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Performance Measurement in Production Management

Traditional Performance Measurement

focuses on cost-based measures like standard costing and budgetary control at organizational and business unit levels. At the production level, it uses cost accounting and financial measures such as variance analysis.

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Non-Financial Performance Measurement

With the advent of innovative operational management practices like JIT production, lean manufacturing, and TQM, there has been a shift towards using non-financial performance metrics such as time, quality, and operating efficiency.

Profit-Based Performance Measurement (MPCs)

Japanese companies have developed Management Profit Centers (MPCs) that focus on profit-based performance measurement at the production level. MPCs treat each factory process as a profit center responsible for both revenues and costs.

Theory Development: Controllability vs. Informativeness

The controllability principle suggests that individuals should be held accountable only for what they can control, but using profit information challenges this principle. Informativeness principles explore how interdependencies and multi-tasking influence the choice of performance measures.

Empirical Research and Results

Studies in West Japan’s manufacturing sector show correlations between interdependencies, multi-tasking, and the weighting of profit versus non-financial measures in performance evaluation.