Performance Management Chapter 1's flashcards - Group 2

Chapter 1 - Performance management, processes and systems to execute strategy

What is a Performance Management System (PMS) ?

A structured process to build a shared understanding of goals and how to achieve them, aligning people to increase success.

What are its 2 different approaches?

Traditional control-oriented views (measure, compare and correct) and lean learning-oriented lens (measure, learn, adapt and improve)

What are the 3 steps of a PMS?

Setting Targets → Measurement & Feedback → Evaluation & Rewards

Cite 2 principal financial performance references

Budgets and forecasts

Why is budgeting forecasts for?

To anticipate next year's performance, forecast operations, and budget all three financial statements

Why meeting forecasts objectives matters for management and shareholders?

It sets expectations, helps measure performance, helps management identify problems early, affects future decisions and matters to investors and lenders

What are 3 comparisons useful to analyse performance?

-Actual vs. previous year → Are we growing?

-Actual vs. budget → Did we meet expectations?

-Actual vs. market/competitors → Are we performing well relative to others?

What differentiates leading from trailing indicators?

Leading indicators: linked to actions, predict future performance

Trailing indicators: linked to results, measure past performance

What are the 3 main skills a performance manager should focus on?

Analyzing and interpreting data, communicating clearly and thinking critically

Why is it important for them to master those three skills?

To identify and understand anomalies, then take the right actions to correct them.

Define a “moat” in business

A strong, long-term competitive advantage that is hard to replicate so that protects a company from its competitors. 

What is the chain of effects created by a strong moat?

Strong competitive advantage → less competition → ability to set prices → high margins → high profits

How does a company move from setting goals to budgeting?

Goals → Strategy → Planning → Budgeting

Why are narratives important in performance management?

To easily communicate past performance, current position, and future plans to management/stakeholders

3 points we would like to learn more about

-Performance narratives/storytelling: learning how to analyse and communicate performance using financial statements, comparison tables, and graphs

-Budgeting and forecasting: understanding how to improve budgeting processes and enhance forecasting accuracy

-KPIs: understanding how to set and track effective performance indicators