MBM 101 Performance Management

Slide 1: 

Dayalbagh Educational Institute Unit 4 : Performance Management Chapter 1 15 /10/11 (Deemed University) MBM 101 /

Unit IV : 

Unit IV Performance Management . Assessment Centers, Balanced Score Card, Compensation

Question bank : 

Question bank Discuss the objectives of performance appraisal & describe the various forms used in performance Appraisals ? What are the various components of performance appraisal system and what are the various possible errors associated with it? And how to overcome errors in PA system ? What is the purpose & significance of performance review? Highlight the significance of performance counseling for the growth of employee? What are the advantages & disadvantages of assessment centers? What is Management by Objectives (MBO)? What are its key features? How is 360 degree appraisal different from MBO?

After studying this chapter, you should be able to:: 

After studying this chapter, you should be able to: What is Performance & PMS Process Understand the appraisal form Describe the appraisal process. Develop, evaluate, and administer at least four performance appraisal tools. Explain and illustrate the problems to avoid in appraising performance. Know forms and formats of PMS Perform an effective appraisal interview.

Question bank: 

Question bank What is difference between Performance Management system and performance appraisal system ? And what are the objectives of PMS and Performance appraisal system What are the key steps in Performance appraisal process and how can ensure the objectivity of the appraisal process in design of the system You have been asked to reduce the cost of recruitment /officer as one of the goals . Pl explain what would be your KRAs and KPIs to ensure that cost of recruitment is reduced by min 10% . Design and develop a performance appraisal form for an organization which measures performance for development , rewards , recognition , promotions , career planning etc

Need for PMS: 

Need for PMS Traditionally performance was a tool used for compensation increase decisions for individual . Measuring and linking performance to strategic goals of the organization has become one of the necessities in competitive era for survival and growth . The purpose is now to create a mechanism by which organizations achieve goals thru achievement of goals In addition , performance appraisal process help organizations in identifying talents part from helping employees to develop their capabilities . Performance Appraisal is sub set of Performance Management system

PMS Defined : 

PMS Defined Performance Management system is defined as integrated mechanism for achieving the organizational/Business goals through scientific deployment of goals across the organization on each department/process and individuals . PERFORMANCE APPRAISAL SYSTEM The focus is in appraising the performance of individual on the agreed goals for the purpose of his growth and development and annual compensation increase decisions.

Basic Concepts in Performance Management and Appraisal: 

Basic Concepts in Performance Management and Appraisal Performance Appraisal: Setting work standards, assessing performance, and providing feedback to employees to motivate, correct, and continue their performance. Performance Management: An integrated approach to ensuring that an employee’s performance supports and contributes to the organization’s strategic aims. Comparing Performance Appraisal and Performance Management

Objectives of the ideal PMS : 

Objectives of the ideal PMS To measure the performance of the process and ensure that it achieves highest level of efficiency. ( Organizational processes ) To ensure Individuals bring their competencies and talents to give their best in achieving the goals .( Potential actualization)) To consistently benchmark against the best practices in the world to be ahead of them . ( Competitive ) Learning and contributing becomes a way of life .(development ) Finally individual and organization achieve their operational & breakthrough goals. (growth )

Org Goal setting process : 

Org Goal setting process Strategic Goals Function/ deptt Individual Goals Scientifically Deployed on Executed thru Vision Performance Appraisal is done at Individual level

Why Performance Management?: 

Why Performance Management ? 1.Customes are served thru operational excellence QCDS 2.Improvement of org capability 3.Improving Competitiveness Performance Management Org .Need

Why Performance Management?: 

Why Performance Management ? 1. Aligning an meeting Individual goals towards customers /Deppt 2.Improvement of own capability thru learning 3.Improving growth prospets Performance Management Ind .Need

General outcome to Org :PMS : 

Develops future performance Long-term needs of organization Clear objectives for individuals Focus on behavior Incremental progress measured Two-way communication General outcome to Org :PMS

Individual Benefit/Outcome of : Appraising Performance: 

Individual Benefit/Outcome of : Appraising Performance 1 Is useful in career planning. Integrates with Organization goals. Use of PMS Is basis for pay and promotion decisions. Helps in correcting deficiencies and reinforcing good performance. 2 3 4

Steps in Appraising Performance: 

Steps in Appraising Performance 1 Observing & Appraising performance Steps in Appraising Performance Defining the KRAs Providing feedback 3 4 2 Goal setting /KPIs Reward/Recognition decisions 6 7 Promotion /Career decisions 5 Training & Development

Performance Planning and Goal setting : 

Performance Planning and Goal setting Performance Planning refers to methodology of planning your activities with deadlines and time schedules to meet your goals . An employee creates performance planning document in the beginning of the FY highlighting the time frame and responsibility for that activity .

