Having performance measures or key performance indicators (KPIs) is an essential managerial tool. They are used to control activities within an organization to help them achieve their goals and objectives. They serve as an effective means for communicating management’s policies throughout the organization and can assist in decision-making.
Performance measures assist in the goal of creating more value for an organization. Whenever the performance measure indicates improvement, the value of the organization is enhanced. However, if local KPIs are not connected to the organization’s worth, they can cause damage. For example, measuring an operating room by efficiency or utilization gets the opposite reaction.
Suitable performance measures should have the following characteristics:
- Global and effective. Effective measures are ones when improved, enhance the firm’s value.
- Simple and clear. “What will not be simple – simply will not be.” Measures should be clear, simple, and easily measured.
- Based on the satisficer approach. Measures should be satisfactory and not necessarily perfect or optimal. Implementing performance measures in an organization is not easy, and it is better to proceed gradually. The desire to implement a set of perfectly objective standards may prove too complex and lead to abandoning the process.
- Measures must be founded on easy and simple data collection. It is better to use data from existing databases and have the users of the standards be the ones collecting the data.
- Measures should be customized to the organization. Don’t attempt to adopt as are standards that have succeeded in other organizations. The organization must gradually build its appropriate measures or appropriately adapt to others.