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StrategyDriven Organizational Performance Measures Best Practice Article

Performance Measure Development Sheets

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StrategyDriven Organizational Performance Measures Best Practice ArticleEffective performance measurement systems consist of high-quality individual measures associated with a strongly interrelated framework. Using this deliberately developed framework, leaders ascertain organizational performance quickly and accurately. The system itself should be economic to maintain and provide readily available updates typically necessitating a degree of automation. Quality systems present the same view of performance to a broad number of individuals within the organization concurrently. To achieve all of these qualities, each measure must be well thought-out and developed individually and then integrated into the collective system.[wcm_restrict plans=”41747, 25542, 25653″]

Individual performance measures should be constructed such that they are both individually and collectively informative. Using a predefined performance measure development sheet drives developers to think though both individual metric qualities as well as how it relates and supports the other measures within the overall system.

Performance measure development sheets define the individual qualities and interrelationships producing high quality metrics. These sheets support more rapid and thorough development, speed system integration, and allow technology enablement. Performance measure development sheets should include the following information:

  • Technical Data (see StrategyDriven Organizational Performance Measures Best Practice article – Performance Metrics Inventory Database)
  • Stylistic Information (see StrategyDriven Organizational Performance Measures Best Practice article – Style Sheets)
    • Business Unit/Fleet Level Executive Dashboard
    • Department/Facility Level Executive Dashboard
    • Individual Performance Measure

Final Thought…

One of the easiest to use and most effective performance measure development sheet designs is one that mirrors the metric style sheet to be used. Metric characteristics and parameters are overlaid on the underlying stylesheet making their associations readily observable and consistently interpreted by those implementing and updating the metric.[/wcm_restrict][wcm_nonmember plans=”41747, 25542, 25653″]

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Additional Information

Additional information on the individual characteristics of quality performance measures and their construction can be found in the following StrategyDriven articles and documents:

Articles

Documents

  • Organizational Performance Measures – Types
  • Organizational Performance Measures – Construction

About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

StrategyDriven Organizational Performance Measures Best Practice Article

Performance Measures and Thresholds Aligned with Regulatory Standards

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StrategyDriven Organizational Performance Measures Best Practice ArticleFederal, state, and local governments regulate almost every aspect of the business environment. While many requirements necessitate one-time actions, others govern ongoing business operations. Performance measures dedicated to monitoring compliance with regulatory requirements and possessing thresholds tailored to ensuring timely, preemptive corrective actions prevent noncompliance, provide regulatory margin, and minimize management distraction.[wcm_restrict plans=”41685, 25542, 25653″]

Identifying Regulatory Compliance Performance Measures

Compliance with regulatory requirements governing ongoing, dynamic operations benefit from dedicated performance measures. Monitoring requirements satisfied with one-time actions tend to be an unnecessary administrative burden and are therefore not recommended. Ongoing compliance with these regulations is better assessed through the performance of periodic self-assessments. Examples of regulatory requirements governing ongoing, dynamic operations include:

  • Employee concerns program participation and effectiveness
  • Corrective action program participation and effectiveness
  • Product and operations quality assurance and controls effectiveness
  • Equal Employment Opportunity program effectiveness
  • Sarbanes-Oxley financial reporting and controls program effectiveness

When considering what regulations should be monitored using performance metrics, include those possessing one or more of the following characteristics:

  • Ongoing performance monitoring is required by the regulation
  • Routine, recurring operational performance of a small group of individuals is needed to ensure compliance or places compliance at risk
  • Recurring operational performance of a broad cross-section of organizational personnel is needed to ensure compliance or places compliance at risk
  • Specific system operational performance or conditions must be maintained to comply with the regulation
  • Output product or service result must be within a specified parameter range to comply with the regulation

After identifying the regulations to be monitored, define the one or more metrics needed to monitor the specific compliance parameter(s). These parameters may be defined within the regulation itself or supporting regulatory guidelines (Reg Guide) documents. For highly dynamic operations that can rapidly evolution into a noncompliant condition, consider development of slower moving subordinate predictive measures.

