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PART 3- MEASURING PROGRESS TOWARDS GOALS

• The measurement of Speed, Accuracy, Volume and Investment

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Introduction

• Performance measurement is the most neglected and yet critically important element of the management cycle.

• Now in section 3, we will do two things, we will learn how to measure progress, and we will learn how to motivate progress.

• Measuring progress is a scientific model of capturing change in performance areas that are desirable.

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CHAPTER 10, PERFORMANCE MEASUREMENT AND PERFORMANCE MANAGEMENT

• Things could be worse, suppose your errors were counted and recorded every day like a baseball player

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Introduction to Chapter 10

• Figure 10.1, The Management Cycle

Needs Assessmen

t

Operating plans and budgets

Project management

Performance Measurement

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LINKING PERFORMANCE MEASUREMENT TO STRATEGIC PLANS

• WHY IS MEASUREMENT NECESSARY?– To show progress towards achieving strategic goals.

– Show evidence as to the performance gaps in areas where strategic outcomes are not being met

– Show evidence to let superior performance be recognized and rewarded.

– Show evidence to let poor performance be recognized and corrected.

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AN OVERVIEW OF PERFORMANCE MANAGEMENT

• Figure 10.2, levels of performance management

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Figure 10.3, An Overview Of Performance Measurement

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Building a Measurement System

• The first effort in performance measurement will be to develop measures of results and outcomes

• we can then translate the strategic goal into an operating goal,

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Building a Measurement System

• two principal dimensions.– We need to measure activity – Hour spent, materials consumed, overhead

used.– We need to measure results and outcomes.– Things built, customers satisfied, money made

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• Figure 10.4,

• Input and Output Measures

Financial Efficiency

Sustainability in the economic system

Stewardship of the natural environment

Safety of employees and the public

Satisfaction of customers

INPUT MEASURESMaterials, labour, overhead, time and

talent etc.

Measures of resources used to track the efficiency of the

utilization of resources

OUTPUT MEASURESInvestment Returns

Customer SatisfactionSocial and Other Benefits.

Measures of the effectiveness of the use of resources

High Level SAVI™ Measures for each of the strategic goals

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Figure 10.5, Example Output Measures

OUTPUT MEASURES

CATEGORY MEASUREMENT CONCEPTMOST FREQUENTLY USED SOURCES OF

INFORMATION

Investment Returns

Financial Returns Total profits and % rate of return on investment

Financial EfficiencyBudget and actual cost information supplied by financial services is equated to the volume of work done using “unit measure” concepts

Customer Satisfaction

Internal customers, (intermediate results such as on scope, on time, on budget)

Data mining internal information about effectiveness at the intermediate level

External customers (public perceptions of value, quality, function etc.)

Opinion survey of external users which captures their perception of the value of the program

Social Benefits

Non-financial social returns that are not being measured in the satisfaction category. (Environmental impact, value of recreation to the health care system etc)

“Data Mining” existing information within the organization and among comparable organizations from outside

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Figure 10.6, Example Input Measures

INPUT MEASURES

CATEGORYMEASUREMENT

CONCEPTMOST FREQUENTLY USED SOURCES OF INFORMATION

Financial Operating Resources

Materials and labourDirect tracing of materials and labour consumed to the performance area using the financial system

OverheadAllocation of overheads using an accounting allocation method that reflects the use of overheads by the performance area.

Financial Capital ResourcesCapital investment in

operating assetsThe accounting system will break out the capital investments in each performance area

Other organizational resources

Non-financial resources consumed by the performance

area

Management estimates of the resources of talent and energy and other non-financial resources that have been dedicated to this performance area.

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Two Kinds of Data

• Measures that come from observations of events are called “Counting” measures,

• Measures of opinion are called “Judgement” measures.

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Developing SAVI™ measures

• Regardless of whether you are developing input or results measures, and regardless of whether you are developing high level measures for directors or operating level

measures…..there is one framework for the development of the performance measures.

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Figure 10.7, Four Dimensions of Measurement

Soundly manage investment in resources, in terms of efficient and effective allocation of money, assets and

people.

Do what you do at the right speed. “Speed” means on time, not fast!

Do what you do with accuracy.This is the quality dimension of your work

Do what you do in the right volume. You need to meet the needs of all of your customers.

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Four Dimensions of Measurement

• Speed– Speed, an output measure, refers to the timing of the delivery of the

product or service, not necessarily ‘how fast’..

• Accuracy– Accuracy, an output measure, is the quality dimension of your results.

• Volume– Volume, an output measure, refers to the quantity of goods and services

provided.

• Investment– Investment, an input measure, refers to the efficient utilization of total

organizational resources to get the job done.

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The Bus Ride.

• Riders on a bus will be happy when the bus arrives on time S, it is clean and the driver is safe A, everyone at the bus stop is picked up V, and the fare is fair I. If any one of the dimensions is out of line, satisfaction declines.

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The Budget Process.

• Internal customers, senior management, will be happy when the deadline is met S, the budgets are accurate A, all divisions have prepared the budget V, and there was a minimum investment made I in preparing the budget because the process was simple.

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The Restaurant.

• Customers will be happy when the service is prompt S, (fast at the drive through, slow at the romantic restaurant), the food is good quality A, the portion was the right size V and the price was fair I.

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The Grocery Store.

• Customers are happy when the store is open at convenient times S, the goods are fresh A, there is enough selection of products V and prices are low I.

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The Car Dealership.

• Customers are happy when the model they want is available immediately S, it is clean on delivery A, it is reliable for the first five years V, and the price was fair I.

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Chapter Summary

• In order to effectively manage performance we need to have good measures of performance. To have good measures we need the commitment of the organization to make improving performance a high priority, and a ‘safe’ thing to do.

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Good performance measures should be:

• Measurable– The data management system must be able to locate and report performance

information in an accurate and timely fashion.

• Observable– There is a cause and effect relationship between data reported and desired

performance such that when the data shows improvement, performance has actually improved.

• Reliable– The goal and its measurement system should offer consistent and uniform

reporting.

• Controllable– The variables that cause change in a performance area must be in the manager's

control.

• Active– The goal must relate to an active business process that is in the realm of the

manager's routine.

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Closing Remarks

• This chapter introduced the concepts of measurement, chapter 11 will present performance measurement examples in detail (this should make us ‘able’ to do it), and chapter 12 will cover the human side of measuring and managing performance, (this should make us willing to do it).