Designing Performance Measurement Systems

If you have decided to implement a performance measurement system (PMS), here are six basic steps you will need to consider in designing the system:

  1. Bring together all stakeholders; i.e. everyone who has an interest in the PMS. The purpose of this first step is to build consensus on what should be accomplished from the PMS. What are the needs of your organization? A cross-functional team needs to be formed for directing the design of the PMS.

  2. Next, your cross-functional team will need to formulate a plan for analyzing activities, collecting data, communicating to users, etc. Your main objective is to identify areas that need to be measured. Start by looking at how your business is organized. For example, if your business is organized around assembly plants, than your PMS should follow this path.

  3. Once you have an understanding of what needs to be measured, you have to collect the data that will be used for decision making. It's usually best to have one member of the cross-functional team for each area that will be measured. For example, if you are collecting operating data, you should have an operating person on your cross-functional team. The purpose of step 3 is to determine how you will manage the data within your PMS. How often will the data be needed? Can it be measured and reported within the PMS?

  4. The cross-functional team must select a test site within your company. Here you will run pilot tests to determine the feasibility of a PMS. When you select a site, make sure you are dealing with activities that can be measured. You should select a site that has room for improvement and current employees are not happy with the current system. However, you need a test site that can generate reliable data. So the existing system must be reasonably sound.

  5. At the test site, you will need to collect lots of data. Several questions must be addressed. How easy is it to collect the data? How big should the test area be? How many people should be involved? Once again, you need to determine the feasibility of a PMS, the costs versus the benefits. Make sure you have support from users at this stage of the process. If not, you may need to go back to the drawing board.

  6. Once you have collected and analyzed the data at the test site, you need to present the results of your performance measurements to management. Make sure you present the outputs in a useable and easy-to-understand format. For example, operating people will want performance information presented differently than marketing people. You must tailor the information to fit the user.

Obviously a lot more planning and detail goes into designing a new system. This article has touched on the very basic steps within the process. Finally, keep in mind that many new projects will fail due to:

- Lack of support from upper-level management (single biggest reason for failure).

- Inability to form a good cross-functional team.

- The PMS doesn't fit the organization.

- The organization is not willing to change.

matt evans photo Written by: Matt H. Evans, CPA, CMA, CFM | Email: | Phone: 1-877-807-8756

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