Some primary and/or subordinate regulatory requirement monitoring metrics may already exist within the organization’s established performance measures system. In these instances, the regulatory action thresholds should be defined and added to the existing metrics.

Defining Regulatory Compliance Action Thresholds

StrategyDriven Organizational Performance Measures Best Practice ArticleRegulatory requirement thresholds provide organization leaders the opportunity to prevent the development of a noncomplying condition. Thus, they must provide enough time to identify and respond to the degrading condition prior to exceeding the associated regulatory limit.

To define regulatory compliance action thresholds, metrics developers should perform the following steps:

  1. Identify the condition or parameter that is not to be exceeded
  2. Define an administrative margin to the regulatory parameter consistent with the organization’s risk tolerance. The established threshold should ensure that the regulatory required parameter minus the administrative margin is not exceeded
  3. Determine the conservative amount of time necessary to implement likely corrective actions resolving an adverse performance trend
  4. Identify the likely rate of performance degradation
  5. Calculate the performance point at which corrective action must be taken in order to prevent exceeding the administrative threshold. The corrective action performance point is calculated as the administrative threshold minus the product of the corrective action time and performance degradation rate
  6. Determine the conservative decision-making timeframe, including degrading condition identification time delay; reporting time; leader notification time; and resolution identification, approval, communication time
  7. Calculate the final regulatory compliance action threshold as the corrective action performance point minus the product of the decision-making timeframe and performance degradation rate

See Figure 1 for a graphic representation of the regulatory compliance action threshold development process.

Implementing Regulatory Compliance Performance Measures

Metric update and monitoring frequency is key to successful implementation of regulatory compliance monitoring performance metrics. As suggested within the compliance action threshold development process, longer condition identification time delays make the final regulatory compliance action threshold more conservative and, consequently, operations more restrictive. Therefore, the measure update and monitoring frequency needs to balance these operational restrictions with the metric’s associated administrative maintenance burden.

Finally, strong ownership for regulatory compliance performance measures must exist in order for them to be affective. As such, these measures are typically assigned to multiple groups, those monitoring performance, those whose actions impact performance, and those responsible for compliance oversight. Once implemented, representatives from each of these groups typically meet jointly to review monitored performance and identify follow-on actions as needed.[/wcm_restrict][wcm_nonmember plans=”41685, 25542, 25653″]

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About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

StrategyDriven Organizational Performance Measures Best Practice Article

Use a Multidiscipline Team to Develop the Performance Measurement System

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StrategyDriven Organizational Performance Measures Best Practice ArticleOrganizational performance measurement systems are complex structures cascading vertically from the executive suite to the shop floor and stretching horizontally though many different functional workgroups. Consequently, the design of a performance measurement system takes on a high degree of complexity because of the numerous interrelationships between various organizational levels and workgroups and the cross-functional sharing of common metrics. Thus, it is important to employ a multidiscipline team to design the measurement system, one that includes representatives from all levels of the organization as well as each functional area.[wcm_restrict plans=”41647, 25542, 25653″]

Like any effective communication mechanism, organizational performance measures must have the quality of being consistently interpreted and easily understood by those whose behaviors are to be shaped by them. Executives, managers, and contributors will necessarily view performance metrics differently because of their differing background experiences and decision versus action focus. Similarly, metrics shared across many functional groups take on different meaning based on each group’s day-to-day work area focus.

A team of individuals representing all organization levels and disciplines is needed to ensure metrics are uniformly interpreted and understood by all organization members while remaining as simplistic as possible. This is not to suggest that a representative from each hierarchical level from each work center need be involved in the development of the performance measurement system. Second and third tier management contributors tend to relate to the perspectives of executives, managers, and individual contributors because of their mid-position within the hierarchy; making them ideally suited for ensuring vertical alignment, relevance and understanding of the system. A multidiscipline team of such managers from across the organization further ensures the horizontal alignment, relevance, and understanding across functional work centers. Finally, a broad group of executives and individual contributors should review the end product measurement system to ensure consistent interpretation and understanding.

