Performance Measurement and Information Management
Content
PERFORMANCE MEASUREMENT AND INFORMATION MANAGEMENT
CASTRO, Brixanne SALVADOR, Rochelle Ann Santos, Dominic Sison, Jovert
PERFORMANCE MANAGEMENT
Is a fundamental building block of Total Quality Management and a total quality organization
Kelvin Anon “You cannot manage what you cannot measure”
THE SCOPE OF PERFORMANCE MEASUREMENT
Organization need good measure for three reasons: To lead the entire organization in a particular direction; that is, to drive strategies and organizational change To manage the resources needed to travel in this direction by evaluating the effectiveness of action plans To operate the process that make the organization work and continuously improve
Effective information systems provide the right information to the right people at the right time. As a result individual in manufacturing can have input on product design and sales; designers can obtain immediate feedback about manufacturing and financial implications of decisions; and everyone can share information for solving problems. Empowered individuals with the right information can make more timely decisions and can take action to better serve customers
THREE LEVELS OF QUALIT Y
Individual level – such information about quality performance, adherence to schedules and costs operations provide real-time information for feedback process control. Process level – operational performance data such as yields, cycle times, and productivity measures help middle managers determine whether their processes are accomplishing their objectives Organizational level – product and service quality and operational performance data from all areas of the firm, along with relevant customer, financial, human resource, and other organizational effectiveness data.
Traditionally, most organizations have relied on performance data based almost solely on financial or accounting-based factory productivity considerations, such as return on investment, earnings per share, direct labor efficiency and machine utilization To achieve a high level of performance, excellence requires a much broader set of performance measures that are aligned to an organization’s strategy.
THE BALANCED SCORECARD
Art Scneiderman at Analog Devices first developed concept of balanced scorecard in 1987 The purpose of balanced scorecard is to “ translate strategy into measures that uniquely communicate your vision to the organization”
THEIR VERSION OF THE BALANCED SCORECARD CONSISTS OF FOUR PERSPECTIVES
Financial Perspective – measures the ultimate results that the business provides to its shareholders. They include profitability, revenue growth, return on investments, economic value added (EVA) and shareholder value Internal Perspective – focuses attention on the performance of the key internal processes that drive the business. They include such measures as quality levels, productivity, cycle time and cost Customer Perspective – focuses on customer needs and satisfaction as well as market share. This includes service levels, satisfaction ratings, and repeat business Innovation and Learning Perspective – directs attention to the basis of future success – the organization’s people and infrastructure. Key measures might include intellectual assets, employees satisfaction, market innovation, and skills development.
Organizations need to know what is happening now and what might happen in the future. For example, customer survey results about recent transactions might be a leading indicator for customer retention (a lagginh undicatr); employee satisfaction might be a leading indicator for turnover, and so on.
A good balanced scorecard contains both leading and lagging measures and indicators . Lagging measures (outcomes) tell what has happened; leading measures (performance drivers) predict what will happen.
Leading and lagging measures and indicators can help to establish cause-and-ef fect relationships across perspectives. The Malcolm Baldrige Criteria for Performance Excellence Resls category groups performance measures into six sets: Product Outcomes Customer-focused Outcomes Financial and Market Outcomes Workforce-focused Outcomes Process Effective Outcomes Leadership Outcomes
CUSTOMER-FOCUSED OUTCOMES
Relevant measures and indicators of an organization’s performance as viewed by customers include direct of customer satisfaction and dissatisfaction, customer retention, gains and losses of customers and customer accounts, customer complaints, and warranty claims, perceived value, loyalty, positive dimensions. Service quality measures often revolve around the dimensions of reliability assurance, tangibles, empathy and responsiveness.
3M’S MEASUREMENTS INCLUDE THE FOLLOWING
In-stock service levels On-time delivery Order completeness Emergency response time Ease of dealing with supplier Ease of contact with customer service department Complaint handling Accuracy of shipment Order cycle time Product quality and performance
FINANCIAL AND MARKET OUTCOMES
Financial measures are generally tracked by senior leadership to gauge overall organizational performance and are often determine incentive compensation for senior executives. Measures of financial performance might include revenue, return on equity, return on investments..
