Your Best Performance Measure Is the One You Don't Need

• DOI: http://doi.org/10.1002/jcaf.22200
• Date: 01 October 2016
• Published date: 01 October 2016
• Author: Tom Pryor,Charles R. Thomas

11

© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22200

f

e

a

t

u

r

e

a

r

t

i

c

l

e

Your Best Performance Measure

Isthe One You Don’t Need

Charles R. Thomas Jr. and Tom Pryor

Unlike children,

business lead-

ers don’t like

surprises.

Good surprises—

such as better-

than-expected sales

revenue for the

month—rank better

than bad surprises—

such as critical raw

materials on back

order—but leaders

don’t want either type

of surprise. And they especially

don’t want to receive surprises

after they occur. Month-end

reports are the worst way to

be surprised. You’re learning

about a surprise 30 days after

ithappened.

While good news surprises

are preferred to bad, they still

leave leaders open to criticism:

“If you had better anticipated,

things could be even better.”

Stripping things down to their

bare essentials, investors value

firms based on their percep-

tions of managers’ abilities to

anticipate and adjust (True-

man, 1986). The arrival of

really good surprises can trig-

ger questions about a leader’s

ability to anticipate.

Performance measures can

be an effective and efficient

method to prevent surprises in

an organization. This article

describes three principles for

using performance measures

topredict and prevent financial

and operational surprises in an

organization.

Peter Drucker, the father of

modern management, valued

questions more than answers.

Atax accountant noticed his cli-

ent gave a significant amount of

money each year to a small num-

ber of charities. The accountant

asked, “How do you decide

which charities to support?”

The benefactor replied,

“I have three criteria for my

giving. The charity would be

negatively impacted

if I don’t donate.

Second, they must be

well managed with

low overhead cost.

And most impor-

tantly, the charity’s

mission must include

identifying and

eliminating the root

causes of the need

for the charity.”

The most effec-

tive organizations

are not those with lots of per-

formance measures. Instead,

the best organizations focus

on eliminating the root causes

of bad performance. They

focus on social controls (such

as culture) and improving pro-

cesses such that the output is so

predictably good, performance

measures are no longer needed.

CREATE ACCOUNTING

CONTROL SYSTEMS THAT

PREVENT SURPRISES

Create accounting (con-

trol) systems that prevent

variances to budget, instead

of explaining variances with

prose. Oneof the responsi-

bilities ofcost accountants at

Much has been written about the recommended

use of SMART performance measures … specific,

measureable, attainable, realistic, and timely.

While this approach is fundamentally sound,

authors Chuck Thomas and Tom Pryor propose

ideas and present examples of how organizations

are better served by focusing on the improvement

of business processes and corporate culture.

© 2016 Wiley Periodicals, Inc.

Editorial Review