Performance measurement
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Healthy revenue and profit margins are crucial to any company.
However, monitoring your bottom line is only one part of the formula. It’s
essential that you determine the factors critical to your company’s success,
measure those metrics and put into place a system for continually improving
performance. Here are ten guidelines for helping you develop your company’s
process.
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Performance
measurement
The
reason for measuring performance
Fundamental
purpose behind measures is to improve performance, number of measures that are
not directly connected to improving performance (like measures that are
directed at communicating better with public to build trust) are measures that
are means to achieving that ultimate purpose. (Behn 2003)
Behn
2003 gives 8 reasons for adapting performance measurements:
1. To
Evaluate how well is public agency performing. To evaluate performance,
managers need to determine what agency supposed to accomplish. (Kravchuk &
Schack 1996). To formulate a clear, coherent mission, strategy, and objectives.
Then based on this information choose how you will measure those activities.
(You first need to find out what are you looking for).
Evaluation
process consists of two variables: organizational performance data and a
benchmark that creates framework for analyzing that data. For organizational
information focus on outcome of agency’s performance, but also including input/
environment/ process/ output- to have a comparative framework for analysis. Its
helpful to ask 4 essential question in determining organizational data:
- Outcome should be
directly related to public purpose of the organization. Effectiveness Q:
did they produce required results (determined by outcomes).
- Cost-effective:
efficiency Q (outcome divided by input).
- Impact Q: what value
organisation provides.
- Best-practice Q:
evaluating internal operations (compare core process performance to most
effective and efficient process in the industry).
As in
order for organization to evaluate performance its requires standards
(benchmark) to compare its actual performance against past performance/ from
performance of similar agencies/ industry standard/political expectations.
2. To
Control How can managers ensure their subordinates are doing the right
thing.
Today
managers do not control their workforce mechanically (measurement of
time-and-motion for control as during Taylor) However managers still use measures
to control, while allowing some space for freedom in the workforce. (Robert
Kaplan & David Norton) Business has control bias. Because traditional
measurement system sprung from finance function, the system has a control bias.
Organisation
create measurement systems that specify particular actions they want execute-
for branch employees to take a particular ways to execute what they want-
branch to spend money. Then they want to measure to see whether the employees
have in fact taken those actions. Need to measure input by individual into
organisation and process. Officials need to measure behavior of individuals
then compare this performance with requirements to check who has and has not
complied.
Often
such requirements are described only as guidelines. Do not be fooled. These
guidelines are really requirements and those requirement are designed to
control. The measurement of compliance with these requirements is the mechanism
of control.
3. To
Budget Budgets are crude tools in improving performance. Poor performance
not always may change after applying budgets cuts as a disciplinary actions.
Sometimes budgets increase could be the answer to improving performance. Like
purchasing better technology because the current ones are outdated and harm
operational processes. So decision highly influenced by circumstance, you need
measures to better understand the situation.
At the
macro level, elected officials deciding which purpose of government actions are
primary or secondary. Political priorities drive macro budgetary choices. Once
elected officials have established macro political priorities, those
responsible for micro decisions may seek to invest their limited allocation of
resources in the most cost-effective units and activities.
In
allocating budgets, managers, in response to macro budget allocations (driven
by political objectives), determine allocations at the micro level by using
measures of efficiency of various activities, which programs or organisations
are more efficient at achieving the political objectives. Why spend limited
funds on programs that do not guarantee exceptional performance?
Efficiency
is determined by observing performance- output and outcome achieved considering
number of people involved in the process (productivity per person) and cost-data
(capturing direct cost as well as indirect)
4. To
Motivate Giving people significant goals to achieve and then use
performance measures- including interim targets- to focus people’s thinking and
work, and to provide periodic sense of accomplishment.
Performance
targets may also encourage creativity in developing better ways to achieve the
goal (Behn) Thus measure to motivate improvements may also motivate learning.
Almost-real-time
output (faster, the better) compared with production targets. Quick response
required to provide fast feed-back so workforce could improve and adapt.
