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The setting of standards raises the problem of how demanding the standard should be, Should the standard represent a perfect performance or an easily attainable performance. There are four types of standard.
(1) Ideal Standard.
These are based on perfect operating conditions: no wastage, no spoilage, no inefficiencies, no idle time, and no breakdowns. Variances from ideal standards are useful for pinpointing areas where a close examination may result in large savings, but they are likely to have an unfavorable motivational impact because reporter variances will always be adverse. Employees will often feel that the goals are unattainable & not work so hard.
(2) Attainable Standard.
These are based on the hope that a standard amount of work will be carried out efficiently, machines properly operated or materials properly used, some allowance is made for wastage & inefficiencies, If well-set they provide a useful psychological incentive by giving employees a realistic, but challenging target of efficiency. The consent & co-operation of employees involved in improving the standard are required.
(3) Current Standard.
There is standard based on current working conditions (current wastage, current inefficiencies).The disadvantage of current standards is that they do not attempt to improve on current levels of efficiency.
(4) Basic Standard.
These are standard which are kept unaltered over a long period of time, & may be out of date they are used to show changes in efficiency or performance over a long period of time basic standards are perhaps the least useful & least common type of standard in use.
Revision of Standards
In practice standard costs are usually revised once a year to allow for the new overheads budget, inflation in prices & wage rate, & any changes in expected efficiency of material usage, labor or machinery. Some argue that standard should be revised as soon as there is any change in the basis upon which they were set. Clearly, for example, if a standard is based on the cost of a material that is no longer available or the use of equipment which has been replaced, it is meaningless to compare actual performance using the new material & equipment with the old standard.
Frequent changes in standard can cause problems.
• They may become ineffective as motivators & measures of performance, since it may be perceived that target setters are constantly “moving the goal posts”.
• The administrative effort may be too time consuming.
The most suitable approach would therefore appear to be a policy of revision the standards whenever changes of a permanent & reasonably long-term nature occur but not in response to temporary “blips” in price of efficiency.
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