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How to Measure Your Business Performance
![performance measurement system business plan A team meeting in a conference room about business performance](https://cloudinary.hbs.edu/hbsit/image/upload/s--OPqrlCz---/f_auto,c_fill,h_375,w_750,/v20200101/6CCCE989E522058289AF78159071173D.jpg)
- 14 Nov 2023
Measuring your business’s performance is essential to its long-term success. By assessing its operations, you can make informed decisions, find ways to improve, and establish accountability in the workplace .
Despite these benefits, many businesses struggle to use the vast amounts of data they have access to. According to a report by data storage company Seagate , businesses act on just 32 percent of the data available to them—with the remaining 68 percent going unleveraged.
If you want to help your organization achieve its strategic objectives, here’s why it’s vital to measure business performance and how to do it.
Access your free e-book today.
Why Measure Your Business Performance?
Measuring business performance is critical to ensuring effective strategy formulation and implementation . It can also help identify obstacles and setbacks that impact your company’s success—similar to risk management .
According to the online course Strategy Execution , performance measurement comprises the formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities.
Engaging in performance measurement helps you and organizational leaders , investors, and employees understand how your roles and responsibilities relate to your business’s strategy—creating a culture of accountability and commitment to achieving its goals and objectives .
How to Measure Business Performance
Long-term business success doesn’t just result from effective strategy execution; it also relies on a holistic approach to monitoring, measuring, and evaluating performance. This involves creating objective and subjective measures—often called key performance indicators (KPIs) .
While objective measures—like revenue and profit margin—are crucial to assessing performance, subjective measures are often overlooked.
“If a measure is objective, you can independently verify it,” says Harvard Business School Professor Robert Simons, who teaches Strategy Execution . “You and I could look at the same set of data and draw the same conclusion. A subjective measure, by contrast, requires judgment.”
For example, measuring employee engagement can help gauge the amount of internal support for your business strategy. High employee engagement can also greatly impact your company’s bottom line—increasing profitability by up to 23 percent .
“These measures work well only when there's a high degree of trust between employees and managers,” Simons says in Strategy Execution . “Employees must feel confident that subjective measures are applied fairly.”
Using diagnostic control systems —information systems managers use to monitor organizational outcomes and correct negative performance—you can ensure consistency and standardization when measuring success.
Examples of diagnostic control systems include:
- Performance scorecards
- Project monitoring systems
- Human resources systems
- Standard cost-accounting systems
Before implementing such systems and measuring your business performance, here are three factors to consider.
3 Considerations When Measuring Business Performance
1. financial goals.
Measuring business performance starts with financial goals. This is largely because your company’s financial value is its first indicator of success or failure. Financial goals also help ensure your diagnostic control systems effectively monitor profitability and provide insight into how to fix problems.
To set financial goals, you can use a profit plan —a summary of a specific accounting period’s anticipated revenue inflows and expense outflows—presented in the form of an income statement . Profit plans serve several purposes; their most important is creating control systems that place responsibility on management.
“Individual managers can be held accountable for achieving specific revenue and expense targets and the overall profitability of the business,” Simons says in Strategy Execution .
To confirm that your profit plan holds you and others accountable for your organization’s financial health , Simons suggests asking the following:
- Does the business create enough profit to cover costs and reinvest in future endeavors?
- Does the business generate enough cash to remain solvent through the year?
- Does the business create sufficient financial returns for investors?
“Once managers have completed the profit planning process,” Simons says, “people throughout the organization will be in agreement about the direction of the business and the assumptions that underpin the forecasts.”
Related: 7 Financial Forecasting Methods to Predict Business Performance
2. Non-Financial Goals
While financial metrics are critical to assessing short-term profitability, non-financial goals can impact your business’s long-term success.
Objectives like improving customer satisfaction, boosting employee engagement, and enhancing ethical practices can all drive business performance—even financially.
“An organization that's focused just on financial goals will rarely achieve those goals for a long period of time,” says Tom Polen, CEO and president of medical technology company Becton Dickinson, in Strategy Execution . “It's all the other goals that are going to feed into the financial goals.”
In the course, Polen says he consistently communicates his organization’s strategic objectives to employees and uses an incentivization system to reward those working to support non-financial goals.
“As a health care provider, the most important thing—bar none—is quality,” Polen says. “While we’re focused on financial goals, our quality goals—which cut across manufacturing, regulatory, marketing, and medical—contribute to making sure that we have quality products at the end of the day. And we’ll never sacrifice a quality goal for a financial goal.”
![performance measurement system business plan Strategy Execution | Successfully implement strategy within your organization | Learn More](https://online.hbs.edu/online/PublishingImages/blog/ctas/stratx-cta.jpg)
3. Intangible Assets
Your goals aren’t the only thing you can use to measure your company’s performance. Intangible assets—non-physical assets your business significantly values—can also help.
Examples of intangible assets include:
- Research capabilities
- Brand loyalty
- Customer relationships
“These are among the most valuable assets in many of today's businesses,” Simons says in Strategy Execution . “But you won't find them anywhere on an income statement or balance sheet .”
Since you can’t monitor these assets using traditional accounting systems, you can instead use a balanced scorecard —a tool designed to help track and measure non-financial variables.
“The balanced scorecard combines the traditional financial perspective with additional perspectives that focus on customers, internal business processes, and learning and development,” Simons says in Strategy Execution . “These additional perspectives help businesses measure all the activities essential to creating value.”
For example, if your business strategy focuses on improving an intangible asset, like brand loyalty, you can use a balanced scorecard to track customer satisfaction through surveys and reviews.
In this way, the balanced scorecard offers a comprehensive view of business performance, helping you make informed decisions to protect and enhance intangible assets’ value.
![performance measurement system business plan How to Formulate a Successful Business Strategy | Access Your Free E-Book | Download Now](https://online.hbs.edu/online/PublishingImages/blog/ctas/strategy-ebook-cta.jpg)
Start Measuring Your Business Performance
Measuring business performance doesn’t have to be difficult. By implementing the appropriate metrics and control systems, you can seamlessly track strategic initiatives’ progress.
By enrolling in an online course, such as Strategy Execution , you can be immersed in a dynamic learning experience featuring real-world examples of businesses that have employed performance measurement strategies to secure long-term success.
Do you need help measuring your business performance? Explore Strategy Execution —one of our online strategy courses —and download our e-book to discover how to think like a top strategist.
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More Like this
Kpis meaning + 27 examples of key performance indicators.
As your organization builds the foundation of your strategic plan, it’s likely to come to your attention you’ll need to gain consensus around what your key performance indicators (KPIs) will be and how they will impact your plan. If you don’t know the basics of KPIs or need guidance on KPI development, we are here to help!
We’ve compiled a complete guide that includes an overview of what makes a good KPI, the benefits of good key performance indicators (KPIs), and a list of KPI examples organized by department and industry to reference build your organization’s strategic plan and goals.
![performance measurement system business plan KPIs video](https://i.ytimg.com/vi/2tuWjtc2Ifk/maxresdefault.jpg)
What is a Key Performance Indicator KPI — KPI Definition
Key performance indicators, or KPIs, are the elements of your organization’s plan that express the quantitative outcomes you seek and how you will measure success. In other words, they tell you what you want to achieve and by when.
They are the qualitative, quantifiable, outcome-based statements you’ll use to measure progress and determine if you’re on track to meet your goals or objectives. Good plans use 5-7 KPIs to manage and track their progress against goals. A good key performance indicator measures strategic goals.
![performance measurement system business plan What is a KPI?](https://54493.fs1.hubspotusercontent-na1.net/hubfs/54493/wp/posts/Example-KPI-OnStrategy.webp)
DOWNLOAD THE FREE KPI GUIDE
What is KPI Meaning, and Why Do You Need Them?
Key performance indicators are intended to create a holistic picture of how your organization is performing against its intended targets, organizational goals, business goals, or objectives. A great key performance indicator should accomplish all the following:
- Outline and measure your organization’s most important set of outputs.
- Work as the heartbeat of your performance management process and confirm whether progress is being made against your strategy.
- Represent the key elements of your strategic plan that express what you want to achieve by when.
- Measure the quantifiable components of your strategic goals and objectives.
- Measure the most important leading indicators and lagging measures in your organization.
The Five Elements of a KPI
These are the heartbeat of your performance management process and must work well! Your plan’s strategic KPIs tell you whether you’re making progress or how far you are from reaching your goals. Ultimately, you want to make progress against your strategy. You’ll live with these KPIs for at least the quarter (preferably the year), so make sure they’re valuable!
Great strategies track the progress of core elements of the plan. Each key performance indicator needs to include the following elements:
- A Measure: Every KPI must have a measure. The best ones have more specific or expressive measures.
- A Target: Every KPI needs to have a target that matches your measure and the period of your goal. These are generally a numeric values you’re seeking to achieve.
- A Data Source: Each of these needs to have a clearly defined data source so there is no gray area in measuring and tracking each.
- Reporting Frequency: Different measures may have different reporting needs, but a good rule to follow is to report on them at least monthly.
- Owner: While this isn’t a mandatory aspect of your KPI statement, setting expectations of who will take care of tracking, reporting, and refining specific KPIs is helpful to your overall organizational plan.
![performance measurement system business plan Elements of a KPI](https://54493.fs1.hubspotusercontent-na1.net/hubfs/54493/wp/posts/Elements_of_KPIs_OnStrategy.webp)
Indicators vs. Key Performance Indicators
An indicator is a general term that describes a business’s performance metrics.
There can be several types of indicators a company may track, but not all indicators are KPIs, especially if they don’t tie into an organization’s overall strategic plan or objectives, which is a MUST!
Key Performance Indicators
On the other hand, a key performance indicator is a very specific indicator that measures an organization’s progress toward a specific company-wide goal or objective. We typically recommend you narrow down the KPIs your organization tracks to no more than 7. When you track too many goals, it can get daunting and confusing.
Pro Tip : You should only track the best and most valuable indicators that tie to your organization’s long-term strategic goals and direction.
Benefits of Good Key Performance Indicators
What benefits do key performance indicators have on your strategic plan, and on your organization as a whole? A lot of benefits, actually! They are extremely important to the success of your strategic plan as they help you track progress of your goals. Implementing them correctly is critical to success.
- Benefit #1: They provide clarity and focus to your strategic plan by measuring progress and aligning your team’s efforts to the organization’s objectives. They also show your measurable progress over time and create ways to track your organization’s continued improvement.
- Benefit #2: Key performance indicators create a way to communicate a shared understanding of success. They give your team a shared understanding of what’s important to achieve your long-term vision and create a shared language to express your progress.
- Benefit #3: They provide signposts and triggers to help you identify when to act. A good balance of leading and lagging key performance indicators allow you to see the early warning signs when things are going well, or when it’s time to act.
![performance measurement system business plan How to Develop KPIs](https://54493.fs1.hubspotusercontent-na1.net/hubfs/54493/wp/posts/Example-KPI-OnStrategy.webp)
How to Develop KPIs
We’ve covered this extensively in our How to Identify Key Performance Indicators post. But, here’s a really quick recap:
Step 1: Identify Measures that Contribute Directly to Your Annual Organization-wide Objectives
Ensure you select measures that can be directly used to quantify your most important annual objectives.
PRO TIP: It doesn’t matter what plan structure you’re using – balanced scorecard, OKRs, or any other framework – the right KPIs for every objective will help you measure if you’re moving in the right direction.
Step 2: Evaluate the Quality of Your KPI
Select a balance of leading and lagging indicators (which we define later in the article) that are quantifiable and move your organization forward. Always ensure you have relevant KPIs. Having the right key performance indicators makes a world of difference!
Step 3: Assign Ownership
Every key performance indicator needs ownership! It’s just that simple.
Step 4: Monitor and Report with Consistency
Whatever you do, don’t just set and forget your goals. We see it occasionally that people will select measures and not track them, but what’s the point of that? Be consistent. We recommend selecting measures that can be reported upon at least monthly.
The 3 Types of KPIs to Reference as You Build Your Metrics
Key performance indicators answer the quantifiable piece of your goals and objectives . here are three types of KPIs. Now that you know the components of great key performance indicators, here are some different ones that you might think about as you’re putting your plan together:
Broad Number Measures
The first type of KPI is what we like to call broad number measures. These are the ones that essentially count something. An example is counting the number of products sold or the number of visits to a webpage.
PRO TIP: There is nothing wrong with these, but they don’t tell a story. Great measures help you create a clear picture of what is going on in your organization. So, using only broad ones won’t help create a narrative.
KPI Type #2: Progress Measures
Progress key performance indicators are used to help measure the progress of outcomes . This is most commonly known as the “percent complete” KPI, which is helpful in measuring the progress of completing a goal or project. These are best when quantifiable outcomes are difficult to track, or you can’t get specific data.
PRO TIP: Progress KPIs are great, but your KPI stack needs to include some easily quantifiable measures. We recommend using a mixture of progress KPIs and other types that have clear targets and data sources.
KPI Type #3: Change Measures
The final type of KPI is a change indicator. These are used to measure the quantifiable change in a metric or measure. An example would be, “X% increase in sales.” It adds a change measure to a quantifiable target and is usually measured as a percentage increase in a given period of time.
The more specific change measures are, the easier they are to understand. A better iteration of the example above would be “22% increase in sales over last year, which represents an xyz lift in net-new business.” More expressive measures are better.
PRO TIP: Change measures are good for helping create a clear narrative . It helps explain where you’re going instead of just a simple target.
Leading KPIs vs Lagging KPIs
Part of creating a holistic picture of your organization’s progress is looking at different types of measures, like a combination of leading and lagging indicators. Using a mixture of both allows you to monitor progress and early warning signs closely when your plan is under or over-performing (leading indicator) and you have a good hold on how that performance will impact your business down the road (lagging indicator). Here’s a deep dive and best practices on using leading versus lagging indicators:
Leading Indicator
We often refer to these metrics as the measures that tell you how your business might/will perform in the future. They are the warning buoys you put out in the water to let you know when something is going well and when something isn’t.
For example, a leading KPI for an organization might be the cost to deliver a good/service. If the cost of labor increases, it will give you a leading indicator that you will see an impact on net profit or inventory cost.
Another example of a leading indicator might be how well your website is ranking or how well your advertising is performing. If your website is performing well, it might be a leading indicator that your sales team will have an increase in qualified leads and contracts signed.
Lagging Indicator
A lagging indicator refers to past developments and effects. This reflects the past outcomes of your measure. So, it lags behind the performance of your leading indicators.
An example of a lagging indicator is EBITA. It reflects your earnings for a past date. That lagging indicator may have been influenced by leading indicators like the cost of labor/materials.
Balancing Leading and Lagging Indicators
If you want to ensure that you’re on track, you might have a KPI in place telling you whether you will hit that increase, such as your lead pipeline. We don’t want to over-rotate on this, but as part of a holistic, agile plan, we recommend outlining 5-7 key performance metrics or indicators in your plan that show a mix of leading and lagging indicators. .
Having a mixture of both gives you both a look-back and a look-forward as you measure the success of your plan and business health. A balanced set of KPIs also gives you the data and business intelligence you need for making decision making and strategic focus.
We also recommend identifying and committing to tracking and managing the same KPIs for about a year, with regular monthly or quarterly reporting cadence, to create consistency in data and reporting.
Any shorter tracking time frame won’t give you a complete picture of your performance. Always moving your KPI targets is also a sure way to miss how you’re actually performing.
![performance measurement system business plan KPI Examples](https://54493.fs1.hubspotusercontent-na1.net/hubfs/54493/wp/posts/KPI%20Examples.webp)
27 KPI Examples
Sales key performance indicators.
Sales KPIs are essential metrics for evaluating a company’s revenue generation process and leading indicators for achieving financial goals. Using sales performance KPIs can provide leading insights beyond traditional financial metrics, which are often considered lagging indicators
- Number of contracts signed per quarter
- Dollar value for new contracts signed per period
- Number of qualified leads per month
- Number of engaged qualified leads in the sales funnel
- Hours of resources spent on sales follow up
- Average time for conversion
- Net sales – dollar or percentage growth
- New sales revenue
- Growth rate
- Customer acquisition count
- Lead conversion rate
- Average sales cycle
Increase the number of contracts signed by 10% each quarter.
- Measure: Number of contracts signed per quarter
- Target: Increase number of new contracts signed by 10% each quarter
- Data Source: CRM system
- Reporting Frequency: Weekly
- *Owner: Sales Team
- Due Date: Q1, Q2, Q3, Q4
Increase the value of new contracts by $300,000 per quarter this year.
