Thursday, September 22, 2016

Three Challenging Aspects of Performance Indicators

Keep in mind, measurement is not just numbers, but stories.

You can only manage what you measure, Performance measures and management is not a simple task though, approximately there’re more than ten thousand KPIs around today, a bit overwhelming, let's not forget that there is a "K" in KPI for a reason: Why do you select the certain set of performance measures? What’re the most challenging aspects of working with KPIs? How to leverage the right set of performance indicators in measuring whether the organization is functioning well or dysfunctional? Which management metrics shall you apply to measure organizational overall health and maturity? Who and what tools are being applied to measure if an organization is healthy or sick? Proactive or reactive? Intelligent or dumb? Customer-centric or operational driven? And what are those challenging aspects of performance measurement?

Selecting the right performance indicators and KPIs: Selecting the right KPIs is one of the most important steps in measurement because this process includes to answering why you are choosing that, how you will use them and whether you have enough resources to manage data. If you think through these concerns properly, the rest will just fall in their rightful places. Generally speaking, KPIs should be set according to the strategic strengths of the company, what resources the company has, in which it can fully utilize. But certainly, you shouldn't select a KPI when you don't have the mechanism to collect data. If KPIs would be set as per the resources available, it would be realistic, smart and hence achievable. This would make it easier to evaluate the results against the KPIs. So if the KPI selection has been effectively carried out, all the remaining aspects would fall in place.

The root cause analysis & insight generation: The other most challenging aspect of KPI is to determine or understand what root causes would be contributory in influencing the KPIs before they are being selected. KPIs being used could have several ramifications, especially when conducting a Root Cause Analysis. The selection of KPIs also needs to help insight generation: Can you capture the business insight from the set of KPIs, do they measure the right things in the right way; do they follow the "SMART" principles in order to get the critical things measured, or do they not only just to measure data, but also convey the information-based business insight which can help business leaders to make optimal business decisions.

Decision-Making based on KPI Results: The performance measurement is not for its own sake, it is to enable the business leaders and managers make better decisions. Once the KPIs are selected and finalized, decision-making based on the results of the KPIs is of utmost importance. If the decisions are not made correctly, it will lead to KPI calculation & presentation only, but will not contribute or help in improving the business result. KPIs drive behavior, very often organizations fail to define the outcome of the KPIs. Therefore, remaking decisions constantly based on KPI result is also very challenging.

Keep in mind, measurement is not just numbers, but stories. The problem with measurement is that more often, the metric is very subjective. That is, from a scientific methods perspective, there is no way to run a real experiment to try one process against another. Each organization is different, but this will not stop an organization from measuring components of things that are measurable, and making the effective measurement is still challenging for the business to overcome.


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