Week 2 - Performance Management &Appraisal Operational KPIs.

The Role Technology

in Operations Management

Learning Outcomes
Upon the completion of this week of study you will be able to:
LO.2 Gain an understanding of key relationships and engagement challenges and enablers
to create optimum conditions for operationalising strategy
LO.3 Critically consider the methods, tools, skills and competencies required to
operationalise strategy through projects
LO.4 Evaluate key aspects of practical and achievable operational goals and objectives in order to
deliver the desired strategy outcomes

Contents
1.2 Performance Management, Investment, Budgeting, Governance & Procurement ................... 2
1.2.1 Investment .......................................................................................................................... 3
1.2.2 Budgeting, Governance & Procurement ............................................................................. 5
1.3 Performance Appraisals – Operational KPI’s ......................................................................... 12
1.4 The Role of Technology in Operations Management ............................................................. 13
1.4.1 Components of an Operating System ............................................................................... 15
References ..................................................................................................................................... 18

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1.1 Introduction
Operational metrics and key performance indicators (KPIs) enable a company to assess the status
of its operations and strategies. These operational KPIs assist management in determining which
operational tactics are effective and which hinder the organization. Technology plays a
significant role in enhancing business processes and enabling more accurate output
measurement.

1.2 Performance Management, Investment, Budgeting, Governance & Procurement

As a corporate strategy, performance management must be centred on the constant achievement
of the organization's strategic goals. It requires that each stakeholder (workers, contractors, and
suppliers) is aware of and accountable for their involvement in the execution of a company's
strategic objectives. Performance management is a proactive method for establishing goals and
regularly monitoring their accomplishment (Ledin & Machin, 2016). In practice, an organization
defines goals, reviews real data for its performance metrics, and takes action based on the
outcomes to improve performance in respect to its goals. Performance measurement is the
process through which an organization monitors the most important components of its programs,
systems, and care processes. An organization collects data on the efficacy of its operations and
uses this information to guide its actions over time.

Typically, performance is monitored and contrasted against organizational objectives and goals.
The outputs of performance measurement reveal how an organization's present programs are
operating and how resources might be directed to maximize the efficiency and effectiveness of
those programs (Baird & Su, 2018). Performance management is the practice of establishing
objectives and routinely assessing progress toward achieving them. It consists of activities
designed to ensure that organizational objectives are continuously met in an effective and
efficient manner. The purpose of performance management is to guarantee that an organization's
subsystems (processes, departments, teams, etc.) operate together optimally to accomplish the
organization's desired results. Performance management covers a wide range of applications,
including employee performance, business performance, and performance measurement
outcomes (Heger, Van Hoorn, Mann, & Okanovi, 2017).

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 1.2.1 Investment
An investment is an asset acquired or invested in with the intention of accumulating wealth and
saving money from hard-earned income or appreciation. The basic purpose of an investment is to
earn additional income or realize a profit over a certain period of time. Investments are assets or
items obtained with the purpose of earning income or growing in value. A phrase used to
indicate the appreciation of an asset through time. When a person purchases an item as an
investment, he or she does so with the purpose of using it in the future to generate money.
Investment appraisal is the evaluation of an investment's profitability over the asset's life, as well
as its affordability and strategic fit. Traders require investment evaluation since it is a form of
fundamental analysis and, as such, reveals if a stock or company has long-term potential based
on the profitability of its future projects and endeavors (Sinha & Datta, 2020).

An overarching question in investment appraisal refers to '‘is the investment worth it? or ‘Is this
the best investment we can make, given the finance available’.

Investment appraisal is an application of the idea of Cost-Benefit Analysis. Investment appraisal

outcomes include:

• Invest/do not invest.

• Choose one project over the other.
• Investment appraisal techniques have a decision rule.

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One of the most important concepts in finance is the Time Value of Money.
Time Value of Money: Money received today is worth more than the same sum received in the
future. Time Value of Money needs to be examined for Potential for earning interest - the money
can be invested and earned interest and the Impact of inflation. Present value is the time value of
money for a series of cash flow that calculates the value of the money today (Besley & Brigham,
2008).

