Part 1
Foundations of Performance Management
Performance management, the object-of-control framework, and the distinction between management accounting and management control.
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Key Exam Takeaways
- 1Performance Management = ensuring employees, teams, and the organization achieve goals efficiently AND effectively.
- 2Efficiency = doing things right (minimizing resource use). Effectiveness = doing the right things (achieving correct objectives). Both are required.
- 3Management Accounting (MA) = Decision-Making tool — improves employees' own decisions. Management Control (MC) = Decision-Influencing tool — aligns employee behavior with organizational goals.
- 4The Object-of-Control Framework has 4 types: Results Controls (KPIs/targets), Action Controls (procedures/checklists), Personnel Controls (selection/training), Cultural Controls (climate/values).
- 5Goal Congruence is the core challenge: ensuring all employees pursue the same organizational objectives.
- 6Financial Accounting ≠ Management Accounting. FA is external, regulated by GAAP, annual, aggregate. MA is internal, unregulated, frequent, disaggregated.
- 7Corporate Governance (board → top management) is distinct from Management Control (top management → employees).
Performance Management: Activities, tools, processes, and programs to ensure employees, teams, departments, or the entire organization consistently achieve their goals efficiently and effectively.
Performance management sits at the intersection of two dimensions:
| Dimension | Definition | Key Question |
|---|---|---|
| Efficiency | Doing things right — minimizing resource use per unit of output | Are we using resources optimally? |
| Effectiveness | Doing the right things — choosing activities that achieve the correct objectives | Are we pursuing the right goals? |
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A factory producing an unwanted product with zero waste is efficient but NOT effective. The ideal is both.
Key practices for organizational performance management include: establishing performance clarity, measuring performance with KPIs, reviewing performance regularly, creating accountability by assigning ownership, setting balanced targets, and ensuring goal congruence.