- Measure: Dollar value for new contracts signed per period
- Data Source: Hubspot Sales Funnel
- Reporting Frequency: Monthly
- *Owner: VP of Sales
Increase the close rate to 30% from 20% by the end of the year.
- Measure: Close rate – number of closed contracts/sales qualified leads
- Target: Increase close rate from 20% to 30%
- *Owner: Director of Sales
- Due Date: December 31, 2024
Increase the number of weekly engaged qualified leads in the sales from 50 to 75 by the end of FY23.
- Measure: Number of engaged qualified leads in sales funnel
- Target: 50 to 75 by end of FY2024
- Data Source: Marketing and Sales CRM
- *Owner: Head of Sales
Decrease time to conversion from 60 to 45 days by Q3 2024.
- Measure: Average time for conversion
- Target: 60 days to 45 days
- Due Date: Q3 2024
Increase number of closed contracts by 2 contracts/week in 2024.
- Measure: Number of closed contracts
- Target: Increase closed contracts a week from 4 to 6
- Data Source: Sales Pipeline
- *Owner: Sales and Marketing Team
Examples of KPIs for Financial
- Growth in revenue
- Net profit margin
- Gross profit margin
- Operational cash flow
- Current accounts receivables
- Operating expenses
- Average cost of goods or services
- Average account lifetime total value
Financial KPIs as SMART Annual Goals
Grow top-line revenue by 10% by the end of 2024.
- Measure: Revenue growth
- Target: 10% growt
- Data Source: Quickbooks
- *Owner: Finance and Operations Team
- Due Date: By the end 2024
Increase gross profit margin by 12% by the end of 2024.
- Measure: Percentage growth of net profit margin
- Target: 12% net profit margin increase
- Data Source: Financial statements
- *Owner: Accounting Department
Increase net profit margin from 32% to 40% by the end of 2024.
- Measure: Gross profit margin in percentage
- Target: Increase gross profit margin from 32% to 40% by the end of 2024
- Data Source: CRM and Quickbooks
- *Owner: CFO
Maintain $5M operating cash flow for FY2024.
- Measure: Dollar amount of operational cash flow
- Target: $5M average
- Data Source: P&L
- Due Date: By the end FY2024
Collect 95% of account receivables within 60 days in 2024.
- Measure: Accounts collected within 60 days
- Target: 95% in 2024
- Data Source: Finance
- Due Date: End of 2024
Examples of Customer Service KPIs
- Number of customers retained/customer retention
- Customer service response time
- Percentage of market share
- Net promotor score
- Customer satisfaction score
- Average response time
Customer KPIs in a SMART Framework for Annual Goals
90% of current customer monthly subscriptions during FY2024.
- Measure: Number of customers retained
- Target: Retain 90% percent of monthly subscription customers in FY2024
- Data Source: CRM software
- *Owner: Director of Client Operations
Increase market share by 5% by the end of 2024.
- Measure: Percentage of market share
- Target: Increase market share from 25%-30% by the end of 2024
- Data Source: Market research reports
- Reporting Frequency: Quarterly
- *Owner: Head of Marketing
Increase NPS score by 9 points in 2024.
- Measure: Net Promoter Score
- Target: Achieve a 9-point NPS increase over FY2024
- Data Source: Customer surveys
- *Owner: COO
Achieve a weekly ticket close rate of 85% by the end of FY2024.
- Measure: Average ticket/support resolution time
- Target: Achieve a weekly ticket close rate of 85%
- Data Source: Customer support data
- *Owner: Customer Support Team
Examples of KPIs for Operations
- Order fulfillment time
- Time to market
- Employee satisfaction rating
- Employee churn rate
- Inventory turnover
- Total number of units produced or on-hand
- Resource utilization
Operational KPIs as SMART Annual Goals
Average 3 days maximum order fill time by the end of Q3 2024.
- Measure: Order fulfilment time
- Target: Average maximum of 3 days
- Data Source: Order management software
- *Owner: Shipping Manager
Achieve an average SaaS project time-to-market of 4 weeks per feature in 2024.
- Measure: Average time to market
- Target: 4 weeks per feature
- Data Source: Product development and launch data
- *Owner: Product Development Team
Earn a minimum score of 80% employee satisfaction survey over the next year.
- Measure: Employee satisfaction rating
- Target: Earn a minimum score of 80% employee
- Data Source: Employee satisfaction survey and feedback
Maintain a maximum of 10% employee churn rate over the next year.
- Measure: Employee churn rate
- Target: Maintain a maximum of 10% employee churn rate over the next year
- Data Source: Human resources and payroll data
- *Owner: Human Resources
Achieve a minimum ratio of 5-6 inventory turnover in 2024.
- Measure: Inventory turnover ratio
- Target: Minimum ratio of 5-6
- Data Source: Inventory management software
- *Owner: Operations Department
Marketing KPIs
- Monthly website traffic
- Number of marketing qualified leads
- Conversion rate for call-to-action content
- Keywords in top 10 search engine results/organic search
- Blog articles published this month
- E-Books published this month
- Marketing campaign performance
- Customer acquisition cost
- Landing page conversion rate
Marketing KPIs as SMART Annual Goals
Achieve a minimum of 10% increase in monthly website traffic over the next year.
- Measure: Monthly website traffic
- Target: 10% increase in monthly website
- Data Source: Google analytics
- *Owner: Marketing Manager
Generate a minimum of 200 qualified leads per month in 2024.
- Measure: Number of marketing qualified leads
- Target: 200 qualified leads per month
- Data Source: Hubspot
Achieve a minimum of 10% conversion rate for on-page CTAs by end of Q3 2024.
- Measure: Conversion rate on service pages
- Target: 10%
- Due Date: End of Q3, 2024
Achieve a minimum of 20 high-intent keywords in the top 10 search engine results over the next year.
- Measure: Keywords in top 10 search engine results
- Target: 20 keywords
- Data Source: SEM Rush data
- *Owner: SEO Manager
Publish a minimum of 4 blog articles per month to earn new leads in 2024.
- Measure: Blog articles
- Target: 4 per month
- Data Source: CMS
- *Owner: Content Marketing Manager
- Due Date: December 2024
Publish at least 2 e-books per quarter in 2024 to create new marketing-qualified leads.
- Measure: E-Books published
- Target: 2 per quarter
- Data Source: Content management system
Bonus: +40 Extra KPI Examples
Supply chain example key performance indicators.
- Number of on-time deliveries
- Inventory carry rate
- Months of supply on hand
- Inventory-to-sales Ratio (ISR)
- Carrying cost of inventory
- Inventory turnover rate
- Perfect order rate
- Inventory accuracy
Healthcare Example Key Performance Indicators
- Bed or room turnover
- Average patient wait time
- Average treatment charge
- Average insurance claim cost
- Medical error rate
- Patient-to-staff ratio
- Medication errors
- Average emergency room wait times
- Average insurance processing time
- Billing code error rates
- Average hospital stay
- Patient satisfaction rate
Human Resource Example Key Performance Indicators
- Organization headcount
- Average number of job vacancies
- Applications received per job vacancy
- Job offer acceptance rate
- Cost per new hire
- Average salary
- Average employee satisfaction
- Employee turnover rate
- New hire training Effectiveness
- Employee engagement score
Social Media Example Key Performance Indicators
- Average engagement
- % Growth in following
- Traffic conversions
- Social interactions
- Website traffic from social media
- Number of post shares
- Social visitor conversion rates
- Issues resolved using social channel
- Social media engagement
Conclusion: Keeping a Pulse on Your Plan
With the foundational knowledge of the KPI anatomy and a few example starting points, it’s important you build out these metrics with detailed and specific data sources so you can truly evaluate if you’re achieving your goals. Remember, these will be the 5-7 core metrics you’ll live by for the next 12 months, so it’s crucial to develop effective KPIs that follow the SMART formula. They should support your business strategy, measure the performance of your strategic objectives, and help you make better decisions.
A combination of leading and lagging KPIs will paint a clear picture of your organization’s strategic performance and empower you to make agile decisions to impact your team’s success.
Need a Dedicated App to Track Your Strategic Plan with KPI Dashboards? We’ve got you covered.
The StrategyHub by OnStrategy is a purpose built tool to help you build and manage a strategic plan with KPIs. Run your strategy reviews with zero prep – get access to our full suite of KPI reports, dynamic dashboards for data visualization, access to your historical data, and reporting tools to stay connected to the performance of your plan. Get 14-day free access today!
Our Other KPI Resources
We have several other great resources to consider as you build your organization’s Key Performance Indicators! Check out these other helpful posts and guides:
- OKRs vs. KPIs: A Downloadable Guide to Explain the Difference
- How to Identify KPIs in 4 Steps
- KPIs vs Metrics: Tips and Tricks to Performance Measures
- Guide to Establishing Weekly Health Metrics
FAQs on Key Performance Indicators
KPI stands for Key Performance Indicators. KPIs are the elements of your organization’s business or strategic plan that express what outcomes you are seeking and how you will measure their success. They express what you need to achieve by when. KPIs are always quantifiable, outcome-based statements to measure if you’re on track to meet your goals and objectives.
The 4 elements of key performance indicators are:
- A Measure – The best KPIs have more expressive measures.
- A Target – Every KPI needs to have a target that matches your measure and the time period of your goal.
- A Data Source – Every KPI needs to have a clearly defined data source.
- Reporting Frequency – A defined reporting frequency.
No, KPIs (Key Performance Indicators) are different from metrics. Metrics are quantitative measurements used to track and analyze various aspects of business performance, while KPIs are specific metrics chosen as indicators of success in achieving strategic goals.
16 Comments
HI Erica hope your are doing well, Sometime Strategy doesn’t cover all the activities through the company, like maintenance for example may be quality control …. sure they have a contribution in the overall goals achievement but there is no specific new requirement for them unless doing their job, do u think its better to develop a specific KPIs for these department? waiting your recommendation
Thanks for your strategic KPIs
Hello Erica, Could you please clarify how to set KPIs for the Strategic Planning team?
Hi Diana, check out the whitepaper above for more insight!
Hello Erica, Could you please clarify, how to set the KPIs for the Strategic PLanning team?
exampels of empowerment kpis
I found great information in this article. In any case, the characteristics that KPIs must have are: measurability, effectiveness, relevance, utility and feasibility
How to write methodology guidelines for strategy implementation / a company’s review and tracking (process and workflow) for all a company’s divisions
support on strategizing Learning & Development for Automobile dealership
Could you please to clarify how to write the KPIs for the Secretary.
Check out our guide to creating KPIs for more help here: https://onstrategyhq.com/kpi-guide-download/
That’s an amazing article.
Could you please to clarify how to write the KPIs for the office boy supervisor
Could you please clarify how to write KPIs for the editorial assistant in a start up publishing company.
Kindly advice how I would set a kpi for a mattress factory
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HOW TO DEVELOP KPIS / PERFORMANCE MEASURES
The Balanced Scorecard Institute’s (BSI) Measure-Perform-Review-Adapt (MPRA) framework is a disciplined, practical, and tested approach for developing and implementing a KPI system. It gives organizations a way to systematically articulate a shared vision of what you are trying to achieve, set practical goals, develop meaningful indicators that can be managed and used for decision-making, and establish long-term discipline around getting things done.
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These practical step-by-step methodologies and tools were designed to help organizations:
- Select and design performance measures that are far more meaningful than simple brainstorming or benchmarking can produce
- Get buy-in from staff and stakeholders to enthusiastically own performance measurement and improvement
- Bring measures to life in a consistent way, using the right data and with the right ownership
- Design insightful and actionable reports and dashboards that focus discussion on improvement
- Convincingly hit performance targets, and make measurement about transformation
Measurement development is only the starting point for the improvement process. Once measures have been established, the Perform-Review-Adapt cycle gives the organization a chance to take improvement actions, assess impact, and adapt. Adaptation can take the form of incremental reforecasting for the next quarter or more dramatic changes in strategic intent. Rather than “setting and forgetting” their KPIs, teams use this review cycle as the discipline needed to keep their teams on track and adjust to changes in their strategic environment. It borrows the key principle from the agile world that assumes that we cannot possibly know everything about our strategic intentions at the beginning of the process and so need a disciplined learning process.
Always begin by articulating your strategy properly. Use one of the many popular frameworks for strategy or goal setting (Balanced Scorecard, SMART, MBO, OKRs, WIGs, or other) to set objectives/goals and determine your strategy for achieving them. If you don’t know what you are trying to accomplish, it is too early for KPIs!
Pre-Measurement
Launch the program.
The program is launched by project champion(s) and key stakeholders. Existing measurement materials and results are examined, a performance management good practice gap analysis is completed, key stakeholders are interviewed, and other assessment activities are completed to customize workshops to incorporate work done to date. Key activities covered during the program launch include:
- Engaging Leadership
- Communicating “Why formally measure performance?”
- Establishing Teams and Roles
- Agreeing on Process and Procedures
- Considering Automation
- Fostering a Performance Culture
Articulate Strategic Intent
Before discussing measures of success, first one must understand what you are trying to accomplish. Even the most narrowly focused operational activities can be more efficient by better communicating intent. We recommend using one of the many popular frameworks for strategy or goal setting (e.g., Balanced Scorecard, SMART, MBO, OKRs, WIGs, or other) to structure the conversations around goals and your strategy for achieving them. If you don’t know what you are trying to accomplish, it is too early for KPIs!
There are four process components within the measurement development phase of the MPRA framework:
- Identify objectives and intended result(s)
- Understand alternative measures
- Select the right measurement(s) for each objective
- Define and document selected performance measures
Identify Objectives and Intended Results
The development of meaningful measures starts with Objectives. The building blocks of strategic intent, Objectives are the linchpins of a successful KPI system, whether it is focused on strategy or operations. Objectives are qualitative, continuous improvement actions (outcomes) critical to strategy success. Once the objective is identified, unambiguous intended result(s) of the objective are defined. Once agreement is reached on the 0bjective and intended result, it’s easier to explicitly define what to measure.
Understand Alternative Measures
Once the objective and intended result are clear, alternative measures can be identified. The first option includes any direct measure of the intended result. If the intended result cannot be measured directly, more indirect measures will be identified, usually by analyzing measurable components of the objective based on a hypothesis around correlation or contribution to the result. The logic model, cause-effect analysis and/or process flow analysis are three popular tools that can be used to better understand measurable components before selecting indirect measurements.
Select the Right Measure(s) for Each Objective
Narrow down the potential measures identified in the previous steps and select final measures using a disciplined system that scores options based on their relative strength and data availability. Choose metrics that have meaning and relevance, and:
- Answer key user questions about the organization’s performance towards strategic objectives
- Provide information needed to make better strategic decisions
- Are valid and verified, measuring what is intended
- Encourage desirable employee behaviors
- Avoid an undue data collection burden or unintended consequences
Define and Document Selected Performance Measures
The Performance Measure Data Definition Table is used to document the essential information comprising every performance measure on a scorecard. This is a critical step for transitioning from performance management system development to implementation and use. It is important to document the details of the measure so that the measure is consistently calculated and presented from reporting period to reporting period, allowing for more meaningful performance analysis and conclusions.
The performance review cycle follows a regular pattern (usually quarterly) organized around a simple pattern: set targets, implement improvement actions, track performance, and learn from the results. In the Perform phase employees organize their activities around two process components:
Set Targets and Thresholds
Implement improvement initiatives.
Describing desired performance levels and determining how data is interpreted is as important as selecting the measure. Performance is based on targets, the desired level of performance for a specific reporting period, and thresholds, the upper and lower limits of desired performance around a target value. Thresholds create the exact points where an indicator displays green for good performance, yellow for satisfactory or red for poor.
The team will generally not achieve objectives and hit performance targets without taking action. Actions or improvement initiatives are developed, prioritized, and implemented to achieve objectives. Rather than create a long list of potential actions and projects, the organization focuses on a short list of experiments designed to make the biggest difference in desired outcomes.
In the Review phase of the process, data is transformed into evidence-based knowledge and understanding. The Review phase is organized around two process component steps:
Collect and Visualize Performance
Analyze and draw conclusions.
Gathering and tracking data on the historic levels and current trends in performance encompasses more than just counting things and capturing data. Creating meaningful visual comparisons enables deeper interpretation and better decisions. Visualizing performance over time identifies trends that show data direction and development and provide context for the underlying story relative to strategic intent.
Effective analysis helps people make better decisions that will drive improved strategic outcomes. The key is to evaluate the effect of each improvement action on an ongoing basis using the same principles and methods deployed in the earlier steps, monitor performance data for the desired signals relative targets and thresholds, enable dialog around conclusions, and maintain a continuous process improvement focus.
