Architecture of Performance Measures – When Are There Enough Performance Indicators?
If you are running a business, having a big set of performance measures is a good thing. But a set of measures by itself isn’t enough. Having performance measures is one side of the coin. The other side (and what counts) is the application of those measures for its fundamental purpose — that is, to improve business performance.
Technological advancements in business analytics makes it much easier to collect and report data. This causes a tendency for business users to demand excessive numbers of performance indicators— in some cases, even more than needed to monitor, control and manage their business. Performance measures are worthless and counter productive unless used for a specific purpose such as to track work and achieve better results.
When are there enough performance measures?
This question can be answered only by you as users of information. Review what you have and analyze each performance measure. You’ll never know. You might have in excess of some types of measures and lacking others. Let’s understand the different types of performance measures.
Performance measurement is the regular collection and reporting of data to track work produced and results achieved. Performance measures can be applied in any organization, regardless of size, type and structure.
To illustrate the different types of performance measures and how they are used in different levels of the organization, please refer to the figure below.
Architecture of Performance Measures
I like to use the Deming circle based on the principles of W. Edwards Deming, an American statistician who argued that supplying products or services require activities, and the quality of a service depends upon the way activities are organized. The Deming circle demonstrates a system of continuous improvement, with the appropriate levels of quality delivered by adhering to the following steps:
- PLAN: Design or revise components to improve results.
- DO: Ensure the plan is implemented
- CHECK: Determine if the activities achieved the expected results
- ACT: Adjust the plan based on results gathered during the check phase.
When you talk about performance measurement, the most important element of the Deming circle is the “check” element. That’s where you apply performance measures, “check” or measure in order to “act” and change the “plan”. Consequently, you adjust what you “do” in execution.
The nested Deming circles represent the levels of the organization and the different types of measures used at every level. The first circle denotes the corporate or strategic cycle. The performance measures in the “check” component in the strategic cycle are composed of strategic performance indicators. They are usually a high level aggregate of data consolidated in summary, graphs and dashboards. Performance measures at this level are usually a small set of key performance indicators selected by top management.
The second circle represents the business unit or tactical cycle. The measures in the “check’ component of the tactical cycle are composed of tactical performance indicators. They are usually a drill-down of the strategic measures and used to manage and control the business operations. Performance measures at this level are usually a small set of key performance indicators selected by business unit management. Tactical measures are an important link to strategic and operative measures.
The last level is made of the process indicators or operative measures. They are measures that are embedded in each of the end-to-end processes, within or across departmental boundaries. These are the lowest level measure use to track work on a daily basis to improve process efficiency and performance.
Now that you know the different types of performance measures depending on different levels of the organization, examine your existing metrics. Do you think you have the right quantity and quality of performance measures at every level?
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