The idea of anything worth doing is worth measuring is a persistent one. The persistent problem is that measuring performance becomes much more difficult as we move into the realms of strategic plans, management systems, and reliability programs. In many cases, choosing performance indicators and measures is less about choosing new ones and more about realignment and refinement of old ones. However, in some cases, it’s simply better to retool. These are a few considerations for getting started.
Measures versus Indicators
Measures and indicators are two ways we can measure performance. Let’s go to the dictionary.
Measure means the dimensions, capacity, or amount of something ascertained by measuring.
Indicate means to be a sign, symptom, or index of. Indicators are defined as any of a group of statistical values (such as level of employment) that, taken together, give an indication (i.e., of the health of your reliability program).
So, an indicator indicates something. A measure is the quantity, size, weight, distance, or capacity of a substance compared to a designated standard.
Different Organizational Levels
Similar to levels of service and risk, performance evaluation can be applied at three levels of the organization.
Strategic level indicators answer the question, “How do I manage a project toward strategic goals?” The management horizon is quarterly or annually. The priority is meeting the strategic goals and objectives of the organization. The metrics at this level are usually weight-of-the-evidence indicators.
Operational level indicators usually answer the dual questions, “Are business outcomes being accomplished?” and “Are customer requirements being met?” The management horizon is monthly or quarterly. The priority is on trends and corrective action. The metrics at this level can be either indicators or measures and are most commonly a mixture.
Tactical level indicators answer question like, “Is the daily operation efficient” and “Are business unit adjustments being made promptly?” The management horizon is weekly or daily. The metrics at this level are mostly measures and can include some indicators.
The Number of Performance Measures
Four to eight at each level per each strategic goal is usually sufficient. Care should be given not to double-count or have overlapping indicators. For example, financial can be broken into just four indicators—profitability, liquidity, debt, and operating. Of course, in practice, some indicators should be trailing (past performance) and some leading (predictive). Still, the point is that having twenty financial ratios that are most in one category is overkill.
Organizational Capacity
Organizational capacity is a function of organizational culture, business climate, and the CID (Capability, Information, and Decision Structure) nexus. Organizations with less capacity need to keep performance measurement simpler. For that matter, as with any management or monitoring system, keep the first-generation effort as simple as possible and build complexity later (and as needed).
Organizations tend to rush to create dashboards that compile performance information from multiple sources. In most cases, the required data is not being tracked except where it is specifically needed at the business unit (tactical) level. Harmonizing the data at higher levels is difficult because decisions are not made that way.
What This Means
Indicators are the best way to measure the performance of reliability programs or management systems. Create a scoring system that reduces the subjectivity of the evaluation information by a cross-functional team. Be comfortable with a weight-of-the-evidence approach. Start simple (red-yellow-green or one-to-five) and build complexity later. Most organizations find that later never comes –– or spend millions of dollars on developing and implementing formal measures only to end up back at the more simplified indicators.
How to Get Started
Most organizations have some form of performance measures and associated dashboards. In most cases, improving measures is about realignment and “trimming the tree.” JD Solomon Inc. provides practical solutions for getting started and simplifying performance measures through our program development and asset management specialties.
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