Performance Measurement
Performance Measurement
People respond to measures. A technically correct KPI can therefore damage the organisation if it rewards the wrong action.
Match measure to responsibility
| Centre | Manager mainly controls | Suitable starting measures |
|---|---|---|
| Cost centre | Resource use for a defined output | Flexible cost, quality, cycle time |
| Revenue centre | Sales activity | Revenue, mix, retention, credit quality |
| Profit centre | Revenue and controllable cost | Controllable margin plus drivers |
| Investment centre | Profit and operating assets | ROI, residual income, value and risk measures |
Do not charge a manager with an asset-return target if the manager cannot influence investment or disposal decisions.
Northstar ROI conflict
Current division:
- operating income £400,000;
- average operating assets £2,000,000;
- ROI = 20%;
- required return = 12%.
Proposed project:
- investment £500,000;
- annual operating income £75,000;
- project accounting return = 15%;
- separate cash-flow appraisal confirms it is value-creating.
The manager rejects it to protect current ROI:
The project lowers division ROI from 20% to 19% even though its 15% return exceeds the 12% hurdle.
Residual income exposes the incentive
| Before project | After project | |
|---|---|---|
| Operating income | £400,000 | £475,000 |
| Required return | £240,000 | £300,000 |
| Residual income | £160,000 | £175,000 |
RI rises £15,000, exactly the project’s £75,000 income less £60,000 capital charge. RI reduces the underinvestment incentive, although it still depends on accounting definitions and division size.
Build a causal scorecard
Northstar’s strategy is “reliable bikes delivered quickly, generating repeat service revenue.”
| Causal stage | Measure | Guardrail |
|---|---|---|
| Learning | Technician certification rate | Practical assessment, not attendance only |
| Process | First-pass yield | Do not hide rework after inspection |
| Delivery | On-time, in-full rate | Exclude customer-agreed changes consistently |
| Customer | 12-month retention | Track complaint severity and refunds |
| Financial | Service contribution and cash collection | Reconcile non-GAAP definitions |
A balanced scorecard is not four boxes of unrelated KPIs. It is a testable hypothesis about how capabilities and processes lead to customer and financial outcomes.
KPI design audit
For each measure record:
- owner and decision;
- precise numerator, denominator and exclusions;
- data source and refresh frequency;
- controllability and time horizon;
- expected behaviour and gaming risk;
- companion measure;
- threshold for investigation, not automatic punishment.
Current research lens
Digital systems are changing the management accountant’s role, not eliminating accountability:
- a 2024 case study of controllers in a Finnish bank describes fluid business-partner and IT-related roles;
- 2026 field evidence on human and AI work in accounting provides an emerging basis for studying task-level integration.
These studies motivate questions about review, role design and evidence. They do not justify delegating judgement or control ownership to a model.
Quick check
Why might “number of customer calls closed” be a poor service KPI?
Answer
Research foundation
- Kaplan and Norton, The Balanced Scorecard—Measures that Drive Performance.