Performance metrics


Performance metrics

Performance metrics are measures of an organization's activities and performance. Performance metrics should support a range of stakeholder needs from customers, shareholders to employees [Mark Graham Brown, "Using the Right Metrics to Drive World-class Performance"] . While traditionally many metrics are financed based, inwardly focusing on the performance of the organization, metrics may also focus on the performance against customer requirements and value. [ [http://www.leanyourcompany.com/methods/Value-based-performance-metrics.asp Value based performance metrics] ]

Developing performance metrics usually follows a process of:

#Establishing critical processes/customer requirements,
#Developing measures,
#Establishing targets which the results can be scored against.

A criticism of performance metrics is that when the value of information is computed using mathematical methods, it shows that even performance metrics professionals choose measures that have little value. This is referred to as the "measurement inversion". [Douglas Hubbard, "The IT Measurement Inversion", "CIO Magazine", 1999] [Douglas Hubbard, "How to Measure Anything: Finding the Value of Intangibles in Business". John Wiley & Sons, 2007] For example, metrics seem to emphasize what organizations find immediately measurable — even if those are low value — and tend to ignore high value measurements simply because they seem harder to measure (whether they are or not).

To correct for the measurement inversion other methods, like applied information economics, introduce the "value of information analysis" step in the process so that metrics focus on high-value measures. Organizations where this has been applied find that they define completely different metrics than they otherwise would have and, often, fewer metrics. [US Government Study on AIE [http://www.cio.gov/documents/aie_report_final.pdf] ]

There are a variety of ways in which organizations may react to results [Andy D. Neely, "Business Performance Measurement: Theory and Practice"] . This may be to trigger specific activity relating to performance (i.e., an improvement plan) or to use the data merely for statistical information. Often closely tied in with outputs, performance metrics should usually encourage improvement, effectiveness and appropriate levels of control.

Performance metrics are often linked in with corporate strategy [Mark Graham Brown, "How to Interpret the Baldrige Criteria for Performance Excellence" ] and are often derived in order to measure performance against a critical success factor.

References

Further reading

* [http://www.orau.gov/pbm/documents/overview/uc.html University of California Approach to developing performance metrics]


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