is the ongoing monitoring and reporting of program accomplishments, particularly progress towards pre-established goals. It is typically conducted by program or agency management. Performance measures may address the type or level of program activities conducted (process), the direct products and services delivered by a program (outputs), and/or the results of those products and services (outcomes). A “program” may be any activity, project, function, or policy that has an identifiable purpose or set of objectives.
The use of performance measures in business is hardly new. Companies have been measuring costs, quality, quantity, cycle time, efficiency, productivity, etc., of products, services, and processes as long as ways to measure those things have existed. What is new to some extent is having those who do the work determine some of what should be measured in order that they might better control, understand, and improve what they do. All high-performance organizations, whether public or private, are, and must be, interested in developing and deploying effective performance measurement and performance management systems, since it is only through such systems that they can remain high-performance organizations.
:?: What Are Performance Measures?
Performance measures quantitatively tell us something important about our products, services, and the processes that produce them. They are a tool to help us understand, manage, and improve what our organizations do. Effective performance measures can let us know:
· How well we are doing
· If we are meeting our goals
· If our customers are satisfied
· If our processes are in statistical control, and
· If and where improvements are necessary.
They provide us with the information necessary to make intelligent decisions about what we do. A performance measure is composed of a number and a unit of measure. The number gives us a magnitude (how much) and the unit gives the number a meaning (what). Performance measures are always tied to a goal or an objective (the target). Performance measures can be represented by single-dimensional units like hours, meters, nanoseconds, dollars, number of reports, number of errors, number of CPR-certified employees, length of time to design hardware, etc. They can show the variation in a process or deviation from design specifications. Single-dimensional units of measure usually represent very basic and fundamental measures of some process or product.
More often, multidimensional units of measure are used. These measures are expressed as ratios of two or more fundamental units. They may be units such as miles per gallon (a performance measure of fuel economy), number of accidents per million hours worked (a performance measure or the companies safety program), or number of on-time vendor deliveries per total number of vendor deliveries. Performance measures expressed this way almost always convey more information than the single-dimensional or single unit performance measures. Ideally, performance measures should be expressed in units of measure that are the most meaningful to those who must use or make decisions based on those measures. Most performance measures can be grouped into one of the following six general categories. However, certain organizations may develop their own categories as appropriate depending on the organization’s mission:
1. Effectiveness: A process characteristic indicating the degree to which the process output (work product) conforms to requirements. (Are we doing the right things?)
2. Efficiency: A process characteristic indicating the degree to which the process produces the required output at minimum resource cost. (Are we doing things right?)
3. Quality: The degree to which a product or service meets customer requirements and expectations.
4. Timeliness: Measures whether a unit of work was done correctly and on time. Criteria must be established to define what constitutes timeliness for a given unit of work. The criterion is usually based on customer requirements.
5. Productivity: The value added by the process divided by the value of the labor and capital consumed.
6. Safety: Measures the overall health of the organization and the working environment of its employees.
:idea: Types of Performance Measures
Generally, performance measures are divided into five types. These five types are:
· Input Measures - Used to understand the human and capital resources used to produce the outputs and outcomes.
· Process Measures - Used to understand the intermediate steps in producing a product or service. In the area of training for example, a process measure could be the number of training courses completed as scheduled.
· Output Measures - Used to measure the product or service provided by the system or organization and delivered to customers. An example of a training output would the number of people trained.
· Outcome Measures - Evaluate the expected, desired, or actual result(s) to which the outputs of the activities of a service or organization have an intended effect. For example, the outcome of safety training might be improved safety performance as reflected in a reduced number of injuries and illnesses in the workforce. In some instances, such as the training example above, establishing a direct cause and effect relationship between the output of the activity and its intended outcome, can be difficult.
· Impact Measures - Measure the direct or indirect effects or consequences resulting from achieving program goals. An example of an impact is the comparison of actual program outcomes with estimates of the outcomes that would have occurred in the absence of the program. You may also hear of performance measures categorized as leading, lagging, and/or behavioral.
These types of measures are defined below:
· Lagging Measures - Measure performance after the fact. Injury and
illness measures such the Lost Workday Case Rate and the Total Recordable Case Rate are examples of lagging measures commonly used to measure environment, safety and health performance. Project cost performance is an example of a lagging indicator used to measure program performance.
· Leading Measures - Are more predictive of future performance and include measures such as near misses, procedural violations, or estimated cost based on highly correlated factors.
· Behavioral Measures - Measure the underlying culture or attitude of the personnel or organization being measured. Examples would include management walk-throughs, safety program implementation, or employee satisfaction questionnaires.
:idea: Classifications of Performance Measures
The University of California identifies five classifications of performance measures. These five are:
:?: How Is Performance Measurement Used?
Another way of asking this question is, what are the benefits of performance measurement?” The answer is that performance measurement has many beneficial uses. For example, it can be used to:
· Set goals and standards.