The Adapt phase of the process explores whether improvement strategies were effective and correctly executed, and if assumptions turned out to be valid. It includes an assessment of quarterly performance results, which can lead to a reforecasting of performance targets, a new set of actions or initiatives, or a complete recalibration of strategy, as needed. Sometimes the Adapt phase leads to the continuation of current activities and sometimes it means refocusing Strategic Intent based on a changing strategic environment. This phase focuses on identifying what worked well and what didn’t, taking corrective action and becoming a high-performance organization.
Report, Share, and Learn
Reporting and sharing information are the first steps toward making better decisions and acting on the information in a way that improves overall performance. Review meetings are held to review, interpret, and discuss performance information. These meetings are organized around desired results and highlight progress toward the intended results, as well as towards actions designed to improve gaps in performance. This gives the team an ongoing indication of whether actions taken are effective. The information and knowledge from this process should continuously feed the strategic planning cycle.
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Performance Measurement: Connecting Strategy, Operations and Actions
A strategic plan must specify goals, strategic objectives and actions, and the final performance measures by which management and the stockholders will gauge success. Top management’s performance can usually be measured in terms of sales volume, market share, cash flow, profit, ROI, dividends and market value.
For operating management, however, there is often a big disconnect from the strategic plan. The disconnect is due to the lack of alignment and proper measurement of the business processes and activities that drive financial results.
This misalignment of performance measurement between goals, strategy, processes and activities is often poorly understood, and so does not get the emphasis and priority it should from management.
What management defines as critical success factors at the strategic level must be linked clearly to the business process and activity level. Successfully linking the real drivers of business performance is a prerequisite to effective performance measurement.
A primary purpose of measurement is to assess performance levels and to analyze what is happening and where. The most beneficial aspect of performance measurement, however, is pinpointing problem areas and focusing attention on actions that will have the best impact on overall business performance.
Without good performance measurements, it is easy to fall into the common trap of having people busy with all kinds of activities, but achieving few measurable results. Effective performance measurement is the compass that guides management in a direction that will produce meaningful results at the process level, results that will tie directly to your company’s goals.
Many manufacturers focus on the wrong performance issues. The fact is, it is very difficult to improve what you don’t properly measure. The pressure to focus energy on activities that really matter must come from the highest levels of the manufacturing enterprise.
Top management can talk about the need for making improvements, but unless the right performance factors are measured and rewarded, nothing will change.
Today’s world-class manufacturers are continually tracking process performance factors that ultimately impact business success, such as order-to-delivery cycle time, throughput, inventory levels, operating expense and customer satisfaction.
Wrong Measures Can Cause Havoc
Inappropriate measures will often lead managers to respond to situations incorrectly and continue to reinforce undesirable behavior. For example, when manufacturing’s goal is to keep absorbing overhead, the result is often bloated inventory and decreased customer service.
Measuring and driving toward a singular measure, such as purchase price variance, often leads to higher overall costs that are invisible in traditional accounting systems.
Getting the lowest possible price is important, but insuring an uninterrupted supply of needed material to maintain the production schedule and meet customer deadlines is more important. Just think about the real cost of material shortages. The best purchased material value is a result of price, quality and on-time delivery.
Keeping an entire organization focused on the right targets and moving in the right direction is no easy task. Of course, what managers think their superiors consider important through the formal or informal measurement system is what is going to get done.
For example, if something like cycle time gets good words from top management, but answering for the result is of minor consequence, cycle time essentially becomes a secondary issue, if it exists as a real performance measure at all.
And if the performance measurement system does not focus on a clear direction, the measurement system itself will enforce the wrong actions.
If your company has conflicting performance measures, you are certain to have differing values and directions, many of which will be disconnected from the company’s strategy.
Without uniform expectations, it is virtually impossible to keep an organization marching toward the same goals. This, by itself, makes re-evaluating how you measure business performance a very high priority.
Managers must strive to direct all levels of their organization to focus on the right priorities. World-class companies have learned (many the hard way) that effective performance measurement that will drive improvement and continue to encourage the right response and behavior requires linking strategy with day-to-day actions.
Financial results are the ultimate measures, but not drivers, of business success. As a result, the need to link day-to-day activities to financial results is necessary. Waiting for a fiscal month or quarter to close is far too late for numbers that would appropriately influence day-to-day actions.
For example, asking manufacturing management to explain almost unexplainable variances that occurred weeks ago can be a waste of time.
What are desperately needed are the right measurements and fast feedback that let a manager adjust, correct and guide an area of the company to be more synchronized with the overall business strategy while at the same time keeping near and longer-term financial measures on course.
For a quick assessment of whether your organization is on the right track with operational performance measurement, realistically consider the following five questions.
The questions are intended to help you develop a perspective on your company’s performance measurement situation.
1) Do your performance measures put pressure in the right directions for improvement?
❒ Yes ❒ Sometimes ❒ No
2) Does management understand that some micro performance measurements can decrease overall performance?
3) Has management defined success by identifying critical measurements by function, process and activity?
4) Does your current performance measurement system help to integrate your company’s people, processes and activities for a better overall performance?
5) Does your performance measurement system drive improvement by providing early warning signals that supports a proactive management style?
If you answered “sometimes” or “no” to any of these questions, you’re in good company. Most manufacturers could benefit from a more careful look at performance measurement.
What performance factors are most closely linked with improvements in your informational and material flow processes? For most manufacturing companies, this is not an easy question to answer.
That’s because management has not defined the ways in which the activity and process level are linked to overall business results.
In operations, there is often an over emphasis on measures such as labor efficiency, purchase price variance and output just to absorb overhead. As a result, poor performance is apt to appear as longer lead times, decreased on-time delivery, increased inventory investment, higher operating costs and decreased throughput.
Defining what drives your company’s overall business success from the activity and process level to financial and marketplace success should be one of management’s highest priorities.
Once this definition is completed, understood and accepted, a performance measurement system with clear up, down and across linkages that provide a balanced perspective on course correction can be developed.
Developing a Successful System
As you design, develop and implement your new performance measurement system, keep in mind that successful measurement systems share some common traits. Here are some of the critical traits that are common to successful performance measurement systems:
Designed to meet real business needs and expectations
Driven by customer requirements
Success factors that drive results and improvement are defined
Expressed in numbers that enable performance to be tracked and the right action taken
Fast feedback so action is quick and meaningful
Specific quantification of performance factors that are not open to multiple interpretations
Proper balance and emphasis are clear
Understandable to the people who have to use the measurement system or be evaluated by it
Promotes company-wide involvement in continuous improvement
Clear linkage to cause and effect up, down and across the company
Performance measurement systems should enable managers to precisely communicate performance expectations to subordinates for several reasons: so they know how the organization is really performing and can identify performance gaps; and, to effectively make and support decisions regarding resources, plans, policies, scheduled, and business process redesign.
A good performance measurement system also benefits the entire organization by letting people know exactly what is needed and expected.
This is accomplished by providing a way for individuals and teams to monitor their own performance and create their own feedback to identify areas for improvement. This fast feedback will shorten decision and correction cycle times.
The result will be improved operating performance.
World-class manufacturers have had to achieve success on many fronts to reach their levels of performance. A cornerstone of world-class status is that management recognizes the paramount importance and made the commitment to develop a highly disciplined planning and measurement process. The essential and common characteristics of a world-class processes includes:
A highly focused, effective planning process based on clearly defined goals and strategic action plans
Clearly defined functions, process and activity level critical success factors that truly drive business performance
Feedback mechanisms that quickly let the decision-maker know what they need to know and, most importantly, when they need to know it
World-class manufacturers have a competitive edge because they approach improvement activities differently and more effectively.
These world-beaters have refocused their organization by measuring and rewarding the performance factors that really count.
Certainly, you can’t just measure your way to world-class performance, but world-class performance cannot be achieved without a superb performance measurement system and a highly focused management team.
About the author:
R. Michael Donovan is the president of R. Michael Donovan & Co. Inc., an international management consulting firm. Contact him at 508-788-1100 or [email protected]. The firm’s Web address is www.rmdonovan.com.
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Performance measurement in business: Maximizing revenue and efficiency
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Dive into the world of performance measurement and discover its vital role in driving business success. Learn how it enhances revenue management and operational efficiency.
Performance measurement is the lens through which companies can critically examine their strategies, fine-tune their operations, and ultimately, sharpen their competitive edge.
At its core, performance measurement is the process of collecting, analyzing, and reporting data regarding the performance of an organization, department, or employee. It's akin to a business health check-up, providing vital insights into how well a company is progressing towards its strategic objectives.
This practice illuminates the path to enhanced business strategies, offering clarity amid the complexity of business operations. It empowers organizations to make data-driven decisions, optimizing everything from revenue management to operational efficiency. In essence, performance measurement is not just about assessing where a business stands; it's about charting a course for where it needs to go.
The fundamentals of performance measurement
Understanding performance measurement .
Performance measurement is the backbone of strategic decision-making. Simply put, it involves evaluating the effectiveness and efficiency of an organization's actions. This process isn’t just about tracking figures; it's about interpreting them to understand the health and progress of the business. Performance measurement answers crucial questions: Are we meeting our goals? How do our strategies translate into results? Are we efficiently utilizing our resources?
Role in business and revenue management
Performance measurement takes on a particularly crucial role in revenue management:
- Guiding revenue strategies.
It helps in assessing the effectiveness of various revenue-generating strategies. Whether it's tweaking pricing models, launching new products, or exploring new markets, performance measurement provides the data needed to make informed decisions.
- Operational effectiveness.
Beyond revenue, it assesses the efficiency of operations. This could involve anything from measuring the productivity of processes to evaluating the ROI on marketing campaigns.
- Identifying opportunities for improvement.
Through performance measurement, businesses can pinpoint areas that need refinement – whether it's streamlining operations, enhancing customer service, or adjusting pricing strategies.
- Competitive benchmarking .
It also enables companies to compare their performance against competitors and industry standards, providing a clearer picture of where they stand in the market.
In essence, performance measurement allows companies to make calculated, informed decisions that drive both top-line growth and bottom-line profitability.
Evaluating revenue management strategies
Assessing effectiveness with performance measurement tools .
Performance measurement tools bring into focus the effectiveness of various revenue strategies. These tools do more than just track revenue numbers; they analyze patterns, trends, and outcomes of revenue-related decisions. Here’s how they contribute:
- Data-driven insights.
By collecting and processing data from various sources, tools can offer comprehensive insights into how different strategies are performing. They reveal not just what's working, but also what isn't, and why.
- Real-time analysis.
In today’s fast-paced market, waiting for end-of-quarter reports isn’t enough. Performance measurement tools provide real-time data analysis, allowing businesses to swiftly adjust their strategies in response to market changes.
Key performance indicators (KPIs) in revenue management
To effectively assess revenue management strategies, certain KPIs stand out as crucial metrics:
- Revenue growth.
Tracks the increase or decrease in a company’s sales over time. It’s a direct indicator of market traction and the effectiveness of revenue strategies.
- Profit margins.
Not all revenue is equal if it doesn't translate into profitability. Assessing profit margins helps understand how much of the revenue is actual profit after accounting for costs.
- Customer lifetime value (CLV).
This metric evaluates the total revenue a company can expect from a single customer account. It’s a crucial measure for understanding long-term revenue potential.
- Cost of customer acquisition (CoCA).
Measures the cost associated with acquiring a new customer. It’s vital for evaluating the efficiency of marketing and sales strategies.
- Average revenue per user (ARPU).
Particularly relevant for subscription-based services, this KPI measures the average revenue generated per customer.
These KPIs, among others, provide a comprehensive view of a company's revenue health, enabling businesses to strategically steer their revenue management efforts for maximized profitability and sustainable growth .
Relating metrics to operational improvements and revenue growth
- Driving operational efficiency .
Metrics like operating margin and inventory turnover provide direct insights into operational efficiencies. They help businesses identify areas where processes can be streamlined or where resource utilization can be optimized.
- Informing revenue growth strategies.
KPIs like ROI and revenue per employee help in shaping strategies for revenue growth. They can indicate which areas of the business are yielding the best returns and where additional investment might be fruitful.
- Balancing cost with profitability.
Understanding the relationship between costs, pricing, and revenue is crucial. Metrics like operating margin help in finding the right balance, ensuring that pricing strategies are both competitive and profitable.
- Benchmarking and goal setting.
These metrics are also essential for benchmarking against industry standards and setting realistic, achievable goals for the business.
In essence, these metrics and KPIs are not just numbers on a dashboard; they are insightful indicators that guide businesses in making informed decisions for operational improvements and sustainable revenue growth.
Competitive benchmarking and goal alignment
Assessing competitiveness through performance measurement .
Performance measurement plays a crucial role in determining a company’s competitive standing . It’s not just about internal assessments, but also about understanding where you stand in the broader market landscape:
- Benchmarking against industry peers.
Performance metrics enable businesses to benchmark their operations against competitors and industry standards. This comparison helps identify areas where a company excels and where it may be lagging, offering a clear picture of its competitive position.
- Identifying competitive advantages and gaps.
Through performance measurement, companies can uncover their unique selling propositions (USPs) and areas needing improvement. This understanding is crucial for maintaining a competitive edge in the market.
Aligning business goals with performance metrics
- Strategic planning and goal setting.
Performance metrics are integral to strategic planning. They provide the data needed to set realistic and achievable business goals. By aligning these goals with key performance indicators, companies can create focused, effective strategies.
- Driving organizational focus.
Aligning goals with performance metrics ensures that every department and team member understands what they are working towards. It creates a unified focus across the organization, driving collective efforts towards common objectives.
- Adapting to market changes.
Performance measurement also helps businesses stay agile. By continuously monitoring key metrics, companies can quickly adapt their strategies in response to market changes, ensuring they remain aligned with their overarching goals.
- Long-term vision and short-term actions.
Effective goal alignment means balancing long-term strategic objectives with short-term operational actions. Performance metrics bridge this gap, guiding day-to-day decisions while keeping the long-term vision in sight.
In a nutshell, performance measurement is not just a tool for internal analysis; it’s a strategic asset for benchmarking, goal setting, and ensuring that a company’s strategies are aligned with both its internal objectives and the external competitive environment.
The power of data in performance measurement
Harnessing data for informed decisions .
In today's information-driven era, data is pivotal for effective performance measurement. The deployment of advanced revenue management software and data analytics tools is key in transforming raw data into actionable insights for strategic decision-making:
- Revenue management software.
Modern revenue management solutions, such as our own Dynamica | SmartRates , provide an all-encompassing platform for analyzing pricing, demand, and market trends. These tools empower businesses to make well-informed pricing decisions, optimizing revenue in real-time.
- Data analytics for deeper insights.
Beyond just basic number-crunching, data analytics delve into the nuances of customer behavior, market dynamics, and operational efficiencies. This in-depth analysis aids businesses in identifying patterns, predicting trends, and proactively adjusting strategies to stay ahead of the curve.
The role of Dynamica | SmartRates in revenue optimization
Customized software solutions.
Dynamica | SmartRates exemplifies how tailored software solutions can meet specific industry needs. Its sophisticated pricing decision engine, combined with an intuitive interface, allows businesses in leisure, travel, and tourism to optimize and automate their pricing strategies effectively.
These tools and approaches highlight the significance of a data-centric methodology in performance measurement. By leveraging state-of-the-art software and comprehensive analytics, companies can convert data into practical insights, propelling revenue growth and boosting operational efficiency.
Focusing on profitability
The dual focus of revenue and profitability .
Profitability is a critical aspect of performance measurement, providing a more comprehensive view of a company’s financial performance:
- Significance of profitability.
High revenue doesn't automatically translate into financial success if it's not profitable. Profitability considers the costs involved in generating revenue, offering a truer picture of financial health and sustainability.
- Long-term financial stability.
Focusing on profitability ensures that a business isn’t just growing but growing sustainably. It helps in making decisions that contribute to long-term financial stability rather than short-term revenue spikes.
Balancing pricing, costs, and revenue
- Strategic pricing decisions.
Implementing a pricing strategy that maximizes revenue while considering cost implications is essential. This could involve dynamic pricing , bundle pricing , and pricing tiers that appeal to different customer segments while ensuring profitability.
- Cost management.
Alongside pricing, effective cost management is crucial. This includes optimizing operations, reducing waste, and investing in technologies or processes that improve efficiency.
These tools play a pivotal role in balancing pricing and costs. They help businesses adapt to market conditions and customer demand, ensuring prices are optimized for both revenue and profitability.
- Objective measures and KPIs.
Performance measurement should include objective measures that reflect both revenue and cost perspectives. KPIs like profit margin, return on assets, and return on equity provide a balanced view of financial performance.
By focusing on both revenue and profitability, businesses can develop a more rounded strategy that ensures growth is not at the expense of financial health. This dual focus is key to achieving sustainable success in the competitive business landscape.