Final Thought…

Consistent understanding cannot always be validated through tabletop exercises regardless of the multidiscipline nature of the team and the span of organizational levels involved in the review of the metric system. It is often helpful to develop trial metrics with actual organizational data so that these can be reviewed in parallel with existing metrics to further test for quality and consistency of understanding before making the much more costly investment of metrics automation. (See StrategyDriven articles, Organizational Performance Measures Best Practice – Ad Hoc Reports First, Automated Metrics Second and Run New and Old Performance Measures in Parallel.)[/wcm_restrict][wcm_nonmember plans=”41647, 25542, 25653″]

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About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

StrategyDriven Organizational Performance Measures Best Practice Article

Identify the Measures First

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“Not everything that can be counted counts, and not everything that counts can be counted.”

Albert Einstein
Awarded the 1921 Nobel Prize in Physics, named Time’s Man of the Century in 1999, and best known for his conception of the theories of special and general relativity

Organizations today seem to have a never ending supply of performance measures. Our data rich environment feeds the need of many managers to have all things counted. Yet as Albert Einstein suggests, not everything that can be counted matters. And just because something is counted doesn’t make it important. Thus, not everything that is measurable should be assigned its own performance indicator; rather only those things that are truly important, whether currently counted or not, should be measured. The identification of performance measures should therefore start with the identification of the key factors critical to the organization’s success.[wcm_restrict plans=”41590, 25542, 25653″]

Many leaders fall into the trap of creating performance measures for only those performance parameters that data is available. These leaders create performance measures for the data they have rather than on a basis of needing this information to improve performance. StrategyDriven research reveals that the typical organization only captures approximately 40 percent of the data needed to generate all its mission critical performance indicators within electronic systems. Subsequently, those leaders focused on generating performance measures based on available data rob their organizations of the vital information needed to excel.

The typical organization only captures 40 percent of mission critical performance measurement data within its supporting electronic systems. Therefore, those organizations measuring performance based solely on available data fail to monitor over half of the performance parameters important to the organization’s success.

StrategyDriven Research, 2010

Developing performance measures based on the key factors critical to the organization’s success can be both costly and beneficial. Because over half the data needed for these measures is not readily available within electronic systems, manual intervention will be required in order to identify and document these data in a way that supports performance indicator generation. Such manual efforts are often time consuming and always ongoing. Benefits realized, however, can be even more significant including:

  • Directing organizational focus on only those things important to goal achievement
  • Eliminating organizational distractions to unimportant performance parameters by significantly reducing the number of performance indicators routinely monitored
  • Deepening the analysis and understanding of performance factors critical to the organization through the dedication of the time previously spent developing and maintaining unimportant measures
  • Increasing accountability for improving performance in those key areas critical to the organization’s success

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Additional Information

The following StrategyDriven articles and whitepapers provide additional information on the identification of those performance measures important to the organization’s ongoing success:

Articles

StrategyDriven Podcast – Special Edition

Whitepaper

Resource – Book

StrategyDriven Organizational Performance Measures Best Practice Article

Multiple Action Thresholds

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Recovery from a significant event is costly and disruptive. While an expense, mitigating and preventing activities taken to prevent the event’s occurrence are typically far less expensive. From a business perspective, the challenge becomes that of balancing the value of risk reduction with that of the mitigating and preventative activities’ cost.[wcm_restrict plans=”41581, 25542, 25653″]

A key contributor to the cost factors associated with this balanced equation is the implementation timing of risk mitigating and preventing actions. Delaying such actions defers their cost until and only if such activities are needed to reduce risk. Subsequently, the better the organization’s ability to detect and respond to performance degradation evidencing an impending event the greater the deferment related cost savings. Without this predictive capability, risk mitigating and preventing actions need to be in place at all times, heightening short-term expenses and forfeiting the opportunity to avoid these costs should the associated performance degradation never occur.