Three common techniques in investment appraisal include:

1. Payback - how long will it be until my initial investment is paid back?
2. Net Present Value (NPV) - are the benefits from the project greater than the costs?
3. Internal Rate of Return (IRR) - is the rate of return greater than that of alternatives?

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 1.2.2 Budgeting, Governance & Procurement
Budgeting
According to Boev (2022), a budget provides a focus for the organisation, aids the co-ordination
of activities, and facilitates control. There are 3 main elements in budgeting:

• Participation in the planning process at both strategic and operational levels- this involves
the establishment of policies and formulation of plans and budgets which will
subsequently be expressed in financial terms
• Initiation and provision of guidance for management decisions
• Contributing to monitoring and control of performance through the provision of reports on
organisational performance including comparisons of actual with planned or budgeted
performance, and their analysis and interpretation

Operational budgeting promotes goal congruence, encourages initiative and motivation, provides
feedback to management and encourages long-term rather than short-term views
(KarimiJahromi, et al, 2020).

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In operational budgeting, the management accounting is used to:

▪ Communicate plans through the organisation for operational control

▪ Employ feedback to evaluate and correct
▪ Use behavioural theory for setting targets, recognising achievements & rewarding
performance
▪ Increase motivation by managerial involvement in the planning process
▪ Allow managers to achieve personal goals in addition to corporate goals
▪ Provide a performance measurement system to encourage goal congruence ( the reward
system should reinforce this)

As per Proctor (2019), the essential requirements for effective budgetary control in operations
are:
• Areas of responsibility are clearly defined
• Budgets are held at the lowest practical management level
• Non-controllable items are clearly identified
• Reporting system is routine/automatic

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 • Reporting periods are short
• Reports are produced soon after the period end
• Significant variance levels are pre-established
• Significant variances are always investigated
• Corrective action is taken where possible
• Senior management exemplify the importance of the budgetary control system

Hope and Fraser (2003) argue budgets are inappropriate in a global, deregulated market place
being based on command and control structures :

✓ Meeting only the lowest targets

✓ Using more resources than necessary
✓ Making the bonus-whatever it takes
✓ Competing internally
✓ Spending what is in the budget
✓ Providing inaccurate forecasts
✓ Meeting the target but not beating it
✓ Avoiding risks

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Governance & Procurement
Governance of strategy enables the board and directors to give the required oversight for the
examination of the organization's primary purpose and strategic plan. In addition, it monitors the
accomplishment of these two essential parts of an organization. What external developments
necessitate alterations to the strategic objectives and plan? What extra assistance can the Board
provide to Management to improve the accomplishment of strategic priorities?

Corporate governance is crucial to both the creation and execution of strategies. It describes the
board's and the executive's roles and responsibilities. It also determines the governance of an
organization. This pertains to a number of business issues, including creating the organization's
vision, purpose, and strategic goals, providing the appropriate leadership and culture for
Management to achieve these goals, and establishing clear boundaries for monitoring
performance. In addition, strategy governance will aid in maintaining a good relationship
between the board, management, and a variety of external stakeholders. This prevents conflict
and ensures that all parties are pursuing the same group objectives (Cooray, Gunarathne, &
Senaratne, 2020).

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According to Casady, Eriksson, Levitt, & Scott (2020), the approaches build on each other and
provide a range of governance options for dealing with different levels of complexity – New
Public Passion supplements New Public Governance with a particular focus on intrinsic
motivation (see image below).

Procurement Governance. The procurement authority's general management structure and

organisation, including staff duties and responsibilities, delegations, capability and localised
purchasing methods, controls, and review processes. Strategic procurement is a method that
focuses on optimizing the whole supply cycle within an organization. Strategic sourcing may
also be referred to as strategic purchasing, but the objectives remain the same: managing supplier
relationships, minimizing costs, and minimizing risks within the cycle. A procurement strategy's
primary objective is to deliver business value and competitive advantage to the firm. This is
often accomplished through cost optimization, higher efficiency, and enhanced performance
(Chen, Manley, Lewis, Helfer, & Widen, 2018).

