Organization Performance Management

Organization performance management (English terms CPM, BPM, EPM) is a set of management processes (planning, organization of execution, control and analysis) that allow a business to determine strategic goals and then evaluate and manage activities to achieve its goals with optimal use of available resources . This is a management system based on the principles of business value management.

Performance management covers the whole range of tasks in the field of strategic, financial, marketing and operational management of the company and includes the use of management technologies such as strategy modeling, balanced scorecards , process-oriented planning and cost-effective analysis , budgeting and business modeling , consolidated management reporting and analysis, monitoring of key performance indicators related to a strategy.

Performance management includes three main types of activities (in all areas of management without exception):

goal setting
analysis of the values of indicators characterizing the organization's achievement of its goals, and
managing influences of managers according to the results of analysis aimed at improving the future activities of the organization to achieve its goals.

Since 1992, performance management has been greatly influenced by the development of the Balanced Scorecard concept. Typically, managers use a balanced scorecard in order to make the organization’s goals understandable for employees, to determine how to track the achievement of goals, and to implement a mechanism that signals the need for corrective actions to be taken in the organization’s activities. These steps are the same as we can see in the CPM concept, and as a result, a balanced scorecard is most often used as the foundation of an organization’s performance management system.

Using efficiency management methods, owners seek to convey the strategy to all levels of the organization, transform the strategy into actions and metrics that measure these actions, and use analysis to search for cause-effect relationships that, when meaningful, help in making informed decisions.

Content

1 About the terms
2 History
3 Performance Management Cycle
- 3.1 Three levels of CPM
  - 3.1.1 Downstream Levels
  - 3.1.2 Levels on the ascending branch of the cycle
4 Methodology
5 Links

About Terms

In the literature, you can find several English-language terms meaning the same thing:

CPM (Corporate Performance Management)
BPM (Business Performance Management)
EPM (Enterprise Performance Management)

For the first time, the concept of BPM was proposed by the international analytical company IDC. She was supported by the research firm META Group. In turn, the Gartner Group proposed an alternative abbreviation - CPM (Corporate Performance Management, corporate performance management). The acronym EPM (Enterprise Performance Management, Enterprise Performance Management) also gained distribution.

History

The first references to performance management are found in Sun Tzu's Art of War. Sun Tzu claims that in order to win the war, the emperor must have complete information about his strengths and weaknesses, as well as the strengths and weaknesses of his opponents. Parallels between business and war objectives include:

data collection - both internal and external;
data analysis (recognition of systems, structures, models and data values);
making decisions and shaping impacts in accordance with the results of the analysis.

Performance Management

CPM is a feedback control cycle that implies the “movement” of information “top-down” and “bottom-up”.

TOP-DOWN: management begins by defining a strategy that needs to be translated into some executable concepts ( planning phase), which, in turn, needs to be translated again into concepts of the operating environment: what actions need to be taken, how often, etc. This is done through the budgeting process. Thus, the budget is the "operationalization" of the strategy.

BOTTOM-UP: After execution, management needs to see the results. The results must be transformed in order to evaluate the real costs and profitability, and, in the end, put these results in the context of the strategy so that they can be interpreted in terms of achieving the goals.

Three CPM Levels

Thus, three functionally different levels of performance management are distinguished:

Performance management levels

Downstream Levels

Strategy Modeling and Communication
- Definition of business goals ( strategy map ) and key performance indicators of the organization (financial and non-financial indicators)
- Business modeling (process map), identification of profitability factors, available resources and limitations
- Decomposition of top-level tasks into target levels of downstream units
- Goals: strategic goals expressed in specific numbers
Process oriented planning
- Determination of ways to achieve goals: the formation of activity scenarios, the calculation of the necessary resources (material, personnel, financial), the calculation of planned costs and overheads
- Alignment of the operational and financial balance of resources
- Accounting for the use of resources (shortage / excess), identification of bottlenecks that do not allow increasing momentum
- Connecting analytical modules to solve the problems of forecasting, optimization tasks
Budgeting
- Planning specific steps to achieve them: document flow of budget forms, maintaining analytic classifiers, description of the financial structure and principles of interaction, historical trends, analysis of deviations
- Organizational functions (the process of coordination of budgets) and functions of forming a set of budgets for individual units, business units, segments
- Versioning budgets, scenario analysis

Levels on the ascending branch of the cycle

Consolidation, reporting and analysis
- The collection of evidence, the formation of regular reporting for external and internal users, the transformation of reporting into various standards
- Monitoring: tracking budget execution, recording deviations and identifying their causes
- Detailed analysis of financial results and balance sheet status, segment reporting, reporting by responsibility centers
Functional Cost Analysis
- Spreading costs using functional cost analysis by responsibility centers, transferring costs to the main and supporting processes, generating costs by products, by customer categories, sales channels
- Profitability analysis by products and services, branches, responsibility centers
- Analysis of transfer operations, servicing costs and settlements
- Identification of ineffective processes, comparison of cost indicators with historical and reference
Scorecards and feedback
- Presentation of the actual results of activities in a compressed, aggregated form, necessary for comparing the planned target values of key performance indicators with actually achieved
- Calculation of key performance indicators, normalization of values, calculation of summary.

Methodology

There are various methodologies for implementing performance management. Their application gives companies a structure (top-down decomposition) with which planning and implementation, strategy and tactics, goals of the enterprise and its structural units are linked. Applied methodologies may include a six-sigma strategy, a balanced scorecard, activity-based costing, ABC, Total Quality Management , Economic value added, an integrated strategic measurement system and Theory of Constraints (TOC).

A balanced scorecard is the most widely used methodology for managing performance.

Methodologies alone cannot provide a complete solution to an enterprise’s needs for performance management. They only work with close integration with fundamental performance management processes.