Performance Management In Finance
Table of Contents
Task 2
2.1 Corporate Goals
2.1.1 Professionalism
2.1.2 Process
2.1.3 Practice
3.1 Budgeting
3.3 External Reporting
3.4 Risk Management
3.5 Resource Allocation
3.6 Financial Controls
References
Task 2
2. Do you believe that these principles would have a positive impact on the way a business is run?
Performance Management in an organisation is a health check framework which, is designed to deliver value. Some core standards measure performance management and define what is performance for the organisation. Consequently, the employees can learn what performance means of the organisation. Consider an example, Some organisations might consider number of units produced as a performance standard however, another organisation might consider number of defect or improvement measures taken as a measure of performance. To ensure clarity performance management system must define clear parameters that are used to measure performance.
2.1.1 Professionalism and Corporate Goals
2.1.1.1 Agility and Professionalism
In contemporary business setting realisation of goals depends upon how organization approaches it, professionalism in approach reduces the risk and cost associated with achieving organisational goals. Henceforth, professionalism leads to more consistent and high quality outcomes leading to a sustainable competitive advantage i.e. mostly the prime goal of organisations. Consequently, when an organisational adopts right professional attitude productivity increases. Furthermore, to make productivity sustainable organisations need to transform and respond to the changes occurring in environment. The ability to respond directly relates to the level of professionalism within an organisation.
2.1.1.2 Professionalism and Performance
The professionalism reduces resistance towards achievement of organizational goals and processes. Moreover, professionalism refers towards ways in which an individual uses to perform daily tasks while working within an organisation or at a workplace. Additionally, when an individual shows respect and commitment for his work and workplace, he or she fulfils the concept of professionalism. Hence, having professionalism embedded in organisational culture helps quick realisation of goals and objectives. As a result, the organisational values and processes are aligned so that professionalism within workforce remains consistent.
2.1.2 Process
Organisation uses systematic ways for performing their operations and these systematic procedures are processes. Processes play imperative part in enhancing efficiency of the organizations. Also, having a set procedure for performing a task reduces the level of defects and allows enhancement of organizational overall performance. They also act as main part in the competitive world of business as it differentiate companies from their rivals and make them able to perform more effectively. According to Becker, Kugeler, and Rosemann (2013) Processes improve business agility, enhance business visibility, safety, security and compliance, improve efficiency and reduce cost for organizations. Henceforth, enable organisation to achieve its goals effectively.
2.1.3 Practice
Where all of the principles of management accounting are inter connected, practices are also linked with processes and professionalism. The organisation is able to continuously to battle external forces. Furthermore, a practice is a cultural thing where employees adopt certain practices based on culture. The practices promote creativity or can restrict it if not formulated with right cultural values based on organizational goals. Right practices ensure organisation will have to spend fewer resources to ensure conformance towards organizational goals.
Task 3
3. List and explain any 6 main practices area that will help improve the performance management of an organisation Performance management process of the organisations can get improved through incorporating effective practices or steps (Rummler & Brache, 2012). Furthermore, various practices help companies in reducing their performance management issues and also support them in designing and implementing more effective management system.
3.1 Budgeting
Budgeting is a financial management process where organizations undertake estimation and allocate specific finances to an activity. According to Kaplan and Atkinson (2015) sound financial management is imperative for organization maintain appropriate performance management standards. Additionally, Hofstede (2012) accentuate on maintaining transparency, he focuses it during the budgeting process, where transparency can improve later management processes. Furthermore, it is discussed that budgeting in order to be effective requires realistic estimations and should be allocated again an activity and its clear description of scope should be formulated. Additionally, undertaking these parameters, managers can assure proper allocation and also, make it clear why the budget is allocated and what it will accomplish for the organisation.
This reduces the mismanagement and makes the audit process swifter and easily executable. Budgeting is a strong control mechanism where manager can take budgeted cost as planned value and can compare it with actual cost. Moreover, this flexibility allows managers to know they are executing activities within budget and when efficiency levels are dropping (Farok & Garcia, 2015). Nevertheless, immediate identification allows corrective measure and simultaneously.
3.2 Project Management
Project is process advocate use of work breakdown structure, earn value management, cost estimation, PERT evaluation techniques that are very effective in providing the much need advantage to proactively design and execute project in a cost effective manner (Kerzner, 2013). Hence, enabling overall performance management to improve. The work breakdown structure allows better breakdown of cost using top-down, bottom up, or PERT estimation techniques to gain particular insight into the costing standards.
