Performance Measurement

Bob Pearce asked:

I. Introduction

Historically, organizations have always measured performance in some way through the financial performance, be this success by profit or failure by liquidation. However, traditional performance measures based on financial information do not provide the help towards a business’s quality journey, because they do not give process performance and improvements which the customer sees. In a successful total quality business, performance will be measured by improvements across the whole business, as seen by all stakeholders.

II. Why measure performance?

“You cannot manage what you cannot measure”

“When you can measure what you are speaking about and express it in numbers, you know something about it”

In the cycle of continuous improvement, performance measurement plays an important role in – Identifying and tracking progress against business goals; identifying opportunities for improvement; comparing performance against both internal and external standards. Reviewing the performance of a business is also an important step when formulating the Strategic Business Plan. Measurement plays a key role in quality and productivity improvement activities, the main reasons being:

• To ensure Customer requirements have been met

• To be able to set sensible objectives

• To provide standards for establishing comparisons

• To provide visibility and a scorecard for people to monitor their own performance

• To highlight quality problems and determine areas for priority attention

• To provide feedback for driving the improvement effort

III. A simple Performance Measurement framework

A good framework will focus on the “customer” whether internal or external and measure the right things. Performance measures must be:

• Meaningful, unambiguous and widely understood

• Owned and managed by teams or individuals within the business

• Based on a high level of data integrity

• Done in a way so that data collection is embedded within the normal procedures or processes

• Able to drive improvement

• Linked to the Strategic Business Plan

IV. Steps in the Framework

There are four, which are continuously implemented and reviewed:

• The strategic objectives of the business are converted into desired standards of performance

• Measures are developed to compare the desired performance with the actual performance

• Gaps or variations are identified

• Improvement action is initiated

A business needs to evolve its own set of measures, using any existing ones as a starting point in understanding current performance. Consider the use of the Balanced Scorecard, as discussed in another article. To ensure that the measures kickstart the improvement cycle, they should be in the following main areas:

• Effectiveness, or Actual output divided by Expected output

• Efficiency, or Resources actually used divided by resources planned to be used

• Productivity, or outputs divided by inputs

V. A data collection/reporting system

Key elements are:

• Set up a data collection system

• Agree method for establishing current performance

• Identify possible sources of benchmark data

• Decide how often measure is reported

• Establish measure owner

VI Implementation

The measures, targets, improvement initiatives and a plan with timescales and designated owners should be represented as part of the Strategic Business Plan, and cascaded down through the business so that everyone is aware of the requirements.

VII Critical Elements

The critical elements of a good performance measurement system are:

• Leadership and commitment

• Good planning and a sound implementation strategy

• Appropriate employee involvement

• Simple measurement and evaluation

• Control and improvement initiatives

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