· Detect and correct problems.
· Manage, describe, and improve processes.
· Document accomplishments.
· Gain insight into, and make judgments about, the effectiveness and efficiency of programs, processes, and people.
· Determine whether organizations are fulfilling their vision and meeting their customer-focused strategic goals.
· Provide measurable results to demonstrate progress towards goals and objectives.
· Determine the effectiveness of your part of your group/department/division/organization.
:!: What Performance Measures Won’t Tell You
1. The Cause and Effect of Outcomes Are Not Easily Established.
Outcomes can, and often do, reveal the impact of the program, but without collaborating data, it is difficult to demonstrate that your program was the cause of the outcome(s). The outcomes of public sector services are inevitably affected by many events outside public control. In the weatherization assistance program, for example, it is not always easy to demonstrate energy savings because the changes introduced to homes may result in changes in the behavior of inhabitants that confounds the analysis. Assume, as a second example, that the goal of energy research is to encourage the development of new technologies that will be adopted by industry and result in energy savings. The outcome may not occur for decades, and while it may be possible to claim that the original research contributed to the final product, it will most likely not be the only contributing factor. To determine the extent to which a program has affected the outcomes and to measure the impact, you need to do an in-depth analysis. Special program evaluations provide estimates of program impacts and help determine why some programs succeed and other do not. The cost of special program evaluations to demonstrate the causes and effects may outweigh the benefits of knowing more about causal relationships. Though most benefits are expected to be related to your efforts and the original program plan, others may be viewed as serendipitous impacts. Such unplanned outcomes contribute to the value of programs, and should be reflected in performance results appropriately.
2. Poor Results Do Not Necessarily Point to Poor Execution.
If performance objectives are not being met, it is obvious that something is wrong, but performance information itself does not always provide the reason. Instead, it raises a flag requiring investigation. Possibilities include performance expectations that were unrealistic or changed work priorities. Your organization should be able to explain performance results and to define and address the contributing factors.
3. Numerical Quotas Do Not Fix Defective Processes.
There is also a danger when performance objectives become numerical quotas. The setting of numerical goals and quotas does nothing to accomplish improvements in the process. Identify the challenges and changing the processes are what is needed to improve performance and achieve desired outcomes.
4. Measurements Only Approximate the Actual System.
Performance measurement provides a valuable tool for management and continuous improvement. However, people might try to ?game” the system in a way that will make their programs look good. Additionally, accurate data may not be available. These are among the reasons why you need to recognize the fact that the measured system is not the same as the actual system.
5. Performance Measures Do Not Ensure Compliance with Laws and Regulations.
Performance measures help form the basis for sound performance-based management. Performance measures do not however provide information on adherence to laws and regulations or the effectiveness of internal controls. Bypassing internal controls or noncompliance with laws and regulations may expedite operations and thus result in a “favorable performance” statistic which does not necessarily indicate good performance. For example, a building could be constructed more quickly if safety controls and funding limitations were ignored. Because compliance and internal controls often have a direct effect on performance, care should be taken to supplement performance measurement with other oversight activities to ensure that controls are in place and working as intended and that activities are adhering to laws and regulations. *Editor’s Note: Performance measures can be constructed in such a way that ensures compliance with laws and regulations. However, it shouldn’t be automatically assumed that they do ensure compliance.
:arrow: The Balanced Scorecard
In 1992, Robert Kaplan and David Norton introduced the Balanced Scorecard concept as a way of motivating and measuring an organization’s performance. The concept takes a systematic approach to assessing internal results while probing the external environment. It focuses as much on the process of arriving at successful results as on the results themselves. Under the Balanced Scorecard methodology, the processes that contribute to desired results are viewed cross-functionally. Measures that make one function look good while deflating another are avoided, thus minimizing negative competition between individuals and functions. As put forth by DOE (1996), this framework is intended for top managers in an organization to be able to obtain a quick and comprehensive assessment of the organization in a single report. Use of the Balanced Scorecard requires executives to limit the number of measures to a vital few and allows them to track whether improvement in one area is being achieved at the expense of another area.” The Kaplan/Norton Balanced Scorecard looks at four interconnected business perspectives.
1. Financial – How do we look to our stakeholders?
2. Customer – How well do we satisfy our internal and external customer’s needs?
3. Internal Business Process – How well do we perform at key internal business processes?
4. Learning and Growth – Are we able to sustain innovation, change, and continuous improvement?
· Using balanced measures allows you to mirror the factors you believe are critical to the success of your organization.
· A balanced approach imbeds long-term strategy into the management system through the mechanism of measurement.
· The balanced approach translates vision and strategy into a tool that effectively communicates strategic intent and motivates and tracks performance against established goals.
· Balancing measures allows management to translate strategy into a clear set of objectives.
· The balanced measures approach solidifies an organization’s focus on future success by setting objectives and measuring performance from distinct perspectives. 6th June 2004 From India, Gurgaon