Effective Corporate Performance Management. What are the Top 8 Business Measures?
by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"
A number of years ago I was contacted by a manager in the Health profession and asked if I could tell them 25 measures they should be tracking. I was a little surprised and thought to myself that if they didn’t know what those measures were given that they worked in the industry, then what chance would I have in coming up with the right ones.
In reply I asked them what was the purpose of the organization, as in my opinion, the measures ought to be associated with what they were trying to achieve. But this didn’t help. They were looking out for a list that they could then track and presumably say that they were now adequately measuring performance.
Measures, like actions, cannot be just ‘plucked’ out of the air. Measures are the vital signs of any organization and so it is important that you track the right ones. There’s no point going into a hospital and they start to measure the length of your hair when you’re suffering from a broken leg. Of course, there are a number of vital signs that need to be monitored such as heartbeat, blood pressure and so on, in the same way that organizations need to monitor things like cash flow, headcount, etc. But these ‘vital sign’ measures do not tell you about what led up to the issue or what the organization needs to do, to put things right. It is in these areas where many organizations fail to measure the right things.
In any performance management system, there will be many measurement types that fall into the following eight groups:
- Success measures – i.e. those measures that denote the success of an objective or a strategy
- Implementation measures – i.e. those that monitor how far an initiative has been implemented
- Assumption measures – i.e. those that denote the value of any assumption made in connection with the success of an objective or strategy
- Risk measures – i.e. those measures that quantify any identified risks with a particular strategy
- Milestones – i.e. dates that are associated with the deadline of an initiative
- Resource measures – i.e. the measures that are used to denote the type and volume of any resource allocated to a particular initiative.
- Financial Statement measures – i.e. those measures needed to generate the organization’s financial statements such as those required for statutory reporting, that may not be included elsewhere.
- Ratio measures – i.e. measures that are typically calculated to allow comparisons with peer organizations.
Of course, some measures will appear in multiple groups but the point about the groupings is to ensure that they cover all aspects of performance. For each measure, there will need to be versions to capture target values, forecast values, and actual performance.
By identifying measures in this way it is also possible to generate interesting reports that show, for example – where we stand on the assumptions made; where initiative deadlines have or look likely to be missed; and how close to success are we.
Identifying measure cost
All measures have a cost in acquiring them, be that through data transfer, manual input or in creating a specific sub-system to hold them. Some may be easy and relatively straightforward to get hold of, for example, those coming from a general ledger. Others may not exist or be ‘expensive’ in terms of manual effort or the investment in systems required to get hold of them.
For every measure identified, its source and the ‘cost’ of getting hold of it will need to be assessed. If the cost outweighs the value that the measure brings to an organization, then it should be dropped or an alternative found.
Measures that are valuable but require investment in an IT system should have their implementation prioritized. As well as noting the source of any measure, the frequency of availability and its reliability (i.e. accuracy) should also be assessed. Also, note down any extract routines, transformations or manual data entry screens that will be required.
In summary, don’t just choose any old measure because it’s available or use a measure because someone else is using it. Instead, choose measures because of the value it brings to the management of performance