Dynamic pricing and revenue performance
Impact of strategic pricing on performance .
In today's ever-evolving market, the ability to adapt pricing strategies swiftly and smartly is crucial for maintaining competitive edge and revenue performance:
- Bundle pricing and pricing tiers.
These are strategic pricing approaches that can significantly impact performance. Bundle pricing, where multiple products or services are offered as a package, can attract customers looking for value, while pricing tiers can cater to different segments of the market, maximizing reach and revenue.
- Benefits of pricing flexibility.
These strategies provide flexibility, allowing businesses to appeal to a broader customer base, increase the perceived value, and create upselling opportunities.
The crucial role of dynamic pricing models
- Adapting to market conditions.
Dynamic pricing models stand at the forefront of revenue management. These models enable businesses to adjust prices based on real-time market data, demand fluctuations, and even competitor pricing, ensuring that they are always aligned with current market dynamics.
- Maximizing revenue opportunities.
By dynamically adjusting prices, companies can capitalize on peak demand periods by increasing prices, while also attracting more customers during off-peak times with lower rates. This responsive approach to pricing ensures that businesses always maximize their revenue potential.
- Informed decision-making.
The use of advanced analytics and revenue management software, like Dynamica | SmartRates, empowers businesses with data-driven insights. This enables them to make informed pricing decisions, optimizing revenue performance while considering customer price sensitivity and market trends.
The integration of dynamic pricing models into a company's revenue strategy is more than just a pricing adjustment tool—it's a comprehensive approach to staying agile and responsive in a market where change is the only constant.
Harnessing the power of performance measurement for business excellence
As we conclude our exploration of performance measurement, it's clear that this process is indispensable in the modern business landscape. Performance measurement is not just about assessing past and current successes; it's a forward-looking approach that shapes future strategies and drives sustainable growth.
The integration of dynamic pricing models like Dynamica | SmartRates, the strategic use of pricing tiers and bundle pricing, and the balanced focus on both top-line revenue and bottom-line profitability underscore the multifaceted nature of performance measurement. These elements combine to create a robust framework that helps businesses not only to navigate but also to thrive in today's competitive environment.
Performance measurement empowers businesses to make data-driven decisions, adapt to market changes swiftly, and align their operational goals with strategic objectives. By embracing this comprehensive approach, companies can optimize their revenue performance, enhance operational efficiencies, and ultimately, chart a course towards long-term success and stability.
In essence, performance measurement is more than a set of metrics—it's a vital business tool that unlocks potential, drives innovation, and ensures that business resilience and responsiveness stay in this ever-changing world.
Our experts are always happy to discuss your issue. Reach out, and we’ll connect you with a member of our team.
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Performance Measurement and Improvement
Performance measurement and improvement are systematic processes by which an organization continuously and consistently tracks and applies important program and operations data for the purpose of optimizing its ability to efficiently and effectively advance its desired social impact. The most powerful performance measurement systems are typically a core responsibility of an organization's own staff, who integrate program, financial and organizational data to measure an organization's progress and success.
Note: Performance measurement is an ongoing organizational process, as opposed to program evaluations , which are discrete assessments or studies to answer critical questions.
How it's used
Performance measurement enables an organization to continuously learn and improve, which helps it to achieve better results. The metrics (data points) tracked should be derived from an organization's intended impact and theory of change—what the organization is holding itself accountable for achieving and how to get there. By measuring performance, nonprofits can:
- Track progress towards and be held accountable for their intended impact and theory of change
- Ensure programs or initiatives are implemented as designed
- Learn about ways to achieve even better results by analyzing insights
- Communicate progress and successes internally and externally to staff, beneficiaries, funders, peer organizations, and the broader community
- Over time, gain insights about program effectiveness and what works and, if appropriate, prepare for rigorous program evaluations
Methodology
- Crystallize your intended impact and theory of change . Where possible, supplement these with a formal logic model detailing critical implementation steps and inputs as well as expected outputs and outcomes.
- Derive clear, prioritized metrics from these that cover program, financial, and organizational data. For example, if you seek to economically empower women entrepreneurs, then appropriate metrics could include growth in revenue and employees.
- Design and develop a data system and data-collection process to systematically gather and analyze this data at appropriate intervals.
- Measure: Collect information, verify and validate it, and track it in the data system.
- Learn: Analyze data and generate reports to identify insights and propose ways to improve.
- Improve: Decide which improvements will strengthen the organization's success and begin implementing them.
- Share: Decide how what you have learned may help others in your organization and in the greater field, and share your metrics and results.
Related topics
- Intended impact/theory of change
- Mission/vision statements
- Program evaluation
Additional resources
Building Capacity to Measure and Manage Performance Nonprofits that want to have a great impact on the world also need the capacity to use measurement to improve their performance. Interviews with a wide range of nonprofit leaders and our own work with Bridgespan clients suggest five key elements to measurement success.
Measurement as Learning: What Nonprofit CEOs, Board Members, and Philanthropists Need to Know to Keep Improving Measurement has become an increasingly hot topic as more funders want to know how their money is being used and as nonprofits undertake evaluations to prove that their programs work. But one of the most important uses of measurement is to improve performance.
Building a Performance Measurement System: A How-To Guide This practical guide developed by Root Cause provides detailed guidance on developing a customized performance-measurement system, including developing internal dashboards and external report cards, analyzing performance data, creating a culture of learning and continuous improvement, and using data-based evidence to build funder confidence.
Working Hard and Working Well: A Practical Guide to Performance Measurement In this book, Dr. David Hunter provides history, context, guidance, exercises, and tools for those who wish to move their organizations toward performance measurement.
Examples and case studies
Our Piece of the Pie: From Data to Decision-Making Data should be a source of strategic value for nonprofit managers. Too often, though, it provides incomplete or misleading information, as was the situation at Our Piece of the Pie (OPP), a Hartford, Connecticut-based youth-services organization. Here's how its leaders tackled the challenge.
Ten Thousand Strong This case study from Business Strategy Review shares five key lessons from the Goldman Sachs 10,000 Women initiative to create an effective performance-measurement approach and shows why signature philanthropic initiatives should build measurement into their programs from day one.
Portland Public Schools: From Data and Decisions to Implementation and Results on Dropout Prevention Many school-district leaders in urban areas struggle to reduce dropout rates but find themselves overwhelmed by the problem. There are, however, a few districts making notable progress toward reducing their number of dropouts, including Portland, Oregon, Public Schools. This case study shares strategies for addressing dropout rates.
Great Valley Center: A Case Study in Measuring for Mission Great Valley Center worked to develop a system that would allow the organization to assess performance and share results easily with key stakeholders. The process of putting measures in place helped the group's leaders clarify their strategy and also tested the logic that linked each of their programs to the results they hoped to deliver.
Breakthroughs in Shared Measurement This report covers 20 social enterprises that developed innovative and coordinated web-based approaches to evaluate their impact across multiple grants and stakeholders.
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13 Components for Successful Performance Measurement
In today’s fast-paced and competitive business landscape, the ability to measure and manage performance effectively is crucial for organizations striving to achieve their goals and stay ahead of the curve. Whether you’re a business leader, a manager, or an individual looking to improve personal performance, having a robust performance measurement framework in place is the cornerstone of success. In this comprehensive guide, we’ll delve into the 13 key components that make up a successful performance measurement system. From setting clear objectives to utilizing advanced measurement tools and overcoming common challenges, we’ll cover it all to empower you with the knowledge and tools you need to drive excellence in your endeavors.
Performance measurement isn’t just a buzzword; it’s a strategic necessity. It allows businesses and individuals to track progress, identify areas for improvement, make informed decisions, and ultimately achieve better results. However, creating an effective performance measurement system can be a daunting task without a clear roadmap. That’s where this blog comes in. We’ll break down each component, providing insights, best practices, and real-world examples to help you build a performance measurement framework that not only meets your goals but also propels you toward greater success. So, let’s embark on this journey together and uncover the 13 essential components that will transform how you measure and achieve performance excellence.
What is Performance Measurement?
Performance measurement is the systematic process of assessing how well an organization, team, department, or individual is performing in relation to its goals, objectives, or key performance indicators (KPIs). It involves collecting, analyzing, and interpreting data to gauge the effectiveness and efficiency of activities and processes. Performance measurement serves as a critical tool for evaluating progress, making informed decisions, and driving continuous improvement.
At its core, performance measurement involves defining clear objectives and the specific metrics or criteria by which success will be evaluated. These metrics can vary widely depending on the context, ranging from financial metrics like revenue and profitability to non-financial ones such as customer satisfaction, employee engagement, or product quality. Once the metrics are established, data is gathered from various sources, including surveys, reports, databases, and sensors, and is then analyzed to provide insights into performance trends and areas that require attention. Performance measurement is not a one-time event but a continuous process, allowing organizations and individuals to track performance over time, identify strengths and weaknesses, and adjust strategies and actions accordingly. Ultimately, it enables data-driven decision-making and the pursuit of excellence in various domains, from business and government to personal development.
Importance of Performance Measurement
The importance of performance measurement cannot be overstated, as it plays a pivotal role in various aspects of organizational and individual success. Performance measurement is essential because it:
- Tracks progress toward goals.
- Supports data-driven decisions.
- Encourages accountability and ownership.
- Fosters continuous improvement.
- Optimizes resource allocation.
- Provides a competitive edge.
- Enhances stakeholder satisfaction.
- Ensures regulatory compliance.
- Boosts employee engagement.
Following are the 13 components for successful performance measurement:
- Clear Objectives: Define specific, measurable, and achievable objectives that you want to assess and improve. These objectives serve as the foundation for performance measurement. Ensure that objectives are communicated clearly throughout the organization to maintain alignment. Periodically review and refine objectives to adapt to changing circumstances or priorities.
- Key Success Indicators (KSIs): Identify the critical metrics or indicators that directly measure progress toward your objectives. Key success indicators are the quantifiable benchmarks of success. Define both leading and lagging indicators to provide a comprehensive view of performance. Regularly assess the relevance of your chosen KSIs to ensure they remain aligned with your objectives.
- Data Collection Plan: Develop a systematic approach to gather relevant data. This includes determining data sources, methods, and frequency of data collection. Assign responsible individuals or teams for data collection and establish data collection schedules. Consider automating data collection processes to reduce human error and streamline data gathering.
- Baselines and Benchmarks: Establish initial performance baselines and, where applicable, industry benchmarks to compare your performance against. Continuously update benchmarks to reflect industry standards or changing market conditions. Use historical data to establish performance baselines and track improvements over time.
- Data Analysis Tools: Choose and implement tools or software for data analysis. These tools should help you interpret the collected data effectively. Provide training and support for staff using data analysis tools to maximize their effectiveness. Regularly update and upgrade your analysis tools to take advantage of new features and capabilities.
- Performance Metrics: Define specific performance metrics that will be used to track progress and measure success. These metrics should align with your KSIs. Ensure that performance metrics are specific, relevant, and directly tied to your KSIs. Use a balanced set of metrics that cover various aspects of performance to gain a comprehensive view.
- Data Quality Assurance: Ensure that the data collected is accurate, consistent, and reliable. Data integrity is crucial for meaningful analysis. Implement data validation checks to catch and correct errors at the data entry stage. Conduct periodic data audits to maintain data quality and integrity.
- Reporting and Visualization: Develop a reporting system that presents performance data in a clear and understandable manner. Visualization tools can enhance data communication. Tailor reports to the needs and preferences of different stakeholders for maximum impact. Consider using visual storytelling techniques to make data more engaging and actionable.
- Frequency of Reporting: Determine how often performance reports will be generated and shared with relevant stakeholders. Align reporting frequency with the pace of change in your organization or industry. Provide real-time or near-real-time reporting for critical performance areas.
- Feedback Mechanisms: Establish channels for feedback and communication related to performance measurement. This may involve regular meetings, surveys, or other methods. Encourage open and constructive feedback to foster a culture of continuous improvement. Ensure that feedback channels are accessible and convenient for all stakeholders.
- Continuous Monitoring: Implement a system for ongoing monitoring of performance, allowing you to detect trends, anomalies, or areas requiring immediate attention. Implement alert systems to notify relevant parties when performance falls outside acceptable parameters. Regularly review and update monitoring procedures to stay responsive to emerging issues.
- Performance Improvement Strategies: Develop strategies and action plans to address areas where performance falls short of objectives. Continuous improvement is a key aspect of performance measurement. Involve cross-functional teams in developing improvement strategies to leverage diverse expertise. Prioritize improvement initiatives based on their potential impact and resource requirements.
- Review and Adaptation: Periodically review and adapt your performance measurement framework to ensure its relevance and effectiveness in achieving objectives. Conduct periodic reviews of your performance measurement framework to identify areas for enhancement. Be open to adapting your framework to address evolving organizational goals and priorities.
What are Key Performance Indicators?
A Key Performance Indicator (KPI) is a specific metric used in performance measurement. KPIs are quantifiable indicators that help organizations, teams, or individuals assess their performance, track progress, and make data-driven decisions.
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The following are the characteristics of Key Performance Indicators (KPIs):
- Specific: KPIs are narrowly focused on particular aspects of performance that are critical to achieving objectives.
- Measurable: They can be quantified, allowing for the collection of data and the tracking of progress over time.
- Relevant: KPIs are directly related to the goals or objectives they are meant to measure, ensuring alignment with desired outcomes.
- Time-Bound: Many KPIs include a time frame for measurement, indicating when progress will be assessed or when specific targets should be achieved.
Some of the examples of key performance indicators are revenue growth rate, customer satisfaction score, employee turnover rate, website conversion rate, etc.
Key Performance Indicators for Employees
Key Performance Indicators (KPIs) for employees are specific metrics that assess an individual’s performance and contributions to an organization. These indicators help employees and their supervisors track progress, set expectations, and align their efforts with organizational goals. Some of the common key performance indicators for employees across various roles and industries are:
- Sales Revenue
- Deals Closed
- Customer Acquisition Rate
- Customer Retention Rate
- Average Transaction Value
- Customer Satisfaction (CSAT)
- Response Time
- Quality Scores
- Project Completion Rate
- Ticket Closure Time
- Attendance & Punctuality
- Employee Engagement
- Turnover Rate
- Goal Achievement
- Training Participation
- Error Rate
- Team Collaboration
- Revenue per Employee
- Project Milestones
- Leadership Effectiveness
Are Key Performance Indicators the Same As Key Success Indicators?
KPIs (Key Performance Indicators) are quantitative metrics measuring performance in various areas, while KSIs (Key Success Indicators) are a narrower subset of KPIs chosen for their direct relevance to specific success or strategic goals. KPIs cover a wide range of performance aspects, whereas KSIs focus on critical, success-related metrics. Both are quantitative and used to assess and optimize performance.
KPIs serve as a broader performance measurement framework applicable across different organizational functions, helping organizations assess and improve various facets of their operations. They provide a comprehensive view of performance but may not always align directly with strategic objectives. On the other hand, KSIs are a strategic selection from the pool of KPIs, tailored to specific goals or objectives. They serve as a laser-focused tool to monitor and ensure progress toward achieving critical success milestones, making KSIs a more specialized and goal-oriented subset of KPIs.
Final Word
Understanding and implementing the 13 components for successful performance measurement can be a transformative journey for organizations and individuals alike. It’s not merely about tracking numbers; it’s a systematic approach to achieving excellence. Clear objectives, carefully chosen metrics, and robust data collection and analysis processes provide the foundation upon which informed decisions can be made, progress can be tracked, and improvement can be fostered.
Successful performance measurement is not a static endeavor; it’s a dynamic and iterative process. It requires dedication, adaptability, and a commitment to continuous improvement. By aligning performance measurement with organizational goals, fostering a culture of accountability, and utilizing the right tools and techniques, businesses, teams, and individuals can harness the power of data to drive success, make strategic decisions, and stay on the path toward excellence in their respective domains. Ultimately, effective performance measurement isn’t just about the numbers; it’s about enabling smarter, more informed actions that lead to better outcomes and the achievement of long-term objectives.
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Measure performance and set targets
A growing business needs to be closely and carefully managed to ensure the success of new investment decisions and expansion plans. However, many owner-managers find that as their business grows they feel more remote from its operations.
Putting performance measurement systems in place can be an important way of keeping track on the progress of your business. It gives you vital information about what's happening now and it also provides the starting point for a system of target-setting that will help you implement your strategies for growth.
This guide sets out the business benefits of performance measurement and target-setting. It shows you how to choose which key performance indicators (KPIs) to measure and suggests examples in a number of key business areas. It also highlights the main points to bear in mind when setting targets for your business.