Organizational performance measures themselves provide a means to recognize event predicting performance degradation. Action thresholds added to these measures provide a tool for easy recognition of when event mitigating and preventing actions need to be taken; alerting appropriate individuals in a timely enough manner so that actions can be implemented and their effects realized early enough to prevent the event. But while some deferment benefit is gained, a single threshold necessitates all of the event mitigation and prevention actions be implemented at the same time; forfeiting the possible omission of actions associated with more dire circumstances.

Multiple mitigation and prevention action thresholds further subdivides when conditions warrant such actions are taken; further reducing or at least deferring the cost of these measures. Multiple thresholds allow for the stepping up of risk reduction efforts only if conditions are not responsive to early diversionary actions and performance degradation continues. Thus, additional cost deferment and/or savings can be realized.

A Transcendental Argument for Multiple Thresholds…

An adverse condition exists that will ultimately result in a catastrophic equipment failure of significant cost to a company. Four mitigating and preventing actions have been identified that collectively ensure the condition will be resolve and the event averted. One or a combination of these four activities may also enable event avoidance but only implementation of all four actions assures event avoidance. Possible outcomes and costs:

Scenario 1 – Inadequate or No Performance Monitoring

Condition Exists, No Actions Taken – Event occurs at significant cost to the company; far more than the cost of implementing all four mitigating and preventing actions.

This is the worst of all possible circumstances. Organization leaders fail to recognize the adverse condition and subsequently take no action. Conditions worsen until the event occurs and the company realizes severe and costly outcomes.

Scenario 2 – Performance Monitoring with a Single Action Threshold

Condition Exists, All Actions are taken at the Action Threshold – The event is avoided at a total cost of 4 units.

This is the second worse outcome for although the event and its associated costs are avoided, the organization bore the cost of implementing all four mitigating and preventing actions, some of which may have been unnecessary to prevent event occurrence.

Scenario 3 – Performance Monitoring with Multiple Action Thresholds

Condition Exists, First Action is taken at the Initial Action Threshold – Total Cost: 1 Unit

  • First action is taken, the condition is resolved and the event avoided or
  • First action is taken, the condition is improved but not enough to avoid the event

The first possible result is the best possible outcome as the event is avoided at the lowest possible cost. Should the adverse condition persist, organization leaders implement follow-on actions once the appropriate threshold is met.

Condition Exists, Second Action is taken at the Secondary Action Threshold – Total Cost: 2 Units

  • First and second actions are taken, the condition is resolved and the event avoided or
  • First and second actions are taken, the condition is improved but not enough to avoid the event

The first possible result is the second best outcome as the event is avoided while only incurring the cost of two of the four mitigating and preventing actions. Additionally, the expenditure of resources on the second set of actions was deferred creating additional benefits. Should the adverse condition persist, organization leaders implement additional follow-on actions one the next threshold is met.

Condition Exists, Third Action is taken at the Tertiary Action Threshold – Total Cost: 3 Units

  • First, second, and third actions are taken, the condition is resolved and the event avoided or
  • First, second, and third actions are taken, the condition is improved but not enough to avoid the event

The first possible result is the third best outcome as the event is avoided while only incurring the cost of three of the four mitigating and preventing actions. Additionally, the expenditure of resources on the second and third set of actions was deferred as long as possible creating additional benefits. Should the adverse condition persist, organization leaders implement the fourth and final action which ensures event avoidance.

Condition Exists, Fourth Action is taken at the Final Action Threshold – Total Cost: 4 Units

  • All actions are taken, the condition is resolved and the event avoided

In this case, the cost of all four actions is realized by the organization similar to that in the second, single threshold scenario. It should be noted that the mitigating impacts of the first three actions may allow this final action (and actions two and three) to be taken at a point in time past that the single threshold mandated all four actions be taken. Therefore, there is the possibility that the deferment benefits will be realized in excess of the single action threshold case; making the multiple threshold option more cost effective than the single threshold case.[/wcm_restrict][wcm_nonmember plans=”41581, 25542, 25653″]

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Additional Information

Additional information regarding organizational performance measures and their thresholds can be found in the StrategyDriven whitepaper series Organizational Performance Measures.