Setting performance standards is the first step in the controlling process. This step involves establishing clear and measurable goals or benchmarks against which actual performance can be compared. By setting performance standards, organizations can define what constitutes acceptable or desired levels of performance in various areas of their operations.

The process of setting performance standards typically involves the following steps:

1. Identify objectives: The first step in setting performance standards is to identify the objectives or goals that the organization wants to achieve. These objectives should be specific, measurable, achievable, relevant, and time-bound (SMART). For example, an organization may set a performance standard of reducing customer complaints by 20% within the next quarter.

2. Determine performance measures: Once the objectives are identified, the next step is to determine the performance measures that will be used to assess progress towards those objectives. Performance measures can include quantitative metrics such as sales revenue, customer satisfaction ratings, production output, or employee productivity. Qualitative measures such as customer feedback or employee performance evaluations can also be used.

3. Set benchmarks: After determining the performance measures, benchmarks or targets need to be established. These benchmarks represent the desired levels of performance that the organization wants to achieve. They can be based on historical data, industry benchmarks, or best practices. For example, a benchmark for customer satisfaction may be to achieve a rating of 90% or above on customer surveys.

4. Communicate standards: Once the benchmarks are set, it is important to communicate them to all relevant stakeholders, including employees, managers, and other key individuals. Clear and effective communication ensures that everyone understands what is expected of them and what they need to do to meet the performance standards.

Setting performance standards is crucial because it provides a basis for comparison and evaluation of actual performance. Without clearly defined standards, it would be difficult to determine whether performance is satisfactory or whether corrective actions are needed. By setting performance standards, organizations can establish a framework for monitoring and controlling their operations, and ultimately, achieving their strategic objectives.