This document outlines the six steps of performance measurement: 1) Separate strategic goals into input and output dimensions, 2) Develop output measures for each goal, 3) Develop input measures for each goal, 4) Check measures against the SAVI framework, 5) Use an effective recognition system, and 6) Build an organizational culture that supports improvement. Key aspects of a good measurement system include focusing on effectiveness, objectives, and key performance indicators related to factors like customers, products, and finances. Input and output measures should be linked to categories like speed, accuracy, volume, and investment.

1. Chapter 11, Six Steps of
Performance Measurement
Our new corporate motto is READY…
FIRE…AIM
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2. Figure 11.1, The Management
Cycle
Operating plans
and budgets
Project
management
Needs
Assessment
Performance
Measurement
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3. The perfect world
In a perfect world, a measurement
system will actively promote
performance improvement by;
• measuring what matters,
• providing corrective feedback and
positive reinforcement to enthusiastic
people who enjoy being measured and
take improvement on as a challenge.
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4. ATTRIBUTES OF A GOOD
MEASUREMENT SYSTEM
• An effective performance measurement
system should have the following attributes.
• FOCUS ON EFFECTIVENESS
– 1) We have a need to measure better.
– 2) We have a need to measure less.
• FOCUS ON THE FUTURE
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5. ATTRIBUTES OF A GOOD
MEASUREMENT SYSTEM
• FOCUS ON OBJECTIVES,
“KEY RESULT AREAS”
– KRAs are those functions or
divisions of performance in which
your organization must
continually improve to be
successful.
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6. EXAMPLES OF “KEY
RESULT” AREAS
• Customer
• Product/service
• Public/society/natural environment
• Marketing
• Human Resources
• Production
• Maintenance
• Operations
• Finance
• Good measurement systems don’t just
measure things done according to the
organizational chart. Good systems measure
things done to satisfy stakeholders. 6

7. Key Performance
Indicators “KPI’s”
• This is the essence of measurement. Let’s
make sure the concept of Key Performance
Indicator is understood.
– An “indicator” is a gauge or a measure that
reports information.
– “Performance” is the result or activity we are
looking for that fits in to strategic goals.
– “Key” means that this measure has been
pinpointed so carefully that management knows
precisely what to do.
– Measures are developed to capture both the input
and output elements of a business system.
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8. SPEED INDICATORS
• response time records
• turn around time records
• cycle time records
• project completion dates
• meeting scheduled time records
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9. ACCURACY INDICATORS
• judgment based climate or opinion surveys
– focus groups
– comment cards
– telephone surveys
– advisory panels
• opinions of community leaders
• meeting design specifications or passing an
inspection point that ensures the product works.
• Customer returns or warranty claims.
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10. VOLUME INDICTORS
• Measures the amount (Number of) of
outputs or results from a specific
activity or program. number of units
produced
– number of completed transactions
– % market share
– Back order statistics
– Number of failed sales due to being out of
stock
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11. INVESTMENT INDICATORS
• Measures the amount of resources
expended on a specific program or
activity or the unit cost (cost/number of
units produced ($)).
– operating costs per unit produced
– capital costs per unit produced
– cost per customer as to sales and marketing expenses
– cost per unit of after sales service and customer support.
• Notice that the financial measures are
“per” something
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12. ‘Six Steps’ of a
Measurement System
1. Separate Strategic Goals Into Input and
Output Dimensions
2. Develop Output and Results Measures for
each goal
3. Develop Input Measures for each goal
4. Check with SAVI to see if the set of
measures is complete
5. Use an Effective Recognition System
6. Build the Culture
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13. Step 1, Separate Strategic
Goals Into Input and
Output Dimensions
• Following from Vision, Mission and Values,
organizations create strategic goals that
identify “Key Result” areas of the
organization where change and improvement
is possible and desirable.
• Our first step in developing measures to
reflect the goal is to dissect the goal into its
input and output dimensions.
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14. Broad
Figure 11.2,
measurement concept of
inputs
unit cost efficiency
Input How well are materials used, (excessive waste)
dimension How well is labour used, (excessive idle time)
How well is overhead used (idle capacity)
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15. Broad
Figure 11.3,
measurement concepts of
Outputs
Internal maintaining and improving quality
Results lower consumer prices
Output
Dimension
financial returns
External
Results
improve market share
meet current and future demand
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16. Step 2, Develop Output
Measures or Each Goal
• Outputs are accomplishments. In most
organizations, accomplishments can be
categorized into three groups.
– Investment returns
– Customer Satisfaction
– Social Impacts
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17. Measures of
Figure 11.4,
outputs or Results.
OUTPUT MEASURES
PERFORMANCE GOAL
MEASUREMENT PERFORMANCE
CATEGORY (changes of specific amounts over
CONCEPT MEASURE
specific time frames)
% return on
investment
All should increase by a specific
Financial % return on assets
% change, to be accomplished
returns employed
by a specific date.
Profit margin on
sales
Investment The proportion of the market
Returns % market share share against the competition
relative to the should increase.
