Sample Economics Paper on Role of Performance Measurement System

Role of performance measurement system

Performance measurement is a process in business that applies intensive knowledge. Performance measurement systems are tools selected appropriately for collecting, displaying and communication of pertinent performance information to the stakeholder (Pidun & Felden, 2013). They mainly assess the health of an organization as well as measure the performance of certain knowledge systems such as management decisions and tasks performed by employees with the use of the right indicators and perspectives. Balance Scorecard model is one of the systems used by firms to measure performance; it has measurement elements like customers and internal business processes that are significant in establishing a highly successful performance measurement system. The model assists in accomplishing diverse performance objectives, meet requirements of an organization as well as meet various elements of a firm (Pidun & Felden, 2013).

Perfect performance measurement systems assist in making optimal decisions and carry out the right tasks that positively influence both the short term and long term performance of a firm. These systems enable a firm to evaluate aspects like the areas it should invest in more or less of its funds and tasks that require technological investments. For instance, transfer pricing is used as a performance measurement system that help when deciding on whether to buy or make products that are transferred from one divisions of a firm to another (Besanko, Dranove, Shanley & Schaefer, 2010).

These systems also motivate employees to work towards attaining certain set objectives by adapting the right altitude and skills in their jobs. However, this may result to systems encouraging wrong behaviors that lead to implementation of non optimal decisions (Besanko et al., 2010). The root cause approach system may be used by managers in identifying the main problems negatively influencing employees’ performance. Transfer pricing is also useful in evaluating employees performance and coming up with a pay that is related to performance (Pidun & Felden, 2013).

Inaccurate systems and their wrong applications may provide wrong information about the firms’ performance resulting to wrong decision making such as over investments and capital expenditure misallocations (Besanko et al., 2010). Generally, performance management systems assist in evaluating and measuring performance of a firm resulting from diversified managerial decisions and assignments carried out. This helps in developing new strategies as well us improving existing ones to ensure overall increased performance in the firm



Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. (2010). Economics of strategy , 5th ed. Hoboken, NJ: John Wiley & Sons.  pp 469-489

Pidun, T., & Felden, C. (2013, January). The Role of Performance Measurement Systems between Assessment Tool and Knowledge Repository. In System Sciences (HICSS), 2013 46th Hawaii International Conference on (pp. 3426-3435). IEEE.