Metrics, Scorecards and Key Performance Indicators (KPIs): 5 Principles to Make them Work for your Company
Many companies rely upon metrics, scorecards and key performance indicators (KPIs) - see definitions below - to measure and monitor the effectiveness of the components of business performance. Is this all you need - metrics, charts, variances - to be successful? No! Exception reporting, KPIs for KPIs sake, charting without understanding and responsibility does not guarantee or insure that you have an effective measurement process to drive the right behavior to accomplish your business goals.
The following five(5) principles are critical for a measurement system to work for your company.
- Strategic Plan
The cornerstone of an effective business measurement system is the development of a cohesive business strategy that not only includes each organizational unit of the business but also the means or method to measure progress toward these objectives. Each business operation should know its role and assignment in contributing toward the overall strategic objectives of the business. A strategic plan is greatly enhanced when there is a clear way to measure how the strategic goals are accomplished and/or measure if the business is making progress toward its strategic objectives.
If developed and assigned properly, Metrics, scorecards or KPIs, can be used to measure progress toward or the performance of an objective. However, to be effective they must align with executive objectives and operational capability. A strategy adopted at the executive level must be able to be reduced to one or more operational metrics that will engage the various levels of the company necessary to meet or exceed that objective.
- Measure Proven Processes
Measuring a process that is not proven or is not stable results in inconclusive information. Measured processes need to be well documented and day-to-day execution should be consistent with the documentation. One indicator of a proven process will be how stable the measurement is of its key performance indicators. A stable process does not necessarily mean that it is operating at its highest or best level but that it is under control for the way it was designed - good or bad.
A proven process is more likely to produce accurate and timely information. Decisions made on information from a proven process are more likely to be better and successful than from unproven processes.
- Measure the Right Things
Not everything needs to be measured. Care should be taken to make sure that "metrics that matter" are measured. Metrics should be applied to operation components that have the greatest affect on the unit.
Metrics that do not have value also take time to collect and manage. Employees know when they are involved in managing a non-value add metric which diminishes the value of the other valuable metrics.
- Review Process
Metrics should be reviewed regularly. The review cycle may vary. It may be appropriate to review some on a daily basis, others weekly and with financial reports at least monthly. The review process must he held consistently and where indicated, actions taken, and follow-up assigned to responsible management who will report back on the action and results at the next review cycle - or sooner.
The review process instills a discipline in the business that monitoring the performance of the organization is important, must have a priority that is not compromised and is noted for its ability to take action and correct out of control conditions.
- Does the measurement system drive the right behavior?
At the end of the day the question is whether the measurement process is driving good actions and appropriate behavior. What actions and behavior? Will employees, supervisors and mid-level managers take independent action to improve their performance to the metric values. The metrics, if designed right, can be useful tools for those closest to the measured operation to take action to improve performance.
Metrics, Key Performance Indicators and Scorecards can be very effective engaging all levels of a company toward a common set of strategic goals to make the company more successful. Are your strategic objectives connected to you measurement system? Contact Brice Consulting on how you can have a more effective planning process and accomplish your business objectives.
Metric: A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals. Reference: VJonDalalStreet
KPI: A performance indicator or key performance indicator (KPI) is a measure of performance. Such measures are commonly used to help an organization define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals. Reference: Wikipedia
Scorecard: A scorecard is a visual display of the most important information needed to achieve one or more objectives, consolidated and arranged on a single screen so the information can be monitored at a glance. Reference: Business Intelligence Blog
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