scorecard approach help organizations to align their performance metrics
with their strategic goals?
8. How can critical success factors (CSFs) and key performance indicators (KPIs) be used to drive
strategic objectives and improve organizational performance?
9. What is benchmarking, and how can it be used to identify best practices and areas for improvement
in organizational performance?
10. What is Six Sigma, and how can it be used to improve the quality, efficiency, and cost-effectiveness
of organizational processes?

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Thank You
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