One's initial impulse in the area of Performance Measurement is often to jump headlong into the process of Key Performance Indicator selection. However, it is first worth taking a step back to survey the full perspective of Performance Measurement in terms of:-
WHY MEASURE PERFORMANCE ?
We have all worked in organisations where there appears to be futility involved in measuring the performance of certain activities, processes or business units. In such circumstances there is little point in measuring performance as the information is mostly ignored, and has little or no merit, behaviourally, for being prepared as it appears to serve no purpose. This is not say it has, or can serve, no purpose, but in its current form and environment has lost its value and credibility
Consequently the need for performance measurement must firstly be established, and, in every single case, must be TO PROVIDE INFORMATION UPON WHICH DECISIONS CAN BE BASED. Without this premise there is little or no value in expending effort and resources in the direction of performance measurement.
Having established the basis for measuring performance one will also establish a NEED for the information i.e. there is a person or group of people who have a desire to measure and manage the performance of a process, activity, unit, division or entity.
Armed with a REASON and a NEED, interested parties are then likely to become involved in the process of performance measurement and, hopefully, responsibility, accountability and ownership will ensure.
In addition to the basic need of requiring information for decision making, there may be an underlying reason for the apparent interest for decisions to be made e.g. perceived poor performance, a loss making entity, an activity appears to be a bottle neck on a wider process.
One should consider establishing these factors to be the foundation for sound Business Business Performance Measurement.
STANDARDS AGAINST WHICH TO MEASURE PERFORMANCE
Measuring performance in itself can only offer a limited degree of value in the information created.
All such comments and many many more lead us to the fact that Performance must be measured against a standard or group of standards. Some standards are industry driven and should be borne in mind on the road to achieving the maximum potential for a business whilst others are self-imposed targets deemed to be stepping stones towards our time-based goals.
The purpose of this topic is not to cover the merits of Budgeting and Forecasting processes and their advantages and shortfalls. However, an organisation's culture in this area should not be ridden over roughshod if it is a key activity for business control and reviews.
Comparators for Actual performance may include, amongst others, several of the following:-
In addition to absolute measures against which performance can be measured, tools such as traffic light charts (performance conveyed in red, amber or green colours based on certain conditions being met) and scorecards (information is combined from a number of sources and types, often showing measures relating to the current , previous and future periods) rare extremely valid methods of quickly displaying information to managers whose primary training is not in finance or statistics.
WHAT TO MEASURE, AND AT WHAT INTERVALS
WHAT (Key Performance Indicators or KPI's) to measure can be categorised into 3 areas:-
Generic issues will include some measures of Quality, Cost, Delivery and Financial Performance. An example of Industry Specifics is the measure of PPM (Parts Per Million quality failures) in the automotive industry. Organisation specifics are where a business will focus in on a niche area / activity and generate some unique metrics to measure its own performance in this area e.g. # prescriptions processed per full time equivalent head in pharmacist shops.
It is not an intention
to regurgitate an endless list of statistical formula, metrics and KPI's
but to encourage each company to review a mix of Environmental, Customer,
Process, Quality, Financial and Operational measures which TRULY REFLECT
the activity in which it engages - the primary motive being to encourage
ever improving performance.
The key issues relating to TIME INTERVALS are as follows:
The activity environment often dictates the frequency of review e.g. production environments hourly or weekly and also the economic environment e.g. during a price war competitive analysis must be daily or even hourly. The answer regarding time intervals associated with the measurement of performance can only finitely be determined by the management of each individual organisation as it sees fit.
FRAMEWORKS FOR PERFORMANCE MEASUREMENT
An ideal framework for performance reviews will incorporate both formal and informal reviews. Informal reviews are integral to teamwork and process control with individuals performing periodic "look, see" type measures, utilising their personal skills and experience to determine whether activities are in control, taking actions based on their findings.
Formal reviews need to take the form of disciplined time slots where predetermined measures, metrics, reports and review processes are adhered to rigidly, where responsibilities and outputs are clearly defined.
The foundation of any such framework is a philosophy of PLAN, ACTION , REVIEW; incorporating appropriate timeframe reviews (the lower the chain of command, generally, the more frequent the reviews); utilising such tools as team/process/cell/function boards containing key actions and critical success factors; for efficiency, in larger scale reviews, using technology e.g. electronic white boards for quick collation and distribution of action plans.
