1.2 Developing Performance Measures-A Systematic Approach

Overview

Change might be inevitable, but all too often it occurs like an unguided missile seeking an elusive target at unpredictable speeds. For most activities, it is far better to manage change with a plan-one that includes clear goals and useful indications of progress toward a desired objective. Participants in an activity need to know what outcome is expected, where their work contributes to the overall goal, how well things are progressing, and what to do if results are not occurring as they should. This approach places performance measures right where they should be: integrated with the activity.

Such integration makes it possible for performance measures to be effective agents for change. If the measures quantify results of an activity, one only needs to compare the measured data with desired goals to know if actions are needed. In other words, the measures should carry the message.

Inappropriate measures are often the results of random selection methods. For example, brainstorming exercises can get people thinking about what is possible and provide long lists of what could be measured. Unfortunately, such efforts by themselves do not provide reliable lists of what should be measured. Unless the measures are firmly connected to results from a defined process, it is difficult to know what corrective actions to take and to predict with confidence what effects those changes will have.

If you want to be able to identify effective corrective actions to improve products and services, results of all key processes must be measured. In this way, one can identify specific processes that need to change if progress is not satisfactory.

For example, suppose sales are not meeting goals. What actions could be taken? The answer should depend on what is causing the problem. If poor technical service is causing customers to shy away, it will do no good to change or add sales personnel. Also, replacing technicians won't help if the poor service is caused by a lack of replacement parts. Suppose the replacement parts are on hand, but, unknown to the service personnel, the parts are defective? If proper measures are instituted for each key process (purchasing, inventory control, service, etc.), the cause for substandard results can be found quickly and corrected.

This section is reprinted by permission of Stan Love, former chair of the Performance-Based Management Special Interest Group, retired from Sandia National Laboratories-Albuquerque.

Structure and Terminology

A structured approach provides a rational defensible basis for selecting measures and, should it become necessary, for making changes to the work processes. The viewpoint here is that achieving goals depends on the performance of interrelated sets of activities and processes that form a system to be managed. It follows that you can improve the selection of performance measures if they are based on the desired outcomes of the system and the results expected of each process in the system. In turn, this suggests a systematic approach to develop performance measures. This methodology will be described in the following sections.

Before the procedure is described, some key words should be discussed. Some of the terms used throughout this document could be interpreted differently by different readers; therefore, we are providing a short glossary of terms as they are used in this section. These are meant to be useful interpretations, not standard definitions.

A system is an interconnected set of processes, and a process is a set of activities that produce products or services (results). Products and services are treated alike; that is the output of a process might be a product (like computer boards) or a service (like training). Performance measures are quantitative evaluations of the products or services of a process or system. Metrics are standards of measurement (such as length, area, frequency, mass, and so on).

In addition, there are terms such as Performance Indicators and Indexes. Dealing with these gets complicated because people use them in very different ways, and there is no one standard to which we can appeal. Some use indicator and measure interchangeably, while others see indicators as subsets of measures. Others see indicators as sets of related measures. Still others prefer indexes, often thought of as sets of related measures (sometimes individually weighted) that track changes compared to a reference. For example, the Consumer Price Index measures inflation by combining the prices of selected goods and comparing the results over time. Other examples include an Index of Indicators (Business Week) that report various areas of the economy (production, construction, etc.).

These more sophisticated concepts are important, but they are beyond the scope of this document. What is relevant here is that the more data that are combined, the broader the actions that must be taken to change the situation. The closer the measures are to the activity (i.e., less complex data), the more focused the actions that can be taken. Regardless of the complexity of the system, however, the development procedure to be described will apply.