Performance management nearly lost its vibe when it was all about number crunching. All thanks to the introduction of qualitative elements of performance appraisal.
Having some qualitative elements in performance management models have gained global acceptance due to the fact that basing performance measurement and management purely on financial and quantitative terms have created rooms for some dysfunctional behaviour in budgetary system.
In as much as we all appreciate the importance of having non-financial elements in our performance management model, we need to appreciate the fact that there are some limitations of qualitative aspects of performance management that we need to be aware of. Most of the limitations of qualitative aspects of performance management are coming from getting suitable non-quantitative information in the right format and quantity.
Simply put, sieving out the noise from the multitude of information at the disposal of managers is the main task and is unfortunately the most difficult and tricky step in the implementation of qualitative performance management.
6 Limitations of Qualitative Aspects of Performance Management
Difficulty in measuring and interpreting
Information is largely judgemental and based on opinion thereby making it difficult to measure and interprets. This will then mean that more management’s time will be investment in analysing the qualitative information before incorporating it into the overall decision making process.
Hard to separate from qualitative
It is hard to separate the quantitative aspects of performance from the qualitative ones. Data by nature comes in various forms, shapes and quantity. This is even worst nowadays that we now have what is call big data where all sorts of information are gathered about everything.
I honestly believe that big data should be making things a little bit easier but the problem is that most companies that implement any form of big data project fail to understand that the size does not matter but the quality. If fact, businesses should aim for clean data and not big data.
Managers can be presented with information that does not give the true picture. This is where hybrid accountant and new generation managers make their mark. Decision making information does not jump out at you because that will remove the fun out of it if that happens.
Costly to collect and process qualitative information
It is often too expensive to collect the right information that would help managers and decision makers make economic decisions. This is mainly due to the fact that most qualitative information requires the service of an expert. You need an employment psychologist for example to analyse work place chemistry in some cases.
Trusting personal judgment
How much trust do one place on the subjective judgement of a manager? There is no hard and fast rule that can be applied in a given scenario to confirm that the right conclusion has been made.
Use of assumptions
Assumption can be made when trying to quantify issues that originally qualitative. This is in my opinion the main limitation of qualitative aspects of performance management. Managers tend to act like psychics when faced with unique situation. Although many managers will claim that they base their decision on educated guess.
This article has looked at some of the limitations of qualitative aspects of performance management that management accountants need to be aware of. Thanks for reading and please share this article if you know someone that may benefit from it.