Designing effective performance measures

I have spent the last couple of weeks immersed in all sorts of performance measures. Some have been good, some have been less good and others have been inspired. So while the thoughts are still fresh in my mind, here are some tips on how to develop performance measures for your organisation that will really make a difference.

1. Remember that what gets measured gets done. So focus on the things that are important to you and to your organisation. I once read somewhere that ‘more than two objectives is no objectives’. Now, I’m not sure that we need to be that strict, but I would definitely agree that the more performance measures you have, the less attention people will pay to them. Focus on what you really want to achieve.

2. Keep it simple. Some organisations have turned performance measurement into an industry itself, collecting huge amounts of data to understand how well they are doing in all kinds of areas. That’s fine if you’re a multinational conglomerate, but for the rest of us it can pay to adopt a less intensive approach. Use simple metrics and built data collection into your everyday systems and processes.

3. Avoid perverse incentives. Performance measures can influence our behaviour. But if we design them poorly, they can influence our behaviour in undesirable ways. These are called perverse incentives. So if I want to reduce staff travel, I might decide to measure (and try to reduce) money spent on train fares. But this might just result in people driving instead of taking the train. Think about potential perverse incentives when designing performance measures – and try to avoid them.

4. Think about outcomes. Lots of performance measures focus on inputs, such as time or money. This is probably because these things are easiest to measure. More adventurous organisations will also try to measure the relationship between inputs and outputs, as this tells us something about efficiency. But what we’re really interested in, especially in the public sector, is outcomes. What have we achieved? Have we done what we set out to do? Not as easy to measure, I’ll agree, but that’s no reason not to try.

5. Get the right balance. If you are trying to improve performance, you need to keep an eye on what’s happening across the board. Otherwise, performance gains in one area may result in weaker performance in another. For example, we might make more profit by treating our customers less well, which will not be a successful strategy in the long term. So we need to have performance measures that look at all aspects of our activities. Kaplan and Norton’s ‘balanced scorecard‘ is one example of how this can be achieved.

6. Look forward as well as back. Performance measures tend to look at what has happened in the past, often because most of the data we have also focuses on past activity. However, equally – if not more – important is what will happen in the future. We need to include at least some measures that look ahead. For example, we can think about population trends, economic forecasts and customer preferences. This isn’t easy, but it is possible. And it is well worth the effort.

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