4 Stages of Performance Management Process

Performance management is a process that successful organizations use to monitor, assess, manage and grow their business. It is the most fundamental process in any successful company.  It is a continuous 4 stage process:

1. Plan
2. Set targets
3. Evaluate performance
4. Reward and improve

Stage 1: Planning

Create a financial plan to identify key goals, and the resources, initiatives and KPIs needed to achieve those goals.

Key objectives:

1. Create financial plan aligned with shareholder goals for revenue, profitability, returns & key milestones.
2. Identify the resources, initiatives and KPIs needed to achieve the plan.
3. Enable target setting across the organization

How to do it?

Create driver-based financial plan based on the operating KPIs (aka drivers) that (1) have the highest impact on business results; (2) employees can control, measure & improve.

A driver-based plan establishes relationships between the financial results & the resources needed to achieve those results (like people, marketing budgets, equipment, etc.).

Stage 2: Set targets and KPIs

Communicate targets and KPIs across the organization and ensure buy-in, clarity, transparency and accountability.

Key objectives:

1. Set clear and measurable targets (KPIs) across the organization. On total company, business units, departments, regions, stores, projects, etc. However your company is structured.
2. Ensure buy-in for targets from management and key employees.
3. Drive organizational alignment and accountability.

How to do it?

1. Create a driver-based financial plan based on the operating KPIs by department, business unit, geography, store, project, etc.
2. Set targets together with management and key employees (as mush as possible!) to ensure transparency, buy-in and accountability.

Stage 3: Evaluate performance

Track actual progress and performance against the plan, previous periods and targets.

Key objectives:

1. Gain clarity where improvement is needed and where reward is due.
2. Enable informed and timely decision making.
3. Mitigate risk and drive action across the organization.
4. Enable timely rewards and improvement initiatives.

How to do it?

1. KPI reporting and variance analysis . Track progress against targets and KPIs across the organization (i.e. departments, business units, geographies, stores, projects, etc.).
2. Efficient and automated reporting in minutes, not days, so that reporting is actually seen as useful instead of just paperwork that takes a lot of effort to do.
3. Insightful . Understand the root causes for differences in performance, not just naked numbers.

Stage 4: Reward and improve

Reward good performance and define performance improvement initiatives, where needed.

Key objectives:

1. Define improvement initiatives where needed, and evaluate their impact on future results.
2. Reward good performance.

How to do it?

1. Reforecast expected future performance taking into account recent actual performance.
2. Identify improvement initiatives and add them to the financial plan to understand their impact on future results.

An effective performance management process is fundamental to a successful business. It is the only way to ensure clarity, accountability, buy in, urgency, motivation, consistency and trust across the organisation. Many successful companies don’t have a structured performance management process, but they have a process. However, there is no successful company without a performance management process. So, make it easy for everyone, manage your company effectively by planning, clearly communicating expectations, evaluating performance and rewarding where reward is due and improving where improvement is needed.

See Modeliks to do it right and effortlessly.

Author:
Blagoja Hamamdjiev , Founder and CEO of Modeliks , Entrepreneur, and business planning expert.

In the last 20 years, he helped everything from startups to multi-billion-dollar conglomerates plan, manage, fundraise, and grow.