The Drucker Guide To Building A Performance Measurement & Control System
The founder of modern management laid the groundwork for the process of building, analyzing, and reporting information regarding the performance of an individual or organization.
The purposes of this article is to provide a basic understanding of performance measurement and control systems as a tool for defining, measuring, and tracking mission-critical performance metrics.
In subsequent articles we discuss the many problems associated with determining what to measure and how to measure it.
Further, we will discuss different kinds of measurements (e.g., output versus outcome) in the next article.
Still further, we will illustrate how to organize the feedback from results to activities, that is, how to do a systematic review and continuous revision of objectives, roles, priorities, and allocation of resources based on actual results.
This article (which is part of an MMN four-part e-book series titled Applying The Drucker Approach To Reinventing Government Agencies) provides you with a highly oversimplified example. We have made every attempt, at times at the price of rigor, to avoid "pulling any rabbits out of the hat."
Have you noticed?
Performance measurement and control systems. It's a hot topic these days—in the business press, in books,in government agencies, in the world of management.
Whether you are managing a call center or internal HR operation...or spearheading a Lean Six Sigma project...or government agency executive charged with the responsibility building the habit of continuous improvement into your government agency, you must master (informally and/or formally) the interrelated concepts of a performance measurement and control system.
Related Reading: The First Law Of Creating OKRs
The Five Key Components of a Performance Measurement and Control System
Setting realistic/measurable expectations/objectives
Thinking through how to continuously capture measuring information
Developing strategies and tactics capable of accomplishing clearly defined expected outcomes
Monitoring/tracking feedback from actual results
Taking corrective action when there is a deviation between actual versus predicted/planned results
There are many types of control systems. The basic underpinnings of Management by Objectives, as originally formulated by Peter F. Drucker and Joseph Juran involve the application of these five components or steps. Juran's formulation involves eight steps (these are listed at the conclusion of this article).
The key to success in any organization including government agencies is to decide what its objective should be. How to mobilize its energies for performance. How to measure whether it succeeds.
Every government agency is now in the process of revisiting its mission, rethinking its goals, and deciding what its measurable results should be.
Weight Control: An Example That's Easy To Understand
A simple example explains the performance measurement and control process better than any theoretical explanation. Say, you want to lose weight.
First, you decide how much weight you want to lose. You are conservative. So you set your target level at three pounds per week.
What did you just do? You set a target level of performance for your weekly weight loss. This is the variable you want to both improve and control.
Most importantly, you have something measurable (i.e., weight). It's a performance indicator. You will need a weight loss process to obtain the measurable outcome you desire.
Again, you have established a standard or target level of performance. Further, you have also established a unit of measure that works—pounds are a measure of weight.
In short, you set a realistic expectation that is measurable. No fluff. You either lose weight or you don't.
OK, What's Step Two?
You have to decide how you are going to continuously capture measuring information. What's your mechanism for doing this?
In this case, it is very easy. You use a scale. Joseph Juran called this a sensor. In short, you need a way to collect information on your performance. How else can you monitor or track if you are succeeding?
So far, you've done two steps—namely, set a realistic expectation that is measurable and figured out a way to continuously capture measuring information. Sounds pretty good. You agree?
Memorize your first two steps! It's easy now. But it gets harder as we progress.
The Third Step Is...
Develop your strategy and tactics for accomplishing your expected outcome, that is, losing three pounds per week.
A strategy can be defined as a “what-to-do” plan to accomplish the outcome you want to achieve (three pounds per week).
Your strategy would probably sound something like this: "I will exercise more and eat less." That's a "what-to-do" statement.
But this is vague and general statement. Really meaningless in terms of action. It says nothing specific. At best, it can be called a good intention.
It tells you what you want to do. But—and this is a big but—it doesn't tell you “how-to-do-it.”
So, you would probably want to get specific. The specifics can be called your tactical (how-to-do-it) work plan.
The tactical plan would probably be put into the form of a list. That list would probably resemble the following:
--I will go to the gym four times per week for two hours or more.
--I will eat a prescribed diet
Indeed, you may get very specific about your exercise regimen, that is, provide details as to the exact exercises you will perform. And you would probably choose a daily diet routine recommended by a host of experts.
So far so good? You now have your strategy and tactics to accomplish your desired outcome—three pounds per week. That's your goal.
Let’s Proceed to the Fourth Step...