3.3 External Reporting
External reporting is a process where organization publically discloses their information (Bebbington, Unerman, & O’Dwyer, 2014). It becomes a strong tool of monitoring and control, where it helps organization in identifying such reasons, which are impacting in financial performance. It helps organizations in enhancing financial performance, as it identifies and suggests ways to overcome reasons for non-compliance hence strengthening overall systems. Bebbington et al. (2014) further explores external reporting and informs that it increases transparency and helps organizations remain accountable towards its duties to the stakeholders. The concepts like earning management, frauds, and tax avoidance, etc. surface due to lack of external reporting. The external reporting is a mean of communicating the stakeholders the financial position of the organization and if the process if executed properly increases organization reputation and its stock price. External reporting increases accountability and shows organizations commitment to the welfare of the
3.4 Risk Management
Financial management has a strong link to overall organizational performance and some times even with great financial management practices organisations fail as they fail to address the uncertainties in their financial investments or project decisions (Harris, 2012). Risk management helps the organisation to remain proactive and respond to uncertain risk events effectively to mitigate their probability and impact. Risk register is a very strong tool for monitoring the identified risks. In financial investments there are various types of risk that can change the potential outcome and can help organizations to take calculated decisions for their investment portfolios to generate maximum positive outcome.
Hammad, Abbasi, and Ryan (2016) suggest, to design the financial management system to enhance performance which contains provision of management reserves. Moreover, these management reserves are allocated actively in the projects. Because, managers can utilise when contingency plan kicks in. The contingency plan is a plan B, executed when primary plan fails to deliver desired performance levels. Hence, many scholars advocate that management reserves if allocated effectively become part of a robust control system that delivers exceptional performance management even in crisis situation.
3.5 Resource Allocation
Resources allocated are a continuous financial burden if not allocated effectively (Kaplan & Atkinson, 2015). The resources allocated if do not produce effective returns they are a pure burden. The resources allocated on activities other then on critical path needs more critical evaluation because their value generated doesn’t directly add value to the whole system. If resources allocated on activities with float consequently result in idle resources and without any cost value benefit. The irregular resource allocation causes extra overheads other wise managed. Using concepts like resource leveling, managers can effectively allocate resource and use them at the right time and for the required period of time. In doing so there will be no overheads and organization performance will improve.
3.6 Financial Controls
Financial controls are the strategies that are incorporated within an organization to manage and direct its resources to achieve organizational goals. These are very effective processes that ensure mitigation of frauds, inaccurate financial reporting, and wastage of resources (Kaplan & Atkinson, 2015). Moreover, using financial principles organisation can have a clear picture of their products and their financial performance in procuring/manufacturing them. The financial controls are a great tool for evaluation and comparison of actual results against set standards of expected results.
3.6.2 Measuring Outcomes
The results generated via evaluation will also encourage employees to perform better and enhance their organisational productivity. Consequently, by assessing performance against the set standards, managers are better equipped to give live feedback. Henceforth, the feedback are not blames rather fact based improvement plan which improves overall performance of the organisation. The evaluation requires managers to compare results determining whether actual outcomes reflect the standards according to the planned value. The results will also encourage employees to perform better because now they will not have an abstract depiction of their performance rather concrete data will guide them how to improve.
3.6.2 Design Action Plan
The actionable information gathered via results is absolutely necessary to improve performance on sustainable grounds. Furthermore, employee performance evaluation process also includes analysis of employee effectiveness. The performance management continuously evaluates if employees are the right fit for achieving strategic objectives. The plan guides how to bridge the gap between employee performance and expected standards. Personalised action plans create a map to improve performance at short term and also long term.
To make the performance management we have to remove hindering factors. Which include, biasses, surface analysis, and personal perceptions. To reduce biasses in the system and enhancing the quality of the performance assessment plan, management of the organisation need to monitor the entire evaluation process or plan.
References
Bebbington, J., Unerman, J., & O’Dwyer, B. (2014). Sustainability accounting and accountability: Routledge.
Becker, J., Kugeler, M., & Rosemann, M. (2013). Process management: a guide for the design of business processes: Springer Science & Business Media.
Farok, G. M. G., & Garcia, J. A. (2015). DEVELOPING GROUP LEADERSHIP AND COMMUNICATION SKILLS FOR MONITORING EVM IN PROJECT MANAGEMENT. Journal of Mechanical Engineering, 45(1), 53-60.
Freidson, E. (2001). Professionalism, the third logic: on the practice of knowledge: University of Chicago press.
Hammad, M. W., Abbasi, A., & Ryan, M. J. (2016). Allocation and Management of Cost Contingency in Projects. Journal of Management in Engineering.
Harris, E. (2012). Strategic project risk appraisal and management: Gower Publishing, Ltd.Hofstede, G. H. (2012). The game of budget control: Routledge.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting: PHI Learning.
Kerzner, H. R. (2013). Project management: a systems approach to planning, scheduling, and controlling: John Wiley & Sons.
Rummler, G. A., & Brache, A. P. (2012). Improving performance: How to manage the white space on the organization chart: John Wiley & Sons.