Measures are a key part of many business processes. They provide information about the status of a process and help to identify areas where improvements can be made.
The core function of measurement is to reduce uncertainty. This can be accomplished by methodically repeating measurements and evaluating the accuracy of the measuring instruments used.
Performance Measurement
Performance measurement is an ongoing process by which stakeholders consistently track important data to assess progress or growth, identify operational issues and hold individuals and departments accountable. A PMS is most effective when it is driven by the organization’s culture, with staff taking ownership of collection and tracking.
Stakeholders use the data to evaluate performance and set goals, or benchmarks, based on industry standards or strategic targets. A well-designed PMS uses data visualization techniques to present a clear, concise and visually engaging summary of key indicators that is easily accessible to stakeholders at different levels of the organization.
GFOA recommends all organizations identify, track and communicate performance measures to monitor financial and budgetary status, service delivery, program outcomes, or community conditions. For these metrics to be useful, they must provide information that is helpful for decision making or understanding, and be reliable, with collection methods and measure definitions clearly articulated so stakeholders can rely on the data.
Benchmarking
Benchmarking is the process of comparing your business’s performance, processes and practices to those of your peers, competitors or industry leaders. It helps you identify gaps in your business and uncover opportunities for improvement, whether that’s improving efficiency, reducing costs, increasing profits or boosting customer satisfaction.
To conduct benchmarking, start by identifying the specific aspects of your business you want to measure. Then, gather data by analyzing your current business performance and reviewing industry reports, surveys or by speaking with employees, customers, competitors and other business stakeholders.
Once you have the necessary data, compare your business to the best in the industry. For example, a software development team might benchmark its bug resolution time against industry leaders to determine how to improve their current process. Then they could research how to implement new ticket triage systems and automation tools to reduce their bug resolution times. This kind of analysis can help you create action plans that drive real improvements.
Measuring Performance
Keeping track of performance metrics isn’t a set-it-and-forget-it process. As a business grows and evolves, its goals, processes and resources will change, which may require adjustments to the metrics. Choosing the right metrics and knowing when to use them is key to successful strategy execution.
Metrics focus on the inputs, activities and outputs used by an organization to carry out its strategies, programs and projects. They also measure progress toward achieving strategic objectives and identify areas of risk. Generally, these metrics are either lagging or leading indicators of business trends.
Lagging indicators, such as sales win rates and renewals, offer a measurement of past outcomes. By contrast, leading indicators, such as lead generation and sales activity metrics, predict future results based on current activities. By evaluating metrics and their effectiveness on a regular basis, businesses can adjust plans to meet goals, identify issues and hold people accountable for success. They can also provide a way to communicate their accomplishments to stakeholders.
Choosing the Right Measures
Measurements provide a means to evaluate the progress of a system toward its goals. But not every measurement is the right one for every situation. For instance, when reporting on IT service availability, instead of citing a number like “98%,” which doesn’t mean anything to business colleagues, report on the number of widgets delivered for three consecutive months, something colleagues can relate to.
The choice of a measure depends on its characteristics, especially how well it suits the data it is measuring and its intended use. For example, measures of central location and spread (mean, median, mode) work best when the data follows a symmetrical bell-shaped distribution, but most observed data don’t. It is also important to consider how a metric might be exploited, whether intentionally or unintentionally. Such exploitation can include confusion of correlation with causation and perverse incentives, such as using metrics to determine who gets a bonus. Forethought and careful construction of measurements can avoid such exploitation.