Using Metrics to Measure Business Performance

Using Metrics to Measure Business PerformanceUsing Metrics to Measure Business PerformanceYou cant manage what you dont measure is an old management adage that is still accurate today. Unless you measure something, you dont know if it is getting better or worse. You cant manage for improvement if you dont measure to see what is getting better and what isnt. This article introduces you to some fundamental terms and approaches for measuring business activities. Definitions To begin, well define a few of the terms. We are using measure as a verb, leid a noun and benchmark as a noun, not an adverb. Measure The verb means to ascertain the measurements ofMeasurement The figure, extent, or amount obtained by measuringMetric A standard of measurement.Benchmark A standard by which others may be measured. So we collect data (measurements), determine how those will be expressed as a standard (metric), and compare the measurement to the benchmark to evaluate progress. For example, we measure a number of lines of code written by each programmer during a week. We measure (count) the number of bugs in that code. We establish bugs per thousand lines of code as the metric. We compare each programmers metric against the benchmark of fewer than 1 defect (bug) per thousand lines of code. What to Measure Measure those activities or results that are important to successfully achieving your organizations goals. Key Performance Indicators, also known as KPIs or Key Success Indicators (KSIs), help an organization define and measure those activities that support making progress toward goals. KPIs differ depending on the organization. A business may have as one of its KPIs the percentage of its income that comes from returning or repeat customers. A Customer Service department may measure the percentage of customer calls answered in the first minute. A Key Performance Indicator for a development organization might be the number of defects in their code. You may need to measure se veral things to be able to calculate the metrics in your KPIs.The department will need to measure (count) how many calls it receives to measure progress toward a Customer ServiceKPI. It must also measure how long it takes to answer each call and how many customers are satisfied with the service they received. The Customer Service Manager can use those various measures to calculate the percentage of customer calls answered in the first minute and to gauge overall effectiveness in answering calls. How To Measure How you measure is as important as what you measure. In the previous example, we can measure the number of calls by having each Customer Service representative (CSR) count their calls and tell their supervisor at the end of the day. We could have an operator counting the number of calls transferred to the department. The best option, although the most expensive, would be to purchase a software program that counts the number of incoming calls, measures how long it takes to answer each, records who answered the call, and measures how long the call took to complete. These measurements are current, accurate, complete, and unbiased. Collecting the measurements in this way enables the manager to calculate the percentage of customer calls answered in the first minute. Also, it provides additional measurements that help him or her manage toward improving the percentage of calls answered quickly. Knowing the call durations lets the manager calculate if there is enough staff to reach the goal. Knowing which CSRs answer the most calls identifies for the manager expertise that can be shared with other representatives. How to Use Measurements Most often, these measurements are used as part of a Continuous Improvement Plan like the Shewhart cycle. Similar plans are used by many companies in different industries and given different names, but the goal is the same - to measure the key factors and improve them.Building Operating Management Magazine Measure, Imp rove, RepeatRAND Arroyo Center Define-Measure-Improve It is important that you communicate your metrics both up and down the organization. Your boss wants to know whats going on, but your employees need to know also. They are not motivated to improve unless they know how they are doing. Also, most of the suggestions on how to improve will come from them. Post team and individual results, either online or by hanging charts on the wall. Use pie charts, line charts, key driver charts, and other graphs to quickly, easily, and visually communicate the metrics. Review your metrics and use them to guide your decisions. With your metrics in place, you can tell which strategies are working and which arent. If you make a change, you use the metrics to tell you whether the change improved things or not. When the metrics show improvement, share that success with everyone. Tell your staff. Tell your boss. Tell the guy you meet in the hall. And dont forget to reward the people who were responsibl e for the success, even if its just a verbal pat on the back. Measure to Manage Measure whats important.Publish your metrics and benchmarks.Reward people for exceeding their goals.And then keep tuning the metrics. The Bottom-Line The art and science of developing key performance indicators are beyond the scope of this post, however, measuring activities and outputs is a fundamental step. And although you cannot manage what you do not measure, be careful that your measurements emphasize certain activities over other equally important but unmeasured activities. Updated by Art Petty