AAOM Handbook

ST.00 Set 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, interpreted and defined by the board and senior management, typically encompass safety, environmental, social and economic dimensions. These overall business expectations define the success factors for the business, and set the context for the performance of every element of the business. 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. It is therefore necessary to define how the overall Business Expectations break down to meaningful targets for the various processes that make up the business, and how the measured performance of these processes rolls up to a measure of the overall business performance. Perhaps the first question to answer is what type of performance targets and measures are we talking about? The Operating Model considers three characteristics when defining outcome Performance Targets, and hence measures, for a process. These are; • Effectiveness - the output delivered over time (which should include quantity, quality and time). • Efficiency - a ratio between output delivered and resources consumed over time. • Sustainability - the resources/condition(s) available to underpin the continued operation of the process. If we consider these characteristics at an overall business level then the targets may relate to; • Effectiveness - the dividends and share price growth over time. • Efficiency - return on capital invested. • Sustainability - access to raw materials, markets, condition of fixed assets, and support from investors, regulators, communities, etc. Such targets may be meaningful to external stakeholders and senior executives, and a business that did not satisfy the above expectations would not continue to operate for very long. Investors would abandon it, or regulators or communities would force its closure. However, these performance targets may not be very meaningful to the people working in the numerous processes that contribute to the overall function of the business. What do dividend and return on capital targets mean for an individual process within the business? It See Appendix 1 for more discussion about the measuring these characteristics.

© McAlear Management Consultants 2006

Operational Planning: Set Performance Targets

Updated: August 2018

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