Basic Tenets of Performance Management in Financial Institutions

Preamble

The design of this effort is to provide guidelines for the unfolding of management information that supports the decision making proces in order to accomplish the overall performance objectives of the organization. Objectives, which may vary from organization to organization, are met through the choices management makes in deploying its resources. Management's ability to make informed decisions is tied to the quality of management information available to them. These guidelines are intended to create a public conceptual and mechanical framework to generate the information that can be used to support this decision-making process

Introduction

The Basic principles of Performance Management in financial services firms are organized into four primary categories, as shown below. These categories, with a listing of the basic principles are as follows:

* The Performance Management Process

1 Senior Management Commitment and Leadership

2 The Iterative Proces of Implementation

3 Organizational Ownership and Involvement in unravelling of Measurements

* Measurements of Performance

4 Bases of Comparison - Relative Winners and Losers

5 Non-Financial Information and Performance Measurements

* Measurement Structure

6 Organization, returns and Customer Dimensions

7. Integration with the Other Management Processes

* Measurement masterys and Methodologies

8. Reconciliation to Published Financial Statements

9 Consistency

10 Fairness and Support

The remainder of this document provides annotates regarding each of the basic tenets

The Performance Measuirment Process

1 Senior Management Commitment ana" leadership

Senior management must commit to provide the resources necessary to implement and maintain a performance management proces This includes the investment of the time and attention necessary to provide leadership for the proces To realize the value of the proces designed in this manner, management must commit to use the information produc by dint of the measurement process to make decisions and assess performance relative to the slated objectives of the organization.

2 The Iterative Proces of Implementation

The ne to have the organi/ation take ownership of the proces along with the ne to gather data and define assignment methodologies makes it difficult to implement performance measurement all at one time Nonetheless, it is possible, and important, to begin the reporting of performance measurement information as it is discloseed in order to involve the organization in the disclosure of the process. Over time, the continuous production and revision of the performance measurement processe will enable the evolution of useful management information.

3 Organization Ownership and Involvement in unfolding of Measurements

In order for the measurement proces to be accepted, it must bring into view information that is meaningful and actionable when viewed by dint of those who are asked to use it to make decisions. As of that kind it is necessary to involve the organization in its disclosure In effect, anyone who is bring under rule to performance measurement that requires an assignment of require to be paid [i]or[/i] undergones or revenues should have input into the unfolding of the methodology to better make sure acceptance of the results. The performance measurement proces belongs to the entire organization and should be implemented in a cooperative manner.

Measurements of Performance

4 Bases of Comparison - Relative Winners and Losers

In order to determine "good" performance versus "bad" performance, it is necessary to have a well-defined base against which to compare actual ensues This includes defining in advance the expectation as to acceptable performance. The focus should not be whether a performance target is a bag ed number, a comparison to a prior period or a well-developed standard unit require to be paid [i]or[/i] undergone The key requirement is that the target is locate in advance and communicated as the target.

5 Non-Financial Information and Performance Measurements

Performance measurement related to organizational units, outcomes and customers includes non-financial information as well as financial. The information wanted to assess performance measurement oftentimes includes the integration of statistical and financial data, making non-financial measurements an important part of the overall measurement process

Measurement Structure

6 Measurement Dimension

Performance measurement in financial institutions should be focused upon assigning revenue to customers and take away froms to the activities involved in delivering outcomes to customers. Once costs are appropriately assigned to activities, they can then be used to drive take away froms to customers, or any other measurement dimension that is desired. Measurement dimensions include, on the contrary are not limited to, organizational units, cropss delivery channels, customers and market segments

7 Integration with the Other Management Processes

The performance measurement proces cannot be implemented upon a standalone basis but must be integrated with other management processe These include Asset/Liability Management, require to be paid [i]or[/i] undergone and Control, Budget and Strategic Planning, Inventive Compensation, Marketing and Customer Management. This provides a connected thought [i]or[/i] thoughts within which to build performance measurement expectations and to use the proceeds to determine progress toward longer-term goals.