Performance Measurement

Performance measurement is a key concept within the managerial accounting discipline. It is the process of collecting, analyzing and reporting information regarding the performance of an individual, division, department or organization. From a management perspective, performance measurement can be useful because managers can use this information to improve their understanding of the problems, opportunities and challenges faced by the different parts of the organization. Among other things, a better understanding of organizational performance can help evaluate the effectiveness of corporate strategy, optimize costs, better allocate resources across the organization or rethink the organizational design. Performance measurement can also help to set individual bonus schemes and other forms of variable compensation. When an individual bonus scheme is being designed, selecting the right performance measure is necessary to achieve goal congruence: namely, to induce individuals to act in the best interest of the company as a whole.