D7: Performance Measurement and Control | External Considerations and Behavioural Aspects (ACCA F5)

External Considerations and Behavioural Aspects

External Considerations and Behavioural Aspects explains the need to allow for external considerations in performance management; suggests ways in which external considerations could be allowed for in performance; interprets performance in the light of external considerations; and identifies and explains the behavior aspects of performance management.

External Considerations and Behavioural Aspects

a) Explain the need to allow for external considerations in performance management, including stakeholders, market conditions and allowance for competitors.

External considerations in performance management can have an impact on how the organization performs and the steps to be taken to improve performance.

Stakeholders can have an interest and can be impacted by the organization’s activities. Examples of stakeholders are customers, competitors, employees, suppliers, lenders and the community.

Market conditions can impact performance and include “factors as economic growth, inflation, interest rates, exchange rates, government fiscal policy.”

The allowance for competitors includes monitoring “competitors’ prices and cost structures” and features that add value and could lead to increased market share.

b) Suggest ways in which external considerations could be allowed for in performance management

Performance measures should ensure that stakeholder needs are met, there are plans in place to deal with changes in the market and provide a basis for comparisons with competitors.

c) Interpret performance in the light of external considerations.

Performance measures vary for each of the external considerations. Examples are:

  • Employees – Motivation, morale
  • Management – Salaries, profit sharing
  • Shareholders – Price of shares, dividend yield, earnings per share
  • Customer – Price, quality, service, value for money
  • Government – Taxation, inflation, exports, employment
  • Community – Environmental impact, employment, social needs

d) Identify and explain the behaviour aspects of performance management

Management performance measures “should only include those items that are directly controllable by the manager in question.” When employees know that their performance is being measured, they will improve the standard of their performance.

Additionally, rewards for certain levels of performance can further raise the standard of performance. Management should implement performance measures that are geared towards rewarding the behavior that “maximizes the corporate good.”

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