Concept: Multi-Tiered Measurement
This guideline presents a number of key measures organized on three levels: business, operational, and practice.
Main Description

The main measures are introduced within a multi-tiered Performance Measurement System.

Multi-tiered Performance Measurement System
Business Measures

Although business measures vary according to business context and objectives, all corporations, especially publicly traded companies, share a common view of business performance. Here, the primary focus is the growth of the company and the ability to meet the expectations of shareholders, management, and customers.

The most common means of capturing business performance is in the form of financial balance sheets and income statements, which, as a standard practice, provide information about the current viability of the business itself. Generally, financial measures are preferable (indeed, they are often required), because business stakeholders commonly view business performance according to financial results, and monetized measures are more easily evaluated and compared. The range of criteria to evaluate includes these financial measures:

  • Revenue
  • Profit
  • Operating costs
  • Return on capital or assets.

However, business managers often augment the financial view with additional measures that address fundamental business priorities. These are frequently expressed as key performance indicators (KPIs) that result from strategic initiatives, such as these examples:

  • Market share or penetration
  • Product or service volume, inventory, backlog, or other measures
  • Client turnover
  • Customer satisfaction
  • Industry analyst market assessments.
Operational Effectiveness Measures

Although business measures are primarily focused externally for evaluation of the company's performance in the market environment, operational effectiveness measures are internally focused, concentrating on operations within the company and their ability to perform the most critical functions to meet business obligations. Managers often seek operational performance measures that provide the most effective means of predicting business outcomes. That is, they look for leading operational indicators of company performance.

Given the wide variation of organizational functions and contexts, operational effectiveness measures are less standardized. However, the most common operational objectives target these criteria:

  • Productivity or efficiency
  • Throughput or time to market
  • Quality achievement
  • Predictability and consistency
  • Perceived value and satisfaction.

Still, it is critical to establish a clear understanding of the operational context to ensure that the associated measures are incentives for behavior that leads to the desired outcomes.

Practice-Based Control Measures

When an organization seeks to improve its operational effectiveness, management defines specific targets for operational improvement. However, the means of achieving such improvements requires that the organization adopt new ways of performing the key functions and associated tasks. Generally classified as practices, such innovative solutions include combinations of technologies, methods, techniques, and resources. Managers must then be able to assess the organization'€™s effectiveness in adopting these new practices through the introduction of control measures.

As the term suggests, control measures establish quantitative indicators with associated thresholds of attainment to provide an objective means of determining the degree organizational capability. With proper practice-based control measures to quantify the organization's behavioral maturity, managers can then adjust adoption methods, thereby ensuring effective and timely practice adoption. Examples include these measurements:

  • Defect density and repair rate
  • Test coverage and execution
  • Velocity, iteration burn down
  • Build stability, Build frequency.

As with operational effectiveness measures, practice-based control measures are context sensitive. Indeed, measures at this level must be calibrated to both key organizational and environmental factors, as well as the current level of organizational maturity with the practices targeted for adoption. That is, the measures must simultaneously exhibit the following characteristics:

  • Alignment with achievement of the targeted behaviors
  • Thresholds that are attainable by a significant majority of the organization
  • Measurements that are precise enough to detect incremental improvements or deviations