Are Your KPIs Telling You What You Really Need to Know?

May 31, 2016 by Stacey Barr

We shouldn’t measure something because it’s easy to. Nor should we measure something because we always have. Nor should we measure something because “they” do. We should measure something only because it tells us what we need to know. Can your KPIs pass this test?

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There are a few physical qualities that separate good performance measures from poor ones. But the ultimate test of any performance measure’s goodness is that it tells us what we really need to know.

If a measure fails to tell us what we really need to know, then either it’s not constructed properly or it’s not the right measure. This, of course, presupposes that we do indeed know what what it is we really need to know.

If we’re unsure about whether a particular measure is telling us what we really need to know, there are a few diagnostic questions we can use to find out for sure:

Q1: Is the measure DIRECT evidence of a goal or performance result we know matters?

Too many measures don’t really tell us exactly about our goal. They tell us something about a spin-off of our goal, like measuring profit when our goal is to increase customer loyalty. Or they tell us something about a solution to achieve our goal, like measuring implementation of a customer relationship management system for our goal to increase customer loyalty. What we really need is a measure that gives direct evidence of how much customer loyalty we have.

Q2: Do we know which DIRECTION the measure will go when performance is better?

When we measure things just because we can, or just because we always have, we can fall into the trap of measuring without intention. The intention for any performance measure is to improve performance. That means the measure should head in a particular direction. It should go up or down. Imagine looking at a measure of Staff Turnover and not knowing if it should go up or down. I’ve seen this happen for two of my clients!

Q3: Do we TRUST the measure?

One of the big reasons people don’t trust a measure is because they haven’t done the due diligence to make the measure’s definition clear and deliberate. Unless we decide exactly what formula, exactly which data, exactly what scope or boundaries, our measure could end up telling us something very different to what we intended. Every measure needs a thorough definition for how it should be implemented, so it’s values will be evidence of what we need to know, not what is convenient to get.

Q4: Does the measure trigger what-next QUESTIONS?

Ideally a measure will trigger what-next questions, where we dig deeper into the causes of gaps in performance and explore potential solutions to close the gaps. But if our questions are more about what else could convince us whether this goal is being achieved or not, then the measure is likely too weak to tell us what we need to know.

Q5: Are we ACTING on what the measure is telling us?

If we’re just talking about our KPI or measure, and never actually doing things to improve its performance, it can be a sign that it’s not really telling us something important. Of course, it can also be a sign that we’re procrastinating or ignoring important information. But while ever there is a gap between a measure’s actual performance and the performance we decided to reach for, action really should be happening.

Does your measure pass the test?

Answering ‘no’ to any of these five questions is a clue that our measure isn’t yet telling us what we need to know. A good thing to do then is to design a better measure.

But if we can answer ‘yes’ to each of these five questions, then it’s likely our measure really is telling us what we need to know. Are we listening to it?

DISCUSSION:

Do you have any measures that fail this test? We’d all love to hear about one of them, so please share yours on the blog!

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  1. Tom G says:

    Practical and helpful as always. I love Goldratt’s definition of Information – “Information is the answer to a question; not the data to answer the question.” He goes on to say it is the difference when asked for a phone number of giving the phone number or handing the person a phone book. So many times now. I see measurement systems designed to answer all questions instead of the vital few.

    In my own world, my company is fighting to get down the number of KPIs to a reasonable number. I am reviewing a sheet that has 55 of them – all derived from 8 Stakeholder Objectives that are open ended aspirations. Should we measure these things? Probably; they are good to feed future strategy and find where we are falling short or succeeding. Are they all key? No, some are like the oil light on the dashboard – if we do our maintenance well, we will only need to pay attention if a warning light goes on. In addition, we use many of these metrics for marketing materials. The key ones are like the speedometer that gives we feedback that i react to constantly.

    All of this has had me come to think of metrics with the same value proposition used in Lean. Value Add, Business Need, and Non-Value Add. Speedometer measures are typically the Vale Add, Oil Light measures are th e Business Need, and the rest can go away. They have to have constant scrutiny for improvement and retention / retirement.

    Thanks for the brain food….

  2. Allison says:

    We couldn’t agree more! I appreciate all of your thoughts, especially your discussion on ‘acting.’ Too often things are measured but never utilized! At smartcockpit SA we believe in doing the right thing right and making sure that what we measure, is telling us what we need to know. You can’t just have great data or just a great question, you have to have both. Importantly, you also need to have the right questions for the right problem. Once all of this comes together then you need to monitor the change process. This means measuring, checking performance, and evaluating whether or not things are working! Finally, we believe that it is important to keep in mind the ‘human data’, or that personal perception or experience with what is being measured. Just because something looks like it is performing doesn’t mean that it is. We may know that the trends show otherwise and we thus need to make a change. Thank you for sharing your good thought!

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