Behavioural aspects of performance measurement - Bias manipu...

Learning Outcomes

This article explains the behavioural factors affecting performance measurement for ACCA APM. You will be able to distinguish between types of bias in reporting, identify manipulation of information and targets, and understand measure fixation and its effects on organisational performance and decision-making. Application of these concepts in scenario-based questions is included.

ACCA Advanced Performance Management (APM) Syllabus

For ACCA Advanced Performance Management (APM), you are required to understand how human behaviour influences the effectiveness of performance management systems. In particular, focus your revision on:

• The risk and consequences of bias and manipulation in performance reports
• Techniques managers use to present performance favourably (data and target manipulation)
• The meaning and impact of measure fixation in performance measurement
• The link between behavioural issues and the design of effective performance management systems
• Methods to reduce dysfunctional behaviours in performance measurement

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is an example of measure fixation?
   1. Setting multiple KPIs for each department
   2. Focus only on meeting one particular target, ignoring unmeasured performance areas
   3. Calculating performance using external benchmarks
   4. Reporting both positive and negative performance equally

2. Define 'bias' in the context of performance reporting and state one potential cause.

3. A manager delays expensive maintenance to achieve a target profit margin for year-end reporting. State which type of performance manipulation is being used.

4. True or False? Data manipulation always results in beneficial outcomes for the organisation.

5. Briefly explain one way organisations can discourage measure fixation.

Introduction

Behavioural factors significantly influence how well performance management systems achieve their intended aims. Real-world organisations often experience bias, manipulation, and measure fixation when managers and employees respond to performance measures and rewards. This article examines these behavioural issues and their implications for achieving strategic, tactical, and operational objectives.

Key Term: bias
A systematic tendency to present information, interpret results, or make decisions in a way that favors particular outcomes, intentionally or unintentionally.

Key Term: manipulation
Deliberate alteration or selective presentation of information or targets to achieve desired perceptions or rewards.

Key Term: measure fixation
Excessive focus on achieving particular performance indicators or targets, at the expense of overall organisational objectives or unmeasured areas.

Types of Behavioural Issues in Performance Measurement

Performance management systems are designed to guide behaviour and drive achievement of organisational objectives. However, when people are measured and rewarded on specific indicators, predictable behavioural problems can arise.

Bias in Performance Measurement and Reporting

Bias occurs when information is presented or interpreted in a way that does not reflect actual performance. This may be intentional—for example, exaggerating achievements to increase the chance of a bonus—or unintentional, due to a lack of objectivity.

Common causes include:

• Pressure to meet targets or expectations
• Desire to maximise personal reward
• Organisational culture tolerating or encouraging selective reporting

Bias can result in decisions being made on inaccurate or incomplete information, undermining strategic alignment and resource allocation.

Manipulation of Data and Targets

Manipulation refers to actively influencing reported results, sometimes referred to as "gaming" the system. There are two primary forms:

a) Data Manipulation

Managers may manipulate numerical results to present performance more favourably. Practices include:

• Recording revenue before actually earned ("channel stuffing")
• Delaying necessary expenses to future periods
• Shifting costs between budgets or departments

Such acts can distort true performance, compromise data integrity, and result in suboptimal decisions.

b) Target Manipulation

Targets themselves may be set or adjusted to ensure they are easier to achieve (also known as "budget slack"). This can include:

• Setting goals that are too easy, to guarantee bonus achievement
• Negotiating for lenient KPIs unrelated to key business drivers

Target manipulation reduces motivation for genuine improvement and misaligns individual actions with organisational strategy.

Worked Example 1.1

A regional manager is promised a substantial bonus if customer complaint rates fall below 5%. To influence the reported rate, the manager instructs staff to process complaints informally (e.g., verbally in store) so that fewer are officially logged.

Answer:
The manager is engaging in data manipulation by deliberately underreporting complaint figures. While measured performance appears to improve, genuine service issues remain unresolved, harming long-term reputation.

Measure Fixation

Measure fixation arises when employees focus attention solely on specific indicators, often to the detriment of other critical but unmeasured factors.

Effects of measure fixation include:

• Neglect of critical, unmeasured activities (e.g., customer service not captured by KPIs)
• Risk of unethical or risky behaviour to achieve the measured target
• Deterioration of overall performance and potential reputational risk

Measure fixation is most problematic when reward systems are tightly linked to a single KPI or when there is little monitoring of unintended consequences.

Worked Example 1.2

A company's only KPI for the customer service team is the average call handling time. Staff focus on ending customer calls as quickly as possible, frequently failing to resolve queries. As a result, customer satisfaction drops.

Answer:
This is measure fixation. Employees are neglecting service quality to optimise their performance against the single measured target.

Practical Implications for Organisational Performance

Bias, manipulation, and measure fixation can result in:

• Misleading performance reports, faulty decision-making
• Dysfunctional behaviour such as short-termism, risk-taking, or ignoring ethical standards
• Loss of trust between managers and employees, damaging culture
• Wasted resources chasing targets that do not contribute to strategic aims

Responses to Reduce Dysfunctional Behaviour

Effective countermeasures include:

• Setting multiple, balanced KPIs, including both quantitative and qualitative measures
• Rotating or adjusting measures periodically
• Regular review and audit of reported information
• Encouraging open discussion of performance and challenges
• Linking rewards to team or organisational outcomes, not just individual KPIs

Exam Warning

In APM scenario questions, always look for evidence of manipulation or fixation. Explain the impact on overall objectives, not just whether targets are met.

Revision Tip

Practice explaining how a performance management system can unintentionally encourage measure fixation or manipulation, and propose practical solutions.

Summary

Behavioural issues such as bias, data and target manipulation, and measure fixation weaken the effectiveness of performance measurement systems. They can undermine strategic objectives by promoting short-term, self-serving behaviour rather than actions aligned with long-term value. Identifying and addressing these problems is essential for robust performance management and accurate decision-making.

Key Point Checklist

This article has covered the following key knowledge points:

• Distinguish between bias, manipulation, and measure fixation in performance measurement
• Recognise causes and effects of biased or manipulated reporting
• Identify practical examples and exam scenarios for data/target manipulation
• Explain the risks of measure fixation and how to reduce it
• Recommend methods to ensure performance measures align with organisational objectives

Key Terms and Concepts

• bias
• manipulation
• measure fixation