Performance Attributes are -

key use of variance analysis is in performance evaluation. Two attributes of performance are commonly measured.

They are:

(i) Effectiveness:

The degree to which a predetermined objective or target is met—for example, sales, customer satisfaction, etc.

(ii) Efficiency:

The relative amount of inputs used to achieve a given level of output—the smaller the quantity of inputs used to make a given number of output units or the greater output units made from a given quantity of input, the greater the efficiency.

Evaluation:

Horngreen, Datar and Foster have mentioned a few precautions for managers while using variance analysis for evaluating the performance of their subordinates:

(1) Managers should not automatically interpret a favourable variance as “good news”.

(2) Managers benefit from variance analysis because it highlights individual aspects of performance.

If any single performance measure (for example, a labour efficiency variance or a consumer rating report) receives excessive emphasis, managers tend to make decisions that maximise their own reported performance in terms of that single performance measure. In turn, managers’ actions may conflict with the organisation achieving its overall goals. This faulty perspective on performance arises because top management has designed a performance measurement and reward system