Performance Measures

 

Performance measurement includes practices that mainly focus on the identification, tracking and communication of performance results by the use of performance measures. Performance measurement is not new, being used from the ancient times. Protagoras of Abdera (c 480 – 410 B.C.) recognized that “man is the measure of all things”.

 

The use of performance measures has evolved organically over time. Today there is a wide selection of performance measurement terms. The choice of terms – metric, performance measures, performance indicator or KPI is usually interchangeable, being driven by practice. For many practitioners, the differentiation is irrelevant, as long as the desired results are achieved. However, at a conceptual level, some distinctions can be made.

 

Metrics, Performance measures, Performance indicators

Metrics, Performance Measure or Performance Indicator are generic terms encompassing the quantitative basis by which objectives are established and performance is assessed and gauged. It helps quantify the achievement of a result, the quantifiable component of an organisation's performance. Metrics, Performance Measures or Performance Indicators are not Key Performance Indicators until selected and applied as key to a specific area, process or initiative. Characteristics:

  • Are factors that tend to indicate the health, progress and/or success of a project, process or area of service delivery;
  • Are often process oriented;
  • Focus on resources and processes that are most likely to lead to successful outcomes;
  • Are usually short, focused, relevant, measurable, repeatable and consistent measures of critical success factors

 

Key Performance Indicators (KPIs)

Key Performance Indicators are instruments / tools used in performance management that monitor the performance of key result areas of business activities, which are absolutely critical to the success and growth of the business. The development and use of the KPIs should form the basis for the analysis of an organization’s current performance, its future requirements and the improving strategies required for ongoing success. Most commonly, KPIs are associated with the measurement, monitoring and performance evaluation, through tools such as Balanced Scorecard.

 

Why using KPIs?

  • Perspective: KPIs indicate the health, improvement and/or success of an organisation’s strategy, project, process or area of service delivery
  • Focus: KPIs are focused, relevant, measurable, repeatable and consistent
  • Evaluation: measurement of critical success factors
  • Management: support decision making process for performance management
  • Strategy implementation: KPIs create a powerful linkage between the strategy and the initiatives / activities.

 

Performance measurement has a variety of uses. Bititci, Carrie and Turner (2002) list the following reasons  for which companies measure business performance:

  • To monitor and control
  • To drive improvement
  • To maximize the effectiveness of the improvement effort
  • To achieve alignment with organizational goals and objectives

 

Simmons (2000) looks at business performance measurement as a tool to balance five major tensions within a firm:

  • Balancing profit, growth and control
  • Balancing short term results against long-term capabilities and growth opportunities
  • Balancing performance expectations of different constituencies
  • Balancing opportunities and attention
  • Balancing the motives of human behavior

 

Typology

The use of KPIs can range from measuring the achievements of a department in relation to a business area or the enterprise overall. Based on the impact stage, we can have:

  • Input KPIs: used as input elements within a process or project.
  • Process KPIs: used to improve a process, its efficiency and results: time variance, budget variance, employees training, etc 
  • Output KPIs: cost of a specific deliverable or functionality relative to plan, budget or benchmark, functional capacity relative to plan, budget or benchmark, usage factors, system downtime expressed as a percentage for all time and/or peak business hours, etc
  • Outcome KPI: customer satisfaction, stakeholder satisfaction, benchmark comparisons with comparable agencies or private sectors organizations.

 

Various attributes can be used in examining, selecting, designing and using KPIs:

  • Objective / subjective
  • Financial / non-financial
  • Lagging / leading
  • Complete / incomplete
  • Responsive / non-responsive
  • Inputs / process / output
  • Critical / non-critical
  • Tangible / intangible

 

Rules for using KPIs

The skill in applying KPIs is in the selection of the optimum number and appropriateness of KPIs. This maximises the benefit of using them whilst minimising the cost of using them. During the use and application of KPIs certain principles should be taken in consideration:

  • KPIs should not be an end in themselves, but be considered as an aid to management. They are a start to a proper informed debate that should lead to a plan for improvement.
  • They should be seen within their local context and have more a meaning as a comparison over time than as a comparison between organisations.
  • A set of performance indicators should be balanced. For example, measures of efficiency should be set against measures of effectiveness and measures of cost against quality and user perception.
  • After being proposed and applied, KPIs should be reviewed and updated. The review determines the management utility of each indicator and the feasibility of getting source data for continuing use.
  • The targeted performance description, which is described in measurable terms through the KPIs, must be deployed to the organisational level that has the authority and knowledge to take the necessary action.

 

References

  • Bititci, Umit, Carrie, Allan & Turner, Trevor (2002), Integrated performance measurement systems: Structure and dynamics, Business Performance Measurement: Theory and Practice, Neely, A., editor. Cambridge University Press.
  • Brudan, A., N. (2009), – Rediscovering Performance Management: Systems, Learning and Integration.Performance Management Association Conference, New Zealand, Academic Research Submission, pp. 1-24.
  • Simmons, R. 2000, Performance Measurement and Control Systems for Implementing Strategy, Prentice Hall.
  • smartkpis.com (2010), KPIs 101, available at: http://www.smartkpis.com/pages/context/.

BSC concept : Components

 

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