Role of Benchmarking in Evaluating Managers Performance - Essay Example

? Management Accounting Techniques and decisions Contents Role of benchmarking in evaluating manager’s performance 3 Budgetary planning and control systems: impacts on business performance 5 References 8 Role of benchmarking in evaluating manager’s performance The statement that manager’s should be rewarded only on the basis of performance and that there should be no salary underlines the fact that the compensation structure of the managers need to be rightly linked to the performance measures designed by the company in order to achieve balanced productivity and a sustainable business which is in line with the policies and the mission statement of the organization. The benchmarking plays a crucial role in evaluating the performance of the managers. The benchmarks in the area of performance measurement sets a standard of performance for the managers to be achieved based on which rewards and compensation are provided to them (Verweire and Berghe, 2004, p.57). The aspect of erasing the salary part improves the wholesome performance of the managers with the development of workplace initiatives, team work, adaptability, compliance to business policies thereby resulting in increase of the production and the service levels of the organization. The incentives are often linked in the right way to the performance measures with appropriate weight-ages to the several benchmarks of performance measurement (Marr and Gray, 2012, p.68). The manager’s ability to meet the benchmark standards determine the rewards and the compensation that are received by them. The higher the achievements of the manager in comparison to the benchmark standards, the higher the rewards the managers should be eligible to receive. The benchmarks are set in the various areas of operation of the organization in order to fulfil its organizational objectives. These areas which include benchmark standards of performance of the employees are aimed at fulfilling the financial goals of the company, the customer service, the standards of the internal processes and the learning goals of the organization (Tonchia and Quagini, 2010, p.78). The financial benchmarks of the manager’s performance indicates the desired output from the managers that would contribute to the attainment of certain production volumes in line with the quality standards to be maintained for the products. Thus the benchmarks help in assessing the extent to which the manager has been able to contribute to the production volumes of the company and at the same time maintained the quality of production (Niven, 2010, p.34). The use of benchmarks in measuring the performance helps to identify the short cut approaches adopted by the employees which is aimed at fulfilling the short term goals but do not fulfil the organizational objectives. The benchmark system helps to understand whether the performance of the managers has been up to the mark in all aspects of the manager’s performance, like in this case both product quantity as well as quality. The benchmarks set in the area of customer service is also important to measure the performance of the managers as this is also an important area considered for the sustainability of the business of the organizations. The various benchmarks in the area of performance measures for customer service includes the turn-around time to the customers, the number of complaints that have been lodged by the customers, the time taken for the resolution of complaints by the manager. These benchmarks help to measure the extent to which the manager has been able to respond to the customer requests which is determined the turnaround time. The compromise of any one of the performance measures may lead to complaints from the customer. The benchmarks determine the rate at which complaints have been filed against the work of the managers and thus indicate the gaps with the benchmark standards of performance. The benchmark system also provides an insight on the effectives of the manager in resolution of customer complaints. The inputs received from the benchmarking system are used for correct evaluation of the performance of the managers and the extent to which it has fulfilled the objectives of the organization. The benchmarking system also mentions standards of performance of the managers aimed at improving the internal processes of the business. The contribution of innovative ideas by the employees for improvement of the productivity of the business process is taken into account by the standard benchmarks for evaluating the performance of the managers (Smith, 2010, p.43). The benchmarking system also evaluates the activities of learning undertaken by the managers and the steps taken by them to foster the growth of learning in the work place. The standard benchmarks in the area of learning takes into account the contributions of the manager in the area of learning and thereby reward the performance of the managers that contribute to the overall achievement of the organizational goals. Thus benchmarking plays an active role in evaluating the performance of the managers looking at both short term and long term goals of the organization. Budgetary planning and control systems: impacts on business performance The budgetary planning and control systems instituted by the organizations involve the actions of financial control by the managers with the establishment of budgeted revenues to be earned and the expenditures to be incurred by the organization. The budgetary planning is done by keeping in mind