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The success and failure of supply chains are ultimately determined in the marketplace by the end
consumer. Getting the right product, at the right price, at the right time to the consumer is not
only the lynchpin to competitive success but also the key to survival. Hence, customer
satisfaction and marketplace understanding are crucial elements for consideration when
attempting to establish a new supply chain strategy. Only when the constraints of the
marketplace are understood can an enterprise attempt to develop a strategy that will meet the
needs of both the supply chain and the end consumer (Mason-Jones, Naylor, & Towill, 2000).
Supply chain performance improvement initiatives strive to match supply and demand, thereby
driving down costs simultaneously with improving customer satisfaction. This invariably
requires uncertainty within the supply chain to be reduced as much as practicable so as to
facilitate a more predictable upstream demand. Sometimes, however, uncertainty is impossible to
remove from the supply chain due to the type of product involved. If a product is highly
fashionable then, by its very nature, its demand will be unpredictable. Hence, specific supply
chains are faced with the situation where they have to accept uncertainty but need to develop a
strategy that enables them still to match supply and demand (Mason-Jones, Naylor, & Towill,
2000). Only through understanding the particular characteristics of the product type, marketplace
requirements and management challenges can the correct supply chain strategy be designed to
ensure optimal performance and to establish competitive advantage. This can be achieved via
developing strategies that will reduce the effect of the system-induced uncertainty, thereby

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reducing the effect and, at the same time, actively coping with the particular marketplace
uncertainty pressures (Mason-Jones, Naylor, & Towill, 2000).

Many organizations have adopted the lean thinking paradigm (Womack and Jones, 1994) in their
drive to optimize performance and improve competitive position. Recently, the agile
manufacturing paradigm has been highlighted as an alternative to leanness (Richards, 1996). It
has also been suggested in some quarters that agility is the next step after leanness. This could
mean that, once leanness has been achieved, an enterprise should strive for agility or even that
agility should be the goal of an enterprise and leanness as a primary objective should be
forgotten. These discussions oversimplify the situation as they fail to take into consideration the
generic product type and hence the business environment and response requirements needed to
match adequately supply chain design to the required structure. The following definitions relate
the agile and lean paradigms to supply chain strategies and were developed to emphasize the
distinguishing features of each (Naylor et al. 1999).
- Agility means using market knowledge and a virtual corporation to exploit profitable
opportunities in a volatile marketplace.
- Leanness means developing a value stream to eliminate all waste, including time, and to ensure
a level schedule.

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1.3 Performance Appraisals – Operational KPI’s
A Key Performance Indicator (KPI) is a measurable assessment that indicates how well an
organization, team, or individual is performing in relation to a defined target or goal. KPIs can be
applied to any area of performance and should align with the essential success criteria and
declared vision and strategy of the organization. Key Performance Indications (KPIs) are the
most important (key) indicators of progress toward and achievement of the desired outcome.
They are performance indicators that assist you determine if your objectives are being met. KPIs
provide an analytical foundation for decision making and aid in focusing attention on what is
most important (Cruz Villazón, Sastoque Pinilla, Otegi Olaso, Toledo Gandarias, & López de
Lacalle, 2020). Using KPIs for management requires setting goals (the intended level of
performance) and monitoring progress towards those goals. Managing using KPIs frequently
entails focusing on improving leading indicators, which will eventually generate lagging
advantages.

Key performance indicators can be a crucial aspect in the implementation of a strategy (Hristov
& Chirico, 2019). In the process of strategic planning, KPIs can be tied directly to the
achievement of strategic objectives (see figure below).

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A company's strategy is its efforts to accomplish its goal throughout the medium to long term. To
achieve the desired state, the strategy must be converted into action through strategic objectives.
They can be further subdivided into operational goals. The attainment of both strategic and
operational objectives must be assessed often to determine if the company strategy is on course
(Hristov & Chirico, 2019).

