Return on Capital Employed (ROCE)

This refers to a measure of a business’s profitability. ROCE is one of the most common measures of business profitability (sometimes known as the ‘primary ratio’); it is calculated by the profit before interest and tax divided by the difference between total assets and current liabilities. It is a ratio which can be used to… Read more

External failure cost

This refers to the costs incurred when products or services fail to conform to requirements, or satisfy customer needs, after they have been delivered. External failure costs include the costs repair or replacement, customer complaint handling, warranty costs, legal claims.  They also include the cost of lost future sales as a result of previous poor… Read more

Performance pyramid

This refers to a hierarchical view of an organisation’s performance measurement. Developed by Lynch and Cross, the performance pyramid reflects the multiple layers of performance management, from the organisation’s mission statement and vision down to departmental quality objectives. The model also reflects the need for external stakeholder satisfaction and internal efficiency. Performance pyramid is a… Read more

Gap analysis

This refers to analysing current performance against desired or potential performance. It is typically used to assess the levels of production against the optimum levels that could be achieved with the resources available – usually by theoretical calculation or the use of benchmark data. It can also be used as a market research technique to… Read more

Performance management system

This refers to the system of measuring, controlling and optimising the performance of, or within, an organisation. Performance management systems can be applied to a whole organisation, business department, individual or business process. While the detailed systems for these will vary they all feature clear objective setting, measurement of inputs and outputs, monitoring and reviewing… Read more

Value for money

This refers to the economy, efficiency and effectiveness achieved from any given purchase or activity. Value for money recognises that purchases or activities should reflect effectiveness (doing the right thing), efficiency (doing it in the best possible way) and economy (doing it for the lowest cost). Value for money is a term normally found in… Read more

Goal Congruence

This refers to a situation where the objectives of an organisation’s shareholders and its senior managers are aligned. Goal congruence occurs when the incentives of the management team, for example salaries and bonuses, match the objectives of shareholders, for example increasing dividends or rising stock prices. Similarly, goal congruence occurs in hierarchical organisations when the… Read more

Performance related pay

This refers to an approach to employee remuneration which links the level of reward to the achievement of specific targets. Performance related pay (PRP) may be applied to some or all of the remuneration package, from a sales person working on a commission only basis to an employee who gets a bonus on top of… Read more

Critical success factors

This refers to those key elements of an organisation’s performance which must be achieved for the organisation to meet its goals. Examples of critical success factors may be the opening of a new plant capable of producing the increased products required to meet the organisation’s sales targets, or training sufficient staff to meet regulatory professional… Read more

Agency & Principal Theory

This refers to the behaviour and relationship between principals, such as shareholders, and agents, such as a company’s executives. The theory suggests that while principals look for behaviour to produce the highest possible returns, agent’s behaviour is often towards maintaining current work and protecting the future of the business. Agent and principal theory is a… Read more