Evaluation Of The Performance Measurement System

1416 Words Aug 23rd, 2015 6 Pages
2.3 Performance measurement system
Throughout history, PMS clearly have a considerable contribution to evaluate the success of organisations. According to Neely et al. (2002), performance measurement is "the process of quantifying the efficiency and effectiveness of past actions". Moullin (2003) indicates that "PM is evaluating how well organisations are managed and the value they deliver for customers and other stakeholders". The modern accounting framework can be traced back to the Middle Ages and since that time appraisal of performance has primarily been ground on financial criteria (Bruns, 1998).
2.3.1 Evolution of PMS
Until recently, financial measures remain as the central focus of PMS and act as the foundation of performance measurement and evaluation purposes. Key financial performance measurements can be classified into four categories: profitability, liquidity, gearing and financial efficiency. The most popular financial measures include: Return on capital employed (ROCE), Return on asset (ROA), Internal rate of return (IRR), Net profit margin, Earning per share (EPS), current ratio, financial gearing and so on. By the 1980s there was a growing realisation that the financial performance measurements solely were no longer sufficient to manage organisations to sustain competitive advantages (Johnson and Kaplan, 1987). Research evidence shown that whilst financial measurements indicate the performance that results from the activities of an organisation, they are…
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