Simply, measuring organizational performance shows quantified progress toward the attainment of targeted business objectives, such as "a 10% improvement in business cash flow". Measuring performance also provides a type of "early warning system" that objective attainment may not be occurring as planned. In addition, your use of business performance metrics enables you to predict or forecast future performance.
The process of measuring organizational performance is essentially 4 steps:
The use of performance metrics and actively measuring performance progress is effective in providing a "point-in-time" view of business objective attainment - are we achieving our objectives, within the constraints of budget, time, and resources.
There are three basic methods for measuring organizational performance:
Variance and Trend Analyses are most used as business performance measures - finance and operations measurement techniques. These are typically used to show variances in actual versus budgeted expenditures and the overall trending of business performance measures, such as revenues, COGS, business cash flow, operational expenditures, EBITDA, etc.
Earned Value Project Management Analysis (EV) is most used to measure project performance and forecast effects on budget and schedule through the project completion.
To establish a useful, pragmatic set of EV metrics, work with members of the finance and operations teams and focus on metrics that align with your overall business objectives.
There are two old adages regarding metrics and measuring objective attainment:
Once a set of business performance measures are established for a related set of "SMART" objectives, whether for your entire enterprise, a functional area, or a project, the stakeholders of those objectives and metrics must agree on a clear set of success criteria. In other words, what should the business performance measures, and progress toward achieving the objectives, show for the stakeholders to consider the objectives successfully achieved?
Remember, measuring corporate performance and progress will not be successful unless you have clear, unambiguous objectives and success criteria.
Along with the metrics, objectives, and success criteria, a schedule or timing for measuring performance should be established and communicated to all stakeholders. Consider distributing an information checklist so that everyone is clear what information must be provided and by when. This is a continual process throughout the fiscal year for your business and for the duration of each of your individual projects.
Each time the information is gathered and the measurements analyzed, questions regarding whether there are deviations from attaining objectives will be answered. If deviations exist (reaching agreed-to thresholds) senior management must then determine if corrective actions should be implemented, such as:
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