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Managing By The Numbers, Continued April 10, 2014

Posted by Tim Rodgers in Communication, Management & leadership.
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Picture this: a group of senior managers are sitting around a conference table listening to a monthly or quarterly business review. It’s a procession of slides, mostly the usual bullet-text items but occasionally punctuated by a table or a graph with some numbers. The numbers are important because they suggest some kind of analytical rigor and objectivity, but the fact is that most of the people in the room have no idea where the numbers come from, whether they have any relationship to the business’s current or future success, what can or should be done to make the numbers look different next time, and whether they should care.

I’ve written about this before, and I’m still surprised at how many organizations continue to routinely report numbers and KPIs without making any sense of them. Here’s where this often breaks down:

1. A single measurement means nothing without a point of comparison. You have to either measure the same thing repeatedly over a period of time (to determine stability or detect a trend), or measure the same thing under different conditions (to determine the effect of the environment). I’ve been in meetings where people argue over whether an ROI for a project is high enough without comparing it with other possible investments or a standard investment hurdle rate.

2. Any performance measurement must be assessed within the larger business context. Not all results or trends require action. In fact, it’s best to define targets or control limits that trigger action rather than overreacting and committing time and money to address imagined performance “problems.”

3. If you’re not actually going to act on that performance metric, then it may not be worth measuring and reporting in the first place. I recommend a bottoms-up review of all KPIs, at least annually, to verify that they’re still valuable indicators of the overall health of the business and/or indicators that progress is being made on the strategic priorities.

4. The two questions that should be asked during any KPI review: (a) If the metric is not hitting the target, what are we doing about it? (b) If the metric is hitting or exceeding the target, what did we do to achieve that (or, is it just a random occurrence), and is that performance sustainable?

Measuring performance is the beginning of understanding, not the end. We’re not doing our job as managers if we’re measuring performance but ignoring the message, relying only on our gut.

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