The importance of measurement and target-setting
Deciding what to measure, measurement of your financial performance, measurement and your customers, measurement and your employees, measurement against other businesses - benchmarking, measurement in the manufacturing sector, how to set useful targets for your business.
Performance measurement and target-setting are important to the growth process. While many small businesses can run themselves quite comfortably without much formal measurement or target-setting, for growing businesses the control these processes offer can be indispensable.
The benefits of performance measurement
Knowing how the different areas of your business are performing is valuable information in its own right, but a good measurement system will also let you examine the triggers for any changes in performance. This puts you in a better position to manage your performance proactively.
One of the key challenges with performance management is selecting what to measure. The priority here is to focus on quantifiable factors that are clearly linked to the drivers of success in your business and your sector. These are known as key performance indicators (KPIs). See the page in this guide on deciding what to measure.
Bear in mind that quantifiable isn't the same as financial. While financial measures of performance are among the most widely used by businesses, nonfinancial measures can be just as important.
For example, if your business succeeds or fails on the quality of its customer service, then that's what you need to measure - through, for example, the number of complaints received. For more information about financial measurement, see the page in this guide on measurement of your financial performance.
The benefits of target-setting
If you've identified the key areas that drive your business performance and found a way to measure them, then a natural next step is to start setting performance targets to give everyone in your business a clear sense of what they should be aiming for.
Strategic visions can be difficult to communicate, but by breaking your top level objectives down into smaller concrete targets you'll make it easier to manage the process of delivering them. In this way, targets form a crucial link between strategy and day-to-day operations.
Getting your performance measurement right involves identifying the areas of your business it makes most sense to focus on and then deciding how best to measure your performance in those areas.
Focusing on key business drivers
Your performance measurement will be a more powerful management tool if you focus on those areas that determine your overall business success.
This will vary from sector to sector and from business to business. So put some time into developing a strategic awareness of what it is that drives success for businesses like yours.
It's crucial that you tailor your measurement to your specific circumstances and objectives. A manufacturer producing and selling low-cost goods in high volume might focus on production line speed, while another producing smaller quantities using high-cost components might focus instead on reducing production line errors that result in defective units.
Finding your specific measures
Once you have identified your key business drivers, you need to find the best way of measuring them. Again, your priority here should be to look for as close a link as possible with those elements of your performance that determine your success.
For example, you may decide that customer service is a strategic priority for your business and to therefore start measuring this. But there are many ways of doing so.
You might consider measuring:
- the proportion of sales accounted for by returning customers
- the number of customer complaints received
- the number of items returned to you
- the time it takes to fulfil an order
- the percentage of incoming calls answered within 30 seconds
None of these is necessarily better than any other. The challenge is to find which specific measure (or measures) will enable you to improve your business.
This type of measurement unit is often referred to as a key performance indicator (KPI). The two key attributes of a KPI are quantifiability (i.e. you must be able to reduce it to a number) and that it directly captures a key business driver. See the page in this guide on choosing and using key performance indicators.
Using standardised measures
There are standardised performance measures that have been created which almost any business can use. Examples include balanced scorecards, ISO standards and industry dashboards.
Choosing and using key performance indicators
Key performance indicators (KPIs) are at the heart of any system of performance measurement and target-setting. When properly used, they are one of the most powerful management tools available to growing businesses.
Selecting KPIs
There are a number of key criteria that your KPIs should meet:
- First, they should be as closely linked as possible to the top-level goals for your business. See the page in this guide on deciding what to measure.
- Second, your KPIs need to be quantifiable. If you can't easily reduce your measurement to a number, there will be too much scope for variation and inconsistency if different people carry out the measurements at different times.
- Third, your KPIs should relate to aspects of the business environment over which you have some control. For example, interest rates may be a crucial determinant of performance for a given business, but you can't use the Bank of Canada base rate as a KPI because it's not something that businesses have any power to change. By contrast, a business' exposure to fluctuations in interest rates can be controlled and so this might make a useful KPI.
Getting the most from your KPIs
The purpose of performance measurement is ultimately to drive future improvements in performance. There are two main ways you can use KPIs to achieve this kind of management power.
The first is to use your KPIs to spot potential problems or opportunities. Remember, your KPIs tell you what's going on in the areas that determine your business performance. If the trends are moving in the wrong direction, you know you have problems to solve. Similarly, if the trends move consistently in your favour, you may have greater scope for growth than you had previously forecast.
The second is to use your KPIs to set targets for departments and employees throughout your business that will deliver your strategic goals. For more information about using target-setting to implement your strategic plans, see the page in this guide on how to set useful targets for your business.
Managing your information
As with most areas of your business operations, the more detailed and well structured the information you keep about your KPIs is, the easier it will be to use as a management tool. Computer-based management information systems are available for this purpose.
Getting on top of financial measures of your performance is an important part of running a growing business.
It will be much easier to invest and manage for growth if you understand how to drill into your management accounts to find out what's working for your business and to identify possible opportunities for future expansion.
Measuring your profitability
Most growing businesses ultimately target increased profits, so it's important to know how to measure profitability. The key standard measures are:
- Gross profit margin - this measures how much money is made after direct costs of sales have been taken into account, or the contribution as it is also known.
- Operating margin - the operating margin lies between the gross and net (see below) measures of profitability. Overheads are taken into account, but interest and tax payments are not. For this reason, it is also known as the EBIT (earnings before interest and taxes) margin.
- Net profit margin - this is a much narrower measure of profits, as it takes all costs into account, not just direct ones. So all overheads, as well as interest and tax payments, are included in the profit calculation.
- Return on capital employed (ROCE) - this calculates net profit as a percentage of the total capital employed in a business. This allows you to see how well the money invested in your business is performing compared to other investments you could make with it, like putting it in the bank.
Other key accounting ratios
There are a number of other commonly used accounting ratios that provide useful measures of business performance. These include:
- liquidity ratios, which tell you about your ability to meet your short-term financial obligations
- efficiency ratios, which tell you how well you are using your business assets
- financial leverage or gearing ratios, which tell you how sustainable your exposure to long-term debt is
Bear in mind that even though you are likely to use an increasing number of financial measures as your business grows, one of the most familiar – cash flow - remains of fundamental importance.
Cash flow can be a particular concern for growing businesses, as the process of expansion can burn up financial resources more quickly than profits are able to replace them.
Finding and retaining customers is a crucial task for every business. So when looking for areas of your business to start measuring and analysing, it's worth asking yourself if you know as much as possible about your clientele.
See your business through your customers' eyes
Looking at things from your customers' perspective can help you avoid getting sidetracked as you consider your options for growth.
Feedback is key - the more you know about what your customers think and want, the easier it will be to cater for growing numbers of them. Look for as many ways of capturing this information as possible, including:
- sales data - what your customers choose to buy (or not to buy) provides the clearest indication of their preferences
- complaints - but remember that many customers will simply switch suppliers before making a complaint
- questionnaires and comment cards - a very useful source of information, so consider using incentives to encourage more customers to complete them
- mystery shopping - having someone pose as a customer for research purposes can give a very clear sense of how well you are performing
Manage customer information and relationships
Software for customer relationship management (CRM) can be a powerful tool for capturing and analysing information about your customers and the products and services they purchase.
CRM also enables you to push up service levels by ensuring that all customer-facing staff have ready access to each customer's history.
Widen your focus beyond current customers
Selling more to existing customers might be the easiest way of increasing sales, but most businesses aiming for significant growth will need to find ways of reaching new groups of customers.
So knowing more about sections of the market you haven't yet tapped is crucial.
As your business grows the number of people you employ is likely to increase. To keep on top of how your staff are doing, you may need to find slightly more formal ways of measuring their performance.
Measuring through meetings and appraisals
Informal meetings and more formal appraisals provide a very practical and direct way of monitoring and encouraging the progress of individual employees. They allow frank exchanges of views by both sides and they can also be used to drive up productivity and performance through setting employee targets and measuring progress towards achieving them.
Regular staff meetings can also be a very useful way of keeping tabs on wider developments across your business. These meetings often give an early indicator of important concerns or developments that might otherwise take some time to come to the attention of your management team.
Quantitative measurement of employee performance
Looking at employee performance from a financial perspective can be a very valuable management tool. At the level of reporting for the overall business, the most commonly-used measures are sales per employee, contribution per employee and profit per employee. These measures shouldn't be thought of as an alternative to the broader appraisals outlined above, but can flag up issues that might later be explored in more detail in those meetings.
Expressing employee performance quantitatively is easier for some sectors and for some types of worker. For example, it should be quite easy to see what kind of sales an individual sales person has generated, or how many units manufacturing employees produce per hour at work.
But with a bit more effort, these kinds of measures can be applied in almost any business or sector. For example, using timesheets to assess how many hours an employee devotes each month to different projects or customers under their responsibility gives you a way of assessing what the most profitable use of their time is.
Benchmarking is a valuable way of improving your understanding of your business performance and potential by making comparisons with other businesses.
Who to benchmark against
It is usually helpful to compare yourself against businesses in the same sector. But your market position and your objectives, among other things, will affect the specific comparisons you want to make.
For example, a small business in a crowded sector may want to benchmark itself against average performance levels in the sector. But a business targeting rapid and significant growth may choose comparisons with an established market leader.
You can also benchmark internally within your business. For example, comparing absenteeism rates between departments may enable you to spread good working practices from the best-performing areas of your business.
What to benchmark
In general, the same rule applies to benchmarking as to choosing which performance measures to use. You should focus on those areas that drive business success in your sector - your key drivers. See the page in this guide on deciding what to measure.
How to benchmark
You should have ready access to all the figures for your own business, so the main challenge with benchmarking is often the process of finding external data for your comparisons.
There are a number of sources for this kind of information:
- Your trade association is a useful starting point, as these organisations often collate sector-wide statistics.
- Commercial market reports may provide greater detail, although these can be costly.
Using your benchmarking data
Benchmarking data should be used in the same way as any other performance measurement data you generate - as a spur to improve the way your business operates.
Typically this will involve setting targets to help you reach the benchmark values you aspire to. For more information on target-setting, see the page in this guide on how to set useful targets for your business.
The manufacturing sector is one in which there is significant scope for performance measurement, as most aspects of the production process can be accurately measured in quantitative terms.
An indication of the way manufacturers can measure their performance is provided by the Quality-Cost-Delivery (QCD) system. This comprises seven key measures which between them capture some of the key drivers of most manufacturing operations.
The seven QCD measures are:
- Not right first time (NRFT) - this is a measure of the rate of defective units being produced. The higher it goes, the greater the waste of resources and the greater the risk that customers will be inconvenienced.
- Stock turns (ST) - this gauges the number of times a business sells and replaces its inventory. Higher stock turn rates indicate that a business is operating efficiently and not tying up resources in slow-moving inventory.
- Overall equipment effectiveness (OEE) - this is a way of measuring whether you're making the most of a piece of machinery. It combines three elements - the amount of time the machine can be used, the rate at which it is operated and the proportion of its output that is defective.
- People productivity (PP) - this measures the number of worker hours taken to produce each unit of output. However, PP also distinguishes between valuable and wasteful production - this to ensure that productivity figures aren't skewed by the overproduction of units for which there's no customer demand.
- Floor space utilisation (FSU) - this measures the level of revenue generated per square metre of factory floor space. It reflects how efficient a business is at minimising its fixed costs.
- Delivery schedule achievement (DSA) - this measures your success at delivering the goods your customers have ordered to the schedule you have promised them.
- Value added per person (VAPP) - this measures the amount of value the manufacturing process adds to raw materials and compares it to the number of people involved in the process. Like PP above, it is a measure of employee productivity.
It is just a small step from measuring your performance to the much more dynamic process of driving up performance levels across your business. This involves setting performance targets in the key areas that drive your business performance.
For more information about these business drivers, see the page in this guide on deciding what to measure.
Key performance indicators (KPIs), targets and business strategy
Performance targets are a powerful management tool that can help you deliver the kind of strategic changes that many growing businesses need to make. The top-level objectives of your strategic plan can be implemented through departmental goals, and setting targets based on KPIs is an ideal way of doing this.
For example, a company seeking to expand on the basis of its product design capabilities might target year-on-year increases in the number of patents it secures, of new products it launches, or of its licensing income. The specifics will depend on which KPIs best capture the dynamics in the market.
Setting SMART targets
It's a familiar acronym, but a very useful one - your targets should be SMART - specific, measurable, achievable, realistic and time-bound:
- Using KPIs ensures your targets will meet the first two criteria, as all KPIs should, by definition, be specific and measurable. For more information about KPIs, see the page in this guide on choosing and using key performance indicators.
- Achievable - you need to set ambitious targets that will motivate and inspire your employees, but if you set the bar too high you risk deflating and discouraging them instead. Look back at your performance data for recent years to get a sense of what kind of performance boosts you've seen before - this will give you a sense of what is feasible.
- Realistic - setting realistic targets means being fair on the people who will have to reach them. Make sure you only ask for performance improvements in areas that your staff can actually influence.
- Time-bound - people's progress towards a goal will be more rapid if they have a clear sense of the deadlines against which their progress will be assessed.
Assigning responsibility and resources
Once you have identified the targets based on your KPIs that you believe will deliver the strategic growth you're aiming for, make sure you follow through by assigning clear responsibility for delivering each of them.
It is fine for your top-level strategic objectives to be abstract and business-wide, but your KPI targets should be concrete and clearly owned by a department or individual.
Hitting your targets is unlikely to be a cost-free process, so be ready to make the necessary resources available when needed. Also, undertake regular reviews to assist with motivation and to make changes if the progress made isn't as expected.
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Performance Measurement Plan Template
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What is a Performance Measurement Plan?
A performance measurement plan outlines the specific objectives, projects, and key performance indicators (KPIs) that an organization will use to measure their performance. It provides a clear roadmap for measuring progress, achieving goals, and ultimately reaching success. The plan can be used to measure success in any area, from operations and sales to customer service and employee performance.
What's included in this Performance Measurement Plan template?
- 3 focus areas
- 6 objectives
Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.
Who is the Performance Measurement Plan template for?
The Performance Measurement Plan Template is designed for businesses of all sizes and industries looking to create an actionable plan that will help measure and track their performance. It is a comprehensive template that provides guidance on how to define focus areas, objectives, and related projects and KPIs that will help reach desired goals.
1. Define clear examples of your focus areas
The first step in creating a performance measurement plan is to define the focus areas. A focus area is a broad category that outlines the organization's primary goals, such as increasing operational efficiency, improving customer experience, or increasing productivity. Once the focus areas are established, objectives and projects can be created to help the organization reach their desired outcomes.
2. Think about the objectives that could fall under that focus area
Objectives are the specific goals that an organization wants to achieve in order to reach the focus area. For example, if the focus area is to increase operational efficiency, objectives could include reducing shipping wait time or lowering shipping costs. Objectives should be measurable and achievable in order to be effective.
3. Set measurable targets (KPIs) to tackle the objective
Key performance indicators (KPIs) are measurable targets used to measure progress towards objectives. For example, if the objective is to reduce shipping wait time, the KPI could be 'Decrease average shipping wait time' with an initial target of 2.2 days and a final target of 1.5 days. A KPI should have an initial and final target, as well as a unit of measurement (days, dollars, etc.).
4. Implement related projects to achieve the KPIs
Projects, also known as actions, are the steps needed to achieve the objectives and KPIs. For example, if the objective is to reduce shipping wait time, an action could be to automate the shipping process. Projects should be specific and measurable in order to be effective.
5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy
Cascade Strategy Execution Platform is a powerful tool that can help organizations create and track performance measurement plans. With Cascade, organizations can set objectives and related projects and KPIs, track progress, and measure success. Cascade makes it easy to create and execute performance measurement plans, resulting in faster, more effective results.
Performance management: Why keeping score is so important, and so hard
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June 14, 2024
In the time since we first published this article, McKinsey has continued to explore the topic. Read on for a summary of our latest insights.
A lot has changed since 2017. One thing that hasn’t? Performance management remains fiendishly difficult to get right.
On the plus side, most leaders seem to agree on what performance management systems should look like. According to McKinsey’s recent, comprehensive review of industry best practices , leaders believe that the four basic elements of a good system are goal setting, performance reviews, ongoing development, and rewards.
But despite knowing what the standard should be, company leaders today lack full confidence in most performance management systems. Leaders cite issues with fragmentation, the existence of informal (or “shadow”) systems, misalignment, and inconsistency as common challenges.
How can companies better align performance management systems with overall strategy? Key system design choices can help keep the two closely in sync. So can ensuring that performance management systems remain agile , committing to regular feedback, establishing a fact base, and deploying generative AI to support elements of performance management.
