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Concept Version 11
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Analyzing Organizational Performance

When comparing results it is important for an organization to look inward against historical trends and outward against competitive trends.

Learning Objective

  • Employ benchmarks and extensive research initiatives to effectively derive standards and expected results in the control process


Key Points

    • Compare results against a history of similar trends to establish a basis for the analysis.
    • If the performance measurement is for a new initiative, management should conduct research to determine if there is an industry standard already in place for the process.
    • If the results far exceeded expectations, than the goals or standards may be set too low (and vice versa). Both process and strategy must be considered in charting a new course and future objectives.

Term

  • problem solving

    Using generic or ad hoc methods, in an orderly manner, to resolve issues.


Full Text

When comparing results, it is important for an organization to look inward against historical trends and outward against competitive trends. When comparing standards, it is important to make sure that the people charged with implementation understand them and consider them achievable. Measuring the long-term success or failure of objectives is in part the process of evaluating the set of standards governing the operation. Using this benchmark, management can reconsider objectives in the context of standards set, ensuring that they are both parallel and effective.

Historical Trends

Internal Data

Compare results against a history of similar trends to establish a basis for the analysis. Accountants are tasked with tracking organizational accounts for legal and/or shareholder purposes and tracking spending for operational assessment. Accountants' records can provide a historical backdrop to outline what the organization has accomplished in the past. This applies the benefits of hindsight to current results and future projections.

External Data

It is also important to conduct competitive research to determine who else in the market is performing the same processes. If the performance measurement is for a new initiative, management should conduct research to determine if there is an industry standard already in place for the process. If this is a new technology or research area, however, then results should be compared with financial objectives or quality standards instituted by the organization.

There are many metrics and methods for identifying industry standards, particularly for companies operating in the public sector (i.e., publicly traded). Public companies must release annual and quarterly reports, which serve as useful benchmarks for incumbents in the same industry (or new entrants). Overall industry metrics and averages are also available, though for specific applications of research the organization may want to hire or contract analysts for external data collection.

Results

If results aren't what the company expected or are fall below expected norms, it is important to determine the root cause. It may be that the objectives weren't realistic, or that more resources are needed to meet goals. Outside factors might have contributed to poor performance. The internal and external information above will help pinpoint the root cause. Once it is determined, corrective action is necessary to help the measured process meet expectations.

If the results far exceeded expectations, the goals or standards may be set too low. The process should be reexamined and the objectives should be increased in order to make sure the company is competitive in its market. Competitive analysis is often helpful in setting realistic but challenging goals for management, employees, or production.

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