Make Better Decisions Using The Measurement Profile and Global Performance Measures

Posted by on Nov 7, 2021 in Decision Making, Metrics | 0 comments

There is no single perfect performance measure that, after improvement, achieves an organizational goal. However, using the following six measurement areas to measure a different dimension of organizational performance will help organizations meet their internal and external targets.

The measures are:

  1. Throughput
  2. Operating expenses
  3. Inventory
  4. Response time
  5. Quality
  6. Due-date performance

These measures can be used for managerial control, defining qualitative objectives, rewarding executives and employees, and supporting decision-making processes. In addition, these global performance measures contribute to the goal of creating more value for the organization.

Let’s discuss each of these separately.

Throughput is the productive output of the organization. Measuring throughput in monetary units sends a message through the organization and helps everyone create effectual output.

Operating expenses are the sum of all fixed expenses of the organization during the measurement period. Another definition offered by Goldratt and Cox is that operating expenses are the fixed costs for converting inventory into throughput. This approach requires looking at the whole organization and evaluating whether expenses increase or decrease. A suggestion for change or improvement requires a manager to determine whether operating expenses will increase or decrease and the impact on throughput.

Inventory comprises three different categories, raw materials, work-in-process (WIP), and finished goods.

Response time is a general term that includes lead time, cycle time, time to market, and response time. An appropriate measure of response time looks at the process from the perspective of the customer. The standard should include the actual response times without special allowances for the responsibility of someone else. For example, hospital patients are concerned with the total time they spend in the system, including various wait times. They do not care who is responsible for a longer-than-usual wait.

Quality measures contribute to organizational improvement. Every organization must define its relevant quality measures. Examples include:

  • Percentage of procedures performed without complications the first time.
  • Costs of non quality.
  • Customer satisfaction.
  • The number of customer complaints.

Due-date performance reflects the organization’s reliability in meeting deadlines. Organizations can measure due-date performance by looking at the on-time performance percentage, such as counting the percentage of patients or tests completed on time.

The measurement profile is a tool to aid decision-making. It examines alternative decisions using the organizational global performance measures. The use of the measurement profile examines alternative actions by the six global measures. In this matrix, the columns present different alternatives, including taking no action at all, and the rows are the performance of the measures.  The measurement profile enables an easy comparison of the impact of each alternative on the various dimensions of organizational performance.

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