QUESTION: 4 Things More Important Than the KPI Terminology Debate

May 28, 2012 by Stacey Barr

Darrell U. asks: “What are the definitions of performance measurement terms… metric vs. measure, performance indicator vs. key performance indicator?”

Darrell goes on to rightly say that there is plenty of confusion on the meaning and relationship of these terms to each other, that there is no standardised usage in the literature e.g. ‘metric’ and ‘measure’ are used interchangeably by many, or used as one subordinate to the other sometimes, and the reverse other times. Good grief.
How do we deal with the performance management terminology?
Every debate about performance management terminology that I have witnessed or waged an argument in has led to no practical outcome. It feels like a waste of time, and it is a waste of time until we reach a point where there is a recognised global professional association with enough credibility and reach to own such dilemmas and solve them.
The anatomy of performance management is more deserving of our time and attention…
The terminology debate is attempting to put consistent labels onto specific concepts of performance management. The concepts are more important than the labels, in my humble opinion.

Here’s my take on the four most important concepts associated with performance management (and of course I’m using my own preferred terminology to label these concepts):

Performance Result – also called objective, goal, critical success factor, key result area, key result, output, outcome. Using just words, the Performance Result describes clearly and unambiguously a priority that you’re trying to improve. Examples include:

  • increase revenue
  • improve subscriber loyalty
  • decrease harm caused to employees

Performance Measure – also called indicator, performance indicator, key performance indicator, KPI, metric, lead indicator, lag indicator, performance index. Irrespective of whether it is forward-looking, backward-looking, precise or estimated, simple or complex, a Performance Measure is a quantification of the degree to which a Performance Result is occuring over time. Examples include:

  • Total Monthly Revenue
  • Weekly % of Subscribers Who Unsubscribe
  • Number of Lost Time Injuries per Month

Target – also called benchmark, best practice, standard. Your Performance Measure tells you what your current level of performance is, but your Target tells you what your desired level of performance is (and ideally also the time by which you want to reach that desired level). Targets are usually combined with Performance Measures into goal or objective statements. Examples include:

  • Increase Total Monthly Revenue to $200,000 by June 2013
  • Reduce Weekly % of Subscribers Who Unsubscribe to 0.5% by December 2012
  • Reduce Number of Lost Time Injuries per Month to 3 by March 2013

Improvement Initiative – also called strategy, project, improvement project, milestone. The actions you have chosen that will close the gap between your current level of performance and your desired level of performance are Improvement Initiatives. These are what your strategic budget invests in. Examples include:

  • Develop a new high-end product for our top 10% of customers.
  • Research needs of current subscribers and more tightly align the content of newsletters to address those needs.
  • Design, test and roll out a Safety Culture Program to increase employee ownership of safe working practices.

Have I opened another terminology can of worms?

TAKE ACTION: There are two important things to do. Firstly, be clear about the meanings of the basic performance management concepts, before you bother defining the terminology. Secondly, define the terminology you use in your business or organisation, write a glossary for everyone to refer to, and be consistent in how you use it.

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  1. David Wheeler says:

    Hi Stacey. Always a pleasure to get your posts.

    With respect to ‘Performance Measures’, creating or defining a simple hierarchy of terms can help laser through the haze of cross-talk and jargon.

    Measure – a simple measure without any context that might give it significance eg number of weld repairs. A measure of, say, 10 weld repairs tells us nothing other than that 10 weld repairs recorded. This may be a spectacular success if 100,000 welds were being performed a month, or it could be a spectacular failure if the work under measurement was a single project for 10 exotic metal welds.

    Metric – a contextually based measure that allows comparisons between different operations eg % of piping weld repairs against number of piping welds on a given project. With Metics like this, scoring ranges can be set to trigger interventions if performance steps outside an aceptable band of normal fluctuation eg if weld repair rates exceed, say 1.5%, this is ‘set’ as being less than industry good practice. A score of, say, 2.0% will demand project team intervention to get to root causes and initiate remedial actions. A higher range could be set that triggers senior management interventions (say a score of 5+%). Thus Metrics come with ‘context’ and with objective ‘triggers’ for quality control actions at dfferent corporate levels.

    Key Performance Indicator – this is an abstract number derived from a weighted collection of metrics to create an overall performance measure in a ‘key’ performance arena such as “Health and Safety”, “Environment”, “Security”, “Quality Management”, “Schedule Control”, “Cost Control” or, say, “Local Content”. Here the KPI is an abstraction that brings together maybe 10 or more Metrics into one overall indicator. In the above examples, the weld repair rate wou;d be given a relative weighting as part of an overall KPI for Quality Management. The specific Metrics used within each performance arena will be different for different industries, as will the relative weightings, but this “KPI” approach enables senior management to see different companies’ relative performance profiles in these key arenas.

    However, the use of such ‘KPIs’ requires a coordinated cross-company approach hard to achieve without the buy-in and leadership of a Group or Corporate’s most senior managers.

    Recent experience suggests that by using this type of language and by applying this kind of interventionalist approach, management teams can focus their interventions more meaningfully and, equally importantly, more productively, at appropriate project and corporate levels.

    Your thoughts?

  2. Stacey Barr says:

    David, the terminology debate is a tricky one. Thanks for sharing your definitions. I’m sure you’re aware that others define those very terms in different ways? David Parmenter, for example, has a different definition of Key Performance Indicator (see his book, Key Performance Indicators).

    On your comment about abstract numbers derived from a weighted collection of metrics”, I’m not a fan at all of weighted collections or calculations combining performance measures (my favourite term as you may have noticed). See http://www.staceybarr.com/measure-up/3-good-reasons-to-avoid-indexes-and-scores/ for my views, if you’re interested.

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