Market competition The proportion of the market
share % market share share relative to the total market
relative to total should increase at a rate that is
market size faster than the rate of change in
total market size.
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18. Measures of outputs or
Results Rejection rates in
Product or
the production Both should decline by a specific
service
process amount in a specific timeframe.
quality
Sales returns
Deliver on
Customer Backorders should decline and
time and in Backorder and
Satisfaction delivery cycle times should
sufficient delivery statistics
improve.
quantity
Consumer Retail price by The retail price matched to value
prices product should decline.
Children using these toys should
Child Improvement in
show a measured improvement
development reading skills
in reading skills
Social
Benefits
Impact on landfills
Environment The proportion of toys presented
when the toy is
al impact for re-cycling should go up.
finished
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19. Step 3, Develop Input
Measures For Each Goal
• We normally develop input measures
after we have developed output
measures because it is a good idea to
know where you are going before you
decide how to get there.
– Financial operating resources
– Financial capital resources
– Other organizational resources
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20. Measures of
Figure 11.5,
Inputs or EfficienciesINPUT MEASURES for “UNIT COST EFFICIENCY”
MEASUREMENT
CATEGORY PERFORMANCE MEASURE PERFORMANCE GOAL
CONCEPT
Material and labour cost and or
Direct materials and direct
Materials and consumption per unit should
labour per unit, expressed in
labour decline over a specified time
both dollar and quantity terms
period
Financial
Operating Overhead consumed per unit
Overhead charged per unit
Resources produced should decline
Overhead
%capacity utilized should
% utilization of capacity increase to or remain at
optimal levels
Financial Capital Dollars per unit of capital
Capital investment in Dollars of capital investment invested should decline over
Resources operating assets per unit produced time as capital resources are
used more efficiently
Management estimates of the
Other Non-financial resources of talent and energy The amount consumed will
resources consumed and other non-financial increase as the project is
Organizational by the performance resources that have been developed and decrease after it
Resources area dedicated to this performance is implemented
area
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21. Step 4, Check with SAVI to
see if the set of measures
is complete
• Before we can be sure that we have a
complete set of measures, we need to
apply the SAVI framework to categorize
the measures as to Speed, Accuracy,
Volume and Investment.
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22. Figure 11.6, Linking Output
Measures to SAVI OUTPUT MEASURES
MEASUREMENT
CATEGORY
CONCEPT
PERFORMANCE MEASURE SAVI
% return on investment
financial returns % return on assets employed Accuracy
Profit margin on sales
Investment
Returns
% market share relative to the competition
market share
% market share relative to total market size
Volume
Product or service Rejection rates in the production process Accuracy &
quality Sales returns Volume
Customer Speed &
Deliver on time and
Satisfaction Backorder and delivery statistics
in sufficient quantity Volume
Consumer prices Retail price per product Investment
Child development Improvement in reading skills Accuracy
Social Benefits
Environmental
impact
Impact on landfills when the toy is finished Volume
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23. Figure 11.7, Linking Input
Measures to SAVI
INPUT MEASURES for “UNIT COST EFFICIENCY”
MEASUREMENT
CATEGORY
CONCEPT
PERFORMANCE MEASURE SAVI
Materials and Direct materials and direct labour per unit, in
labour both dollar and quantity terms.
Investment
Financial
Operating Overhead charged per unit. Investment
resources
Overhead
% utilization of capacity Volume
Financial Capital Capital investment
Resources in operating assets
Dollars of capital investment per unit produced Investment
Other Non-financial Management estimates of the resources of talent
organizational resources and energy that have been dedicated to this Investment
resources consumed performance area.
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24. Testing the measures
• Once we are satisfied that the set is
complete we need to subject each and
every measure to a test.
Refer to figure 11.8
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25. Step 5, Use an Effective
Recognition System
• Use Measurement to Initiate Change
– An effective measurement system will use the
measured results as a management tool.
– Every result should have an automatic
intervention strategy.
– When results are as expected we should offer
congratulations and reinforcement to keep it
going,
– when results are less than expected we should
quickly isolate the cause and correct the process
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26. Step 6, Build the culture
• Good systems need good people. There is
no sense in examining a process unless at
the same time you examine the people
who govern the process.
• Improvement does not take place on paper.
• Improvement happens when people employ enthusiasm,
dedication, commitment, leadership and morale in their daily
routine.
• A good system on paper is a healthy beginning but if you want
results you need to follow up a paper system with a people
system.
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27. Closing remarks
• In the beginning of this chapter you were
challenged to find measures and see the
resulting behavior.
– So how about the 30 minute pizza delivery
guarantee. That promotes speeding and if a
delivery person has an order at 28 minutes and
another at 10, which does he deliver first? And
what happens if Pizza delivery people are offered
a cash bonus for every delivery made within 30
minutes, and what does this do to pizza quality?
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28. • People are curious beings. We bring our own
personal values to the job, we react differently to
control systems, we are motivated by different
things. A performance measurement system is a
uniform set of measures that is trying to motivate a
most un-uniform set of people.
• Chapter 12 will deal with how we need to manage
people as part of the performance improvement
process.
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