Tuesday, February 9, 2010

What are the steps to effective performance measurement?

Effective performance measurement is the cornerstone of successfully executing organizational change, and yet, many companies do not have effective performance measurement programs. There are many reasons for this ranging from a lack of buy-in to misperceptions about the use of metrics to the belief that all important factors cannot really be measured.

The first thing to keep in mind is that all measurement is for the purpose of executing change. You want something to happen so you develop a plan and as a part of that plan you decide what the Key Performance Metrics are that demonstrate successful execution of the plan. People struggle with metrics because it is hard work. It's one thing to come up with a set of objectives and strategies in a brainstorming meeting, but quite another to dig down deep and determine what it really means to successfully accomplish what you've set out to do. Typically goals are vague and metrics are specific. It's a lot easier to be vague!

The first step in a performance measurement program is to figure out your "critical questions." Start by asking questions about what you want to accomplish. Try using the Toyota method of "five whys". Keep asking "why" until you get to a root answer. This is what Socrates did in ancient Greece. The effect of his questioning was that he was not often very popular. People were shown to have little understanding of the fundamentals underlying their assumptions. Socratic dialogue is a great way to discover what you really need to measure.

The critical questions ultimately lead to which metrics you will choose for your effort. Remember to measure only the critical elements because each measurement takes time and costs your organization and the more metrics you collect, the more chance you run of diluting the importance of each measure.

The next step is to develop a process for measurement. Who will do the measuring? How often? In what medium will the data be stored? What quality measures will be put into place to ensure the data collection is good? Are there metrics already being captured by other processes or automated systems that can be used? How do your information systems talk to one another? Can the data be updated automatically and fed into a dashboard?

So now you've decided what to measure, how to measure it and where to store it. The next step is to develop a dashboard or other methodology for reporting your metrics. The objectives are to deliver clean information in a format that communicates trends, "normal" ranges and variations, benchmarks, targets and current values. The best dashboards are automatically updated and can present information in real time. For many organizations an Excel spreadsheet posted on an Intranet once a month is sufficient. Part of your reporting process will be to determine how to present your information, to whom the information will be presented and how often it should be updated.

Periodic Review: Strategic plans rarely go exactly as planned. There are infinite environmental variables that will change during the course of plan execution and it is necessary to review results and adjust the plan on a regular basis. This could be daily in some cases, weekly in others, monthly or quarterly. I would recommend at least monthly updates because if too much time elapses between meetings, the initiative can go way off course or worse, momentum can be lost. Regular reporting and review ensures that everyone is aware of accountability and their role in the success of the project.

Iteration: One of the functions of the periodic review is to ensure that targets are being met, but sometimes a mid-course trend analysis might show that the beginning of the year targets are no longer relevant. There may be game-changing events that require immediate strategic revision and iteration of the strategy. The iterative process is a continuous improvement based on execution, test, review, revision and execution of the new strategy. The iterative process acknowledges that information is imperfect during the planning process and that it is impossible to predict the future. Organizations that practice iteration are quick to respond to changes in the situation and adjust to maintain or gain competitive advantage.

Metrics work hand in hand with scenario planning when metrics are used as "triggers" to implement a scenario plan. The time to review scenario plans is during these regular metric review meetings.

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