A performance accounting system has four evolutionary stages. In the first stage, people and processes are generating data to be collected. The data is fed into, and organized by, various information systems such as a general ledger, point of sale system, MRP system, CRM system, time and billing system and so on. Once the information is organized, it is interpreted through the use of various analysis and modeling tools. At this stage we are looking to glean specific knowledge about how the people and systems are performing. Finally, that knowledge is paired with new strategies for improvement that are then applied to the business. Many companies stop there, only using the information to influence the decision making process. And although there is value in that, the real value of a performance accounting system lies in providing real-time feedback to those involved in the activities that generated the data in the first place.

What is a performance accounting system?

A performance accounting system is a mechanism for capturing and reporting performance indicators on a real-time basis. Performance accounting systems range from low to very high tech.

 There are two primary benefits of a performance accounting system.

 1.  To improve the availability and quality of information for decision makers.

2.  To stimulate desired behavior by providing real-time performance feedback on activities that are most critical to company success.

Here’s an interesting angle on this whole approach; often times the very act of providing feedback stimulates better performance without managers having to deploy any new strategies. Does this mean the employees themselves can apply their own wisdom to the work environment? Absolutely! In fact, one of the greatest benefits of a performance accounting system is how employees respond to feedback by taking ownership of their actions rather than always waiting to be led by management. This is starting to sound a lot like what has come to be regarded as “nirvana in business” a.k.a. “participatory management.”

Returning to our sports analogy, players, like coaches, are just as interested in performance feedback. They want to know how they can add to the game so they can become an increasingly valuable member of the team. Imagine what it would be like if every one of your employees had that same attitude. Performance accounting provides a platform for real-time feedback that drives a value-adding attitude. When you think about it, it doesn’t make sense to expect people to help us win the game if they don’t even know what the score is.

Companies looking for a competitive edge need not look any further than their own backyard. It’s a matter of identifying critical activities, assigning measures to them, and then providing feedback to those who have a direct impact on those critical activities. Human nature, our need to feel needed, and built-in competitiveness then takes over to drive the desired behavior.