What is a Performance Gap?

by Stacey Barr

Every KPI or performance measure linked to your strategy will have a performance gap. Find out what it is, how to calculate it, and what to do with it.

A man jumping over a gap from past to future. Credit: https://www.istockphoto.com/portfolio/DilokKlaisataporn

We say that we need to measure performance so that we can improve it. And improving performance means moving it from one (unacceptable) level to another (better) level.

When current performance is unacceptable, we generally use a target to describe the better level we want it to move to. The difference between current performance and targeted performance is the performance gap. And improving performance means closing that gap by moving current performance closer to targeted performance.

Performance measurement is about quantification, and that applies also to each measure’s performance gap.

How to calculate a KPI’s performance gap…

A performance gap is not as trivial as the difference between last month’s performance and a monthly target. If you don’t understand variation, you’ll make the mistake of assuming this kind of gap is real, and it isn’t.

To calculate a performance gap for a KPI, we need to objectively quantify two things:

  1. the current level of performance
  2. the target level of performance

To quantify the current level of performance, we need to get a quantity that isn’t going to jump around randomly from month to month. We need a quantity that is a stable representation of current performance. And the XmR chart gives us just that: the Central Line. In everyday performance lingo, we call this the performance baseline.

Then, to quantify the target level of performance, we set a quantity that we want the current performance to be in the future (as a result of our improvement actions). What we’re doing, in fact, is setting a new quantity that we want the future performance baseline to move to.

Here’s how these two quantities work together to show us the performance gap:

The size of the performance gap, therefore, is the difference between the current performance’s Central Line and the future targeted level we want it to reach. The gap in the above example is the difference between 1230 (current performance) and 500 (targeted performance), which is 730.

TIP: You can learn how to build an XmR chart for your measure here.

What to do with a KPI’s performance gap…

A performance gap is not just the difference between two numbers. It also includes a time lag between the current level of performance and the future targeted level of performance. That’s because performance doesn’t fundamentally improve overnight. It takes time to analyse and understand and fix the causes that are holding that performance gap open.

So, as we move through time, we’re implementing an improvement initiative to close that performance gap. And as we move through the same span of time, we keep monitoring our KPI for signals of change in the current performance (or performance baseline).

If our KPI shows us a signal of change, we can calculate a new performance baseline, when the change stabilised. And then we have a new performance gap (hopefully smaller now).

Perhaps a bit more time, or another improvement initiative, or just continuing to implement the current improvement initiative, and the performance gap might close completely. And we’ve improved performance.

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