Introduction to Performance Measurement and Control Systems
Posted: 08/13/2009 12:00:00 AM EDT
Performance measurement and control systems. It's a hot topic these days—in the business press, in books, in the world of management.
Whether you are managing a call center or internal HR operation...or spearheading a Six Sigma project...or are the president of the United States attempting to cure our health care system, you must master the interrelated concepts of a performance measurement and control system.
The key components of a performance measurement and control system include:
- Setting realistic expectations that are measurable
- Thinking through how to continuously capture measuring information
- Developing strategies and tactics capable of accomplishing clearly defined expected outcomes
- Monitoring/tracking feedback from actual results
- Taking corrective action when there is a deviation between actual and predicted results
There are many types of control systems. The basic underpinnings of Management by Objectives, as originally formulated by Peter F. Drucker, involve the application of these five components or steps.
Management's importance, noted Drucker, derives from its two major tasks—deciding what is to be done (for a nation, a business firm, or social service institution) and deciding how to do the job and controlling its execution, and measuring its results.
Weight Control: An Example That's Easy To Understand
A simple example explains better than any theoretical explanation the performance measurement and control process. Say, you want to lose weight.
First, you decide how much weight you want to lose. You are conservative. So you set your target level at three lbs per week.
What did you just do? You set a target level of performance for your weekly weight loss. This is the variable you want to both improve and control.
Most importantly, you have something measurable. It's a performance indicator. You will need a weight loss process to obtain the measurable outcome you desire.
Said Drucker: "To think through the appropriate measurement is in itself a policy decision and therefore highly risky. Measurements, or at least criteria for judgment and appraisal, define what we mean by performance."
Again, you have established a standard or target level of performance. Further, you have also established a unit of measure that works—pounds are a measure of weight.
In short, you set a realistic expectation that is measurable. No fluff. You either lose weight or you don't.
OK, What's Step Two?
You have to decide how you are going to continuously capture measuring information. What's your mechanism for doing this?
You buy or use a scale. Joseph Juran called this a sensor. In short, you need a way to collect information on your performance. How else can you monitor or track if you are succeeding?
So far, you've done two steps—namely, set a realistic expectation that is measurable and figured out a way to continuously capture measuring information. Sounds pretty good. You agree?
Memorize your first two steps! It's easy now. But it gets harder as we progress.
The Third Step Is...
Develop your strategy and tactics for accomplishing your expected outcome, that is, losing three lbs. per week.
A strategy can be defined as a what to do plan to accomplish the outcome you want to achieve (three lbs. per week).
Your strategy would probably sound something like this: "I will exercise more and eat less."
But this is vague and general statement. Really meaningless in terms of action. It says nothing specific. At best, it can be called a good intention.
It tells you what you want to do. But—and this is a big but—it doesn't tell you how to do it.
So, you would probably want to get specific. The specifics can be called your tactical (how-to-do-it) work plan. The tactical plan would probably be put into the form of a list. That list would probably resemble the following:
- I will go to the gym four times per week for two hours or more.
- I will eat a prescribed diet
Indeed, you may get very specific about your exercise regimen, that is, provide details as to the exact exercises you will perform. And you would probably choose a daily diet routine recommended by a host of experts.
So far so good? You now have your strategy and tactics to accomplish your desired outcome—three lbs. per week. That's your goal.
OK! We Will Proceed to the Forth Step...
Test your comprehension of this process. Assume you've adhered to your strategy and tactical plan. Seven days have passed.
What comes next? After the first week, you'll get a scale and record your weight.
You want to know if the program working? You want to know if your strategy and tactics are paying off.
Let's put this in more highfalutin terms. You want to monitor and track feedback from actual results. This is a fancy way to say: I will weigh myself using a scale every week.
The Final Step...
You compare actual results to hoped-for results. And you are prepared to take corrective action if there is a deviation between actual and expected results.
Oh boy! You followed the strategic and tactical plan perfectly. But regrettably you shed only one lb.
Now, what do you do? What are your options?
Well, you could wait another week. That's a viable option. Or, you could change your strategy and your accompanying work plan.
Or, you could lower your target level or standard of performance.
Sooner or later—assuming you wait another week—you will be down to changing your strategy/tactical work plan or downgrading your expectations.
If you change your strategy/tactical work plan, you could possibly change the number of days you exercise, your specific exercises, time spent exercising and your diet plan. And, then, you would start the procedure just outlined all over again.
We can now introduce some interchangeable words for standard/target level of performance/expectations—namely, desired outcome, predicted result, desired result, expected outcome and several others which crop up from time to time. They all mean the same thing.
We began with five steps or basic functions vital to the control of any process. For starters, we introduced the concept of setting standards or target levels of performance.
Your target level of performance was to lose three lbs. per week. This could be called your expectation, your desired outcome, your desired result and so on.
We indicated that it was important to select a measurable performance outcome…and one that was capable of being captured with a measuring device (a scale in this case).
We proceeded to developing your strategy and tactics for losing weight. Aha! Next, you were comparing "feedback from actual results. " That is, you were weighing yourself (using a scale) to compare actual weight-loss to your quantified goal of three lbs. per week.
We called this step "comparison of actual performance with targets." Finally, we discussed the general actions available when a major deviation between actual and predicted results occur.
You can lower your goal. Or you can change your strategy and tactics. Your choice.
We strongly advise that you memorize the five steps involved in performance measurement and control. If you memorize it, you'll see how things fit into this framework every day.
Let's Add Some More Drucker Insights...
In the oversimplified "weight control" example, knowing what to measure and how to measure it was quite straightforward. But in actual practice, the performance measurements selected require thought.
Drucker illustrated the fact that the performance measurement selected was equivalent to defining the right problem.
If the wrong measurements are selected but attained, the real problem won't be solved. But it will take years or even decades to realize the wrong problem has been solved.
If the right measurements are selected, but not realized, the strategy and tactics can be changed in the hope of accomplishing the selected measurements.
If the right measurements are in place, it doesn't take very long to evaluate if the strategy and tactics are working.
To repeat: The performance measurement in the weight control example suggests itself. But in most cases the selection of the performance metric is more involved. (Subsequent articles will deal with the problem of defining the problem through performance metrics)
Your Homework Assignment Is...
Evaluate the government's proposed health-care plan using the strategic framework just outlined. Specifically discuss what metrics are being used and whether or not they are the right metrics.
Further, explain the strategies and tactics the government plans to use to accomplish the desired outcomes. Detail how the government will continuously monitor or track results. Elaborate upon the infrastructure that will be created to take corrective action if, indeed, deviations between actual and predicted results occur.
Just kidding. We hope that these are the type of questions that will soon be asked throughout America and to our congressional representatives.
Unfortunately, at this point in time, these questions have not been answered by anyone in government. Perhaps you can share your thoughts with us.
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