Company Performance Appraisal


Company performance appraisal studies the trends of specific profitability and productivity ratios derived from financial statements for at least past three  periods (year, quarter, month). Its main purpose is to diagnose problem areas through establishing productivity indicators for continuous monitoring and control of the whole enterprise, in order to set up an appropriate productivity improvement programs.

 

In conducting company performance appraisal, two basic comparisons have to be made:

a.       Between current performance and a historical base performance;

b.       Between actual performance and the target.

 

The former indicates whether performance is improving or declining and at what rate. The latter requires that performance or productivity targets be set and matched against actual performance.

 

Using profitability along as the basis for evaluating the overall performance of an organization makes it difficult to identify the cause of profitability changes. Are they due to productivity or price-cost movement? The following demonstrates this relationship:

 

            Output value     =          Quantity sold     X          Unit price

 

 

             Profitability       =          Productivity       X          Price recovery

 

 

             Input value        =          Quantity used    X          Unit cost

 

Considering the relationships over time, profitability is defined as charge in output value compared with change in input value; productivity as the change between quantity of output and/or quantity in unit price, and change in unit cost.

 

In effect, what is computed are performance ratios classified into:

  • Change in profitability;
  • Change in productivity;
  • Change in price recovery.

 These performance ratios are then evaluated in relation to their effect on profits. In general, a drop in profitability, in productivity or in price recovery reduces profits. Lower productivity signals a need for further analysis and for correction action. However, increased productivity does not necessarily lead to profitability on a short-term basis. The effect of increased productivity will be realized only in terms of long-term profitability.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight

Focusing Operations


At the heart of every organization are the operations that actually make goods and provide services. To put it simply, the operations describe what the organization does. When you talk about an organization’s performance, you are describing how well it does its operations. To improve performance, you have to improve the operations. This seems obvious, but managers often ignore this simple truth and try to find quick fixes that don’t involve any effort.

You can do great deals with the finances, spend a fortune on marketing, have the best working conditions, use the latest technology, but if your operations are no good you might as well shut the door and go home. The only real way of improving the performance of your organization is by doing the operations better.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight