Strategic Planning 101--Why Measure Performance?

Paul Epstein, a noted author on performance measures has defined performance measures as "a systematic attempt to learn how responsive an [organization's products and] services are to the needs of the [customer] and the [organization's] ability to pay." Measuring performance offers an effective method of determining whether or not an organization is meeting its goals and achieving its mission.

Generally, performance measures fall into one of four categories. These are:

Inputs are the resources that an organization uses to produce goods or services, including human, financial, facility, or material resources (e.g., number of dollars expended or tons of material used).

Output Measures are tools, or indicators, to count the services and goods produced by an organization. The number of people receiving a service or the number of services delivered are often used as measures of output.

Efficiency Measures are indicators that measure the cost, unit cost or productivity associated with a given outcome or output.

Outcome Measures are tools, or indicators, to assess the actual impact of an organization's actions. An outcome measure is a means for quantified comparison between the actual result the intended result.

What Can Metrics Do For Me?

The accounting firm of Price Waterhouse has offered three main reasons for establishing metrics in an organization.

1. Measurement clarifies and focuses long term goals and strategic objectives. Performance measurement involves comparing actual performance against expectations and setting up targets by which progress toward objectives can be measured.

2. Measurement provides performance information to stakeholders. Performance measures are the most effective method for communicating about the success of programs and services. For example, in public education, states and school districts routinely issue "report cards" highlighting test score outcomes and other key indicators of educational performance. These have become centerpieces of attention among not only educators, but many other stakeholders.

3. Measures encourage delegation rather than "micro-management". Hierarchical structures and extensive oversight requirements can obstruct organizational effectiveness. Performance measures free senior executives for more strategic decision-making and selective intervention, while clarifying the responsibilities and authority of managers.

The Benefits of Performance Measurement

1. Performance measurement enhances decision making. The process of developing performance measures allows an organization to determine its mission, set goals for desired results, and identify methods of measuring how well the results are achieved. The data generated through performance measurement can be utilized in determining program effectiveness, in evaluating options for service delivery, and in charting long-term programs and fiscal plans. For boards of directors, performance measures can focus attention on outcomes, and can allow for solid evaluation techniques.

2. Performance measurement improves internal accountability. Measuring performance gives decision makers a significant tool to achieve accountability. Employees at all levels are accountable to upper level managers for their performance or that of their crew, and upper level managers are accountable to executives. This relationship becomes much more clear when outcomes and outputs are measured by a commonly accepted standard. Systems such as management by objectives (MBO) or pay for performance plans can be much more effective when teamed with a high quality measurement system.

3. Performance measurement supports strategic planning and goal setting. Without the ability to measure performance and progress, the process of developing strategic plans and goals is less meaningful. While there is clearly some benefit to thinking and planning strategically, the evaluation of such plans and goals cannot be objective without measuring performance and achievement. For example, one strategic initiative of secondary education might be to prepare non-college bound students to be effective in the labor market without higher education. If a high school were to set such a goal, and then not identify ways to determine how well prepared students were upon graduation, the school could not know how well its vocational programs were meeting the objective.

Organizational metrics are important for all organizations--public, private and non-profit. Working with employees, management, and affected stakeholders, organizations involved in strategic planning can develop measures of performance in the production of goods and services and in meeting the organization's most important objectives.