This foundational lesson establishes performance management and measurement as essential aspects of management accounting within the broader strategic context. It defines the key concepts, explores the relationship between performance management and organisational strategy, and introduces the four-stage performance management process: determining organisational structure, evaluating delegation of control and identifying responsibility centres, establishing performance measures, and reviewing performance with corrective actions .

Detailed Notes:

• Definition of Performance Management: Performance management is a comprehensive process that enables an organisation to achieve its strategic objectives by aligning resources, activities, and people towards common goals. It is an essential aspect of management accounting that can be seen as a four-stage solution to take any organisation towards sustainability . The process involves setting performance targets, measuring actual performance, comparing results against targets, and taking corrective action where necessary.

• The Four-Stage Performance Management Process: The performance management system is structured around four key stages:

  1. Determine the organisational structure: Ensuring the structure is appropriate and best fit for the organisation’s strategy and objectives .

  2. Evaluate the degree of delegation of control: Identifying responsibility centres (cost, revenue, profit, and investment centres) to define accountability .

  3. Establish the performance measures: Developing both financial and non-financial measures and setting targets for each measure .

  4. Review the performance: Using tools like KPI dashboards to monitor performance and take corrective actions .

• The Role of Performance Measurement in Strategy Deployment: Performance management plays a key role in deploying strategy, but it has a prerequisite: measuring the existing performance . Performance measurement is directly linked to the organisational structure. If an organisation is divisionalised, performance also needs to be measured at the division level for each division .

• Measure vs. Indicator: It is important to distinguish between a measure and an indicator. An indicator merely signals or points towards a condition (e.g., return on investment percentage indicates business profitability), while a measure quantifies it (e.g., degree Celsius measures temperature). Comparability conclusions are drawn from indicators, not from measures themselves .