A performance metric is that which determines an organization's behavior and performance. Performance metrics measure of an organization's activities and performance. It should support a range of stakeholder needs from customers, shareholders to employees. While traditionally many metrics are finance based, inwardly focusing on the performance of the organization, metrics may also focus on the performance against customer requirements and value. In project management, performance metrics are used to assess the health of the project and consist of the measuring of seven criteria: safety, time, cost, resources, scope, quality, and actions.
Developing performance metrics usually follows a process of:
- Establishing critical processes/customer requirements
- Identifying specific, quantifiable outputs of work
- Establishing targets against which results can be scored
A criticism of performance metrics is that when the value of information is computed using mathematical methods, it shows that even performance metrics professionals choose measures that have little value. This is referred to as the "measurement inversion". For example, metrics seem to emphasize what organizations find immediately measurable — even if those are low value — and tend to ignore high value measurements simply because they seem harder to measure (whether they are or not).
To correct for the measurement inversion other methods, like applied information economics, introduce the "value of information analysis" step in the process so that metrics focus on high-value measures. Organizations where this has been applied find that they define completely different metrics than they otherwise would have and, often, fewer metrics.
There are a variety of ways in which organizations may react to results. This may be to trigger specific activity relating to performance (i.e., an improvement plan) or to use the data merely for statistical information. Often closely tied in with outputs, performance metrics should usually encourage improvement, effectiveness and appropriate levels of control.
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- Mark Graham Brown, Using the Right Metrics to Drive World-class Performance
- Value based performance metrics
- Measuring Project Health Neville Turbit, 2008
- Douglas Hubbard, "The IT Measurement Inversion", CIO Magazine, 1999
- Douglas Hubbard, How to Measure Anything: Finding the Value of Intangibles in Business. John Wiley & Sons, 2007
- US Government Study on AIE
- Andy D. Neely, Business Performance Measurement: Theory and Practice
- Mark Graham Brown, How to Interpret the Baldrige Criteria for Performance Excellence