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Balanced performance measurementOrganisations must regularly measure their performance; it is the means through which managers can best gauge alignment (or not) with their targets and objectives. A performance measurement system is an essential internal management tool;  it provides information that can assist both strategic and operational decision-making.

There’s a well-known phrase that ‘if you can’t measure, then you can’t manage’. But managers should also bear in mind not only ‘what’ is measured but also ‘how’ performance is measured.

A thing to avoid in designing a performance measurement system is over-stressing financial performance measures at the neglect of non-financial indicators. Common in today’s businesses is the inclusion of a balanced set of key performance indicators (KPIs), both financial- and non-financial-oriented.

Organisations have multiple stakeholders, not all of whom are entirely focused on financial outcomes such as costs and revenues. It is important for managers to instil balance across their measurement radar.

A balanced management approach assumes that financial success leans heavily on the effective undertaking of non-financial activities, and that an ability to achieve many aims is the result of various capabilities.

So, for example, it is deemed short-sighted to focus on (say) cost cutting without monitoring other things, including direct knock-on effects from the cost-cutting. Subscribing to a balanced management approach means being holistic, not tackling any particular aspect of organisational activity in isolation to other aspects which together influence overall long-run performance.

Performance measurement holds significant influence in any organisation. For one thing, by establishing targets, managers effectively pre-define success and failure. This is at least politically very sensitive stuff, so great care and thought is needed.

One of the greatest challenges for organisational leaders is the choice of KPIs within a performance measurement system. Inevitably, such KPIs will include cost- and revenues-related measures; but organisations will need to balance these with other broader (non-financial) measures.

Finally, no performance measurement system should become taken-for-granted or untouchable. All such systems, indeed each and every (potential) KPI, should be questionable, fluid, and adaptable over time. The context in which organisations operate can change, quickly and frequently. And so, any organisation’s performance measurement system should be reviewed regularly by its key managers, to assess ongoing relevance and suitability, both in terms of short-term and long-term goals.