What Gets Measured Gets Managed

Years ago, I worked at a business that evaluated its operations rather effectively and timely each month. At the time, our newly implemented ERP allowed us to track and evaluate myriad data points with relative ease.? We began to roll out new measures/metrics that we wanted our individual mangers to begin improving. We were able to drive large improvements in efficiency and profitability.? The CFO would always reminded our management team “what gets measured gets managed”. I have found this to be true over the years.?

Today data is everywhere, it can be hard to decide where to start or how to implement new or next-level metrics and reports.? I will layout a simple process for choosing data measures and a few common pitfalls to be avoided when adding to your reporting packages.

There are some metrics that are always important and, therefore, should not be ignored or discarded.? ?Safety, quality, and profitability come to mind as standards that we will never stop measuring.? The best way to develop a plan for new metrics is to start with these types of generic measures.? For example, we can break profitability down into revenue and expenses. Then we further break down expenses into cost of sales (or COGS) and SGA expenses…this is very intuitive but in other areas the refining may not be so obvious.? The key here is you want to drill down until you get to a level where the changes in the specific metric are controlled by an individual work cell or working group.? This drilldown exercise usually stops and aligns at the level of a team lead or group manager. ???

To validate your selection, you want to look backward in time to verify that there is a correlation between the new proposed measure and the desired result.? If you test it against past results and there is a causal relationship then start measuring and reporting on that metric. ?There are two ways to implement a new metric.? You can begin reporting (always including a view of the past trend of the measure) without a specific quantity goal but with the goal of improving. For example, improve the relative efficiency of production line 3 over last fiscal year’s average. Often a better method is to provide an actual quantity goal and even better a timeline in which the goal must be met.? For example, improve the efficiency of production line 3 to a running quarterly average of 80% before the end of the current fiscal year. Generally, experience and the past trend will help you identify which new metrics/measures should be assigned a specific quantity and a specific timeline.

You must be careful not to overburden your management team with too many new measures identified for improvement.? A good rule of thumb is that the actual process/group manager should have no more than three new metrics tagged for improvement.? Depending on your organization structure, you could still have dozens of new metrics but no more than three for each management cell. ?Remember these are new metrics/measures/goals - there will always be the key reporting items that have existed up until now.? We don’t want to abandon the tried-and-true measures in exchange for the new measures. The purpose of the new goals is to help your management team to focus on the items that will most directly (and often most quickly) improve their overall performance.? Typically, once you have been tracking and reporting on those measures for a year, they can be folded into a standard reporting state and you can then roll out new metrics.?

As is true in most organizations, the frontline manager will frequently know where they should be focusing their efforts.? Remember that including them in the development and tracking of measures and in the setting of goals is the best way to ensure their participation and success.? Also, it will help you avoid identifying the wrong measure, wrong goal or unrealistic timeline.

Truly what gets measured gets managed.? Best of luck achieving better results by implementing new measures and metrics in your organization!