What Are Performance Metrics?
Performance metrics are defined as figures and data representative of an organization’s actions, abilities, and overall quality. There are many different forms of performance metrics, including sales, profit, return on investment, customer happiness, customer reviews, personal reviews, overall quality, and reputation in a marketplace. Performance metrics can vary considerably when viewed through different industries.
Performance metrics are integral to an organization's success. It's important that organizations select their chief performance metrics and focus on these areas because these metrics help guide and gauge an organization’s success. Key success factors are only useful if they are acknowledged and tracked. Business measurements must also be carefully managed to make sure that they give right answers, and that the right questions are being asked.
Traditionally, businesses have viewed the following financial measurements as indicators of success:
- Return on capital employed or return on investment (ROI)
- Market share
- Earnings growth
- Stock price
Non-financial measurements are also useful to help assess, report, and drive success. Most notably, the Malcolm Baldrige National Quality Award's Criteria for Performance Excellence non-financial success metrics include:
- Customer satisfaction
- Process excellence
- Employee satisfaction
Organizations across most industries rely on these indicators as well as:
- Fast, responsive time to market
- A loyal customer base
- Outstanding processes for quality and timeliness
- Mechanisms that ensure learning, growth, and continual improvement
Organizations may define their own indicators of performance in key areas. Such metrics are often useful because they reduce complex measurements and results to a single value that can be tracked, managed, and improved. These “shortcuts” can be misleading, however, when used either for process improvement or for other feedback such as promotion, recognition, or compensation.
What is Metrology?
Metrology, or measurement science, contributes to business measurements as well as to more traditional engineering and scientific measurements.
The field of metrology has developed and fielded an approach—known as measurement assurance—that is analogous to product assurance in manufacturing. Measurement assurance uses management and statistical techniques to:
- Evaluate the operation of a measurement system
- Ensure that it measures the desired quantities to the accuracy and precision required
- 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 or variable is being measured? For what will the resulting data be used?
- Statement of the required measurement performance indicators (accuracy, precision, resolution): These may be determined by organizational policy, adherence to a published standard or an analysis of the requirements based on use, ability to measure, or more.
- The unit or variable being measured and a statement as to why measuring that particular variable supports the purpose of the measurement.
- An operational definition: A detailed, yet easily understood, description of the measurement process.
- Example: An operational definition for the measurement of a sales-fulfillment cycle time might be, “The time interval to be measured begins when the sales department places a validated order form in the sales order out box, and ends when the completed, boxed order is delivered to the loading dock for pickup.”
- An analysis plan: A typical example is a monthly report that makes comparisons to the previous month, year over year, and year to date. The different time frames provide greater context and allow the data to be presented graphically.
- A control chart is a simple analysis plan template. It provides a graphical context that shows the continuity of changes over time, plus some analysis (control limits) that enables the viewer to differentiate among common causes, special causes, and random variation.
Metric Implementation and Management
Performance Metrics Resources
- Performance measures/metrics: attribute versus variable data
- Selecting performance measures/metrics
- Using benchmarking reports to establish performance
Articles and Case Studies
Driving Higher Workplace Performance: Using Analytics, Dashboard Metrics, and Soft Skills to Improve Results (PDF) When assigned the task of improving warehouse performance for a Western Canadian industrial distribution center, a Lean Six Sigma Black Belt discovered the differences between "human" and "automated" business processes.
Statistics Roundtable: Metrics for Uncertainty (Quality Progress) A look at probability, evidence, and a seldom-used additive metric.
Measure for Measure: By Their Measures Shall Ye Know Them (Quality Progress) Measurements are so commonplace and universal they sometimes seem to be part of the air. They’re so usual, they’re not noticed. Still, they play a profound role in our lives and the way we behave.
The Education of a Metrologist (Quality Progress) Metrology is an interesting, detailed, and vast profession that allows members to focus on many different elements. Learn more about finding your way in this field with specific courses and training options from today’s top schools.
Measures of Software System Difficulty (Software Quality Professional) Predicting and monitoring quality early in the software development life cycle can help provide initial estimates of software product quality.
Excerpted from "Effective Measurement of Business Performance," ASQ Annual Quality Congress proceedings and Actionable Performance Measurement: A Key to Success, ASQ Quality Press.