Performance Management & Metrics Flashcards

What is the purpose of setting performance metric 'thresholds' versus 'targets' in a strategic management system?

Answer: Thresholds define the minimum acceptable performance level; targets define the desired achievement level

Thresholds represent the floor below which performance is unacceptable, while targets represent the aspirational achievement level the organization aims for.

A company's 'inventory turnover ratio' has dropped from 8x to 5x year-over-year. What strategic concern does this raise?

Answer: Inventory is moving more slowly, potentially indicating demand decline or overproduction

A declining inventory turnover ratio signals that stock is sitting longer before being sold, which may indicate weakening demand or excess production.

Which best describes the concept of 'performance gap analysis' in strategic management?

Answer: Comparing current performance levels against desired benchmarks to identify areas requiring strategic action

Performance gap analysis systematically compares current state metrics to target benchmarks, surfacing the strategic actions needed to close the difference.

In performance management, what does 'attribution' refer to?

Answer: Crediting specific actions, initiatives, or individuals with causing observed performance outcomes

Attribution in performance management identifies which specific actions, investments, or factors caused a measured outcome, enabling better strategic decisions.

A CSM candidate is evaluating a firm that has high revenue growth but consistently negative free cash flow. What strategic risk does this signal?

Answer: Growth may be unsustainable if operations cannot generate sufficient cash to fund themselves

Negative free cash flow despite revenue growth suggests the company is consuming capital faster than it generates it, posing a sustainability and liquidity risk.

What is the primary function of 'lead time' as a performance metric in strategic operations management?

Answer: It measures the time between a customer order and product delivery, reflecting operational responsiveness

Lead time measures the elapsed time from order placement to fulfillment, serving as a key indicator of supply chain and operational responsiveness.

When implementing a performance management system, 'gaming the system' by employees is best mitigated by:

Answer: Designing a balanced set of interconnected metrics that make isolated manipulation difficult

A balanced, interconnected set of metrics creates a system where improving one metric at the expense of others becomes visible, discouraging narrow gaming behavior.