A useful financial performance indicator is the cost of quality, which managers use to prioritize improvement projects and gauge the effectiveness of total quality efforts.
Marketplace performance indicators could include market share, measures of business growth, new product and geographic markets entered, and percentage of new product sales as appropriate.
WORKFORCE-FOCUSED OUTCOMES
Workforce-focused outcomes show how well the organization has created and maintained a productive, engaging and caring work environment.
PROCESS-EFFECTIVENESS OUTCOMES
Measures and indicators of process effectiveness and efficiency might include work system performance that demonstrates improved cost savings or higher productivity by using internal or external resources.
LEADERSHIP OUTCOMES
With an increased focus on issues of governance, ethics, and leadership accountability, it is important for organizations to practice and demonstrate high standards of overall conduct. Relevant performance measures can help organizations monitor these issues.
DESIGNING EFFECTIVE PERFORMANCE MEASUREMENT SYSTEMS
The purpose of a performance measurement system include the following: Providing a perspective of the past, present, and future Identifying trends and progress Facilitating understanding of cause and effect relationship Allowing performance comparison to benchmarks
Mark Graham Brown suggests some practical guidelines for designing a per formance measurement system : Fewer is better. Concentrate on measuring the vital few key variables rather than the trivial many. Measures should be inked to the factors needed for success, namely, the key business drivers. Measures should include a mix of past, present, and future to ensure that the organization is concerned with all three perspectives. Measures should be based around the needs of customers, shareholders, and other key stakeholder Measures should start at the top and flow down to all levels of employees in the organization. Measures should be changed or at least adjusted as the environment and strategy changes.
PROCESS-LEVEL MEASUREMENTS
Process measures should also clearly align with customer requirements. At the process level, product and service quality measures focus on the outcomes of manufacturing and service processes.
Six Sigma began by stressing a common measure for quality In Six Sigma terminology, a defect is any mistake or error that is passed on to the customer. A unit of work is the output of a process or an individual process step. A measure of output quality is defects per unit.
Defects per unit = Number of defects discovered/Number of units produced
DPU tends to focus on the final product, not the process that produce the product.
MANY ORGANIZATIONS CLASSIFY DEFECTS INTO THREE CATEGORIES:
Critical defect – is one that judgement and experience indicate will surely result in hazardous or unsafe conditions for individuals using, maintaining, or depending on the product and will prevent proper performance of the product Major defect – is one not critical but likely to result in failure or to materially reduce the usability of the unit for its intended purpose Minor defect – is one not likely to materially reduce the usability of the item for its intended purpose, nor to have any bearing on the ef fective use or operation of the unit
IDENTIFYING AND SELECTING PROCESS MEASURES
Identify all customers of the system and determine their requirements and expectations. Define the work process that provides the product or service. Define the value-adding activities and outputs that comprise the process. Develop specific performance measures or indicators. Evaluate the performance measures to ensure their usefulness.
ALIGNING STRATEGIC AND PROCESSLEVEL MEASUREMENTS
Aligning strategic and process -level measurements is vital to a high-performing organization, and can be viewed as an approach for strategy deployment. Alignment is tied fundamentally to the performance goals: the measures support goal attainment. Enterprise Resource Planning (ERP) – systems are software packages that integrate organizational information systems and provide an infrastructure for managing information across the enterprise.
