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