This is where key performance indicators (KPIs) come in. They provide evidence of the degree
of achievement of strategic and operational objectives. KPIs act as an early warning system for
strategic and operational problems in this manner. If the measured performance deviates
significantly from the desired performance, it is time to reassess, investigate the causes, and take
action.

1.4 The Role of Technology in Operations Management

A company's operations strategy determines how it competes in the market. These techniques
include (a) low cost, (b) quality, (c) delivery speed, and (d) customisation (Anderson, 2020).

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In the past, managers were required to determine which of these methods was best suitable to the
market segment they were servicing. In doing so, they acknowledged the existence of trade-offs.
For instance, it is not possible to have both a low price and a great level of personalization. or
that there was a decision to be made between speedy product delivery and highly tailored
product delivery. These old trade-offs are no longer true for the majority of organizations since
technology has "raised the performance bar" by allowing companies to compete simultaneously
on many of these dimensions.

In moving from AI to B1 a firm. for example, can achieve superior performance in terms of both
lower cost and also faster service In comparison on a firm that doesn't use technology must
remain on Curve A and consequently must revert to the traditional trade-off where improvement

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in one dimension is accomplished only at the sacrifice of another dimension (for example: going
from A2 to A3 along Curve A, where lower cost is achieved only by providing lower service).
1.4.1 Components of an Operating System
An operating system has three main functions (Laguna & Marklund, 2018):
1. Inputs and resources (natural or material resources, human resources, technological resources
and entrepreneurial resources) which are purchased by the organisation
2. Processes which involve the conversion or transformation of these resources into products or
services (e.g. using project, batch or continuous processes
3. Output and then feedback to the organisation from its customers

The balanced scorecard is a framework for monitoring a complete set of measurable corporate
objectives throughout time. Common components include:
• Revenues
• Earnings
• Market share
• Quality
• Worker morale
• Metrics for customer satisfaction

By monitoring this information, professionals can assist their clients in focusing on their long-
term strategic goals and identifying potential problems before they emerge in the financial
accounts.

According to Terziev and Stoyanov (2017), developing balanced Scorecards as strategic

planning and management systems can help align a company around a shared vision of success
and get people working on the appropriate things and concentrating on results. A scorecard is
more than a method for keeping score; it is a system comprised of individuals, strategy,
processes, and technology. A structured framework is required to construct the scoring system.
This is the first in a series of articles outlining how to construct and implement a balanced
scorecard system using a systematic, step-by-step approach. "Balanced Scorecard" is interpreted
differently by various individuals. At one end of the spectrum, a measurement-based balanced

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scorecard is merely a performance measuring framework for categorizing existing measurements
and showing them graphically, typically on a dashboard. These systems typically use
operational, rather than strategic, metrics to track production, program operations, and service
delivery (input, output, and process measures). On the opposite end of the spectrum, the balanced
scorecard is an enterprise-wide strategic planning, management, and communication system.

These are strategy-based systems that align the work that people do with the vision and strategy
of the company, communicate strategic intent throughout the business and to external
stakeholders, and provide a foundation for better aligning strategic objectives with resources.
Strategic and operational performance measures (outcomes, outputs, processes, and inputs) are
simply one of several significant components in strategy-based scorecard systems, and the
metrics are used to better inform decision making at all organizational levels. In strategy-based
systems, accomplishments and outcomes are prioritized based on a well-executed strategy. A
planning and management scorecard system employs strategic and operational performance data
to assess and analyze an organization's financial and customer results, operational efficiency, and
capacity building.

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In a similar vein, Rohm (2008) asserts that performance assessment balanced scorecards are
uninteresting and contribute little business intelligence to an organization's ability to map
strategic direction and measure strategic execution progress. Balanced scorecards are designed to
"organize the measures we have."

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Baird, K., & Su, S. (2018). The association between controls, performance measures and
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Chen, L., Manley, K., Lewis, J., Helfer, F., & Widen, K. (2018). Procurement and governance
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Cruz Villazón, C., Sastoque Pinilla, L., Otegi Olaso, J. R., Toledo Gandarias, N., & López de
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