Also
it is able to provide how workforce currently performing.
Primary
aim behind the measures should be output, managers can not motivate people to
affect something over which they have little or no influence.
Once
an agency’s leaders have motivated significant improvements using output
targets, they can create some outcomes targets.
- “output”- focuses on
improving internal process.
- “outcome”- motivate
people to look outside the agency (to seek way to collaborate with
individuals & organisations may affect the outcome produced by the
agency)
5. To
Celebrate Organisations need to commemorate their accomplishments- such
ritual tie their people together, give them a sense of their individual and
collective relevance. More over, by achieving specific goals, people gain sense
of personal accomplishment and self worth (Locke & Latham 1984).
Links
from measurement to celebration to improvement is indirect, because it has to
work through one of the likes- motivation, learning...
Celebration
helps to improve performance because it brings attention to the agency, and
thus promotes its competence- it attracts resources.
- Dedicated people who
want to work for successful agency.
- Potential collaborators.
- Learning-sharing
between people about their accomplishments and how they achieved it.
Significant
performance targets that provide sense of personal and collective
accomplishment. Targets could ones used to motivate. In order for celebration
to be a success and benefits to be a reality managers need to ensure that
celebration creates motivation and thus improvements.
- By leading the
celebration.
6. To
Promote How can public managers convince political superiors, legislators,
stakeholders, journalists, and citizens that their agency is doing a good job.
(National
Academy of Public Administration’s center for improving government performance-
NAPA 1999) performance measures can be used to: validate success; justifying
additional resources; earn customers, stakeholder, and staff loyalty by
showing results; and win recognition inside and outside the organisation.
Indirectly
promote, competence and value of government in general.
To
convince citizens their agency is doing good, managers need easily understood
measures of those aspects of performance about which many citizens personally
care.
(“National
Academy of Public Administration-NAPA” in its study of early performance-
measurement plans under the government performance and results Act) most plans
recognized the need to communicate performance evaluation results to higher
level officials, but did not show clear recognition that the form and level of
data for these needs would be different than that for operating managers.
Different needs: Department head/ Executive Office of President/ Congress. NAPA
suggested for those needs to be more explicitly defined- (Kaplan & Nortan
1994) stress that different customers have different concerns(1992).
7. To
Learn Learning is involved with some process, of analysis information
provided from evaluating corporate performance (identifying what works and what
does not). By analyzing that information, corporation able to learn reasons
behind its poor or good performance.
However
if there is too many performance measures, managers might not be able to learn
anything. (Neves of National Academy of Public Administration 1986)
- Because of rapid
increase of performance measures there is more confusion or “noise” than
useful data.
- Managers lack time or
simply find it too difficult to try to identify good signals from mass of
numbers.
Also
there is an issue of “black box” enigma (data can reveal that organisation is
performing well or poorly, but they don’t necessarily reveal why). Performance
measures can describe what is coming out of “black box” as well as what is
going in, but they do not reveal what is happening inside. How are various
inputs interacting to produce the output. What more complex is outcome with
“black box” being all value chain.
Bench marking
is a traditional form of performance measurement which facilitates learning by
providing assessment of organisational performance and identifying possible
solutions for improvements.
Bench marking
can facilitate transfer of know how from bench marked organisations. (Kouzmin et
al. 1999)
Identifying
core process in organisation and measuring their performance is basic to
bench marking. Those actions probably provide answer to issue presented in
purpose section of the learning.
Measurements
that are used for learning act as indicators for managers to consider analysis
of performance in measurement’s related areas by revealing irregularities and
deviations from expected data results.
What
to measure aiming at learning (the unexpected- what to aim for?)
Learning
occurs when organisation meets problems in operations or failures. Then
corporations improve by analysing those faults and looking for solutions. In
public sector especially, failure usually punished severely- therefore
corporations and individuals hide it.
8. To
Improve What exactly should who- do differently to improve performance? In
order for corporation to measure what it wants to improve it first need to
identify what it will improve and develop processes to accomplish that.
