Chapter 11, Six Steps of Performance Measurement

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Chapter 11, Six Steps of Performance Measurement

• Our new corporate motto is READYFIREAIM

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Figure 11.1, The Management Cycle
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The perfect world

• In a perfect world, a measurement system will
  actively promote performance improvement by
• measuring what matters,
• providing corrective feedback and positive
  reinforcement to enthusiastic people who enjoy
  being measured and take improvement on as a
  challenge.

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ATTRIBUTES OF A GOOD MEASUREMENT SYSTEM

• An effective performance measurement system
  should have the following attributes.
• FOCUS ON EFFECTIVENESS
• 1) We have a need to measure better.
• 2) We have a need to measure less.
• FOCUS ON THE FUTURE

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ATTRIBUTES OF A GOOD MEASUREMENT SYSTEM

• FOCUS ON OBJECTIVES, KEY RESULT AREAS
• KRAs are those functions or divisions of
  performance in which your organization must
  continually improve to be successful.

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EXAMPLES OF KEY RESULT AREAS

• Customer
• Product/service
• Public/society/natural environment
• Marketing
• Human Resources
• Production
• Maintenance
• Operations
• Finance
• Good measurement systems dont just measure
  things done according to the organizational
  chart. Good systems measure things done to
  satisfy stakeholders.

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Key Performance Indicators KPIs

• This is the essence of measurement. Lets make
  sure the concept of Key Performance Indicator is
  understood.
• An indicator is a gauge or a measure that
  reports information.
• Performance is the result or activity we are
  looking for that fits in to strategic goals.
• Key means that this measure has been pinpointed
  so carefully that management knows precisely what
  to do.
• Measures are developed to capture both the input
  and output elements of a business system.
• Some examples of measures follow.

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SPEED INDICATORS

• response time records
• turn around time records
• cycle time records
• project completion dates
• meeting scheduled time records

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ACCURACY INDICATORS

• judgment based climate or opinion surveys
• focus groups
• comment cards
• telephone surveys
• advisory panels
• opinions of community leaders
• meeting design specifications or passing an
  inspection point that ensures the product works.
• Customer returns or warranty claims.

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VOLUME INDICTORS

• Measures the amount (Number of) of outputs or
  results from a specific activity or program.
  number of units produced
• number of completed transactions
• market share
• Back order statistics
• Number of failed sales due to being out of stock

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INVESTMENT INDICATORS

• Measures the amount of resources expended on a
  specific program or activity or the unit cost
  (cost/number of units produced ()).
• operating costs per unit produced
• capital costs per unit produced
• cost per customer as to sales and marketing
  expenses
• cost per unit of after sales service and customer
  support.
• Notice that the financial measures are per
  something

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Six Steps of a Measurement System

• Separate Strategic Goals Into Input and Output
  Dimensions
• Develop Output and Results Measures for each goal
• Develop Input Measures for each goal
• Check with SAVI to see if the set of measures is
  complete
• Use an Effective Recognition System
• Build the Culture

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Step 1, Separate Strategic Goals Into Input and
Output Dimensions

• Following from Vision, Mission and Values,
  organizations create strategic goals that
  identify Key Result areas of the organization
  where change and improvement is possible and
  desirable.
• Our first step in developing measures to reflect
  the goal is to dissect the goal into its input
  and output dimensions.

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Figure 11.2, Broad measurement concept of inputs
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Figure 11.3, Broad measurement concepts of Outputs
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Step 2, Develop Output Measures or Each Goal

• Outputs are accomplishments. In most
  organizations, accomplishments can be categorized
  into three groups.
• Investment returns
• Customer Satisfaction
• Social Impacts

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Figure 11.4, Measures of outputs or Results.
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Measures of outputs or Results
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Step 3, Develop Input Measures For Each Goal

• We normally develop input measures after we have
  developed output measures because it is a good
  idea to know where you are going before you
  decide how to get there.
• Financial operating resources
• Financial capital resources
• Other organizational resources

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Figure 11.5, Measures of Inputs or Efficiencies
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Step 4, Check with SAVI to see if the set of
measures is complete

• Before we can be sure that we have a complete set
  of measures, we need to apply the SAVI framework
  to categorize the measures as to Speed, Accuracy,
  Volume and Investment.

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Figure 11.6, Linking Output Measures to SAVI
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Figure 11.7, Linking Input Measures to SAVI
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Testing the measures

• Once we are satisfied that the set is complete we
  need to subject each and every measure to a test.
  
• Refer to figure 11.8

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Step 5, Use an Effective Recognition System

• Use Measurement to Initiate Change
• An effective measurement system will use the
  measured results as a management tool.
• Every result should have an automatic
  intervention strategy.
• When results are as expected we should offer
  congratulations and reinforcement to keep it
  going,
• when results are less than expected we should
  quickly isolate the cause and correct the process

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Step 6, Build the culture

• Good systems need good people. There is no sense
  in examining a process unless at the same time
  you examine the people who govern the process.
• Improvement does not take place on paper.
• Improvement happens when people employ
  enthusiasm, dedication, commitment, leadership
  and morale in their daily routine.
• A good system on paper is a healthy beginning but
  if you want results you need to follow up a paper
  system with a people system.

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Closing remarks

• In the beginning of this chapter you were
  challenged to find measures and see the resulting
  behavior.
• So how about the 30 minute pizza delivery
  guarantee. That promotes speeding and if a
  delivery person has an order at 28 minutes and
  another at 10, which does he deliver first? And
  what happens if Pizza delivery people are offered
  a cash bonus for every delivery made within 30
  minutes, and what does this do to pizza quality?

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• People are curious beings. We bring our own
  personal values to the job, we react differently
  to control systems, we are motivated by different
  things. A performance measurement system is a
  uniform set of measures that is trying to
  motivate a most un-uniform set of people.
• Chapter 12 will deal with how we need to manage
  people as part of the performance improvement
  process.