AAOM Handbook

ST.05 Define Performance Targets

Context

The stakeholders in a business (shareholders, employees, community and government) collectively define the expectations that the business must meet in order for them to continue to support its operation. These expectations typically encompass safety, environmental, social and economic dimensions and translate into three distinct characteristic. These are; • Effectiveness (units output per time period), • Efficiency (a ratio between resources used and units of output) • Sustainability (the material and social requirements for ongoing effectiveness). A business is typically comprised of a number of interconnected processes, each transforming, transferring or storing materials or information required to produce the outcomes expected of the business. Achieving the overall expectations will require the achievement of specific, and generally differing, expectations from each element of the business. The performance targets for a business therefore need to be broken down in a way that matches the way the business functions (its structure), and the spans and areas of management accountability. This can be achieved by defining the Effectiveness, Efficiency and Sustainability performance targets for each element of the Business Structure defined in TA ST.01. The interaction of elements of the Business Structure, and the presence of independent and dependent variation, means that the performance must be represented as a distribution or specification. It also means that without using an appropriate statistical model we cannot confidently determine the targets (specifications and confidence level over a specified time horizon) for the elements of the business structure. In the Operating Model process of Setting Performance Targets we have defined the Business Structure, and developed a statistical model based on that structure. This model can be used to test and define the performance targets for each element of the Business Structure that will in combination deliver the Business expectations. The Performance Targets for each element of the Business Structure are the set of specifications that, when entered into the Business Structure Performance Model, produce a forecast that matches the Business Expectations. The specification of Performance Targets should take into account the proven capability of each element of the Business Structure, and the reasonable expectations for adjustment of design, strategy, execution and resourcing that may be available. To provide meaningful performance expectations a target value (specifications) and confidence level (the percentage of results that must meet the specifications) are required. The time period over which achievement of the target and confidence level are to be assessed must also be specified, as for a consistent set of specifications the confidence level may be different over different time intervals – e.g. the confidence level that the average of the values

© McAlear Management Consultants 2006

Operational Planning: Set Performance Targets

Updated: August 2018

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