Yearly Plan 2011-12: : 

Yearly Plan 2011-12: Goal :To set design and develop a Performance Management system for developing employees by 30 Mar 2012 KPI :System designed KPI 2; Quality of system rated by Top Management team :Rating on 5 point scale SN. Major tasks TARGET Remarks TEAM MEMBER Responsibility Help required from DEADLINE START DATE END DATE 1 To Understand the current situation and need ./Issues etc 2 To study the best practices in the Industry 3 To prepare and design the system and present for getting views 4 To finalize the new system 5 Communicate to employees 6 Train people 7 Pilot run 8 Launch Implementation

Guidelines for Goal setting : 

Guidelines for Goal setting Assign Specific Goals linked to KRAs Encourage Challenge In Process Assign Measurable /SMART Goals Assign Challenging but Doable Goals Guidelines for Effective Goal Setting

Setting Goals: 

Setting Goals SMART Goals: S pecific, and clearly state the desired results. M easurable in answering “how much.” A ttainable, and not too tough or too easy. R elevant to what’s to be achieved. T imely in reflecting deadlines and milestones. 10% Reduction in overall recruitment cost by 31 Mar 2010

How to wok out KRA , KPIs of the role KRAs: Key Result Area: 

How to wok out KRA , KPIs of the role KRAs: Key Result Area Job description gives the Performance /Responsibility areas It becomes key when it is linked the business priorities of the company . Eg To carry out recruitment for the organization as per the plan may be responsibility area . It becomes key if company has large recruitment plan .otherwise nothing to be done during the year. Recruitment is one of the areas where HR filled up as per plan is Key Result area

Key to PMS : Setting linked goals : 

Key to PMS : Setting linked goals How do you translate /Deploy organizational goal of Improve the company competitive positioning through productivity increase by 10%. At Organizational Level Department Level Individual level

HR DEPARTMENT'S OBJECTIVE: 

HR DEPARTMENT'S OBJECTIVE Objective – Achieve high productivity level in all activities by 10% Key Areas that are under HR would be RECRUITMENT Compensation management Workplace Management Performance Management Training and Development IR Management Systems and support

Key Result areas would be: 

Key Result areas would be Those areas where one need to act this year to reduce costs by 10% KRAs in HR could be following areas where actions can be taken to reduce costs . Recruitment Training & Development Workplace Management

Key Result Areas can be different for each role : 

Key Result Areas can be different for each role Each individual has difference role Reduction of expenses can be by Design of new system for recruitment By reduction in implementation costs Depending upon where one is required to act becomes his/her KPA KRA 1 for Manager : Designing new system KRA 2 for Executive : Hiring Costs /Travel costs / Consultant fee /Manpower etc

How to measure KRA performance: 

How to measure KRA performance How does organization measure that employee has done job successfully KPI or Key Performance indicators give the measure of success . There can be number of KPIs to measure succes of one KRA . Let is take example of Recruitment Next slide

Key Performance Indicators: 

Key Performance Indicators To manage each KRA/ Set of KPI are set . KPI is of department /individual measurable in quantitative or qualitative terms KRA – RECRUITMENT (includes selection ) as per plan KPI 1 : Recruitment with 45 days of indent KPI 2 : 90% new employees Confirmation with A rating

How performance is evaluated /rated : 

How performance is evaluated /rated There are two basic considerations What to measure How to measure We may measure employees performance in terms of quality and quantity , timeliness etc or developing competencies . The issue is how to measure it. There are many methods

Performance Evaluation Methods: 

Performance Evaluation Methods 1 2 3 4 5 Alternation Ranking Method Graphic Rating Scale Method Paired Comparison Method Forced Distribution Method Critical Incident Method 6 7 8 9 Behaviorally Anchored Rating Scales (BARS) Narrative Forms Computerized and Web-Based Performance Appraisal Merged Methods Appraisal Methodologies 10 Annual Confidential Report (ACR)

1. Graphic Rating scale: 

1. Graphic Rating scale Is simplest and is most popular . Part A is assessment on skills Part B is assessment on Results

Sample Performance Rating Form part A: 

Sample Performance Rating Form part A

Sample Performance Rating Form (Part B): 

Sample Performance Rating Form (Part B)

Portion of an Administrative Secretary’s Performance Appraisal Form Showing Task(s) to Appraise: 

Portion of an Administrative Secretary ’ s Performance Appraisal Form Showing Task(s) to Appraise

FIGURE Appraisal Form for Assessing Both Competencies and Specific Objectives: 

FIGURE Appraisal Form for Assessing Both Competencies and Specific Objectives Source: http://www.case.edu/finadmin/humres/policies/perfExempt.pdf. Accessed May 17, 2007.

