This old adage is more than a saying—it's a powerful aspect of human nature, especially in our data- and incentive-driven world. In fact, at times, it may even be too powerful. While business process measurement is critical, managing by measurements alone can result in unintended consequences. Some people say, "If you're not measuring, then you're only practicing." Which is it for you? There are literally hundreds of sources touting various types of measurements, including specific metrics for different business processes and industries. Public company stock analysts, and companies themselves, may report key measurements in their Form 10-K annual report to shareholders and as part of their quarterly press releases and analyst conference calls. Many industry associations report measurement information on their members, often to help their membership improve the relevant areas of their business overall and within specific business processes. Organizations should seek out such information and find the best sources and concepts that can help them be more effective. However, the measurements an organization selects and uses must work for its unique demands and circumstances. They have to help executives, department leaders and individual business owners manage better, make more accurate decisions and improve performance more distinctly and faster. A few basic types of business process measurements include: - Input
- Quality
- Process
- Cost
- Output
- Time
These measurements relate to many things, e.g., price, volume, mix, innovation and compliance, among other things. Measurements in a vacuum are just that—empty. They become meaningless, or worse, counter-productive when there is no comparative context. For measurements to be meaningful, there must be something against which to compare them, for example, last year, last month or even yesterday. Desirably, an organization's key measurements should be linked to the strategy and business plan, and targets should be set. Comparisons to similar branches or individuals within groups, such as sales, production or service, will yield results to help the organization improve. While comparisons to goals, budgets and targets, including stretch targets, all will help management make better decisions and take timely corrective action. Before measurements can be finalized, they must be screened to ensure they meet the requirements of a key indicator versus a mere operating or financial statistic. To be selected as a key indicator, the measurement must possess all seven characteristics. In addition, benchmarking measurements with other companies—peers, competitors and leading-edge and world-class organizations, should not be overlooked. In fact, holding a benchmarking session or roundtable in one or more of the organization's local markets may help it refine and improve its measurement processes, as well as set new goals around key measurements. Finally, measuring is not a destination, but rather a journey. Organizations should adopt the concept of continuous improvement into their thought processes and "never be fully satisfied"—there is always more to be done and higher levels to achieve. Making big plans, setting tough goals and almost getting there is generally much better than simply settling for and achieving smaller, less lofty goals. Any company would be well-served to "shoot for the moon" and see how close it can come. Think of measurements as an alignment tool. They help align processes and people with the organization's strategy and business plan. With company ERP systems, the Internet, spreadsheets, data warehouses and other enhanced data sources, the ability and capability to measure have increased exponentially because of all of the data available. This allows a company to connect much more information than in the past in the form of key measurements. Organizations should take advantage of this technology to generate real-time, continuously streaming information where that degree of timeliness is warranted. More and more organizations today are adopting continuous monitoring, data mining and data analytic techniques to improve their management capabilities. However, it is important that they avoid taking this approach too far. Not every measure a company develops needs to be reported daily or more than daily. Too many measures can be just as bad as too few. For this reason, the use of a "balanced scorecard" is best practice when assessing measures to look at and act upon. Both words, in fact, are important. Balanced reflects an appropriate and action-compelling mixture of financial and non-financial measures, each compared to relevant targets and other time periods within a single, concise report. Scorecard denotes the ability to glean important, actionable information swiftly. One important measurement of a balanced scorecard is length: If the scorecard cannot fit on to one piece of paper (two-sided printing is acceptable), then there likely are too many measures and too much information. Another important element is presentation. When it comes to an effective scorecard, "A picture is worth a thousand words." Organizations should incorporate rich colors and graphics to make their scorecards as visually appealing as possible. Finally, no scorecard will work if it is not accurate. Organizations must delve into the integrity of the numbers and information that drives their scorecards and be sure they have accuracy. Making what seems to be the right decision on the wrong information can be catastrophic—data integrity matters. The goal is to ensure "one version of the truth" so that decisions can be made in a timelier manner. Most measurements are related to various business "objectives," such as profit, return on investment, cost, opportunity, efficiency, etc., but what about the other side of the coin—risk? Recently, risk measures have become an added dimension to businesses and the business process landscape. In fact, public companies today must disclose the role of their board in the risk oversight process. This means that something must actually exist (a risk management process) in order for that something to be overseen. This is critically important considering that missteps in the financial services industry, resulting from ineffective or lack thereof risk management processes (and measurements), continue to dominate the news. It is the task of all process leaders to consider the question, "What can go wrong?" As part of this, there should be some risk measurement, monitoring and reporting activity. While some will surely disagree, businesses and their key processes are more than just measurements. There is a human element that shouldn't be forgotten and one that organizations may not be able to measure fully. Business is still about people: If companies can harness enthusiasm, dedication, commitment and loyalty from their people, all of the other measurements will come. Thus, while it is important to measure and measure well, it also is vital to think beyond measurements and consider the human aspects of any organization and the people that management oversees, controls, influences, develops and leads. Finally, remember the carpenter's rule: "Measure twice, cut once."
BOB HIRTH is executive vice president for Protiviti, a global business consulting and internal audit firm. His responsibilities for the last 10 years have included providing leadership, strategic direction and practice infrastructure support for Protiviti's global Internal Audit and Financial Controls practice. For more, visit www.protiviti.com.
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