"What gets measured, gets managed; what gets managed gets done," says strategic management expert Peter Drucker. The gist of his statement is that firms must measure performance to achieve results. The question for managers, however, is how to effectively measure performance. The performance management cycle is one method that offers managers a way to effectively measure performance.


Planning is the initial stage of the performance management cycle. During the planning phase, managers develop an overall strategic plan for the business. It is important, during this stage, that the desired goals and outcomes be clearly identified, as well as the indented means of achieving them. For example, a firm might set the objective of increasing revenues by $500,000 and specify that it intends to do so by increasing production levels.


The "do" stage is the implementation phase of the performance management cycle. During this stage, managers must take their plans and actually apply them to the business. An important component of this stage is communication. Manages must communicate their plan to all employees and make clear the specific goals and objectives that they are supposed to achieve. Managers may want to provide employees with a set of written procedures that explains new methods of conducting business.


After a plan has been implemented, it is essential that it is reviewed. The actual results of the plan should be measured against the intended results. For example, if the plan had a goal of increasing sales by 25 percent then the manager responsible will need to measure the actual sales growth to see if it has reached the target level. Managers should review plans regularly according to a predetermined schedule, for example reviewing results annually, quarterly or monthly.


Based on the review of the plan, it may be necessary to revise it. If a firm fails to meet its expected goals then the managers that are held responsible need to adjust the plan to attain the goals. After the plan has been revised, it will return to the initial planning stage and the cycle will continue. As a result, plans will be constantly revised, making it possible to adapt them continually and to make constant improvements.