Performance Assessment Systems Are Critical

Performance assessment systems are critical to improving the performance of any organization. Performance assessment systems provide a formalized means of tracking quantitative results. Organizations typically measure these results against targets, past results and even competitor results. A performance assessment system assists the company in a few different ways, including benchmarking, control and performance evaluation.

Mudde and Sopariwala (2008) outline how Southwest Airlines users performance assessment systems both in terms of benchmarking performance and as a control. The company used variance analysis, a technique that relies on setting performance standards and then measuring the company's ability to achieve those standards. Variance analysis allows the company to determine in which statistical areas it did or did not meet its objectives. This allows management to then focus on determining the underlying cause for this failure to meet objectives.

There are, however, some disadvantages to the use of performance assessment systems. The most prominent of these disadvantages is that it can breed organizational myopia. Gjerde and Hughes (2007) explain that systems orient the company, its managers and workers towards the specific set of quantitative objectives that are being measured. As a result, the company may become only focused on those measures. This can lead the company to ignore other measures or other approaches to doing business -- organizational thought process may become strictly focused on the measures that senior management has deemed important. As the authors note, this is especially risky if the performance measures being used in the organization are not properly aligned with the organization's strategic objectives. The organization in that situation would be focusing on the performance of tasks that are not helping it to achieve its goals.

Management accountants should be involved in the establishment and use of performance assessment systems for a couple of reasons. The first is that management accountants tend to be involved in the measurement process itself. By the nature of their work, they have access to a lot of valuable information that can be used to provide measures in performance assessment systems. Additionally, management accountants are already oriented towards many actions that focus on improving efficient, productivity and profitability. Management accountants therefore have the expertise needed to understand what measures are best aligned with the company's objectives. If they are involved in the development of assessment systems, the systems will be stronger.