Measurement Systems

Development of Information Information is necessary for both control and improvement Information derives from analysis of data Data, in turn, come from measurement

Process Flow Measurement Data Analysis Information

What Could Be Measurements for Personal Health?

Measurements for Personal Health Blood pressure Weight Heart rate Respiration Body fat percentage Blood chemistry Strength Flexibility

How Do People React to Measurements?

Questions Concerning Measurements Why do we need them? How will the measures be used? Will they be used for punishments? If so, how? Why is my performance measured? What is in this for me? Will we see the results?

How to Alleviate Fear of Measurements ?

Effective Use of Measurements Assign clear accountability/responsibility Establish performance goals Conduct regular review and analysis Use information for better decision-making and improvement Communicate performance information Provide reward and recognition

Potential Problems with Measurement Systems Too many measures Short-term focused Lack of detail for action or decision-making Drives wrong performance Measures courtesy versus competence Measures behavior versus accomplishments

Characteristics of Effective Measures Are meaningful Respond to multiple organizational priorities Encourage operational improvements Provide a complete, accurate, and believable picture of performance Blend leading and lagging indicators

Design of An Effective Measure Purpose – is worth collecting to support decision making Validity – measures what it claims to measure Precision – returns consistent value with each measurement Accurate – matches the true value Cost effective – is not too costly to track and report

How to Design An Effective Measure?

Designing Measures (Metrics) – APQC (1 of 2) Plan How will you use the data? Have you selected and defined your measure? Collect How will you collect the data?

Designing Measures (Metrics) – APQC (2 of 2) Analyze How can you ensure that the data will be relevant and believable? What does the data indicate? Adapt How will you communicate your findings? What kind of action should occur?

Types of Measures Strategic Measures Measure the effectiveness and appropriateness of strategies Operational (Process-Level) Measures Measure the effectiveness and efficiency of activities

Purpose of Strategic Measures - Balanced Scorecard Clarify and translate vision and strategies Communicate and link strategic goals and measures Plan, set targets, and align strategic initiatives Evaluate and improve effectiveness of strategic initiatives

Balanced Scorecard (Kaplan & Norton) 1. Financial perspective 2. Customer perspective 3. Internal perspective 4. Innovation and learning perspective Leading measures Lagging measures Interlinking

Examples of Balanced Scorecard Measures Customers – satisfaction, retention, acquisition, profitability Financial – net income, return on equity, return on investment, growth, cash flow Internal – productivity, quality Innovation & Learning – employee development, retention, satisfaction

Balanced Scorecard for A Fast-Food Restaurant?

Balanced Scorecard for A Fast-Food Restaurant Customers Satisfaction, frequency, retention, referral Financial Net profit, sales growth Internal Quality, timeliness, service experience Innovation & Learning Experience, training, empowerment, accountability, employee satisfaction

Process-Level Measures Does the measure support our mission? Will the measure be used to manage change; that is, actionable? Is it important to our customers? Is it effective in measuring performance? Is it effective in forecasting results? Is it easy to understand and simple?

23 Creating Effective Process–Level Measures Identify all customers and their requirements and expectations (key performance factors) Define work processes Define value-adding activities and process outputs Develop measures for each key process Evaluate measures for their usefulness

Measures for Payroll Processes

Staff productivity (# of payroll forms processed each week) Cycle time (time to complete an inquiry) Operating costs (labor cost /payroll FTE) Process efficiency (% of resources for payment processing vs. inquiries)