File Name: investment performance measurement evaluating and presenting results .zip
Home QuestionPro Products Workforce. It is used to gauge the amount of value added by an employee in terms of increased business revenue, in comparison to industry standards and overall employee return on investment ROI. Ideally, employees are graded annually on their work anniversaries based on which they are either promoted or are given suitable distribution of salary raises.
In my experience, most senior […]. To take ownership of performance assessment, those executives should find qualitative, forward-looking measures that will help them avoid five common traps:.
Measuring against yourself. Find data from outside the company, and reward relative, rather than absolute, performance. Looking backward. Use measures that lead rather than lag the profits in your business. Putting your faith in numbers. Gaming your metrics. The law firm Clifford Chance replaced its single, easy-to-game metric of billable hours with seven criteria on which to base bonuses.
Sticking to your numbers too long. Be precise about what you want to assess and explicit about what metrics are assessing it. Such clarity would have helped investors interpret the AAA ratings involved in the financial meltdown. As a result, companies routinely fall into five traps.
In my experience, most senior executives find it an onerous if not threatening task. Thus they leave it to people who may not be natural judges of performance but are fluent in the language of spreadsheets. So how should executives take ownership of performance assessment? They need to move beyond a few simple, easy-to-game metrics and embrace an array of more sophisticated ones.
In any event, they can help you steal a march on rivals who are caught in the same old traps. The papers for the next regular performance assessment are on your desk, their thicket of numbers awaiting you. What are those numbers? Most likely, comparisons of current results with a plan or a budget. You may be doing better than the plan, but are you beating the competition? You have to be creative about how you find the relevant data or some proxy for them.
One way is to ask your customers. Each branch of the company telephones a random sample of customers and asks whether they will use Enterprise again. When the index goes up, the company is gaining market share; when it falls, customers are taking their business elsewhere.
The branches post results within two weeks, put them next to profitability numbers on monthly financial statements, and factor them into criteria for promotion thus aligning sales goals and incentives. Either approach can be irritating. If people dining together in one of his restaurants are looking at one another, the service is probably working.
Another way to get data is to go to professionals outside your company. When Marc Effron, the vice president of talent management for Avon Products, was trying to determine whether his company was doing a good job of finding and developing managers, he came up with the idea of creating a network of talent management professionals.
Started in , the New Talent Management Network has more than 1, members, for whom it conducts original research and provides a library of resources and best practices.
Along with budget figures, your performance assessment package almost certainly includes comparisons between this year and last. If so, watch out for the second trap, which is to focus on the past. Look for measures that lead rather than lag the profits in your business. The U. If it can get more customers into early or even preemptive treatment than other companies can, it will outperform rivals in the future. The quality of managerial decision making is another leading indicator of success.
Kaufman, HBR October It may sound trite, but how the company presents itself in official communications often signals the management style of top executives. Good management is about making choices, so a decision not to do something should be analyzed as closely as a decision to do something. At one investment bank, if the deals that managers have rejected turn out to be lemons, those rejections count as successes. Good or bad, the metrics in your performance assessment package all come as numbers.
The problem is that numbers-driven managers often end up producing reams of low-quality data. Think about how companies collect feedback on service from their customers. Yet out of a desire to gather as much information as possible at points of contact, companies routinely ask customers to include personal data, and in many cases the employees who provided the service watch them fill out the forms.
How surprised should you be if your employees hand in consistently favorable forms that they themselves collected? Bad assessments have a tendency to mysteriously disappear. Numbers-driven companies also gravitate toward the most popular measures. The question of what measure is the right one gets lost. Similar issues arise about the much touted link between employee satisfaction and profitability.
The Employee-Customer-Profit Chain pioneered by Sears suggests that more-satisfied employees produce more-satisfied customers, who in turn deliver higher profits. Or they may actually enjoy what they do, but their customers value price above the quality of service think budget airlines. A particular bugbear of mine is the application of financial metrics to nonfinancial activities. Anxious to justify themselves rather than be outsourced, many service functions such as IT, HR, and legal try to devise a return on investment number to help their cause.
Indeed, ROI is often described as the holy grail of measurement—a revealing metaphor, with its implication of an almost certainly doomed search. Typically, he or she would ask program participants to identify a benefit, assign a dollar value to it, and estimate the probability that the benefit came from the program. Think about this for a minute. How on earth can the presumed causal link be justified? Assessing any serious executive program requires a much more sophisticated and qualitative approach.