Also
you need to have a feedback loop to assess compliance with plans to achieve
improvements and to determine if those processes created forecasted results
(improvements).
Improvement
process also related to learning process in identifying places that are need
improvements.
Develop
understanding of relationships inside the “black box” that connect changes in
operations to changes in output and outcome.
Understanding
“black box” processes and their interactions.
- How to
influence/ control workforce that creates output.
- How to
influence citizens/ customers that turn that output to outcome (and all
related suppliers)
They
need to observe how actions they can take will influence operations,
environment, workforce and which eventually has an impact on outcome.
After
that they need to identify actions they can take that will give them
improvements they looking for and how organisation will react to those actions
ex. How might various leadership activities ripple through the “black box”.
Principles
of performance measurement
All
significant work activity must be measured.
- Work that is not
measured or assessed cannot be managed because there is no objective
information to determine its value. Therefore it is assumed that this work
is inherently valuable regardless of its outcomes. The best that can be
accomplished with this type of activity is to supervise a level of effort.
- Unmeasured work should
be minimized or eliminated.
- Desired performance
outcomes must be established for all measured work.
- Outcomes provide the
basis for establishing accountability for results rather than just
requiring a level of effort.
- Desired outcomes are
necessary for work evaluation and meaningful performance appraisal.
- Defining performance
in terms of desired results is how managers and supervisors make their
work assignments operational.
- Performance reporting
and variance analyses must be accomplished frequently.
- Frequent reporting
enables timely corrective action.
- Timely corrective
action is needed for effective management control.
If
we don’t measure ……
- How do you
know where to improve?
- How do you
know where to allocate or re-allocate money and people?
- How do you
know how you compare with others?
- How do you
know whether you are improving or declining?
- How do you
know whether or which programs, methods, or employees are producing
results that are cost effective and efficient?
Common
problems with measurement systems that limit their usefulness:
- Heavy
reliance on summary data that emphasizes averages and discounts outliers.
- Heavy
reliance on historical patterns and reluctance to accept new structural
changes (or re-design of processes) that are capable of generating
different outcomes, like measuring the time it takes them to do a task.
- Heavy
reliance on gross aggregates that tend to understate or ignore distributional
contributions and consequences.
- Heavy
reliance on gross aggregates that tend to understate or ignore
distributional contributions and consequences.
- Heavy
reliance on static, e.g., equilibrium, analysis and slight attention to
time-based and growth ones, such as value-added measures.
Performance
Measurement topics
Most
of us have heard some version of the standard performance measurement cliches:
“what gets measured gets done,” “ if you don’t measure results, you can’t tell
success from failure and thus you can’t claim or reward success or avoid
unintentionally rewarding failure,” “ if you can’t recognize success, you can’t
learn from it; if you can’t recognize failure, you can’t correct it,” “if you
can’t measure it, you can neither manage it nor improve it," but what
eludes many of us is the easy path to identifying truly strategic measurements
without falling back on things that are easier to measure such as input,
project or operational process measurements.
Performance
Measurement is addressed in detail in Step Five of the Nine Steps to Success®
methodology. In this step, Performance Measures are developed for each of the
Strategic Objectives. Leading and lagging measures are identified, expected
targets and thresholds are established, and baseline and bench marking data is
developed. The focus on Strategic Objectives, which should articulate exactly
what the organization is trying to accomplish, is the key to identifying truly
strategic measurements.
Strategic
performance measures monitor the implementation and effectiveness of an
organization's strategies, determine the gap between actual and targeted
performance and determine organization effectiveness and operational
efficiency.
Good
Performance Measures:
- Provide a
way to see if our strategy is working
- Focus
employees' attention on what matters most to success
- Allow
measurement of accomplishments, not just of the work that is performed
- Provide a
common language for communication
- Are
explicitly defined in terms of owner, unit of measure, collection
frequency, data quality, expected value(targets), and thresholds
- Are valid,
to ensure measurement of the right things
- Are
verifiable, to ensure data collection accuracy
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