Internal performance evaluation: the case of bank branches

The purpose of this paper is to propose a new approach for gauging the performance of the operating units of a retail banking organisation, responding to the special demands of an internal evaluation.

The paper defines a measure of internal performance (MIP) based on behavioural theory, particularly on disappointment models.

MIP is applied for the internal evaluation of a network of bank branches. Application to this real managerial setting reveals that bank managers' preferences support behavioural decision theory, including prospect theory.

The paper shows how MIP can be used as a management tool for improving organisational performance. The approach can be extended to other sectors.

The proposal differs from others existing in the literature in two main aspects. Firstly, it is consistent with the requirements of an internal evaluation because it uses the managers' real preferences instead of assuming them. Secondly, it takes into account that each unit has a different target to achieve according to its specific characteristics.