Historical Context
The concept of performance standards dates back to the early 20th century, notably influenced by the Scientific Management principles introduced by Frederick Winslow Taylor. These principles emphasized efficiency and productivity by setting specific benchmarks for labor and material usage, which later became integral to standard costing and performance measurement.
Types/Categories of Performance Standards
- Quality Standards: Benchmarks related to the quality of output.
- Efficiency Standards: Measures of time or resources used for specific tasks.
- Time Standards: Predetermined time to complete a task.
- Cost Standards: Expected costs associated with various tasks.
- Productivity Standards: Output relative to input over a period.
Key Events
- Early 1900s: Introduction of scientific management principles by Frederick Winslow Taylor.
- 1950s-1960s: Adoption of standard costing in manufacturing and other industries.
- 1980s-1990s: Emergence of Total Quality Management (TQM) integrating performance standards for quality improvement.
Detailed Explanations
Performance standards in standard costing represent the expected level of performance to achieve cost efficiency. They are used to calculate the standard costs associated with labor, materials, and overhead.
Example Calculation:
- Task: Manufacturing a product
- Standard hours to complete: 2 hours
- Standard rate per hour for labor: $20
- Standard direct labor cost: 2 hours x $20 = $40
Mermaid Charts/Diagrams
Here’s a flowchart of the process for setting performance standards in a manufacturing context:
graph TD;
A[Define Tasks] --> B[Determine Standard Time]
B --> C[Set Standard Rates]
C --> D[Calculate Standard Costs]
D --> E[Implement in Production]
E --> F[Monitor & Compare with Actual Performance]
F --> G[Identify Variances]
G --> H[Take Corrective Actions]
Importance
Performance standards are vital for:
- Cost Control: By setting benchmarks, businesses can monitor deviations from standard costs and take corrective actions.
- Efficiency: Establishing standards helps in identifying and eliminating inefficiencies.
- Budgeting and Forecasting: Accurate standard costs aid in budgeting and financial planning.
- Performance Evaluation: Helps in measuring employee performance against set benchmarks.
Applicability
Performance standards are applicable in:
- Manufacturing: To standardize production costs.
- Service Industry: Ensuring consistent service quality and cost efficiency.
- Project Management: Setting time and cost benchmarks for project tasks.
Examples
- Manufacturing: Setting a standard time of 2 hours to assemble a product with a standard labor rate of $20 per hour.
- Service: Establishing a standard service time of 30 minutes per client interaction with a standard cost of $15 per interaction.
Considerations
- Accuracy: Ensure standards are realistic and achievable.
- Regular Updates: Update standards periodically to reflect changes in processes and costs.
- Employee Involvement: Engage employees in setting standards for better acceptance and adherence.
Related Terms
- Standard Costing: The practice of substituting an expected cost for an actual cost in the accounting records.
- Variance Analysis: The quantitative investigation of the difference between actual and planned behavior.
- Benchmarking: Comparing business processes and performance metrics to industry bests.
Comparisons
- Performance Standard vs. Performance Measure: A performance standard is a set expectation, whereas a performance measure is the actual outcome.
- Standard Cost vs. Actual Cost: Standard cost is a pre-determined estimate, while actual cost is the true expense incurred.
Interesting Facts
- Historical Roots: The first recorded use of performance standards dates back to the early 20th century with the work of Frederick Taylor.
- Wide Usage: Performance standards are used in various fields beyond manufacturing, including healthcare, education, and government.
Inspirational Stories
- Toyota: The implementation of performance standards and continuous improvement principles helped Toyota become a leader in automobile manufacturing.
Famous Quotes
- Peter Drucker: “You can’t manage what you can’t measure.”
- Frederick Taylor: “In the past the man has been first; in the future the system must be first.”
Proverbs and Clichés
- Proverb: “What gets measured gets managed.”
- Cliché: “Standard practice.”
Jargon and Slang
- KPIs: Key Performance Indicators used interchangeably with performance standards.
- Benchmarking: Setting a standard based on industry leaders.
FAQs
What is a performance standard?
How are performance standards set?
Why are performance standards important?
Can performance standards change over time?
References
- Taylor, F. W. (1911). The Principles of Scientific Management.
- Drury, C. (2012). Management and Cost Accounting.
- Kaplan, R. S., & Atkinson, A. A. (1998). Advanced Management Accounting.
Summary
Performance standards serve as a crucial tool in standard costing and management. Originating from early 20th-century scientific management principles, they provide benchmarks for efficiency, cost control, and performance evaluation across various industries. By setting realistic and regularly updated standards, organizations can optimize their operations and achieve sustainable growth.
