The Cost of Performance Measurement

October 6, 2015 by Stacey Barr

Most organisations do measure performance, even if it’s only financial results. But the world over, there is a rapidly growing demand for better quality performance measures of non-financial results. Despite the demand, few organisations are doing it well. The biggest reason is their failure to invest appropriately in their performance measurement approach.

Existing approaches to performance measurement generally fail to fix the common struggles with measuring performance:

  • goals that are too intangible to measure
  • measures that are trivial or not aligned with strategy
  • people having no buy-in to measuring or improving performance

invested money growing

These struggles can’t be solved by using the same approach that produced them. So to get to a point where goals are measurable, measures are meaningful, and people are engaged, a better, more deliberate performance measurement approach has to be used.

But leaders often won’t consider alternative approaches to performance measurement because of the cost. The cost of training, the cost of implementation, the cost of the collection and reporting of more data.

I think they’ve got it all wrong.

I reckon they MUST consider alternative approaches to performance measurement, because of the cost. But I mean different costs:

  • the cost of having the wrong measures that cause the wrong decisions to be made
  • the cost of failing to identify emerging problems by not using the right measures
  • the cost of all the current wasted effort that’s resulted from failing to find and fix bottlenecks and inefficiencies in business processes

Switching to a better, more deliberate approach to performance measurement is an investment, not a cost.

It’s the kind of investment that returns itself many times over inside of 12 months. And then it just keeps returning thereafter. It’s the kind of investment that has a ripple effect of increasing the ROI of just about every other business improvement initiative across the organisation.

Sure, we can still get business improvements without measuring, and instead by guessing or hoping or blindly assuming. But those improvements won’t be anywhere near as big or as long-lasting without measurement.

That’s because when you do something deliberately, you know you get a better outcome. Improving any aspect of business performance deliberately means measuring that performance so we can make evidence-based decisions on exactly how to improve it.

DISCUSSION:

What’s the vibe in your organisation? Is measurement seen as a cost, or investment?

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  1. Hallo Stacey,
    great idea – four month later I had workshop by one industrial company in Czech Republik (Europe) with orientation on combination of cost of performance contra work psychology. In most companies we are working under “turbo tempo or takt”, more companies have normally tempo – or takt. There is very interesting to realize projects for me in industrial companies oriented on the optimal life long of our employees in according to cost performance – work psychology – satisfy employment – satisfy company. If it is possible, I can cooperate with you in this area, for me it is very interesting specially in according to the multicultural employment in our European companies.
    Nice day

    Felicita Chromjakova

  2. Eric Smith says:

    Hi Stacey,

    What’s the vibe in your organisation? Is measurement seen as a cost, or investment?

    To be honest I’m not sure how the company views measurements. Of course they’re aware of the importance of measuring. But the approach and/or comparison to cost……………? Actually to bring up the subject of cost associated with not measuring correctly is a lag measure which makes it much more difficult to sale if there are no ears (the right ears) to listen. Normally it takes some difficulties that directly impact someone’s bonus or career or business standing or brand; before we start searching for a better way to measure.

    I’ve attempted to take your course to obtain more information as to how to approach the business concerning measures, but my paygrade is too low to get approval for the endeavor.

    At the moment; Inventory is the main measure. I’ve taken the team through a few steps in attempt to identify some process measures that could possibly give an indication of something. But we’re now at the stage of seeing how the measures identified link to a Inventory measure. We’re still using Inventory Measures to measure people.

    Although my message sounds typical or maybe even depressing…….I’m an old soldier and tomorrow is another day.

    Thank you for sharing your wisdom and knowledge concerning performance measures. It’s been very useful for me personally.

    Regards,

    Eric

    • Stacey Barr says:

      Thanks for sharing your story, Eric. It’s true what you say – many people still don’t give urgency to measuring performance. Knee-jerk reacting is so natural, it seems more decisive, and it gets monkeys off your back quicker too. But even more monkeys climb back on, and that’s the pattern that these poor people don’t see.

      Keep plugging away. If you can’t come to the PuMP Blueprint Workshop, Eric, my book Practical Performance Measurement will fill the gap for you. It will be back in stock on amazon by the end of the year.

  3. Kesavan, H. says:

    Hi Stacey,
    I am employed at a Consulting firm in India and am a part of the Data Analytics practice. I concur with your thoughts in the article. When I speak to prospective clients to offer value adding Consulting services through Analytics, the common reaction is ‘why should we incur such a heavy cost’. Although awareness about Analytics is there nowadays, they still treat the initiative as a cost and fail to recognize that this is truly an investment that could provide huge returns year after year. As a result, ‘analytics’ is still viewed as a ‘nice-to-have’ application.

    • Stacey Barr says:

      H. thanks for your comment. If there is resistance to measurement or analytics, I will ask “what is a performance problem you just don’t seem to be able to find a lasting solution for?” Then I’ll ask “How much is this problem costing you? What’s the payoff for fixing it?” Then it’s easy to compare the investment in measurement with a realistic benefit.

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