FIGURE (continued): 

FIGURE (continued) Source: http://www.case.edu/finadmin/humres/policies/perfExempt.pdf. Accessed May 17, 2007.

FIGURE (continued): 

FIGURE (continued) Source: http://www.case.edu/finadmin/humres/policies/perfExempt.pdf. Accessed May 17, 2007.

FIGURE 9–5 (continued): 

FIGURE 9 – 5 (continued) Source: http://www.case.edu/finadmin/humres/policies/perfExempt.pdf. Accessed May 17, 2007.

2Alternate ranking method : 

2Alternate ranking method Ranking employees from best to worst , based on traits is another option 3.Paired comparison method It is more precise For every trait ( quantity of work , quality of work and so on ) you pair and compare every subordinate with every other subordinate

Scale for Alternate Ranking of Appraisees: 

Scale for Alternate Ranking of Appraisees

Ranking Employees by the Paired Comparison Method: 

Ranking Employees by the Paired Comparison Method Note: + means “better than.” – means “worse than.” For each chart, add up the number of + ’s in each column to get the highest-ranked employee.

4.Forced distribution Method : 

4.Forced distribution Method Is similar to grading on the distribution curve You place pre detrmined percentage of employees into several performance categories .eg in GE Top 20% Middle 70% Bottom 10% 5. Critical incident method Supervisor keeps a log of positive and negative behaviors of subordinates This is not a independent method of evaluation but can be clubbed with any one to give better quality of feedback on development and competencies .

Examples of Critical Incidents for a Plant Manager: 

Examples of Critical Incidents for a Plant Manager Continuing Duties Targets Critical Incidents Schedule production for plant 90% utilization of personnel and machinery in plant; orders delivered on time Instituted new production scheduling system; decreased late orders by 10% last month; increased machine utilization in plant by 20% last month Supervise procurement of raw materials and inventory control Minimize inventory costs while keeping adequate supplies on hand Let inventory storage costs rise 15% last month; overordered parts “A” and “B” by 20%; underordered part “C” by 30% Supervise machinery maintenance No shutdowns due to faulty machinery Instituted new preventative maintenance system for plant; prevented a machine breakdown by discovering faulty part

6. Narrative forms : 

6. Narrative forms Pl see next slide Supervisors provides data on past performance Areas of improvement

7. Behaviorally anchored rating scales : 

7. Behaviorally anchored rating scales It is very powerful appraisal tool that anchors a numerical rating scale with specific behavioral example for providing an assessment of the employees past performance and areas of improvement . Developing a BARS typically requires five steps

Behaviorally Anchored Rating Scale (BARS): 

Behaviorally Anchored Rating Scale (BARS) Developing a BARS Generate critical incidents Develop performance dimensions Reallocate incidents Scale the incidents Develop a final instrument Advantages of BARS A more accurate gauge Clearer standards Feedback Independent dimensions Consistency

8. Computerized web based : 

8. Computerized web based Now a days many of the organizations have on line system for appraisals The system ensures that all activities are on line and forms move with clearly dictated deadlines One can get on line help also in appraisals Merging above methods In place of using one of the scales , one can merge some of them together

Problems faced in Performance appraisal : 

Problems faced in Performance appraisal Since this instrument gets used for salary decisions and promotions , it becomes necessary to have objectivity in the process . Reducing subjectivity by working on grey areas is the only way to reduce problems in the PA See next slide for areas of subjectivity

Appraising Performance: Problems and Solutions: 

Appraising Performance: Problems and Solutions Unclear Standards Leniency or Strictness Halo Effect Potential Rating Scale Appraisal Problems Central Tendency Bias

TABLE A Graphic Rating Scale with Unclear Standards: 

TABLE A Graphic Rating Scale with Unclear Standards Note: For example, what exactly is meant by “good,” “quantity of work,” and so forth? Excellent Good Fair Poor Quality of work Quantity of work Creativity Integrity

