The performance management has multifunctional importance. It recognizes individual contribution and gives opportunity individual development of employees. It contributes to whole organization by achievement of targets and continuous growth. The performance measurement management is opportunity for organization to recognize the contribution of employee and to respond through compensation & benefits package. Performance management enables recognition and direct link between individual performance and reward.

There are three main areas that are the scope of performance management system:

First area is the review of achievements versus predefined targets. This part is done through the monitoring systems, review meetings and through the first level supervision.

Second area is identification what has not been done. Even if the main goal is achieved, it is still possible that there are some areas that are not completed or they require further improvement.

Third area is preparation of development plans and guidance of employees toward defined targets. The purpose of this phase is to provide continuous improvement of the processes and to enable more effective and efficient execution of processes within the company.

Measuring of the processes is represented through tracking and evaluating of quantifiable outputs of process segment expressed as process indicator. The main key indicators are called Key Performance Indicators (KPI). These KPIs can be selected based on Pareto principle. For example, choose 20% of total number of indicators that have 80% impact on business, to be key business indicators.

The key principle is to assign key performance indicators to respective individuals in the team. KPI must have the owner - the person who is responsible for the result of specific KPI. In case that certain team is responsible for some activity, than the team KPI target should be divided among team members. The team supervisor should be responsible for team KPI, while team members should be responsible for their respective shares within team KPI.

In order to track and measure Key Performance Indicators, we need:

The KPI definition, e.g. revenue on the monthly basis.

Information, e.g. what was the actual output of production, along with additional data about factors that directly influence specific KPI.

Standard for result, expected level of output, preset before the process begins. Standard is calculated based on history results, market trends, business strategy, competition activities...

Calculation, comparison of actual result versus the predefined standard, expressed through absolute positive/negative variation versus target and through percentage variation.

The performance measurement of process result is not always easy to measure. In some cases we have hard measurable indicator, which is easily measurable, because it can be precisely quantified through the unit of measure. Example, sales in expressed in quantity of sales units within given time.

But there are situation when the KPI is softly defined. This means that it cannot be expressed through clear unit numbers. Soft defined KPIs should be measured through predefined check lists.

Root Cause Analysis should be completed for those key performance indicators that are below expected target. The Fish bone Diagram must be ready for identification of possible causes of under performance, during the KPI review follow up.

Performance management should be done through tracking of KPI, observing the execution of targeted goal in specific time frame, on regular basis. Such measurement is enabling proper information to the top management. This gives the control over the business process and represents early warning system, since active control enables the system to be proactive instead of reactive.