Test your comprehension of this process. Assume you've adhered to your strategy and tactical plan. Seven days have passed.
What comes next? After the first week, you'll get a scale and record your weight.
You want to know if the program working? You want to know if your strategy and tactics are paying off.
Let's put this in more highfalutin terms. You want to monitor and track feedback from actual results. This is a fancy way to say: I will weigh myself using a scale every week.
The Final Step...
You compare actual results to hoped-for results. And you are prepared to take corrective action if there is a deviation between actual and expected results.
Oh boy! You followed the strategic and tactical plan perfectly. But regrettably you shed only one pound.
Now, what do you do? What are your options?
Well, you could wait another week. That's a viable option. Or, you could change your strategy and your accompanying work plan. Or, you could lower your target level or standard of performance. (That's pretty much what the Obama Administration did with respect to economic growth).
Sooner or later—assuming you wait another week—you will be down to changing your strategy/tactical work plan or downgrading your expectations.
If you change your strategy/tactical work plan, you could possibly change the number of days you exercise, your specific exercises, time spent exercising and your diet plan. And, then, you would start the procedure just outlined all over again.
We can now introduce some interchangeable words for standard/target level of performance/expectations—namely, desired outcome, predicted result, desired result, expected outcome and several others which crop up from time to time. They all mean the same thing.
We began with five steps or basic functions vital to the control of any process. For starters, we introduced the concept of setting standards or target levels of performance.
Your target level of performance was to lose three lbs. per week. This could be called your expectation, your desired outcome, your desired result and so on.
We indicated that it was important to select a measurable performance outcome and one that was capable of being captured with a measuring device (a scale in this case).
We proceeded to developing your strategy and tactics for losing weight.
Aha! Next, you were comparing "feedback from actual results."
That is, you were weighing yourself (using a scale) to compare actual weight-loss to your quantified goal of three lbs. per week.
We called this step "comparison of actual performance with targets." Finally, we discussed the general actions available when a major deviation between actual and predicted results occur.
You can lower your goal. Or you can change your strategy and tactics. It’s your choice.
We strongly advise that you memorize the five steps involved in performance measurement and control. If you memorize it, you'll see how it begins to become part of your thinking and improve your managerial performance.
Another Version Of A Performance Management & Measurement System
Back in 1964, Joseph Juran, a pioneer in the field of quality management, developed a very similar performance measurement and control system. Celebrated statistical process control guru W. Edwards Deming advocated this particular system that builds on the trailblazing work of Bell Labs' Walter Shewhart in the 1920s.
1. Choose a "performance indicator." This is our selected KPI (i.e., key performance indicator) that we want to use to judge success (e.g., number of complaints in navigating the ACA website, number of violations of the rules of safe behavior on nuclear submarines whether someone gets hurt or not, waiting times at VA hospitals).
2. Rigorously define a unit of measure. Experience shows we communicate poorly with each other when we talk in non-quantitative terms with respect to key indicators of performance. It is better to express standards and results in terms of numbers rather than adjectives. How high is a "high" level of performance, how poor is "poor" performance? (We discuss in a later chapter the specifics of units of measure).
3. Establish a standard level of KPI performance in terms of a unit of measure. However done, the standard becomes the level we are trying to attain.
4. Create sensory devices for measuring actual performance in terms of the selected unit of measure. Sensory devices may be derived from accounting data, specific reports, and the like.
5. Mobilize for measurement. Create the organizational and computer-assisted mechanisms for capturing required information at the right level of aggregation (i.e., level of detail).
Today measurements are often called analytics. And there are three kinds of analytics – namely, descriptive analytics, prescriptive analytics, and predictive analytics. (We are only discussing descriptive analytics at the moment).
6. Compare actual KPI performance with the established standard of performance. With measurements defined, it then becomes possible to organize the feedback from actual results. Organized feedback forces systematic review and continuous revision of objectives, roles, priorities, goals, and allocation of resources.
7. Decide on actions needed in view of negative differences between actual and standard performance. This requires deciding how the strategy for obtaining the desired KPI result and the tactics employed must be changed.
8. Take the action. A decision is not an action. Decisions are not deeds. A decision is a good intention. An action converts a decision into doing.
The performance management and measurement task, if done purposefully, responsibly, with knowledge and forethought, can indeed be one of the most powerful tools for achieving needed results.