ANALYZING AND USING PERFORMANCE DATA
Analysis refers to an examination of facts and data to provide a basis for ef fective decisions: Examining trends and changes in measures and indicators using charts and graphs Calculating a variety of statistical measures such as means, proportions, and standard deviations Appling sophisticated statistical tools such as correlation and regression analysis to help understand relationships among dif ferent measures Comparing results relative to other business units, competitors, or best -in-class benchmark
LINKAGES BETWEEN KEY MEASURES OF BUSINESS OF BUSINESS PERFORMANCE
Examples of such analyses are:
How product and services quality improvement correlates with they key customer indicators such as customer satisfaction, customer retention, and market share Financial benefits derived from improvements in employee safety, absenteeism and turnover Benefits and costs associated with education and training Relationships between product and service quality, operational performance indicators, and overall financial performance Profit impacts of customer satisfaction and retention Impacts of employee satisfaction on customer satisfaction
INTERLINKING – is the term that describes the quantitative modelling of cause-and-effect relationships between performance measures, such as the customer satisfaction and product quality or employee performance
Data Mining – is the process of searching large databases to find hidden patterns in data, using analytical approaches and technologies such as cluster analysis, neutral networks, nad fuzzy logic
THE ROLE OF COMPARATIVE DATA
Comparative data are needed because an organization needs to know where it stands relative to competitors and to best practices The effective selection and use of comparative data and information require the determination of needs and priorities, criteria for seeking appropriate sources for comparisons Comparative data may be obtained in many ways and include third party surveys and benchmarking approaches
PERFORMANCE REVIEW
The analysis of data provides the foundation for management review Managers review performance results for several reasons:
To assess organizational success and performance relative to competitors To understand how well progress on strategic objectives and action plans is being achieved To identify priorities for improvement and opportunities for innovation for products, services and processes
Data summaries are integrated and reported to appropriate committees, company leadership and physicians
THE COST OF QUALIT Y
The concept of cost of quality emerged in the 1950s The reporting of quality -related costs had been limited to inspection and testing; other costs were accumulated in overhead accounts
Cost of Quality approaches have numerous objectives, but the most important one is to translate quality problems into the “language” of upper management the language of money
To establish a cost of quality approach, one must identify the activities that generate cost, measure them in a way that is meaningful to managers.
QUALIT Y COST CLASSIFICATION
Prevention cost – are investments made to keep non comforting products from occurring and reaching the customer Appraisal cost – are those associated with the ef forts to ensure conformance to requirements, generally through measurement and analysis of data to detect non conformances Internal failure cost – are incurred as a result of unsatisfactory quality found before the delivery of a product to the customers External failure cost – occur after poor-quality products reach the customer
CASTRO, Brixanne SALVADOR, Rochelle Ann Santos, Dominic Sison, Jovert
PERFORMANCE MANAGEMENT
Is a fundamental building block of Total Quality Management and a total quality organization
Kelvin Anon “You cannot manage what you cannot measure”
THE SCOPE OF PERFORMANCE MEASUREMENT
Organization need good measure for three reasons: To lead the entire organization in a particular direction; that is, to drive strategies and organizational change To manage the resources needed to travel in this direction by evaluating the effectiveness of action plans To operate the process that make the organization work and continuously improve
Effective information systems provide the right information to the right people at the right time. As a result individual in manufacturing can have input on product design and sales; designers can obtain immediate feedback about manufacturing and financial implications of decisions; and everyone can share information for solving problems. Empowered individuals with the right information can make more timely decisions and can take action to better serve customers
THREE LEVELS OF QUALIT Y
Individual level – such information about quality performance, adherence to schedules and costs operations provide real-time information for feedback process control. Process level – operational performance data such as yields, cycle times, and productivity measures help middle managers determine whether their processes are accomplishing their objectives Organizational level – product and service quality and operational performance data from all areas of the firm, along with relevant customer, financial, human resource, and other organizational effectiveness data.
Traditionally, most organizations have relied on performance data based almost solely on financial or accounting-based factory productivity considerations, such as return on investment, earnings per share, direct labor efficiency and machine utilization To achieve a high level of performance, excellence requires a much broader set of performance measures that are aligned to an organization’s strategy.
