It is assumed that measurement provides a means of capturing performance data, which can be used to inform decision making. Equally important is that people respond to performance measure and they modify their behavior in an attempt to ensure positive performance outcome even if it means pursuing inappropriate courses of action. The key issue in designing measures of performance is then is to match it to the organizational context. The requirements of a good performance measure should consider
- Its development from strategy and be related to specific goals (targets).
- That they are clearly defined and simple to understand.
- They are timely and accurate feedback.
- They provide fast feedback and are part of a closed management loop.
- They can be influenced or controlled by the user alone or in cooperation with others.
- Have relevant and have an explicit purpose.
- Have explicitly defined formula and source of data.
They provide information and should be precise—be exact about what is being measured:
- Title (measure). A good title explains what the measure is and why it is important.
- Purpose. Rationale underlying the measure has to be specified.
- Relates to. Business objectives to which measure relates to should be specified.
- Target. Targets are necessary to evaluate the level of performance.
- Formula. The way performance is measured affects how people behave. The right formula ensures
- the right behavior.
- Frequency of measurement. This is a function of the importance of the measure and the volume of data available.
- Frequency of review. How often, for example, frequency, of review to evaluate value and benefit.
- Who measures. The person who is to collect and report the data should be identified.
- Source of data. Consistent source of data is vital if performance is to be tracked (over time).
- Who owns the measure. Single-point accountability is essential. One person should have ownership of each of the KPIs.