Concept of Performance Standards in Management

Standards of Performance

A standard is a criterion against which performance and results of the individuals is measured or judged. Standard should be based on scientific analysis and should not be subjective in nature. It should possess the following characteristics:

  • Standard should be capable of achievement with reasonable amount of effort and time.
  • Standards should concentrate at results and not the procedures.
  • Standards should not be rigid hey should be capable of being changed whenever the need arises.
  • As far as possible standard should be expressed in quantitative terms and should be based on the result of were measurement carried with the help of time and motion studies.
  • Standards should be consistent with the overall organization objectives.

Types of Standards of Performance

Standards may be expressed in physical terms or monetary terms. Physical standards are generally, applied at the operative levels where the quantity and quality of production is to be controlled. Monetary standards are expressed in terms of costs and revenues.

Thus, there are many types of standards, which can be fixed for measuring performance, which include the following important ones, namely:

  1. Physical Standards: These physical standards, like quantitative in units and man-hours, deal with non-monetary measurements and are used more often at the operating level where materials are utilized, labor employed and goods manufactured. These can be quantitative or qualitative in nature. Quantitative standards may, for example, define the number of units to be produced per hour, or the man-hours per unit of output or units of production per machine-hour and so on. Physical standards can also measure quality such as closeness of tolerances, fastness of a color, the durability of a product and so on. These physical standards are “the building blocks of managerial planning”, and simultaneously they constitute the physical standards for control.
  2. Cost Standards. These money measurements are also common at the operating level and give some monetary value to the cost of the operations involved, e.g., direct or indirect cost per unit produced, material cost per unit and selling cost per dollar or unit of sales. Thus, these cost standards state the expense involved in monetary terms for attaining the various goals.
  3. Revenue Standards: These standards attach a monetary value to the sales, e.g., per capita in defined market area. Again, the annual sales for a department store can be stated in dollars by multiplying the forecasted number of units by the selling price per unit and can become the expected revenue volume of the enterprise for a defined period.
  4. Capital Standards: These standards are in terms of the capital invested by the organization and are thus related to the balance sheet, e.g., rate of return on capital invested and several ratios such as the ratio of current assets to current liabilities.
  5. Intangible Standards: These standards are expressed in neither physical nor monetary measurements and yet they exist in an organization. They relate to the measurement of intangibles such as the competence of managers and employees or the success of a public relations programme or the benefits a training programme. Psychologists and behavioral scientists are continuously developing psychological tests and attitude surveys as an aid to measure such tangible factors. However, it is difficult to set quantitative standards to these high qualitative factors.

The standards may be tangible or intangible.  It is relatively easy to measure performance against tangible standards as compared intangible standards. The tangible standards are mostly physical, cost, revenues or capital standards. It is impractical if net impossible for a manager to attempt to check the performance of the various activities under his supervision against all these numerous goals.  The manager, therefore, must select certain points in the operation which will be the strategic points to reflect the goals of his department and to show him whether or not these goals are being met.  Through this technique a manager will be in a position to concentrate his energies on controlling operations.

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