IntroductionBlue Moon management has an objective of delivering the organizational goals to its owner. Performance measurement and reward system has been designed to check of the delivery on tasks of every department. This system has limitations and causes dysfunctional behavior among the directors of the company. This report reviews the limitations of the systems and provides recommendations for a new system. Three elements of performance measurement and reward systems (PMRS)PMRS at Blue Moon focused on three important areas that include Return On Investment (ROI), time, and costs. Cost-based performance measures were obtained from cost budgets prepared by each department.
The total cost budget in the distribution department included costs incurred in serving clients such as labor costs related to attendance of meetings with yacht dealers, fare for taking part in sailing competitions, and entertainment costs. The performance measure and target entailed dividing the total client cost budget by expected number of clients. Creative department total prototype cost budget included costs incurred in developing/or revising boat designs and the final conception of a new boat prototype, and other costs like graphic software, labor-hours and materials.
The resulting performance measure and target was the average total cost per prototype obtained by dividing total prototype cost budget by expected number of prototypes. Finally the production department total boat department included costs related with production of a revised/new sailing boat, following approval of the prototype. Associated costs include materials, labor, and sub-contracting among others. Performance measurement and target for distribution was the average total cost per boat obtained by dividing the total boats cost budget by expected number of boats produced. That is how cost element of performance measurement and reward system was determined. The second key area of measurement was time.
Two standards of time were developed to represent expected time required for: a) boat production and b) creation of prototype. The standards were further used to develop two further performance measures and targets that include average time to produce a boat and average time to create a prototype. The directors of department were required to participate in budget setting for their respective departments so that they could be appraised on the basis of meeting costs targets.
The third area where PMRS was applied was Return on Investment (ROI). The input of the directors of departments were important so that it could be determined what profit margin has been achieved again the investment made in each department. The Role of PMRS: A directional influence on behavior Performance measurement and reward system has the role of providing guidance to the director of department in regard to which direction they should take. The cost element of PMRS is meant to make the director of department have control on costs within his department.
He has to ask for materials that are important or ask for funding that is relevant to the functions in the department. The directors of departments have also to avoid misuse of the Blue Moon resources within their departments. Having costs’ performance measurement and targets is meant to give the directors of department of what is expected of them in their respective departments. The time element for performance measurement and reward system has direction influence on behavior because there are set targets when to deliver on a certain task.
Therefore, the director of departments work knowing that there is a timeline to every task. The directors of department avoid laxity in their operations and strive to beat the set targets. Without PMRS on time, a department can take as long it wishes in developing a prototype or producing a boat. Urgency and speed is instilled in people as they work towards achieving time targets (Neely, 2002). The return on investment element of performance measurement is provides direction on what returns or profit margins or sales that directors department should work towards.
The performance measure of ROI ensures that the director of department is careful about misuse of resources within returns to the company. In every decision that the director of department makes, he will think about the welfare of the company.