A strong performance management program can also help buoy a company’s resilience during volatile times, clarifying which initiatives are most deserving of company resources. Here are three strategies leaders can use to build more resilient performance management:
- Set targets based on long-term growth. With a focus on true growth rather than short-term improvement, organizations won’t be caught on their heels once a downturn is over.
- Devise integrated processes balancing organizational priorities and individual goals. These processes should be nimble, with the ability to flexibly reassess targets and dynamically communicate and track those targets.
- Commit to two-way dialogues. Strategy doesn’t accomplish itself; people must enact it. Two-way dialogues between managers and employees ensure that company priorities are more transparent and help empower employees to connect to organizational purpose.
Something else that hasn’t fundamentally changed since 2017 is the existence of bias (although, perhaps, we are more aware of our own and others’ biases than we were then). Personal bias and misguided decisions are unfortunately part and parcel of performance reviews. For every 100 promoted men, only 87 women are promoted; the gap is even greater for women of color. Managers should make a special effort to interrogate their biases and how they affect performance assessments and provide clear rationale behind evaluations and recommendations.
Articles referenced include:
- In the spotlight: Performance management that puts people first , May 2024
- How to get the most from end-of-year reviews , November 2023
- Resilient performance management in volatile times , November 2022
- Performance management in agile organizations , April 2019
Effective performance management is essential to businesses. Through both formal and informal processes, it helps them align their employees, resources, and systems to meet their strategic objectives. It works as a dashboard too, providing an early warning of potential problems and allowing managers to know when they must make adjustments to keep a business on track.
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Organizations that get performance management right become formidable competitive machines. Much of GE’s successful transformation under former CEO Jack Welch, for instance, was attributed to his ability to get the company’s 250,000 or so employees “pulling in the same direction”—and pulling to the best of their individual abilities. As Henry Ford said, “Coming together is a beginning; keeping together is progress; working together is success.”
Yet in too many companies, the performance-management system is slow, wobbly, or downright broken. At best, these organizations aren’t operating as efficiently or effectively as they could. At worst, changes in technologies, markets, or competitive environments can leave them unable to respond.
Strong performance management rests on the simple principle that “what gets measured gets done.” In an ideal system, a business creates a cascade of metrics and targets, from its top-level strategic objectives down to the daily activities of its frontline employees. Managers continually monitor those metrics and regularly engage with their teams to discuss progress in meeting the targets. Good performance is rewarded; underperformance triggers action to address the problem.
Where do things go wrong?
In the real world, the details of performancemanagement systems are difficult to get right. Let’s look at a few common pitfalls.
Poor metrics
The metrics that a company chooses must actually promote the performance it wants. Usually, it can achieve this only by incorporating several of them into a balanced scorecard. Problems arise when that doesn’t happen. Some manufacturing plants, for example, still set overall production targets for each shift individually. Since each shift’s incentives are based only on its own performance, not on the performance of all shifts for the entire day, workers have every incentive to decide whether they can complete a full “unit” of work during their shift.
If they think they can, they start and complete a unit. But if they don’t, they may slow down or stop altogether toward the end of the shift because otherwise all of the credit for finishing their uncompleted work would go to the following shift. Each shift therefore starts with little or no work in process, which cuts both productivity and output. A better approach would combine targets for individual teams with the plant’s overall output, so workers benefit from doing what they can to support the next shift as well as their own.
Poor targets
Selecting the right targets is both science and art. If they are too easy, they won’t improve performance. If they are out of reach, staff won’t even try to hit them. The best targets are attainable, but with a healthy element of stretch required.
To set such targets, companies must often overcome cultural barriers. In some Asian organizations, for example, missing targets is considered deeply embarrassing, so managers tend to set them too low. In the United States, by contrast, setting a target lower than one achieved in a previous period is often deemed unacceptable, even if there are valid reasons for the change.
Lack of transparency
Employees have to believe their targets encourage meaningful achievement. Frequently, however, the link between individual effort and company objectives is obscure or gets diluted as metrics and targets cascade through the organization. Different levels of management, in an attempt to boost their own standing or ensure against underperformance elsewhere, may insert buffers into targets. Metrics at one level may have no logical link to those further up the cascade.
In the best performance-management systems, the entire organization operates from a single, verified version of the truth, and all employees understand both the organization’s overall performance and how they contributed to it. At the end of every shift at one company in the automotive sector, all employees pass the daily production board, where they can see their department’s results and the impact on the plant’s performance. The company has linked the top-line financial metrics that shareholders and the board of directors care about to the production metrics that matter on the ground. Frontline employees can see the “thread” that connects their daily performance with the performance of their plant or business unit (Exhibit 1).
A senior leader at another manufacturer aligns the whole organization around a shared vision through quarterly town-hall meetings for more than 5,000 staff. Managers not only share the company’s financial performance and plant-specific results but also introduce new employees, celebrate work anniversaries, and recognize successful teams. Most important, if targets are missed, the senior leader acts as a role model by taking responsibility.
Lack of relevance
The right set of metrics for any part of a business depends on a host of factors, including the size and location of an organization, the scope of its activities, the growth characteristics of its sector, and whether it is a start-up or mature. To accommodate those differences, companies must think both top-down and bottom-up. One option is the hoshin-kanri (or policy-deployment) approach: all employees determine the metrics and targets for their own parts of the organization. Employees who set their own goals tend to have a greater sense of ownership for and commitment to achieving them than do those whose goals are simply imposed from above.
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Lack of dialogue.
Performance management doesn’t work without frequent, honest, open, and effective communication. Metrics aren’t a passive measure of progress but an active part of an organization’s everyday management. Daily shift huddles, toolbox talks, after-action reviews, and the like all help to engage team members and to maintain a focus on doing what matters most. Applying the “plan–do–check–act” feedback loop, based on pioneering research from Charles Shewhart and W. Edwards Deming, helps teams learn from their mistakes and identify good ideas that can be applied elsewhere. And in many high-performing companies, supervisors act as coaches and mentors. One-on-one sessions for employees demonstrate concern and reinforce good habits at every stage of career development.
Lack of consequences
Performance must have consequences. While the majority of employees will never face the relentless “win or leave” pressure typical of professional sports, weak accountability tells people that just showing up is acceptable.
Rewarding good performance is probably even more important than penalizing bad performance. Most companies have various kinds of formal and informal recognition-and-reward systems, but few do enough of this kind of morale building, either in volume or frequency. In venues from lunchroom celebrations to town-hall announcements, employee-of-the-month and team-achievement awards are invaluable to encourage behavior that improves performance and keeps it high. One COO at an industrial-goods company keeps a standing agenda item in the monthly business review for recognizing the performance of individuals and teams. Employees on the list may find a gift waiting at home to thank them (and their families) for a job well done.
Lack of management engagement
The words of Toyota honorary chairman Fujio Cho—“Go and see, ask why, show respect”—are now famous as basic lean-production principles. Yet in many companies, senior managers rarely visit plants except during periodic business reviews, and they appear on the shop floor only when a major new capital improvement is to be inspected.
Management interactions with frontline personnel are an extremely powerful performance-management tool. They send a message that employees are respected as experts in their part of the business, give managers an opportunity to act as role models, and can be a quick way to solve problems and identify improvements.
One company’s machinery shop, for example, had developed such a reputation for sloppiness and missed deadlines that managers suggested outsourcing much of its work. When a senior manager was persuaded to visit the workshop, he was appalled at the dirty, cluttered, and poorly maintained environment. Employees reported chronic underfunding for replacement parts and tools, and asked the manager what it would take to save their jobs. He told them to “clean up the shop and give me a list of what needs to be fixed.” Both sides lived up to their commitments, and in less than a year the shop became a reference case for efficiency within the company.
Building a strong performance-management system
The best companies build performance-management systems that actively help them avoid these pitfalls. Such systems share a number of characteristics.
Metrics: Emphasizing leading indicators
Too often, companies measure and manage performance through lagging indicators, such as compliance with monthly output or quality targets. By the time the results are known, it is too late to influence the consequences. The best companies track the same metrics—but also integrate their performance-management systems into critical process inputs. Industrial Internet technologies, such as the SCADA 1 1. Supervisory control and data acquisition. architecture and distributed-control systems, let manufacturing staff know within minutes (or seconds) about variations in performance, even in remote parts of a plant. That lets people react long before the variation undercuts output or quality.
Some changes require almost no investment in technology. At the end of each workday, for example, production and functional teams can complete a checkout form assessing how it went. A combination of quantitative and qualitative metrics and simple graphics (such as traffic lights and smiley faces) provides an easy, highly effective tool for identifying and correcting issues or problems before the next day’s work begins.
As performance-management systems evolve, the metrics they use will become more complex, incorporating continuous rather than discrete variables: “everyone showed up on time today” will become “the team achieved 93 percent on the schedule-performance index using 90 percent of the labor-performance index.” The extra detail better informs decisions such as whether to add more labor to meet a delivery date or to push out a schedule for delivery.
Sustainability: Standard work and a regular heartbeat
Regardless of changes to metrics and targets, the best companies keep the cadence of meetings and reviews constant, so they become an intrinsic part of the rhythm of everyday operations (Exhibit 2).
The emphasis on regular, standardized processes goes beyond explicit performance-management activities and extends deep into every aspect of a company’s operating models. Standard work, for example, is based on three simple rules. First, there should be a standard for all activities. Second, everyone must have the knowledge and ability to meet that standard. Finally, compliance with it must be monitored and measured.
In many functions, the business cycle forces a regular rhythm or cadence: the weekly payroll, the monthly accounting close, or the quarterly inventory review. Good companies take advantage of these requirements to define a few central metrics, such as cycle times and accuracy, thus driving continuous improvement across every function.
As part of a lean-manufacturing excellence program, one industrial-commodities company encourages employees to indicate “what went well today, what didn’t go well today, what management can do to help” on their productionarea boards every day. Supervisors collect the information on index cards and post them on a lean-idea board. Representatives of each function meet with the plant manager every morning and accept or reject the cards or return them for more information. Every accepted card gets an owner and timeline for completion. Company leaders estimate that the boards generate at least $2 million a year in cost savings or higher output—but the impact on employee morale and engagement is “priceless.”
![performance measurement system business plan The great re-make: Manufacturing for modern times](https://www.mckinsey.com/~/media/mckinsey/business%20functions/operations/our%20insights/the%20great%20remake%20manufacturing%20for%20modern%20times/jpg-ops-dm-compendium-cover-1536x864.jpg?cq=50&mh=145&car=16:9&cpy=Center)
The great re-make: Manufacturing for modern times
This 21-article compendium gives practical insights for manufacturing leaders looking to keep a step ahead of today’s disruptions.
A checklist or standard operating procedure that defines the steps and sequences for every key process usually enforces standard work. In employee onboarding, for example, one company noted that small details—assigning email addresses, telephone numbers, and software and hardware access—were especially important for retaining employees early in their tenures. A checklist is now at the front of each new hire’s personnel file, with a copy in the supervisor’s file. The performance reviews of supervisors now assess how well they handled the onboarding of new employees, and everyone who resigns completes a mandatory exit interview.
Continuous improvement: Standard work is for leaders too
Standard work is essential at all levels of an organization, including the C-suite and senior management in general. Standard work for leaders forces a routine that, while uncomfortable at first, develops expectations throughout an organization. It is those expectations, along with specific metrics, that ultimately drive predictable, sustainable performance.
One global resources company now requires managers to demonstrate that they spend 50 percent of their time on a combination of coaching their people and attending safety briefings, shift huddles, improvement reviews, and production meetings. To free up time, other meetings are scheduled only on one day a week— and conference rooms no longer have chairs.
Taking this approach even further, every autumn a field-services organization commits itself to a comprehensive, enterprise-wide calendar for the entire following year. The calendar sets dates for all conferences, monthly and quarterly management meetings, formal performance reviews, and succession-plan meetings, as well as training and development opportunities. All agendas are fixed, and all meetings are subject to strict time limits. There is little need for additional leeway because internal reporting follows tight guidelines for transparency and timeliness: financial results are published internally every month, while data on the performance of teams and units in meeting annual incentive-plan goals are updated and published monthly on bulletin boards.
Most industrial companies have access to rich data on the performance of their operations. The technological advances associated with increasing use of automation, advanced analytics, and connected devices mean that this resource constantly improves. But how can organizations best use their data? A crucial part of the answer is instant feedback loops, daily performance dialogues, and routine performance reviews. Maintaining the willingness and ability to hardwire these performance-management processes into the rhythm of daily work isn’t sexy—but over the long run, it’s the most effective route to real, sustainable performance improvements.
Raffaele Carpi is a partner in McKinsey’s Lisbon office , John Douglas is an alumnus of the Houston office , and Frédéric Gascon is a senior vice president of RTS and is based in the Montréal office .
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6 Keys to Planning and Measuring the Performance of Your Business
If you don't embrace your team in business measurements, they will undermine your efforts..
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Every business owner and entrepreneur like you I work with wishes they could better predict product demand and sales, for managing inventory and long-term business planning. We all have our favorite metric and our passion, but keeping up with real-world changes and trends seems to be always just out of reach. The issues are people-oriented, and require trust and teamwork .
I was impressed with the analysis and recommendation offered in a recent book, " Trust the Plan: Demand Management For Business Leaders, " by Greg Spira. Greg brings a wealth of experience based on his work with a wide range of industries, including packaging, chemicals, healthcare, and fashion. He is an expert on people issues, as well as the process for predicting demand.
In my experience, these people and process issues are much the same for all business metrics, including sales and customer service, as well as planning for the future demand of your product or service offering. I am pleased to paraphrase here his top six recommendations for measuring and predicting future performance, with my own insights added:
1. Demand management is not about blame or reward.
Measuring performance should be thought of only as a way to continuously learn and improve. When your team sees rewards and punishment, they will tend to do what it takes to obtain the reward or to avoid the punishment even if it means applying poor judgment and risk management.
In my experience, all business metrics are still used too often for people management and accountability, rather than business management. The key performance indicators (KPIs) that I recommend all relate directly to business and not personal performance.
2. Embody the goals and objectives of the business.
Make sure your future demand plan embodies a holistic view of the business, including achievement of strategic objectives, market share, efficiency and effectiveness of marketing activities, as well as plan revenue and margins. Accurate measurement of the wrong things is not helpful.
Key strategic factors for every business should include profits, growth, and competition. The data for these should come from internal data analytics , and be compared to industry averages compiled by third-party analysts, published by many industry organizations.
3. Assess your measurements for trustworthiness.
The first key to trust is to make sure that everyone believes that all data used is accurate and relevant. Gather feedback regularly from your team and customers to check for market and perception changes. Of course, if you consistently override the data, or use it negatively, you will not garner trust.
If you want trusted measurements and leadership, it's also crucial that you put the practice of transparency on the highest pedestal. Demonstrating transparency means sharing data and sources, the state of the union, and why you have made each decision.
4. Use any knowledge of bias to make better decisions.
Bias is defined as a plan that is consistently overly optimistic or overly pessimistic compared to actual. Every plan will have some degree of inaccuracy, but a believable plan should have minimal bias, and need minimal adjustment. Too much adjustment results in a loss of trustworthiness.
In my view, every demand plan, even without any bias, will still have errors, and those errors will be impossible to predict by downstream users simply based on past results. Thus, there is no better option than to simply make decisions and rely on the plan as it is.
5. Define an acceptable level of measurement error.
An acceptable measurement error is really a statistical calculation, rather than an arbitrary dictate from management. Two main contributors to measurement errors include the size of the sample and the variation in the underlying population. Use statistical tools often to validate your assumptions.
Most statisticians agree that for a good measurement system, the accuracy error should be within 5% and the precision error should be within 10%. But deciding what is accurate enough for your business must tie back to your own assessment of cost/benefit trade-offs
6. Plan for the next measurement improvement.
Make sure you know where you are today, what it will take to improve, and the expected impact of those improvements. Any improvement plan should consider the costs to achieve those improvements balanced against the benefits that will be realized by the different users of the specific metric.
With these priorities, I'm convinced that most of you can improve your overall planning process and business metrics to be more relevant and lead to greater accuracy and confidence in future results. The challenge for most of us as leaders is to spend more quality time working on the business , rather than i n the business , to keep up with changes to assure long-term success.
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How to Create a Performance Measurement Baseline for Your Projects
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Projects are planned and then life happens. Ideally, project managers know better than to execute their project plans without a performance measurement baseline. They need to know immediately if their team is on track or falling behind.
Without that knowledge, the project is running blindly, and anyone who’s tried this knows the dangers. A performance measurement baseline provides a window into the project that allows project managers to see roadblocks and resolve them before the project hits a dead end.
What Is a Performance Measurement Baseline?
