February 2002 Table
Eight Steps to a New Performance Measurement System
Performance is an important part of any measurement based
by Bjørn Andersen and Tom Fagerhaug
This eight-step process for creating a new performance
measurement system is based on our experiences with a number of organizations.
Before you start, your organization should establish a
core team to carry the performance measurement system design process forward.
Though the system is never finished, it should take only a year or so
to get something in place.
The eight steps of the design process are:
1. Understand and map business structures and processes.
This forces those setting out to design a performance measurement system
to think through and reacquaint themselves with the organization, its
competitive position, the environment it exists in and its business processes.
After participating in this exercise, most managers agree the effort is
a welcome break from day to day operations and an opportunity to revisit
some of the organization's strategic issues.
2. Develop business performance priorities.
The performance measurement system should support the stakeholders' requirements
from the organization's strategy through to its business processes. This
order of priorities must be in place well before the process enters the
actual design phases.
3. Understand the current performance measurement
system. Every organization has some kind of measurement system in
place. For this reason, there are basically two ways to approach the design
and implementation of a new performance measurement system. You can either
scrap the old system and introduce the new one as a replacement, or you
can redevelop the existing system. Both approaches can work, but the former
approach is more likely to lead to trouble. People will cling to the old
measurement system and either use both systems simultaneously or use the
old one and simply go through the motions of the new one. You can eliminate
this outcome by taking the latter approach.
4. Develop performance indicators. The most
important element of a performance measurement system is the set of performance
indicators you will use to measure your organization's performance and
business processes. This is the point in the design process where the
top-down cascading approach meets the bottom-up design approach and where
the broad masses of the organization become involved. The purpose of this
step is to develop the performance measurement system with an appropriate
number of relevant and precise performance indicators.
5. Decide how to collect the required data.
Developing perfect performance indicators that will tell you everything
you ever wanted to know about what goes on in your organization is one
thing, but being able to collect the data required to calculate these
performance indicators is a completely different matter. This issue must
initially be ad-dressed during the development of the performance indicators
so you avoid selecting those that can never actually be measured. Remember,
the proliferation of modern enterprise resource planning systems has turned
this into an exercise in figuring out which data can be extracted from
the systems' data warehouses.
6. Design reporting and performance data presentation
formats. In this step, you decide how the performance data will be
presented to the users; how the users should apply the performance data
for management, monitoring and improvement; and who will have access to
performance data. After you finish, you should have a performance measurement
system that has a solid place in your organization's overall measurement
based management system.
7. Test and adjust the performance measurement
system. Your first pass at the performance measurement system will
probably not be completely right--there are bound to be performance indicators
that do not work as intended, conflicting indicators, undesirable behavior
and problems with data availability. This is to be expected. In this step
you should extensively test the system and adjust the elements that do
not work as planned. As a result, you will have a system where the main
quirks have been eliminated; however, your system will still not be perfect.
A performance measurement system should be construed as a never ending
journey toward perfection.
8. Implement the performance measurement system.
Now it's time to put your system to use. This is when the system is officially
in place and all can start using it. This step involves issues such as
managing user access, training, and demonstrating the system is important
and will be used.
Remember, this is not an absolute process that needs to
be followed to the letter to work. In some cases, one or more steps may
be superfluous; in others, additional steps may be needed. You know your
organization better than we do, so it's up to you to make the necessary
adjustments to the process to maximize the probability of the system's
BJØRN ANDERSEN is a research director
at SINTEF Industrial Management in Trondheim, Norway, a professor at the
Norwegian University of Science and Technology and a member of ASQ.
TOM FAGERHAUG is a research scientist at SINTEF
Industrial Management in Trondheim, Norway, and a member of ASQ.
Note: This column is adapted from the authors' book
Performance Measurement Explained, published by ASQ
Quality Press in 2002.
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