Sample Rating Errors: 

Sample Rating Errors Focusing on one or two critical incidents Lower rating for less challenge Nobody can be that good (Strictness) Similarity Being influenced by prior performance Rating for retention Style differences Emotional rating Recent performance only Friendships

Appraising Performance: Problems and Solutions (cont’d): 

Appraising Performance: Problems and Solutions (cont’d) Know Problems Control Outside Influences Use the Right Tool How to Avoid Appraisal Problems Train Supervisors Keep a Diary

Important Advantages and Disadvantages of Appraisal Tools: 

Important Advantages and Disadvantages of Appraisal Tools Tool Advantages Disadvantages Graphic rating scale Simple to use; provides a quantitative rating for each employee. Standards may be unclear; halo effect, central tendency, leniency, bias can also be problems. BARS Provides behavioral “ anchors. ” BARS is very accurate. Difficult to develop. Alternation ranking Simple to use (but not as simple as graphic rating scales). Avoids central tendency and other problems of rating scales. Can cause disagreements among employees and may be unfair if all employees are, in fact, excellent. Forced distribution method End up with a predetermined number or % of people in each group. Employees ’ appraisal results depend on your choice of cutoff points. Critical incident method Helps specify what is “ right ” and “wrong” about the employee’s performance; forces supervisor to evaluate subordinates on an ongoing basis. Difficult to rate or rank employees relative to one another. MBO Tied to jointly agreed-upon performance objectives. Time-consuming.

Issue : 

Issue Who should do the appraisal of employee Boss Subordinate Colleague /Peers Self

Who Should Do the Appraising?: 

Who Should Do the Appraising? Self-Rating Subordinates 360-Degree Feedback Potential Appraisers Immediate Supervisor Peers Rating Committee

The Appraisal Interview for feedback : 

The Appraisal Interview for feedback 1 Eliminate external reasons. Never attack a person’s defenses. How to Handle a Subordinate Recognize that defensive behavior is normal. Recognize your own limitations . 2 3 4 5 Collect data before the Interview 6 Start with positives

The Appraisal Interview (cont’d): 

The Appraisal Interview (cont’d) 1 2 3 4 5 How to deal with a Subordinate Criticize in private, and do it constructively. Do it in a manner that lets the person maintain his or her dignity and sense of worth. Give daily feedback so that the review has no surprises. Never say the person is “always” wrong. Criticism should be objective and free of biases.

Checklist During the Appraisal Interview: 

Checklist During the Appraisal Interview

Problems with systems : 

Problems with systems Lack of scientific method for judging the quality and depth of goals Lack of trained assessors Gap between assessment and performance is too large Hardly any evidence used for measurement In additional personal bias and perceptions rule the appraisals

Bias and perception . : 

Bias and perception . Halo effect or Error : The tendency to let the assessment of an individual one trait influence the evaluation of that person on other specific traits Leniency or strictness or constant errors : Every evaluator has his own value system which acts as a standard against which he makes his appraisals. The central Tendency problem : Most commonly found error .It assigns middle of the scale ratings to all people. Similarity errors : Rates people based on his own personality resemblances Miscellaneous Bias : Bias against caste/religion/sex/race or a position is a common error. Others : Rating is sometimes impeded by evaluators ‘perception of people from certain states , castes etc

Why Appraisals are not effective : 

Why Appraisals are not effective The supervisor or boss plays the role of judge as well as the helper who has to help the assesses in developing. He gets rated on output and not on development of people. Lack of clarity of Objectives of PMS . Is it for development or target achievement or rewards or career planning or execution of annual plans. Operational pressures force assessors not to spend time with his subordinates and observe them. Ultimately they goes by his limited observations . It becomes too late to get feedback as the process provides for yearly feedback. Superiors wait for a year to give feedback. Employees are not given clear cut goals and adequate resources and powers to execute plans . Superiors /assessors are not trained on assessment of people. Hence assessment is based on perceptions. The Boss is always right makes it imperative for a subordinate to accept the ratings given. Linking of rewards and development dilutes the identification of gaps

Methods used for goal setting : 

Methods used for goal setting Scientific Deployment Process How goals get deployed from Top to bottom

1. Balanced Score Card methodology : 

1. Balanced Score Card methodology

Building the Balanced Scorecard: 

Building the Balanced Scorecard The key question How do you create value and deploy strategic goals ?