The performance measurement baseline (often abbreviated as PMB) is part of the project plan that sets the scope, budget and schedule. The performance measurement baseline captures these parts of the project plan to measure them against the actual progress of the project.
This is one tool project managers use to see where they are versus where they planned to be. If that doesn’t align, the project manager can reallocate resources to get the project back on track. A performance measurement baseline is also a great tool for updating clients, stakeholders and executives.
The whole project is part of a performance measurement baseline, but it’s broken up by project scope, project schedule and project cost baselines. The scope baseline is created by combing the scope statement and the defined work on the work breakdown structure (WBS). The schedule baseline is made up of project activities and the cost baseline is the budget allocated to those activities.
Performance measurement baseline can mean all of these baselines or each individually. However, the performance measurement baseline is a tool for the project manager to guide the project, controlling its progress and performance and providing transparency for stakeholders and the use of project resources.
In order to get the most out of your performance measurement baseline, you need real-time data. ProjectManager is online project management software that captures live data for more insightful decision-making. It’s easy to set a baseline with a simple click on our Gantt chart, which allows you to track project variance as it happens. This means you can respond fast when costs, scope or time don’t match your project plan so your project stays on track. Get started with ProjectManager today for free.
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What’s the Purpose of a Performance Measurement Baseline?
As explained above, a performance measurement baseline is a way to control your project scope, schedule and costs. The performance measurement baseline captures your project plan so when you execute it, you have something to compare against your actual progress.
The baseline then reflects where you should be at any point in the project while your actual performance shows how far you progressed. The gap between those two points exposes how far behind (or possibly ahead) of your project plan that you are. This can include milestones , percentage of work completed or budget consumed.
This valuable data allows the project manager to monitor and track the project. If the performance measurement baseline indicates the project is delayed, the project manager can find out why and reallocate resources to right the project. Naturally, the more accurate your data, the better the performance measurement baseline works. You want a tool that collects real-time data or you’re always going to be a step behind.
How to Create a Performance Measurement Baseline
The importance of a performance measurement baseline to track your project and keep stakeholders updated is clear, but we haven’t explored how to make one. The process should be part of every project manager’s planning phase as the project plan develops.
It begins in planning but specifically focuses on the project scope , schedule and cost. Capturing these three distinct aspects of the project when they’re finalized in the project plan is the performance measurement baseline, acting as the project’s north star ensuring that you’re always on track.
To build a performance measurement baseline, follow these five steps.
1. Create a Scope Baseline
The scope of the project is the work that must be completed in order to receive the final deliverable. To determine those activities, you’ll first need to develop a scope statement, which collects all the work that must be done; a work breakdown structure (WBS) , deliverable-oriented hierarchical deconstruction of the project from the top down; and a WBS dictionary, which details the tasks, activities and deliverables of the WBS.
Related: Free Project Scope Template for Word
The creation of these three documents is essential to understanding the project. Once they’ve been approved by the project stakeholders, then you have a scope baseline. It outlines the work that must be done and allows you to see if the work is being done through the execution phase in a timely manner.
2. Create a Schedule Baseline
The scope baseline will inform your costs as it outlines all activities necessary to deliver a successful project. But you also need to link any dependencies that might impact the sequence of activities. A schedule network diagram is a common tool for this work.
More than listing the activities, tasks and deliverables, you need to estimate the duration for each. It’s important to know how long it takes for an activity to be executed to completion and the resources required to do this. That information is incorporated into your schedule assumptions and constraints. Scheduling those resources is key to a smooth-running project.
When you have a schedule with task dependencies, duration and needed resources that’s been approved by stakeholders, you now have a project schedule baseline.
3. Create a Cost Baseline
At this point, we have the scope and the schedule but have yet to determine the financial investment that makes the work possible. Costs are forecast by looking at the resource requirements that you’ve compiled in the last step. These include your team, materials, equipment, software and anything else used in the execution of your project.
Like others mentioned above, the project budget has to be approved by stakeholders. That’s your cost baseline and it’s set up across project phases. Similar to other baselines, these numbers can change. If one changes, the other two need to adjust to make sure the project meets expectations.
4. Define Performance Indicators
You have the scope, schedule and cost baselines, but now you need to define the performance indicators related to those baselines. These indicators can refer to the earned value analysis (EVA) or other indicators that make sense for the project. But all are measured against the planned scope, schedule and budget.
5. Consolidate a Performance Measurement Baseline
While you can use the scope, schedule and cost baselines individually, many projects use a combination of the three to get a fuller picture of the project’s performance during the execution phase .
Whichever you choose, you’ll need a tool that collects the actual performance of the project’s scope, schedule and cost against the planned scope, schedule and cost. This is called the project variance and shows where you are in relation to where you should be.
Comparing your performance measurement baseline to the actual performance indicates whether you’re on target. If you’re not meeting baselines, the project manager must reallocate resources to get back on track.
However, the baseline can change if the scope, timeline or budget is adjusted. Approved changes are then reflected in the three baselines. This influences the combined performance measurement baseline.
ProjectManager Is Ideal for Performance Measurement
ProjectManager is project management software that creates a performance measurement baseline with just one click. Once you add the project plan data to your Gantt chart, simply set the baseline so you can always see the percentage of work completed, the actual costs you’ve spent and much more.
Get a High-Level View With Real-Time Dashboards
The data saved to your baseline automatically feeds throughout the software. You can see a percentage of tasks completed on any of the multiple project views. But the real-time dashboard goes even further. It requires no setup and does all the work for you. All you have to do is look at the graphs and charts it generates to monitor time, cost, workload, health, tasks and progress. There’s even a portfolio dashboard if you’re managing more than one project.
Go Deeper Into Data With Customizable Reports
Stakeholders have expectations and project managers have to report to them with regular updates. In one click, you have reports that go deeper into the data than the high-level view of the real-time dashboard. Reports can be generated on project or portfolio status, project plan, tasks, timesheets, availability, workload and variance. The latter will use your performance measurement baseline to tell you where you are and where you should be. All reports can be customized to focus only on details for project managers or more general outlooks for stakeholders.
![performance measurement system business plan ProjectManager's status report filter](https://www.projectmanager.com/wp-content/uploads/2022/03/Reports_Wide_Zoom-150_Project-Status-Report.jpg)
If you discovered that you’re falling behind, our tool has resource management features that can help you view your team’s workload and balance it to keep them productive. Any changes you make to your project plan can be done by simply dragging and dropping start dates or deadlines to their new place. The tool updates automatically to reflect these changes and teams are notified by email and in-app alerts. It’s this real-time collaboration that keeps your teams working better together.
ProjectManager is award-winning project management software that helps you plan, monitor and report on projects in real time. Set a baseline after you create your project plan and see in real time where you actually are in relation to your planned effort. Join teams from NASA, Siemens and Nestle who use our tools to drive success. Get started with ProjectManager today for free.
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Here Is How to Measure Digital Transformation Success
![performance measurement system business plan](https://businessmap.io/images/blog-detail/blog-detail-img.png)
Blog / Project Management
![performance measurement system business plan Iva Krasteva](https://businessmap.io/attachments/BlogAuthor/23/main/iva-krasteva_thumb-main.png)
Iva Krasteva
Content Creator Expert | Agile Practitioner | Kanban Certified
4 mins read
Published on: August 23, 2024
Last updated: August 23, 2024
Table of Contents:
Famed for his significant contributions to management theory and practice, Peter Drucker, the “father of modern management,” once said, “You can't manage what you don't measure.” This statement resonates profoundly in today's world of digital transformation. As an estimated 90% of businesses are currently undergoing digital transformation, the challenge lies in measuring the success of these efforts. Without clear metrics, the entire initiative can be put at risk.
But how do you track and measure outcomes to ensure these changes create real value? We'll look into the strategies leaders use to effectively manage and measure digital transformation performance.
Why Bother to Measure Digital Transformation
Measuring digital transformation is not just about tracking progress; it's about understanding the impact and making informed decisions. When data is available, it provides a clear picture of your current state, allowing you to plan your company's future trajectory more effectively.
Since our company's inception, we've relied on data - lots of it. Our software helps us accumulate data across all our teams and processes and turn that into insights. This data-driven approach has been our guiding star in our continuous improvement journey, supporting the decisions that drive us forward.
The Not-So-Easy Task of Measuring Transformations
Digital transformation is a long-term process, not a one-time effort. It involves continuous improvement, evolving with new technologies, and integrating them into daily operations. This continuous process makes it tough to measure success, as traditional metrics might not fully reflect the impact or progress. Still, it's crucial to have data to track our direction and ensure we're on the right path.
![performance measurement system business plan digital transformation typical roadmap](https://businessmap.io/wp-content/uploads/website-images/Agile/digital-transformation-strategy.png)
Seven Essential Categories of Digital Transformation KPIs
To effectively measure digital transformation, it's crucial to set clear objectives and align them with specific metrics. Here are the key categories of KPIs to consider:
1. Customer Satisfaction and Experience Metrics
Understanding customer satisfaction is paramount. Metrics in this category include how you interact with customers, gather feedback, and utilize customer data to enhance products and services. Traditional tools like Net Promoter Scores (NPS) and surveys can provide substantial insights, enabling you to make decisions that improve customer satisfaction.
2. Value Creation Metrics
Focus on how your company creates value. Determine what percentage of that value is driven by your transformational initiatives. These metrics will help you understand the direct impact of your digital transformation on value generation.
3. Financial Performance Metrics
Traditional financial metrics like revenue and profit are still relevant but may require a fresh perspective. As technology investments often aim for long-term returns, it’s essential to align financial performance metrics with the goals of your digital projects rather than focusing solely on short-term ROI.
4. Operational Excellence Metrics
Operational agility metrics assess how digital technologies improve processes and efficiency. Consider how digitizing services impact your operational workflows and track process efficiency improvements.
5. Employee Metrics
Employee engagement and talent development are critical in digital transformation. Measure how your employees perceive the transformation, their engagement levels, and how connected they feel to the digital initiatives. This data can guide talent management strategies and ensure your workforce aligns with your transformation goals.
6. Cultural Transformation and Organizational Agility
Cultural transformation is as important as technological adoption. It is crucial to monitor how your organization embraces these changes, including evaluating its agility in responding to new technological disruptions. Gauge how swiftly your company can pivot and implement process changes when faced with disruptions. Additionally, assess the adaptability of various teams and leverage these insights to guide further improvements.
7. Quality Metrics
Quality can be challenging to measure in the context of digital transformation. However, by tracking metrics like customer interaction quality, internal process improvements, and output delivery rates, you can measure the success of your transformation efforts.
While the importance of these metrics can vary based on your situation, the success of any digital or AI transformation really hinges on having a clear strategy that aligns with your broader goals. So, we say that's the best place to start.
How to Sustain Momentum in Digital Business Transformations?
Research from the MIT Center for Information Systems Research shows that successful digital leaders use three key practices to keep transformational projects on track, even when other priorities compete for attention.
Establishing Correct Expectations : Expanding business leaders' understanding of the strategic goals that digital transformation can enable is essential. Communicate the opportunities clearly while focusing on aligning organizational expectations with business needs.
Fostering Collaboration : Breakdowns in communication, particularly between IT and top business decision-makers, can derail transformation efforts. Establish practices that promote engagement and collaboration across the organization, such as creating steering committees or transformation offices that involve all stakeholders.
Tracking Value and Continuously Learning : Focusing on measurable outcomes and value realization helps shift the perspective of business leaders toward the benefits of digital projects . Use dashboards to track opportunities, estimated value, and cost savings, ensuring continuous learning and improvement.
Is Digital Transformation Paying Off?
A recent KPMG technology survey report indicates that 56% of US companies' digital transformation efforts have exceeded expectations. While outcomes are generally improving, companies that fail to see consistent returns on their digital investments often struggle with governance issues. Effective governance and breaking down barriers to collaboration are crucial for accelerating transformation progress and delivering better outcomes.
Digital Transformation Challenges, Practices, and Measurement Across Industries
This section explores the digital transformation journeys of Boa Vista, Aerosud, and Algar Telecom, highlighting their shared challenges, goals, and practices despite differing industries. Despite their distinct operations, these companies faced similar challenges and adopted comparable strategies to achieve their transformation goals.
Initial Challenges and Goals
- Long Delivery Cycles
Boa Vista, a Brazilian financial company, faced significant challenges with long delivery cycles, which could last from one to six months. Such lengthy cycles were problematic for all stakeholders, leading to dissatisfaction across the board. The primary goal of Boa Vista’s digital transformation was to accelerate project delivery and better adapt to rapidly changing customer needs.
- Slow Response Rates
In the aerospace engineering sector, Aerosud struggled with slow response rates within its IT services. The lack of centralization and reliance on Excel sheets for process performance measurement hindered its ability to innovate and meet business demands. Through its transformation, Aerosud aimed to create flexible work processes and improve delivery speed.
- Chaotic Work Environment
Algar Telecom’s Integration division was operating in a chaotic work environment where professionals were not aligned with the main Business Unit’s requirements. Using legacy systems like Excel spreadsheets and the absence of a centralized information hub led to difficulties in planning and delivery. Algar Telecom's primary goal was to modernize management practices and improve customer experience by organizing, digitizing, and efficiently managing data within an agile and customer-centric ecosystem.
![performance measurement system business plan a problematic stage of a work process](https://businessmap.io/wp-content/uploads/website-images/kanban-resources/kanban-tutorials/cfd-queue-column.png)
Practices that Drove Successful Transformations
In their digital transformation journeys, Boa Vista, Aerosud, and Algar Telecom adopted several key practices centered around data-driven approaches, process centralization, and continuous improvement. All three companies leveraged work management solutions to enhance transparency, streamline workflows, and align their operations with broader organizational goals.
- Boa Vista focused on linking team initiatives to company OKRs and used Businessmap's analytics to monitor performance, allowing for continuous data-driven improvement.
- Aerosud implemented Lean and Agile methodologies, automated workflow integration, and used analytics tools like Power BI to measure metrics such as WIP, cycle times, and capacity planning.
- Algar Telecom utilized kanban boards and centralized dashboards to visualize work performance, save time on manual reporting, and improve decision-making by tracking key delivery metrics in real-time.
![performance measurement system business plan company level okrs connected to team level okrs](https://businessmap.io/images/uploads/2022/09/management-board-full-okr-overview.png)
Measuring Success in Digital Transformation
- Performance Monitoring and Continuous Improvement
Boa Vista measured the success of its digital transformation through closely monitoring performance data and the systematic enhancement of workflows. Integrating Businessmap’s analytics allowed teams to evaluate their progress regularly, aligning their efforts with broader organizational goals and ensuring continuous improvement. ( Boa Vista Case Study )
- Metrics-Driven Capacity Planning and Workflow Efficiency
Aerosud utilized the Board Flow Metrics widget and Power BI integration to measure key aspects of its transformation, such as WIP levels, cycle times, and ticket resolution rates. This data-driven approach enabled Aerosud to plan capacity more effectively across its Engineering department and ensure that its workflow processes met the demands of the business environment. ( Aerosud Case Study )
- Centralized Metrics Tracking and Enhanced Decision-Making
Algar Telecom measured its success by tracking key delivery metrics in a centralized dashboard, allowing real-time project performance visibility. This centralized tracking system enhanced the management's ability to make informed decisions quickly, ensuring that the transformation goals were met and the customer experience was significantly improved. ( Algar Telecom Case Study )
![performance measurement system business plan work performance widget visualization](https://businessmap.io/wp-content/uploads/website-images/new-blog/workflow-performance-summary-widget.png)
These companies successfully navigated their transformation journeys by focusing on data-driven practices, process centralization, and continuous progress measurement, setting a benchmark for others in their respective industries.
Measuring the Full Extend of Digital Business Transformations
The success of your digital transformation really depends on how well you can measure it. By focusing on the right metrics and understanding their bigger impact, you can ensure that your efforts lead to lasting value. Keep in mind that short-term metrics might not show the whole story for long-term digital projects, so it’s important to align your measurements with your overall transformation goals.
Businessmap is the most flexible software, helping your company gain visibility across all projects/portfolios, align on goals , and deliver quality work faster .
Project Management
![performance measurement system business plan Iva Krasteva](https://businessmap.io/attachments/BlogAuthor/23/main/iva-krasteva_thumb-main.png)
With a background in Intellectual Property, SEO, content writing, and training in Lean, Agile, and Kanban, Iva is an enthusiastic Agile practitioner who embraces collaboration and flexibility every step of the way. Driven by constant learning and knowledge and fascinated by people's creativity.
In-depth research on how companies can leverage Lean/Agile operating models to their advantage.