Once the program has ended, you have to look beyond immediate evaluations to at least six months after participants return to the workplace; their personal feedback should be incorporated in the next annual company performance review. The moment you choose to manage by a metric, you invite your managers to manipulate it.
Metrics are only proxies for performance. Someone who has learned how to optimize a metric without actually having to perform will often do just that. To create an effective performance measurement system, you have to work with that fact rather than resort to wishful thinking and denial. Clifford Chance replaced its single metric of billable hours with seven criteria on which to base bonuses: respect and mentoring, quality of work, excellence in client service, integrity, contribution to the community, commitment to diversity, and contribution to the firm as an institution.
Metrics should have varying sources colleagues, bosses, customers and time frames. Horizon 1 covered actions relevant to extending and defending core businesses, and metrics were based on current income and cash flow statements. Horizon 2 covered actions taken to build emerging businesses; metrics came from sales and marketing numbers. Horizon 3 covered creating opportunities for new businesses; success was measured through the attainment of preestablished milestones.
Multiple levels like those make gaming far more complicated and far less likely to succeed. You can also vary the boundaries of your measurement, by defining responsibility more narrowly or by broadening it. To reduce delays in gate-closing time, Southwest Airlines, which had traditionally applied a metric only to gate agents, extended it to include the whole ground team—ticketing staff, gate staff, and loaders—so that everyone had an incentive to cooperate.
Finally, you should loosen the link between meeting budgets and performance; far too many bonuses are awarded on that basis. Managers may either pad their budgets to make meeting them easier or pare them down too far to impress their bosses.
Both practices can destroy value. Some companies get around the problem by giving managers leeway. The office supplier Staples, for example, lets them exceed their budgets if they can demonstrate that doing so will lead to improved service for customers. When I was a CFO, I offered scope for budget revisions during the year, usually in months three and six.
Another way of providing budget flexibility is to set ranges rather than specific numbers as targets. As the saying goes, you manage what you measure. Unfortunately, performance assessment systems seldom evolve as fast as businesses do.
Smaller and growing companies are especially likely to fall into this trap. In the earliest stages, performance is all about survival, cash resources, and growth.
Comparisons are to last week, last month, and last year. But as the business matures, the focus has to move to profit and the comparisons to competitors.
The answer is to be very precise about what you want to assess, be explicit about what metrics are assessing it, and make sure that everyone is clear about both. In looking for a measure of customer satisfaction, the British law firm Addleshaw Booth now Addleshaw Goddard discovered from a survey that its clients valued responsiveness most, followed by proactiveness and commercial-mindedness.
Most firms would interpret this finding to mean they needed to be as quick as possible. What they found was that they needed to differentiate between clients. The credit-rating agencies have come under attack because they gave AAA ratings to so many borrowers who turned out to be bad risks.
The agencies have argued in their own defense that lenders misunderstood what the ratings meant. Reasonable as this explanation may be, it is no consolation to those who thought they knew what the magic AAA represented. Why do organizations that excel in so many other ways fall into these traps? Because the people managing performance frameworks are generally not experts in performance measurement. Finance managers are proficient at tracking expenses, monitoring risks, and raising capital, but they seldom have a grasp of how operating realities connect with performance.
They are precisely the people who strive to reduce judgments to a single ROI number. The people who understand performance are line managers—who, of course, are crippled by conflicts of interest.
A really good assessment system must bring finance and line managers into some kind of meaningful dialogue that allows the company to benefit from both the relative independence of the former and the expertise of the latter.
Analysis is a key evaluation step that begins to make meaning of the evaluation data you have collected. Reporting the subsequent evaluation results is an important step in documenting findings and staying accountable to stakeholders. Return to the Evaluation Resources main page. Skip to main content. Analysis and Reporting Evaluation Results.
In my experience, most senior […]. To take ownership of performance assessment, those executives should find qualitative, forward-looking measures that will help them avoid five common traps:. Measuring against yourself. Find data from outside the company, and reward relative, rather than absolute, performance. Looking backward.
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Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. Drawing from the Research Foundation of CFA Institute, the Financial Analysts Journal, CFA Institute Conference Proceedings Quarterly, CFA Magazine, and the CIPM curriculum, this reliable resource taps into the vast store of knowledge of some of today's most prominent thought leaders—from industry professionals to respected academics—who have focused on investment performance evaluation for a majority of their careers. Save to Library.
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Readers will learn how Casey structures its grantee reporting system using the results-based accountability model.