Accounting Applications White Papers

Performance Measures and the Flowering of a New Era

• Tags:
• accounting applications,
• measurement,
• measures,
• abc

Overview One of today’s ongoing business mysteries is how to interpret a manager’s claim that, "We did well last quarter." The usual follow-up question is, "How do you know?" Despite a sea of collected data, organizations struggle with making sense of it all. Although they aregenerally data rich, they are information poor. Attempts are being made to fix this with "data warehouses" and "number crunching software." But are those technologies simply temporary fixes or a realcure? The need for accurate and useable performance measurement is clear. When does a department "do well" and how does it’s performance impact the entire organization? One way to begin to answer these questions is to improve the organization’s measurement system itself. An emerging methodology which solves part of the measurement problem is activity-based costing (ABC) and activity-based management (ABM). ABC is not, in itself, a measurement system. But the output of ABC can provide important input into performance measures. And the presence of ABC data can lead to actions and decision-based measurements, not just smiles or frowns. Clearly, as information technology evolves, organizations will increase their effectiveness. Further, as markets change, companies and organizations will race against global competitors that increasingly look to information and information technology for competitive advantage. Balanced performance measurement systems and ABC/ ABM are both important tools in developing this advantage.. Effective performance measures align employee behavior with the organization's strategies; and ABC/ ABM puts the "management" back into management reporting, allowing businesses to measure where they are profitable and not and also to understand why. It will be enlightening to watch organizations move from their learning stages to mastery of building and using integrated performance measurement and ABC/ ABM systems.

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