The building block of total quality management is performance measurement of any organisation. Results delivered to stakeholders as well as improvements seen by the customer measures the performance.
As we know like never ending improvement process, performance measurement also plays an important role in
- Organisational goals identification and tracking progress
- Identification of opportunities for upgrading
- Both internal and external standards for performance can be compared
The main reasons it needed are:
- To met and ensure customer requirement
- Set sensible objectives and comply with them
- Standards for establishing comparisons
- Provide visibility and a "standing position" for people to monitor performance level
- To highlight quality problems and determine areas for priority attention
- For driving the improvement effort it provide feedback
A simple performance measurement framework
Framework focusing on the customer and measuring the right things is good performance measurement.
Performance measures be
- Widely understood, meaningful, and unambiguous
- Within the organisation owned and managed by the teams
- Data integrity be of high level
- Normal procedures for data collection
- Improvement be made
- Linked to critical goals and key drivers of the organisation
In a performance measurement framework there are four key steps used as methodology
- What are objectives of the organisation and how they are converted into desired standards of performance
- For comparing the desired performance with the actual achieved standards metrics are developed
- Identify gaps
- Initiate improvement actions
These steps are continuously implemented and reviewed
- Key goals
- Establish metrics
- Implement and review
- Understand performance
- Initiate improvement
Initially, for the success of the organisation or business focus on a few critical key goals, and ensure they are SMART means,
Once the goals have been defined, the next step in developing a performance measurement framework is to define the outcome metrics
What has to be measured to determine if these goals are being achieved.
If it is difficult to define outcome metrics for a particular goal, it is possible that the goal is either not "SMART" or critical to the success of the business.
For each outcome metric, brainstorm candidate drivers by answering the question, "What measurable factors influence this outcome?" Once the list is complete, select those with greatest impact, and these, the most important drivers, should have driver metrics, and be put in place first. Driver metrics at one level will be outcome metrics at the next level down.
An organisation needs to evolve its own set of metrics, using any existing metrics as a starting point in understanding. To ensure they trigger the improvement cycle, they should be in three main areas:
Effectiveness = Actual output x 100%
This is about the process output, and doing what you said you would do. The effectiveness metrics should reflect whether the desired results are being achieved, the right things being accomplished. Metrics could include quality, e.g., grade of product or level of service, quantity, e.g., tonnes, timeliness, e.g., speed of response, and cost/price, e.g., unit cost.
Efficiency = Resource actually used x 100%
Resources planned to be used
This is about the process input, e.g., labour, staff, equipment, materials, and measures the performance of the process system management. It is possible to use resources efficiently, but ineffectively.
Productivity = Outputs which can be quoted as,
Expected productivity = Expected output or
Resources expected to be consumed
Actual productivity = Actual output
Resources actually consumed
The gap between current and desired performance now has to be measured. Some of the metrics already exist and their current performance data must be collected, as well as data for new metrics.
Once all the data has been collected to identify the current performance, the target level of performance for the medium- and long-term must be decided. These performance levels must be achievable, and should be broken down into targets for discrete short-term intervals, e.g, the next three quarters.
To implement the performance measurement framework, a plan with timescales and designated responsibilities is needed. Once the plan has been implemented and data collected, new baselines can be set, comparisons made and new standards/targets set.
The metrics, targets and improvement activities must be cascaded down through the organisation, involving people and teamwork in the development of new metrics, data collection and improvement activities.
Improvement can be initiated by examining the gaps between current and target performance of the driver metrics at each level. A minimum, achievable set of actions is determined, with plans, assigned responsibilities and owners.
For good performance measurement activity main requirements are,
- Leadership and commitment
- Good planning and a sound implementation strategy
- Appropriate employee involvement
- Simple measurement and evaluation
- Control and improvement
The balanced scorecard approach first developed by Kaplan and Norton, a balanced scorecard recognises the limitations of purely financial measurement of an organisation, which is normally short-term measurement.
A scorecard has several measurement perspectives, with the original scorecard having financial, customer, internal business and innovation and learning perspectives. Balanced scorecards are normally a key output from the strategy formulation process.
The key goals that are identified as being critical to the success of the business, as part of a performance measurement framework, can also be considered in the context of a balanced scorecard.
A balanced scorecard would include financial and non-financial results, customer results, employee results and societal results.
Innovation and learning perspective
Internal business perspective
Can we continue to improve and create value?
What must we excel at?
How do customers see us?