The Foundation Behind a Performance Measurement System

A good performance measurement system can change your entire organization. However, your organization must be willing to accept change. If upper-level management supports long-term improvement and your company is receptive to change, than a performance measurement system needs to be considered. A performance measurement system is based on measuring areas that are critical to your future success.

A good performance measurement system strikes the right balance or mix of key performance indicators. This requires that you properly identify those things that need to be measured on an enterprise-wide basis. The mix of performance indicators should not be so extensive that your system will be overly complicated. Try to keep your indicators to four or five main areas; such as customer service, market share, innovation & development, and financial performance.

Once you have the right mix of performance indicators, than ask yourself two very important questions: Can we measure the indicator and can we report the indicator? You have to be able to measure the critical area to control it. And you must be able to report your measurement results if you expect to take action in the area being measured. If your system can't pass these two questions, than you run the risk of a system whose costs exceeds the benefits. If your system has passed these two critical questions, than it's time to start building a prototype for testing and refinement.

It is extremely important to get feedback from users in the design of your system. In order to ensure users are happy, it is sometimes better to work backwards; i.e. design the outputs for the users first and than work backwards designing the actual system. The best performance measurement systems distribute results on-line and facilitate user interaction (such as On-Line Analytical Processing). But even if you can't have an automated system, remember a basic performance measurement system in the form of reports is a lot better than no system at all.