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:



    1. Input

    2. Quality

    3. Process

    4. Cost

    5. Output

    6. 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.






    Measurement Key Indicator Characteristics
    Click here to enlarge image»


    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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