How to Select Performance Measures and Metrics
Performance metrics, also called selection metrics, are defined as information and project-specific data used to characterize and assess an organization’s quality, capabilities, and skills. Performance metrics are defined differently in every industry and can change based on a company’s services and products. Common performance metrics include sales, ROI, customer satisfaction, industry and consumer reviews, and a company’s reputation with its consumers.
What are Organizational and Enterprise-Level Performance Measures?
The world of commerce and industry uses a variety of financial performance measures or performance metrics at the organizational and enterprise level. These include ratios such as return on investment (ROI) and return on net assets (RONA).
These ratios and other non-financial ratios such as market share and name recognition index, are dependent variables that numerically describe the level of success or failure of an organization for a specific period of time, such as one quarter of a fiscal year.
However, the ways in which organizations achieve these levels of success or failure is of greater importance (see Figure 1.0 below). Independent variables, such as customer satisfaction indices, defect rates, and supplier capability indices, provide this information. When these factors reflect well on an organization, their dependent variables are much more likely to reflect overall enterprise success.
These metrics can be treated as dependent variables with an entirely new set of independent variables such as conveyor speeds, temperature settings, spindle speeds, and work-in-process (WIP) levels. The independent variables are direct measures of the processes that make up the enterprise systems creating products and services that generate organizational income.
When determining what performance measures or performance metrics to use for a system, process, or step within a process, it may be helpful to first determine what is important to customers (either internal or external) and can be measured or counted.
If this cannot be answered directly, consider what is important to the customer that cannot be directly measured or counted, but can be assessed indirectly, using one or more proxy measures.
A sequence of top-down performance measures or performance metrics can demonstrate this approach to continuous improvement.
Figure 1.0: Relationships of independent and dependent variables as performance metrics
Performance Measurements & Metrics Example
Baseball is a sport that involves players with assigned positions and roles who also work together on a greater team. Baseball is one way to illustrate how organizations can use a variety of performance measurements or performance metrics to assess the success or failure of individuals, as well as their teams.
- Pitchers are often evaluated by their earned run average (ERA), their total number of strikeouts, and the number of hits they yield. For example, ERA is the number of runs scored against a pitcher per nine innings pitched. An ERA of 2.05 indicates that for multiple games, a pitcher had 2.05 runs scored against him or her for each nine innings pitched.
- Position players are often evaluated on both offensive and defensive skills.
- Offensively, a position player is rated on his or her hitting skills, including batting average (BA), runs batted in (RBI), and on-base percentage (OBP). BA is the number of hits per number of times at bat. A BA of .400 is exceptional, but rarely achieved. A BA of .300 is good. A BA of .100 is typical of most pitchers, who aren’t usually considered skilled hitters.
- Defensively, a position player is ranked according to fielding percentage (FP), or the ability to catch and throw a ball without committing an error. This includes catching a batted ball and securing an out, throwing the ball to the right base to secure a putout, or making an accurate throw to the correct base. FP is the number of fielding opportunities played without an error divided by the total number of opportunities.
Excerpted from Quality Essentials: A Reference Guide from A to Z, ASQ Quality Press, 2004.