Performance Measurement
June 10, 2012

Designing ‘balanced’ performance indicators

Canada is a hockey-loving nation and now is the time of year when performance in the National Hockey League comes to the forefront. Fourteen of the 30 sets of players and coaches are, to use hockey parlance, heading to the golf course. These teams did not earn enough points during the regular season to allow them to advance to the playoffs.

Similarly, some players will either be handsomely rewarded with new lucrative contracts or be looking for a new employer as a result of their great or poor performance over the season. Goals, assists, ice time and perhaps penalty minutes will be the set of performance indicators used to determine bonuses or future earnings.

At the same time, federal ministers are seeing their spending reduced courtesy of the March 2012 budget and Deficit Reduction Action Plan (DRAP). And every level of government across Canada and the world has seen funding cuts as a result of austerity measures. In times of reduced spending, how can governments demonstrate taxpayer value for money? This can be achieved through a comprehensive set of performance indicators (PIs) clearly linking activities to outcomes.

Conventional wisdom is that a PI should be SMART – Specific, Measurable, Achievable, Realistic and Timely. The Australian government takes this one letter further, and appends “Agreed” to the end of the acronym, to ensure that all stakeholders are aligned, which helps make Australian indicators a little bit smarter than those that we are accustomed to in Canada.

Obtaining agreement on PI targets is critical to those who are accountable for achieving the objectives; the SMARTA model helps to realize this.

An individual PI is most useful if aimed at a specific area. A set of PIs will be far more beneficial to measure the overall success of a program and its outcomes. To build this set of PIs, ask yourself this question: is the set of PIs mutually exclusive and collectively exhaustive (MECE)? That is, when the PIs are grouped is there no overlap (mutually exclusive) and when combined, do they cover all possible options (collectively exhaustive)? This will identify any inconsistencies in the performance measurement framework.

All too often we see sets of activities and outputs linked to a set of strategic outcomes with little or no explicit logic in the middle. Essentially we are “waiting for a miracle to happen,” expecting that our day-to-day activities will somehow give rise to the expected strategic outcomes. We offer five design principles to combat this problem:

1.    Develop an Outcomes Map or Logic Model as the foundation for the logic. This will establish the appropriate PIs for immediate, intermediate and final outcomes and their explicit linkages.
2.    PIs should contain a mix of quantitative (numbers based) and qualitative (tells the story behind the numbers) measures. For clearest measurement, quantitative are preferred. However, qualitative measures should not be overlooked in the analysis of how well a program is performing. For example, we could measure client satisfaction quantitatively, asking clients to rate their satisfaction on a scale from 1 to 5. To add richness to this measure, we could also collect free-form comments to understand the reasoning behind the satisfaction level.
3.    PIs should be balanced across a number of dimensions. Any individual PI will, by definition, distort the picture of what is happening.
4.    The set of PIs should have some lagging, real-time and leading indicators. These will tell you what the performance was, is and will be, respectively, giving you the full picture.
5.    PIs should be used primarily for internal management purposes and secondarily for meeting external reporting requirements. Performance reporting can take the form of internal management reports, public reporting, or to parliamentarians through the Departmental Performance Report (DPR) or an annual report.

Using these five design principles will result in a comprehensive set of performance indicators that are balanced and clearly link activities to outcomes. This may not help you with your next NHL contract negotiation, but will ensure that the true value of your organization is clearly demonstrated to your stakeholders.

Nick Simmons is a senior consultant with Interis Consulting (Nick.Simmons@interis.ca). Murray Kronick is the co-president of the Performance and Planning Exchange (PPX) and a principal in Business Performance with Interis (Murray.Kronick@interis.ca).

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