Performance measurement: does your firm suffer from a surfeit of measures? Mike Brooks considers whether a dictionary of measures could help organisations to improve their performance.

Many people in many organisations, both commercial and public sector, spend much of their time measuring things. Most of these activities are conscious, structured and well co-ordinated, but a lot of them are not. If you were to slice through a typical organisation at 11am on a typical working day, you would see accountants with spreadsheets and calculators, planners with economic models, process operators monitoring production activities, HR professionals operating appraisal processes--the list is endless.

Each department will have developed its measurement processes to deal with its own particular requirements. The measurements and many of the tools will have been custom-made to deliver the metrics needed to operate and monitor different aspects of the organisation's activities. However, many of these metrics will deal with similar issues and will duplicate work done by other measurers. In such cases it's likely that the definitions of the measurements, the dimensions of the characteristic measured and the units of measurement will differ. In the oil and gas industry, for example, the operator of a series of joint ventures in the North Sea may measure workforce numbers using several definitions:

* Actual company employees at any point in time.

* Company employees--full-time equivalents, taking into account part-time workers.

* Equity employees--only the proportion of the workforce relating to the company's share of the joint venture's operations.

* Total workforce, including freelance contractors, consultants and secondees from joint-venture partners.

* Total establishment, including vacant positions.

This probably means that someone, somewhere, has a full-time job understanding the subtle differences between all these measurements and reconciling the figures. The situation will be repeated across all functions and, although many of the measurements may be valid, the extent of the proliferation of measures--and the cost is almost certainly unknown.

Such duplication could have potentially serious operational implications for an organisation. When measuring output, for example, the production department may be measuring the physical quantities manufactured, while the finance department is measuring the value in terms of cost and the sales department is measuring it in terms of selling prices. The measures could highlight different trends to different teams and will, therefore, deliver conflicting messages.

If this situation is undesirable when the organisation is operating normally, it becomes critical when it occurs during a programme of business performance improvement. For such a programme to succeed, it's usually necessary to define and quantify in advance the characteristics that require changing and to set up a coherent and rigorous process for measuring these changes. This task will clearly be much harder if there are inconsistent and potentially conflicting measures of key parameters.

One solution is to develop a measures dictionary, as suggested by Gerald Bradley in his book Benefit Realisation Management (Gower, 2006). He stresses that, to ensure that benefit realisation management improves performance, it must be treated as a project and be subject to the discipline inherent in good project management. This includes developing a single, comprehensive and agreed set of measurements by which the desired improvements can be evaluated--ie, a measures dictionary.

The idea is to create a unified database of all the measurements made by every part of the organisation. This has two parts: one contains the definition of the measurement and the other is a data set of all the values for each of those measurements.

The definition component is the starting point for constructing the dictionary. In many cases this will be the more difficult part to construct. The same or similar measurements will often occur in different parts of the organisation for allegedly different purposes. These will have slightly different definitions or even no definitions at all. It may also be true that several superficially different definitions are in fact the same, but the different terminology reflects the language of the department which first decided that they were necessary.

The biggest difficulty will be to establish which of the many potential measurements should be adopted for the whole organisation and which will be dropped. This doesn't necessarily mean that each of the principal attributes of the organisation and its performance can be represented by a single metric many of its more subtle and complex features may require several measures to capture all the relevant aspects. But you should aim to challenge any duplication and establish whether it is justified or not.

This is possible only with management commitment at the highest level. It may be that neither the finance director nor other functional heads will have the necessary influence and power. In this case the CEO or COO will need to back it. Some organisations may have a head of corporate planning who can take on an enforcement role if they can gain the trust of different departments and are seen as impartial when departmental agendas conflict.

The dictionary must include every measure that is used regularly by the organisation to monitor its business and operational performance (see panel, above). The process of constructing the dictionary should involve every unit, department and manager. The data set component of the dictionary will be easier to put together once the definitions are agreed. This part of the database will usually consist of:

* A series of historical values.

* Short-term budgeted values.

* Target values.

* Longer-term strategic values.

* Industry-, sector- or economy wide values.

Each measure may also be subdivided into a set of dimensions. For example, sales may have a product dimension, a customer dimension and a regional dimension, so that the organisation can monitor sales of product P to customer Q in country R.

One key feature of a measures dictionary is that it works at organisational, not departmental, level. The way in which it's used should reflect this. Once it's set up, the organisation should appoint two groups of people to operate and maintain it: "measure owners" and "measure guardians".

Each measure in the dictionary needs an owner who is responsible for the performance of that measure. So, for high-level measures such as pre-tax profit, the owner would probably be the managing director, whereas the owner for the average daily quantity of steam produced by the boilerhouse would be the utilities manager. This one-to-one correspondence will not only reinforce day-to-day operating responsibilities but also facilitate a structured method of driving improvement. Guardians, on the other hand, are responsible for collecting the data; for ensuring its integrity and comparability; and for distributing it. They are also the focal points for introducing new and amended definitions. A financial manager will often be appointed guardians for a range of measures, not all of them financial. But it's important that this doesn't create the impression that the dictionary is primarily a finance tool. Guardians need direct access to the sponsoring manager, so that they don't come under pressure to re-proliferate measures--and so that they have the authority to report the use of measures not in the dictionary.

If properly implemented and used effectively, a measures dictionary can clarify the way an organisation measures and understands itself. It can improve communication between disparate parts of the organisation and also provide a foundation for performance improvement, which in any highly competitive environment is no longer a one-off project--it's business as usual.

Mike Brooks FCMA (mikebrooks@ gatehouse10.demon.co.uk) is a business writer and consultant.

WHAT TO MEASURE

A typical measures dictionary will include measures of at least the following attributes:

* Financial performance, broken into components of revenue and cost, and by business unit.

* Financial condition, broken into assets, liabilities and the various components of equity, and by business unit.

* Physical quantities of inputs and outputs.

* The physical condition of property, plant and other assets.

* Operating statistics--eg, hours worked, plant and vehicle utilisation, temperatures, pressures and so on.

* Measurable attributes of the workforce.

FURTHER INFORMATION

Performance measurement is examined in the CIMA Mastercourse "Performance measurement and benchmarking", to be held in London on June 27 and November 30. Visit www.cimamastercourses.com or call 020 8849 2267 for more details.