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Tuesday, December 1, 2009

Are your Performance Management metrics useful?

Performance Metrics are the heart of any BI/EPM implementation, but often, the ability to effect change in the metrics is not seamless. In this blog, I'll explore three key factors related to less-than-optimal usage of Performance Management Metrics and suggest practices to improve application of metrics to an organization's benefit.

Metric Background
Metrics are intended as a simple measurement of activity. By developing and publishing organizational metrics to decision makers, the labor intensive effort of collecting source data, manipulating or adjusting the data, and ultimately calculating metrics, is eliminated. Unfortunately, this also eliminates a large part of the knowledge capital necessary to understand how to influence metrics.

  • Key decision makers expected to act upon metrics must understand the full formula for deriving the metric. Only with this information can the best decisions regarding how to improve a business's performance be made.

Relevance of a change in a Metric's value
Similar to having an understanding of the makeup of a metric, organization decision makers must have an understanding of the relevance of a change in the value of a metric. Often, formulas producing metric results mask exponential changes in source values to appear to be linear changes. Over time, this can result in less efficiency from additional attempts to improve a measurement.
  • Organizations must have an understanding of the relevance of a change in a key metric at different points. A thorough understanding of the historical change, as well as an analysis of the point at which further improving a metric results in materially diminishing returns, will guide the organization's decision makers to base their decisions on the most accurate basis at a point in time.
Industry Trends
Over time all organizations undergo changes to their business model, whether due to internal, external, or a combination of factors. Flexible metrics can enhance the ability for an organization to respond to changing market dynamics by quickly refocusing key decision makers to respond to business model changes.
  • Frequent review of Performance Metrics for relevance to the current business climate allows for improved competitive advantage by reducing the time necessary to refocus an organization.

In conclusion, Performance Metrics are an invaluable tool to improve the decision making intelligence of an organization. However, to leverage maximum long and short term benefit requires a commitment to supporting the organization with the best possible guidance. Organizations that embrace their Performance Metrics as an avenue for executing strategy can realize significant gains in competitive advantage.