Measuring Performance with Indicators and Metrics

Management guru Peter Drucker who pioneered modern management is often quoted saying:

“You can’t manage what you don’t measure”

To manage performance we must first define performance.

What is performance?

My simplified definition of performance has three components: what we want, how long to get it, and what we’re going to do.

In any business or organisation, there are targets, goals and desires; which we are the things we want.

The first step is to define the things we want. Let’s list out some examples:

It’s critical to be explicit here and use quantifiable measures to express what we’re going to do, as numbers allow us to measure and manage performance. Let’s put some numbers to the things we want.

We don’t operate in a vacuum as competitors abound, funds are finite and age creeps up on me. Let’s further extend the table with the how long to get it.

This sets us up to create a set of lagging indicators.

Use lagging indicators to reflect reality

We’ll need a way of tracking how we’re doing in relation to what we want. These are measures of how we’re doing vs what we want. Unless we track these outcomes we won’t really know. From the examples above, we could track the results of our outcomes like so:

Increase revenue by 15%:

Increase code quality by 100%:

Get a 32" waist:

These metrics and charts will reflect how close we’re getting to our outcomes.

You get what you give

Now we’re not going to get what we want unless we do something about it.

To get what we want, we’re going to have do things, to cause an effect, which is the thing we want.

Let’s extend the table to include what we’re going to do to get it.

In reality we would have to commit to multiple activities to get the outcomes, this would be creating a plan of activity.

If I wanted to get a 32" waist, which I do, I would have to lose weight, diet and exercise. I can and should track these activities separately. The same goes to other types of outcomes.

Leading Indicators

Let’s use leading indicators to track how we’ll we’re doing on the things we do to get the things we want. Leading indicators reflect the progress of the our actions and activity. If the outcome is to increase the number of unique visitors by 30%, one way of achieving may be to increase the number of products on offer.

Similarly, to lose 15kg, I’ll have to exercise regularly, say 3 times a week for a whole year.

Leading indicators set up a way for us to project what we need to do and how we do according to that plan.

However, plans are based on assumptions and hypotheses and may be wrong. Perhaps added the number of products is not the right thing or the only thing to attract visitors. Perhaps 3 times a week is not sufficient for me to lose 15 kg in a year.

By combining the use of leading and lagging indicators, we unlock the true power of indicators.

Putting both sides together

Using leading and lagging indicators in tandem reflects the past, present and potential future performance. Sometimes plans don’t go along perfectly, sometimes our assumptions on what we need to do is wrong and things just change.

The lagging indicators provide validation that actions reflected by the leading indicators either work or does not. The leading indicators tell us how far along are we in the plan and provides opportunities to adjust the plan based on its performance.

A word of caution here as outcomes does take time and there will be a period of time for the lagging indicators to reflect change, hence why they’re called lagging indicators.

Taking it further

Metrics and indicators can be used in many ways. Here are two of them:

The Balance Score Card

Leading and Lagging Indicators.

I look forward to hearing from you in how this helps you to manage performance of your projects and teams.

This article was originally published on Tze’s Blog.