THE BALANCED SCORECARD
Art Scneiderman at Analog Devices first developed concept of balanced scorecard in 1987 The purpose of balanced scorecard is to “ translate strategy into measures that uniquely communicate your vision to the organization”
THEIR VERSION OF THE BALANCED SCORECARD CONSISTS OF FOUR PERSPECTIVES
Financial Perspective – measures the ultimate results that the business provides to its shareholders. They include profitability, revenue growth, return on investments, economic value added (EVA) and shareholder value Internal Perspective – focuses attention on the performance of the key internal processes that drive the business. They include such measures as quality levels, productivity, cycle time and cost Customer Perspective – focuses on customer needs and satisfaction as well as market share. This includes service levels, satisfaction ratings, and repeat business Innovation and Learning Perspective – directs attention to the basis of future success – the organization’s people and infrastructure. Key measures might include intellectual assets, employees satisfaction, market innovation, and skills development.
Organizations need to know what is happening now and what might happen in the future. For example, customer survey results about recent transactions might be a leading indicator for customer retention (a lagginh undicatr); employee satisfaction might be a leading indicator for turnover, and so on.
A good balanced scorecard contains both leading and lagging measures and indicators . Lagging measures (outcomes) tell what has happened; leading measures (performance drivers) predict what will happen.
Leading and lagging measures and indicators can help to establish cause-and-ef fect relationships across perspectives. The Malcolm Baldrige Criteria for Performance Excellence Resls category groups performance measures into six sets: Product Outcomes Customer-focused Outcomes Financial and Market Outcomes Workforce-focused Outcomes Process Effective Outcomes Leadership Outcomes
CUSTOMER-FOCUSED OUTCOMES
Relevant measures and indicators of an organization’s performance as viewed by customers include direct of customer satisfaction and dissatisfaction, customer retention, gains and losses of customers and customer accounts, customer complaints, and warranty claims, perceived value, loyalty, positive dimensions. Service quality measures often revolve around the dimensions of reliability assurance, tangibles, empathy and responsiveness.
3M’S MEASUREMENTS INCLUDE THE FOLLOWING
In-stock service levels On-time delivery Order completeness Emergency response time Ease of dealing with supplier Ease of contact with customer service department Complaint handling Accuracy of shipment Order cycle time Product quality and performance
FINANCIAL AND MARKET OUTCOMES
Financial measures are generally tracked by senior leadership to gauge overall organizational performance and are often determine incentive compensation for senior executives. Measures of financial performance might include revenue, return on equity, return on investments..
A useful financial performance indicator is the cost of quality, which managers use to prioritize improvement projects and gauge the effectiveness of total quality efforts.
Marketplace performance indicators could include market share, measures of business growth, new product and geographic markets entered, and percentage of new product sales as appropriate.
WORKFORCE-FOCUSED OUTCOMES
Workforce-focused outcomes show how well the organization has created and maintained a productive, engaging and caring work environment.
PROCESS-EFFECTIVENESS OUTCOMES
Measures and indicators of process effectiveness and efficiency might include work system performance that demonstrates improved cost savings or higher productivity by using internal or external resources.
LEADERSHIP OUTCOMES
With an increased focus on issues of governance, ethics, and leadership accountability, it is important for organizations to practice and demonstrate high standards of overall conduct. Relevant performance measures can help organizations monitor these issues.
DESIGNING EFFECTIVE PERFORMANCE MEASUREMENT SYSTEMS
The purpose of a performance measurement system include the following: Providing a perspective of the past, present, and future Identifying trends and progress Facilitating understanding of cause and effect relationship Allowing performance comparison to benchmarks
Mark Graham Brown suggests some practical guidelines for designing a per formance measurement system : Fewer is better. Concentrate on measuring the vital few key variables rather than the trivial many. Measures should be inked to the factors needed for success, namely, the key business drivers. Measures should include a mix of past, present, and future to ensure that the organization is concerned with all three perspectives. Measures should be based around the needs of customers, shareholders, and other key stakeholder Measures should start at the top and flow down to all levels of employees in the organization. Measures should be changed or at least adjusted as the environment and strategy changes.
PROCESS-LEVEL MEASUREMENTS
Process measures should also clearly align with customer requirements. At the process level, product and service quality measures focus on the outcomes of manufacturing and service processes.
Six Sigma began by stressing a common measure for quality In Six Sigma terminology, a defect is any mistake or error that is passed on to the customer. A unit of work is the output of a process or an individual process step. A measure of output quality is defects per unit.
