Performance Measures

1. Decide what is needed to manage the entity successfully.

Every organizational element, whether department, plant, division, or other, has some "thumping machines." The persons working in the department, along with the depart­ment supervisor, probably have the best feel for what they are, and should be involved in taking a first cut at identi­fying the key indicators to be used.

2. Clarify, and refine, the key indicators selected. The key indicators should be defined so that the person being measured has a clear understanding of what is expected. There should also be agreement between the group leader and the group that the measure is a meaningful one. In this way, there can be a linkage between the measures used in each level of the organization. In addition, there will be acceptance of the final measures chosen by all persons involved.

3. Decide on the source of information to be used. Identi­fying the source of information to be used helps to eliminate duplicate sources, or, even worse, the lack of a reliable source of information. It also helps to identify the proce­dures to be followed in reporting the actual results.

4. Finalize on indicators that are easily obtainable. In step 3, some of the indicators desired may not be easily mea­sured. If so, there are usually alternate measures that will serve almost as well; sometimes, even better. This step is important in assuring that the key indicator report can be started quickly and continued without undue difficulty in collecting the information.

5. Collect key indicator information for a trial period, and evaluate its effectiveness. Collecting the key indicator information for a short time will assure that a suitable data collection procedure is available; it also will make it possible to evaluate the key indicators as meaningful measures. If they aren't, they should be changed and other indicators tried. This is a strength of the key indicator system; it is easy to change.

6. Relate the local key indicators with the global perfor­mance measures used by the company. Although it is important that the key indicators are good measures at the local level, it is equally important that they can be related to the aggregate measures used by top management. Some­times the links are not as well defined. However, this does not mean that the key indicators are at fault; it may indicate that more effort is needed to establish meaningful transi­tions between organizational layers. As the number of organization layers shrink, the relationships between layers become more important.

7. Finalize the key indicators to be used—for now! Once the data can be collected, and the key indicators provide meaningful information, both at the local level and with the higher levels of the organization, they should be used for some period of time. This does not suggest that they cannot be changed later; it does mean that they must be used if they are to be of any value.

8. Establish performance goals for each key indicator. Goals can be established for each key indicator, whether short-term or long-term. One nice thing about this is that continuous improvement goals can be build into the key indicator system, for whatever level of detail needed. When top-level measures include improvement goals, an attempt should be made to identify the low-level measures that should be watched for improvement. Conversely, if improvement is built into low-level goals, some attempt should be made to identify the top-level measures that should reflect this improvement.

9. Collect results and evaluate at both the local and global levels of the organization. As with any planning and control mechanism, the key indicator system should pro­vide for the measurement of actual versus plan. It should be easier to do than with traditional performance measure­ment systems, and the differences should be easier to evaluate in terms of what corrective or improvement action is appropriate.

Key indicators are not cure-alls, but they are the answer to some of today's needs to measure both financial and nonfinancial results, to build flexibility into the performance measurement system, and to gain acceptance by all levels of management. They provide the opportunity to design performance measures that also can be used as planning and control measures at any operating level.

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