A strategic tool: 

A strategic tool Starts with strategy Continuous process Needs to become embedded with Individual goals

The Balanced Scorecard: 

The Balanced Scorecard Where does it fit?

Measuring performance : 

Measuring performance Organizations are measuring factors that contribute to financial performance and shareholder gains. Balance Score card is one of the ways to measure the Executive Performance It gives linkage of each goal to organizational priorities The entire organization is viewed from four perspectives Financial perspective :How do we reward shareholders: Customer perspective :How do customers see us: Customer perspective Internal business process : At what must excel ? Innovation & earning perspective : How can we continue to improve Companies have realized that there is a direct link between various measures. Eg. There is direct link between customer satisfaction , employee satisfaction and revenue.

Areas : 

Areas Financial/Cost perspective Customer/delivery perspective Internal process perspective Learning and Innovation perspective

New Executive performance measures: 

New Executive performance measures Balance Score Card Financial perspective Profitability Growth EVA Customer perspective Satisfaction Market share Internal business process Productivity Globalization Quality Speed Innovation & Learning perspective Employee satisfaction Innovation Safety

Performance measures: 

Performance measures sn Areas KRA Measures 1 Satisfaction Revenue from existing customers Customer satisfaction index 2 Market share % growth I key segments 3 Finance Profitability ROE, ROTC 4 Growth Net income, cash flow 5 EVA Value added per Rs 6 Internal Business Processes Productivity Output + input measures 7 Globalization Sales outside India 8 Quality % rework 9 Speed Cycle time 10 Learning and growth Employee satisfaction Undesired turnover, survey raing 11 Innovation Revenue from new products

Some examples of qualitative measures: 

Some examples of qualitative measures Company Qualitative measures Compaq Individual contribution levels : succession plans , retention fidelity Completion and implementation of development plans Goldman Sachs Team work HP Employee morale : Marketing plans: New product process Kodak Employee satisfaction Motorola Respect for individuals ; Personal integrity PepsiCo Quality of strategic plans :Org & Management dev Idea leadership

Some other cases: What gets measured gets done : 

Some other cases: What gets measured gets done The compensation is linked to customer loyalty measures and satisfaction. Xerox, AT & T , Fed Ex Kodak etc are high on these factors There are companies which place people side as most important .eg ABB uses executives track record of developing others as a key performance measure.Kodak also gives high weightage to employee satisfaction as one of the determinants for bonus. Companies are 360 degree method to measure executive performance ( although it predominantly used f or development )

2. Management by Objectives (MBO): 

2. Management by Objectives (MBO) A comprehensive and formal organizationwide goal-setting and appraisal program requiring: Setting of organization’s goals. Setting of departmental goals. Discussion of departmental goals. Defining expected results (setting individual goals). Conducting periodic performance reviews. Providing performance feedback.

Using MBO: 

Using MBO Problems with MBO Setting unclear objectives Conflict with subordinates over objectives Time-consuming appraisal process

360- degree appraisal : 

360- degree appraisal 360 degree feedback , also known as 'multi-rater feedback' , is the most comprehensive appraisal where the feedback about the employees’ performance comes from all the sources that come in contact with the employee on his job. 360 degree respondents for an employee can be his/her peers, managers (i.e. superior), subordinates, team members, customers, suppliers/ vendors - anyone who comes into contact with the employee and can provide valuable insights and information or feedback regarding the "on-the-job" performance of the employee. 360 degree appraisal has four integral components: 1. Self appraisal 2. Superior’s appraisal 3. Subordinate’s appraisal 4. Peer appraisal.

360-degree appraisal: 

360-degree appraisal Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance. Superior’s appraisal forms the traditional part of the 360 degree performance appraisal where the employees’ responsibilities and actual performance is rated by the superior. Subordinates appraisal gives a chance to judge the employee on the parameters like communication and motivating abilities, superior’s ability to delegate the work, leadership qualities etc. Also known as internal customers, the correct feedback given by peers can help to find employees’ abilities to work in a team, co-operation and sensitivity towards others.

360-degree appraisal: 

360-degree appraisal 360 degree performance appraisal is also a powerful developmental tool because when conducted at regular intervals (say yearly) it helps to keep a track of the changes others’ perceptions about the employees. A 360 degree appraisal is generally found more suitable for the managers as it helps to assess their leadership and managing styles. This technique is being effectively used across the globe for performance appraisals. Some of the organizations following it are Wipro, Infosys, and Reliance Industries etc.

Thanks you : 

Thanks you