PERFORMANCE MEASUREMENT METRICS

Question – Would any one have broken the 4-minute mile if no one ever timed the runner?? 

The process of improvement – in any endeavor – requires four essential steps –

1 – Measuring performance as it is today.

2 – Setting the measure of performance that is needed/desired in the future.

3 – Developing a plan of action to get from Step 1 to Step 2.

4 – Managing and monitoring progress and changing the plan as needed to achieve the Step 2 goal.

Success in today's business world of demands each company’s management to constantly improve operating results or parish.

Essential to any improvement effort is data.  Data presented in a way that is not only easy to understand, but meaningful – to the user – so that corrective actions can be taken if the data indicates action is required.  As a wise CEO once stated to me – “son, without data your are just another person with an opinion!”  Data in the form of performance measures and metrics, not opinions, is the compass that navigates the process of improvement.

Performance measures focus attention on:

-         Where you were.

-         Where you are.

-         Where you will be, and

-         When you are likely to get there.

Performance indicators ( metrics ) can be –

            Macro          è presents performance of the overall company or a division.

            Intermediate è monitors the activities/results of business processes & functions.

            Micro          è Makes visible the day-to-day results of a specific active or group of

                                    activities.

To be useful, performance measurement must include time. 

For example, is a 20 % increase in gross margin better than a 4 % increase??  

Does your answer change if the 20 % increase took 5 years to achieve and the 4 % was accomplished in 6 months?? 

Time is the framework in which decisions are made.  It is an essential performance metric.

Another critical consideration in formulating performance measures is answering the question – “What are we trying to do?”

-         Reduce operating costs?

-         Shorten production through put time?

-         Reduce WIP inventory levels?

-         Improve customer service levels?

and then ask

-         BY WHEN ??

The answers will establish the business processes – series of linked process activities – that will need to be identified, measured and monitored to achieve the goals.

Improving performance is a FOUR step process.

           #1 - Understanding what your performance is today!   

                    THE “AS IS" CONDITION 

      Identifying "what needs to be measured and what is the value of the metric is

      the key to understanding what your performance really is.

#2 - Establishing what your performance needs to be – by when! 

        THE “TO BE” CONDITION 

       Having identified present performance "As Is", the next task is to adjust the

       metrics to the "desired" value to be accomplished in the future. Understanding

       your competition, customers, the industry and yourself is essential in doing this!

             #3 - Clearly define the methods, tasks and resources to achieve the desired 

                     performance change in the established time! 

                     THE “HOW TO” PATH 

         From a range of alternative improvement methods, selecting the "better" ones

         to be implemented should be based on a "biggest gain for the least investment"

         approach.  Each improvement initiative should pay for itself and provide

         resources towards the implemention of the next opportunity.

             #4 - Manage the improvement process to the work plan, monitor results and

                     adjust resources to accomplish tasks as planned.  

                     FOCUSES ATTENTION AND ESTABLISHES IMPORTANCE 

                    This critical aspect of success;

o       Formalizes the process improvement effort.

o       Focuses attention on the progress being made.

o       Provides "data" to evaluate what is, or isn't, happening as planned.

A few performance measures “must be’s”;

Ø      Linked down and across the organization

Ø      Understood and meaningful to everyone involved

Ø      Consistent and complete

Examples of performance measure conflicts to be avoided include;

A situation in which Macro measures might be

·        Increase Customer base by 10%

·        Increase gross margins by 5%

·        Reduce Production through Put Time by 10%

·        Reduce Working Capital needs by 10%

Leads the sales team to successfully increase the customer base, new customer’s work is quoted and orders received, BUT in accomplishing the sales performance measure,

Heavy engineering is required for the new orders – INCREASING COSTS AND REDUCING GROSS MARGINS. New Production Methods Required to Achieve Quality Specifications – INCREASING PRODUCTION THROUGH PUT TIMES AND COST. New components parts need to be ordered – INCREAING INVENTORY & WORKING CAPITAL NEEDS    New service parts required - INCREASING INVENTORY & WORKING CAPITAL NEEDS.

So, this is a situation in which "no good deed goes unpunished!"  Sales achieved their goal for increased sales, but the performance measures of other functions in the company were comprised.  Without linking the performance measures and action plans down and across the organization the objectives for overall improvement were put in jeopardy when the first new order was received.  

Reporting results for review by management, along with their unwavering support, is essential to the success of any improvement effort.  The act of creating the reporting and review function

-         Formalizes the effort as an “on going” versus “one time” improvement effort.

-         Focuses attention on the progress being made.

-         Provides “data” to evaluate what is, or is not, happening.

Remember:

            “I am as I am measured.”

However, without reinforcement and discipline,

            “ I will be what I am”

Post Script – Improving operating and financial performance can lead down many paths.  Clearly, implementing a formal Performance Measurement & Reporting program could be one.  Other paths to improvement include Process Re-Engineering, Lean Manufacturing Principles, Structured Work Flow, Supply Chain Management , ERP System Solution, Benchmarking or Performance Framework.

To learn more about each of these programs just click on a button

Working with your management team to select the “better” solutions for your company is just one of the many values Visionary Solution Resources provides.

For more information on how to initiate a process reengineering program at your company complete this Information Request form and we will contact you to discuss you interests and improvement objectives.

In Arizona, Visionary Solution Resources, Inc. is an Alliance Partner of Beach, Fleischman & Co. PC.