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Business Process Management (BPM) is a systematic approach to managing and streamlining business processes . BPM is intended to help improve the efficiency of existing processes, with the goal of increasing productivity and overall business performance.
BPM is often confused with other seemingly similar initiatives. For example, BPM is smaller in scale than business process reengineering (BPR), which radically overhauls or replaces processes. Conversely, it has a larger scope than task management, which deals with individual tasks, and project management, which handles one-time initiatives. And while enterprise resource planning (ERP) integrates and manages all aspects of a business, BPM focuses on its individual functions—optimizing the organization’s existing, repeatable processes end-to-end.
An effective BPM project employs structured processes, uses appropriate technologies and fosters collaboration among team members. It enables organizations to streamline project workflows, enhance productivity and consistently deliver value to stakeholders. Ultimately, the successful implementation of BPM tools can lead to increased customer satisfaction, competitive advantage and improved business outcomes.
Integration-centric BPM focuses on processes that don’t require much human involvement. These include connecting different systems and software to streamline processes and improve data flow across the organization, for example human resource management (HRM) or customer relationship management (CRM)
Human-centric BPM centers around human involvement, often where an approval process is required. Human-centric BPM prioritizes the designing of intuitive processes with drag and drop features that are easy for people to use and understand, aiming to enhance productivity and collaboration among employees.
Document-centric BPM is for efficiently managing documents and content—such as contracts—within processes. A purchasing agreement between a client and vendor, for example, needs to evolve and go through different rounds of approval and be organized, accessible and compliant with regulations.
BPM can help improve overall business operations by optimizing various business processes. Here are some BPM examples that outline the use cases and benefits of BPM methodology:
Business strategy
BPM serves as a strategic tool for aligning business processes with organizational goals and objectives. By connecting workflow management, centralizing data management , and fostering collaboration and communication, BPM enables organizations to remain competitive by providing access to accurate and timely data. This ensures that strategic decisions are based on reliable insights.
Through BPM, disparate data sources—including spend data, internal performance metrics and external market research—can be connected. This can uncover internal process improvements, strategic partnership opportunities and potential cost-saving initiatives. BPM also provides the foundation for making refinements and enhancements that lead to continuous improvement.
- Enhanced decision-making
- Efficient optimization
- Continuous improvement
Claims management
BPM can be used to standardize and optimize the claims process from start to finish. BPM software can automate repetitive tasks such as claim intake, validation, assessment, and payment processing—using technology such as Robotic Process Automation (RPA ). By establishing standardized workflows and decision rules, BPM streamlines the claims process by reducing processing times and minimizing errors. BPM can also provide real-time visibility into claim status and performance metrics. This enables proactive decision-making, ensures consistency and improves operational efficiency.
- Automated claim processing
- Reduced processing times
- Enhanced visibility
Compliance and risk management
By automating routine tasks and implementing predefined rules, BPM enables timely compliance with regulatory requirements and internal policies. Processes such as compliance checks, risk evaluations and audit trails can be automated by using business process management software, and organizations can establish standardized workflows for identifying, assessing, and mitigating compliance risks. Also, BPM provides real-time insights into compliance metrics and risk exposure, enabling proactive risk management and regulatory reporting.
- Automated compliance checks
- Real-time insights into risk exposure
- Enhanced regulatory compliance
Contract management
Contract turnaround times can be accelerated, and administrative work can be reduced by automating tasks such as document routing, approval workflows and compliance checks. Processes such as contract drafting, negotiation, approval, and execution can also be digitized and automated. Standardized workflows can be created that guide contracts through each stage of the lifecycle. This ensures consistency and reduces inefficiency. Real-time visibility into contract status improves overall contract management.
- Accelerated contract turnaround times
- Real-time visibility into contract status
- Strengthened business relationships
Customer service
BPM transforms customer service operations by automating service request handling, tracking customer interactions, and facilitating resolution workflows. Through BPM, organizations can streamline customer support processes across multiple channels, including phone, email, chat, and social media. With BPM, routine tasks such as ticket routing and escalation are automated. Notifications can be generated to update customers about the status of their requests. This reduces response times and improves customer experience by making service more consistent. BPM also provides agents with access to a centralized knowledge base and customer history, enabling them to resolve inquiries more efficiently and effectively.
- Streamlined service request handling
- Centralized knowledge base access
- Enhanced customer satisfaction and loyalty
Financial management
BPM is used to streamline financial processes such as budgeting, forecasting, expense management, and financial reporting. It ensures consistency and accuracy in financial processes by establishing standardized workflows and decision rules, reducing the risk of human errors and improving regulatory compliance. BPM uses workflow automation to automate repetitive tasks such as data entry, reconciliation and report generation. Real-time visibility into financial data enables organizations to respond quickly to changing market conditions.
- Increased operational efficiency
- Instant insights for informed decision-making
- Enhanced compliance with regulations and policies
Human resources
Using BPM, organizations can implement standardized HR workflows that guide employees through each stage of their employment experience, from recruitment to retirement . The new employee onboarding process and performance evaluations can be digitized, which reduces administrative work and allows team members to focus on strategic initiatives such as talent development and workforce planning. Real-time tracking of HR metrics provides insights into employee engagement, retention rates, and the use and effectiveness of training.
- Reduced administrative work
- Real-time tracking of HR metrics
- Enhanced employee experience
Logistics management
BPM optimizes logistics management by automating processes such as inventory management, order fulfillment, and shipment tracking, including those within the supply chain. Workflows can be established that govern the movement of goods from supplier to customer. Automating specific tasks such as order processing, picking, packing and shipping reduces cycle times and improves order accuracy. BPM can also provide real-time data for inventory levels and shipment status, which enables proactive decision-making and exception management.
- Streamlined order processing and fulfillment
- Real-time visibility into inventory and shipments
- Enhanced customer satisfaction and cost savings
Order management
BPM streamlines processes such as order processing, tracking, and fulfillment. BPM facilitates business process automation —the automation of routine tasks such as order entry, inventory management, and shipping, reducing processing times and improving order accuracy. By establishing standardized workflows and rules, BPM ensures consistency and efficiency throughout the order lifecycle. Increased visibility of order status and inventory levels enables proactive decision-making and exception management.
- Automated order processing
- Real-time visibility into order status
- Improved customer satisfaction
Procurement management
BPM revolutionizes procurement management through the digital transformation and automation of processes such as vendor selection, purchase requisition, contract management, and pricing negotiations. Workflows can be established that govern each stage of the procurement lifecycle, from sourcing to payment. By automating tasks such as supplier qualification, RFx management, and purchase order processing, BPM reduces cycle times and improves efficiency. Also, with real-time metrics such as spend analysis, supplier performance, and contract compliance, BPM enables business process improvement by providing insights into areas suitable for optimization.
- Standardized procurement workflows
- Real-time insights into procurement metrics
- Cost savings and improved supplier relationships
Product lifecycle management
BPM revolutionizes product lifecycle management by digitizing and automating processes such as product design, development, launch, and maintenance. Workflows that govern each stage of the product lifecycle, from ideation to retirement can be standardized. Requirements gathering, design reviews, and change management , can be automated. This accelerates time-to-market and reduces development costs. BPM can also encourage cross-functional collaboration among product development teams, which ensures alignment and transparency throughout the process.
- Accelerated time-to-market
- Reduced development costs
- Enhanced cross-functional collaboration
Project management
In the beginning of this page, we noted that BPM is larger in scale than project management. In fact, BPM can be used to improve the project management process. Business process management tools can assign tasks, track progress, identify bottlenecks and allocate resources. Business process modeling helps in visualizing and designing new workflows to guide projects through each stage of the BPM lifecycle. This ensures consistency and alignment with project objectives. Tasks assignments, scheduling, and progress monitoring can be automated, which reduces administrative burden and improves efficiency. Also, resource utilization and project performance can be monitored in real time to make sure resources are being used efficiently and effectively.
- Streamlined project workflows
- Real-time insights into project performance
- Enhanced stakeholder satisfaction
Quality assurance management
BPM facilitates the automation of processes such as quality control, testing, and defect tracking, while also providing insights into KPIs such as defect rates and customer satisfaction scores. Quality assurance (QA) process steps are guided by using standardized workflows to ensure consistency and compliance with quality standards. Metrics and process performance can be tracked in real time to enable proactive quality management. Process-mapping tools can also help identify inefficiencies, thereby fostering continuous improvement and QA process optimization.
- Automated quality control processes
- Real-time visibility into quality metrics
Improving procure-to-pay in state government
In 2020, one of America’s largest state governments found itself in search of a new process analysis solution . The state had integrated a second management system into its procurement process, which required the two systems, SAP SRM and SAP ECC, to exchange data in real time. With no way to analyze the collected data, the state couldn’t monitor the impact of its newly integrated SAP SRM system, nor detect deviations during the procurement process. This created an expensive problem.
The state used IBM Process Mining to map out its current workflow and track the progress of the SAP SRM system integration. Using the software’s discovery tool, data from both management systems was optimized to create a single, comprehensive process model. With the end-to-end process mapped out, the state was able to monitor all its process activities and review the performance of specific agencies.
Streamlining HR at Anheuser-Busch
AB InBev wanted to streamline its complicated HR landscape by implementing a singular global solution to support employees and improve their experience, and it selected workday as its human capital management (HCM) software. Working with a team from IBM® Workday consulting services , part of IBM Consulting™, AB InBev worked with IBM to remediate the integration between the legacy HR apps and the HCM software.
What was once a multi-system tool with unorganized data has become a single source of truth, enabling AB InBev to run analytics for initiatives like examining employee turnover at a local scale. Workday provides AB InBev with a streamlined path for managing and analyzing data, ultimately helping the company improve HR processes and reach business goals.
Effective business process management (BPM) is crucial for organizations to achieve more streamlined operations and enhance efficiency. By optimizing processes, businesses can drive growth, stay competitive and realize sustainable success.
IBM Consulting offers a range of solutions to make your process transformation journey predictable and rewarding.
- Traditional AI and generative AI-enabled Process Excellence practice uses the leading process mining tools across the IBM ecosystem and partners.
- Our patented IBM PEX Value Triangle includes industry standards, benchmarks, and KPIs and is used to quickly identify process performance issues and assess where and how our clients can optimize and automate everywhere possible.
- IBM Automation Quotient Framework and Digital Center of Excellence (COE) platform prioritized and speeds up automation opportunities, ultimately establishing a Process Excellence COE for continuous value orchestration and governance across your organization.
Key improvements might include 60-70% faster procurement, faster loan booking, and reduced finance rework rate, along with risk avoidance, and increased customer and employee satisfaction.
With principles grounded in open innovation, collaboration and trust, IBM Consulting doesn’t just advise clients. We work side by side to design, build, and operate high-performing businesses—together with our clients and partners.
Get the COO’s Pocket Guide to Enterprise-wide Intelligent Automation
Contact an IBM representative about BPM solutions
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IMAGES
COMMENTS
1. Financial Goals. Measuring business performance starts with financial goals. This is largely because your company's financial value is its first indicator of success or failure. Financial goals also help ensure your diagnostic control systems effectively monitor profitability and provide insight into how to fix problems.
The 4 elements of key performance indicators are: A Measure - The best KPIs have more expressive measures. A Target - Every KPI needs to have a target that matches your measure and the time period of your goal. A Data Source - Every KPI needs to have a clearly defined data source.
Advantages Derived from Performance Measurement. Every business has a strategic plan, or a broad vision of how it will be in the future. This plan leads to goals that must be achieved to fulfill that vision. As shown in Figure 12.2, a business will use the strategic plan to determine the goals needed to achieve the strategic vision. Once goals ...
The Balanced Scorecard Institute's (BSI) Measure-Perform-Review-Adapt (MPRA) framework is a disciplined, practical, and tested approach for developing and implementing a KPI system. It gives organizations a way to systematically articulate a shared vision of what you are trying to achieve, set practical goals, develop meaningful indicators that can be managed and used for decision-making ...
Performance measurement systems should enable managers to precisely communicate performance expectations to subordinates for several reasons: so they know how the organization is really performing and can identify performance gaps; and, to effectively make and support decisions regarding resources, plans, policies, scheduled, and business ...
6. Use benchmarking. Benchmarking is a way businesses can evaluate their success and performance against others in the market. Because businesses don't operate in a silo, reliably measuring business performance often requires knowledge of competitors' activities along with their own. Establishing benchmarks for others' success and performance ...
Adapting to market changes. Performance measurement also helps businesses stay agile. By continuously monitoring key metrics, companies can quickly adapt their strategies in response to market changes, ensuring they remain aligned with their overarching goals. Long-term vision and short-term actions.
Example #1. Let's say a company produces and sells shoes. One of its goals is to increase sales by 10% in the next quarter. To measure performance, the company could use the following performance measures: Input-based measure: The number of salespeople hired. Output-based measure: The number of shoes sold.
The most powerful performance measurement systems are typically a core responsibility of an organization's own staff, who integrate program, financial and organizational data to measure an organization's progress and success. ... This case study from Business Strategy Review shares five key lessons from the Goldman Sachs 10,000 Women initiative ...
Whether you're a business leader, a manager, or an individual looking to improve personal performance, having a robust performance measurement framework in place is the cornerstone of success. In this comprehensive guide, we'll delve into the 13 key components that make up a successful performance measurement system.
The benefits of performance measurement. Knowing how the different areas of your business are performing is valuable information in its own right, but a good measurement system will also let you examine the triggers for any changes in performance. This puts you in a better position to manage your performance proactively.
CARF International 6951 East Southpoint Road Tucson, Arizona 85756 USA Toll free (888) 281-6531 Fax (520) 318-1129. CARF International is a group of private, nonprofit companies (including CARF, CARF Canada, and CARF Europe) that accredit health and human services. For more information, please visit www.carf.org.
The Performance Measurement Plan Template is designed for businesses of all sizes and industries looking to create an actionable plan that will help measure and track their performance. It is a comprehensive template that provides guidance on how to define focus areas, objectives, and related projects and KPIs that will help reach desired goals. 1.
This practical guide provides an easy-to-follow, five-step process for developing a customized performance measurement system for organizations seeking to: Measure progress in achieving its mission, goals, and visions. Develop dashboards and learn how to analyze performance data. Create a culture of learning and continuous improvement among ...
Building a strong performance-management system. The best companies build performance-management systems that actively help them avoid these pitfalls. Such systems share a number of characteristics. Metrics: Emphasizing leading indicators. Too often, companies measure and manage performance through lagging indicators, such as compliance with ...
2. Embody the goals and objectives of the business. Make sure your future demand plan embodies a holistic view of the business, including achievement of strategic objectives, market share ...
5 methods for measuring performance management. Companies might use a variety of systems to measure the effectiveness of a performance management strategy. Here are five methods to consider when attempting to collect data or create a structure for measuring performance management: 1. Numeric rating scales.
As an extension of this conclusion, we contend that a good Performance Measurement System should provide the following: A concise overview of the health of the enterprise. A quantitative basis for selecting improvement priorities. Alignment of the efforts of the people with the mission of the enterprise. 2.3.
Performance measurement systems (PMSs) are developed and implemented to support the accomplishment of objectives of an organization or organizational initiative. ... Business performance measurement: Theory and practice. Cambridge, UK: Cambridge University Press. Google Scholar. ... Handbook of usability testing: How to plan, design, and ...
unch your performance measurement system. Pre-pare to update your baselines and targets, refine your performance measurement system, and publish a report card for external stakeholders within the first few cycl. s of your performance measurement system.The previous four steps have guided you through developing a.
Capturing these three distinct aspects of the project when they're finalized in the project plan is the performance measurement baseline, acting as the project's north star ensuring that you're always on track. To build a performance measurement baseline, follow these five steps. 1. Create a Scope Baseline.
A lack of goal congruence in a performance measurement system can be detrimental to a business in many ways. Without proper performance measures, goal congruence is almost impossible to achieve and will likely lead to lost profits and dissatisfied employees, ... A good performance measurement plan would include the manager's input in the ...
Monitor the performance of the measurement system; Performance Measurement Necessities. The following performance measurement necessities are the same whether you're measuring business, service, process, or laboratory variables. Together, they constitute a measurement plan. Definition of purpose: Why is a measurement being made? What process ...
This centralized tracking system enhanced the management's ability to make informed decisions quickly, ensuring that the transformation goals were met and the customer experience was significantly improved. (Algar Telecom Case Study) Work performance data visualized using the Workflow Performance widget in Businessmap
Integration-centric BPM focuses on processes that don't require much human involvement.These include connecting different systems and software to streamline processes and improve data flow across the organization, for example human resource management (HRM) or customer relationship management (CRM). Human-centric BPM centers around human involvement, often where an approval process is required.