Defects per unit = Number of defects discovered/Number of units produced
DPU tends to focus on the final product, not the process that produce the product.
MANY ORGANIZATIONS CLASSIFY DEFECTS INTO THREE CATEGORIES:
Critical defect – is one that judgement and experience indicate will surely result in hazardous or unsafe conditions for individuals using, maintaining, or depending on the product and will prevent proper performance of the product Major defect – is one not critical but likely to result in failure or to materially reduce the usability of the unit for its intended purpose Minor defect – is one not likely to materially reduce the usability of the item for its intended purpose, nor to have any bearing on the ef fective use or operation of the unit
IDENTIFYING AND SELECTING PROCESS MEASURES
Identify all customers of the system and determine their requirements and expectations. Define the work process that provides the product or service. Define the value-adding activities and outputs that comprise the process. Develop specific performance measures or indicators. Evaluate the performance measures to ensure their usefulness.
ALIGNING STRATEGIC AND PROCESSLEVEL MEASUREMENTS
Aligning strategic and process -level measurements is vital to a high-performing organization, and can be viewed as an approach for strategy deployment. Alignment is tied fundamentally to the performance goals: the measures support goal attainment. Enterprise Resource Planning (ERP) – systems are software packages that integrate organizational information systems and provide an infrastructure for managing information across the enterprise.
ANALYZING AND USING PERFORMANCE DATA
Analysis refers to an examination of facts and data to provide a basis for ef fective decisions: Examining trends and changes in measures and indicators using charts and graphs Calculating a variety of statistical measures such as means, proportions, and standard deviations Appling sophisticated statistical tools such as correlation and regression analysis to help understand relationships among dif ferent measures Comparing results relative to other business units, competitors, or best -in-class benchmark
LINKAGES BETWEEN KEY MEASURES OF BUSINESS OF BUSINESS PERFORMANCE
Examples of such analyses are:
How product and services quality improvement correlates with they key customer indicators such as customer satisfaction, customer retention, and market share Financial benefits derived from improvements in employee safety, absenteeism and turnover Benefits and costs associated with education and training Relationships between product and service quality, operational performance indicators, and overall financial performance Profit impacts of customer satisfaction and retention Impacts of employee satisfaction on customer satisfaction
INTERLINKING – is the term that describes the quantitative modelling of cause-and-effect relationships between performance measures, such as the customer satisfaction and product quality or employee performance
Data Mining – is the process of searching large databases to find hidden patterns in data, using analytical approaches and technologies such as cluster analysis, neutral networks, nad fuzzy logic
THE ROLE OF COMPARATIVE DATA
Comparative data are needed because an organization needs to know where it stands relative to competitors and to best practices The effective selection and use of comparative data and information require the determination of needs and priorities, criteria for seeking appropriate sources for comparisons Comparative data may be obtained in many ways and include third party surveys and benchmarking approaches
PERFORMANCE REVIEW
The analysis of data provides the foundation for management review Managers review performance results for several reasons:
To assess organizational success and performance relative to competitors To understand how well progress on strategic objectives and action plans is being achieved To identify priorities for improvement and opportunities for innovation for products, services and processes
Data summaries are integrated and reported to appropriate committees, company leadership and physicians
THE COST OF QUALIT Y
The concept of cost of quality emerged in the 1950s The reporting of quality -related costs had been limited to inspection and testing; other costs were accumulated in overhead accounts
Cost of Quality approaches have numerous objectives, but the most important one is to translate quality problems into the “language” of upper management the language of money
To establish a cost of quality approach, one must identify the activities that generate cost, measure them in a way that is meaningful to managers.
QUALIT Y COST CLASSIFICATION
Prevention cost – are investments made to keep non comforting products from occurring and reaching the customer Appraisal cost – are those associated with the ef forts to ensure conformance to requirements, generally through measurement and analysis of data to detect non conformances Internal failure cost – are incurred as a result of unsatisfactory quality found before the delivery of a product to the customers External failure cost – occur after poor-quality products reach the customer
