What is Performance Prism in Business Management Accounting?

Performance prism is a 3D figure. Alternatively for your understanding you can imagine a pyramid. Performance prism (pyramid) has four outer walls and a bottom. On each wall business terms are written like;

1. Stakeholders’ satisfaction (front wall)
2. Strategies (left wall)
3. Processes (bottom)
4. Capabilities (right wall)
5. Stakeholders’ contribution (back wall)

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All above facets (points) are performed into logical order. Although this is no universal rule, but any amendments to its may be risky. Following these steps business will have a clear understanding of its position in the environment and each prior step justifies the rationale of later step, so that business performance are being managed in the right direction.

Stakeholders Satisfaction

Performance prism recognizes that if business needs to be successful it should recognize the needs of its stakeholders as its first priority. Stakeholders needs and demands to be recognized to implement strategies. Traditionally performance management process starts from strategies but performance prism is distinct from all these as it emphasizes the performance management process should be start from stakeholders.

Strategies

Strategies are short term step by step feasible plan to achieve some specific determinable objective. The strategies need to be developed to satisfy stakeholders like shareholders and customers. Shareholders may want dividends and capital growth and customer may want good quality products at affordable prices. Business has to adopt the strategic direction which leads to the fulfilment of stakeholders demands.

Processes

Processes are the series of activities performed with a view to achieve some outcome. Processes need to be developed to put the strategies into action. Processes implemented should be consistent with the stakeholders’ demands and strategies. The advantage of using the performance prism is that processes have certain objective or target instead of carrying out processes without any motive.

Capabilities

Capabilities means knowledge, skill and experience needed to perform processes. Capabilities need to be achieved, if not already available, through training and practice. Capability needs to be achieved to be able to operate processes in light of stakeholders’ contribution. Performance prism emphasizes that processes need to be performed should determine capabilities needed instead of carrying out process which for capabilities are available but this will not bring results.

Stakeholder Contribution

Stakeholder contribution is knowledge shared by stakeholders to the business which helps to maintain and develop capabilities. Like feedback and suggestions from customers regarding product specification changes or seminars arranged by government to inform about new legislation requiring minimum quality standards.

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