the financial targets of the organization. This includes the allocation of expenditures to be incurred by the several business units of the organization and then modifying the expenditures in a way that fits with the fulfilment of the organizational goals. The budgetary planning of the revenues to be earned by the organization is also done by distributing the revenue targets among the various business units of the organization (Toten, 2006, p.47). The distribution of the revenues and the expenditures of the business units are done in the same proportion with the availability of the resources with the business units. The consideration of the resources includes the availability of the manpower and their potential to generate revenues based on which the expenditures to the incurred by the business units are approved. The budgetary control system aims to compare the actual business performance with the budgeted performance of the company indicated the revenue earnings and the profitability (Greenwood, 2002, p.32). The budgetary planning and the control systems play a crucial role in enhancing the business performance as the gaps identified in the budgeted revenues and profits earned by the organization are the areas that are addressed by the control systems. The budgetary control system points the exact areas of operational expenditures, budgeted revenues and profits that are not being fulfilled by the business units of the organization and, therefore, provides the signal for implementation of necessary measures required to meet the financial targets of the company. The budgetary planning and control system may be of the following types, namely the operating budget and the cash budget (Booker, 2006, p.74). The operational budgetary control systems focus on the budgets related to the functional areas of the organization that include the budget for material purchase during the accounting period, the budget for usage of materials required in the process of production, the budgets related to the production volumes, the sales budgets and the labour budgets. The cash budgets of the organization provides the budgeted the net cash position by taking into account payment and receipts of cash in future. While the budgetary planning result provides the organizations with the requirement of attaining a certain level of performance in order to meet the financial targets, the budgetary control system aim to fulfil the gaps by constantly monitoring the actual business performance and comparing it with the planned budgeted parameters of the financial performance of the organization. The budgetary planning is done by the budget committee which is represented by all the business units of the organization and considers the opinion of the business heads for the allocation of expenditures aimed at improving the business performance. The budget centre acts as the centre for controlling the actual business performance of the company against the budgeted financial performance of the business for the accounting period. The various components of the budget centre are the revenue centre, expense centre, investment centre and the profit centre (Arffa, 2001, p.91). The revenue centre measures the output of the business process in terms of monetary value and thereby estimates the expected revenues of the organization. The business performance in terms of revenue generation is evaluated by the revenue centre and the shortfall in the revenues earned is informed to the business units. This allows the business units to take necessary action to reduce the unproductive areas of operation in order to generate more output of the company. This helps in enhancing the business performance with the timely feedback obtained from the budget centre. The expense centre measures the inputs of the business units in terms of monetary value. The comparison of the actual expense incurred by the business against the budgeted expense provides an indication of the adjustments to be done by the business units in using the resources for maintain the desired level of output (Kerry, Beal and Olynyk, 2012, p.57). The profit centre measures the difference between the actual revenues earned and the actual expenditures incurred by the business and then compares the actual profits of the business with the budgeted profits. The implementation of budgetary control leads to allocation of optimal volume of resources and the necessary adjustments in order to maximize the business performance and the profits. References Arffa, R. C. 2001. Expert Financial Planning: Investment Strategies from Industry Leaders. New Jersey: John Wiley & Sons. Booker, J. 2006. Financial Planning Fundamentals. Toronto: CCH Canadian Limited. Greenwood, R. P. 2002. Handbook of Financial Planning and Control. London: Gower Publishing Ltd. Kerry, M., Beal, D. and Olynyk, M. 2012. Financial Planning. Melbourne: John Wiley and Sons. Marr, B. and Gray, D. 2012. Strategic Performance Management. New York: Routledge. Niven, P. R. 2010. Balanced Scorecard Step-by-Step: Maximizing Performance and Maintaining Results. New Jersey: John Wiley and Sons. Smith, R. 2010. Business Process Management and the Balanced Scorecard: Using Processes as Strategic Drivers. New Jersey: John Wiley & Sons. Tonchia, S. and Quagini, L. 2010. Performance Measurement: Linking Balanced Scorecard to Business Intelligence. Berlin: Springer. Toten, M. 2006. Financial Planning. Sydney: Career FAQs. Verweire, K. and  Berghe, L. V. D. 2004. Integrated Performance Management: A Guide to Strategy Implementation. Birmingham: SAGE. Read More