Performance Metrics - Guiding Management Action

Performance metrics measure chosen dimensions of an organization to allow management to assess its position and take appropriate actions to move it toward target. The key goal is performance improvement along a whole host of dimensions as selected by the organization's leadership. Additionally, performance metrics assist management, increase an organization's effectiveness, efficiency and internal control.

To be of most value to management, performance metrics should ideally be specific, simply measurable, inexpensive, easy to communicate, and capable of guiding action. Various software packages are available to help management collate, analyze and report data required for the task.
The use of performance metrics requires four steps - select key issues, important processes and customer outcomes that necessitate measurement; develop relevant metrics; define targets; and, finally, move performance towards those targets.

Perhaps the best-known performance metrics are those that relate to financial performance. For this purpose, management has available all the line items included in the externally reported statutory financial statements plus its internal management reports. Financial statement line items include well-known concepts such as total revenue, profit before interest and tax, interest expense, profit after tax, total liabilities, and net cash flow.
These financial line items, in turn, are used for financial ratio analysis. This technique involves relating two or more line items together in order to examine key areas of financial performance. These areas include revenue and cost behavior, balance sheet strength, capital structure, cash flow generation and profitability. The main audience for financial metrics is management and the owners of the organization, that is, the shareholders.

Beginning in the 1980s, organizations and their various stakeholder groups began to articulate a need for a broader set of performance metrics that reached beyond financial performance. They called for metrics that measured an organization's performance with respect to customers, employees, and the broader community.

To fill the gap, a performance metric framework known as the balance scorecard emerged during the early 1990s. Its metrics cover four areas - finance, customers, business processes plus learning and growth. The balanced scorecard was rapidly adopted by many organizations in the private sector, government authorities as well as the non-profit sector. It remains an important performance management tool today.

Corporate governance, the environment, carbon emissions, and climate change have all became areas of particular focus over recent years prompting organizations to respond by developing metrics to communicate its performance on these matters.

Performance metrics quantified for an organization need to be routinely compared against its past values to ensure improvement is being achieved. Additionally, those metrics should be compared against peer group organizations. This latter comparison is known as benchmarking and represents an important method for an organization to understand and monitor its relative competitive position.

Kevin is a published author in the electronic security world, as well as a former owner in baseball and radio. He currently consults for tech and media businesses and also writes articles, blogs, and other creative things all over the web.
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