Continuing on from the previous blog ‘Simplifying Business Measurement‘
Each business function has a core set of decisions that define it, and its connections with the decision-making processes of other functional areas. For each decision area there are:
- Goals that define its purpose – often set as ‘targets’
- Metrics that define performance to those goals, and
- Dimensions which help identify trends and variances in performance.
These result areas are measured by metrics.
Metrics and Measure
The terms Metric and Measure are often used interchangeably. To measure performance we need to understand:
1. What to measure – attribute
2. How to define its performance – measure
3. The degree which the element being measured possesses the attribute – metric
4. A context, useful for comparison – dimension
- Attribute to measure = Sale
- Measures for the attribute Sale = Sale Speed, Sale Value
- Metrics used for these two measures = Days, and $
Sales performance is commonly defined in terms of dimensions, for example ‘Sales x Week’, where the measure is ‘the number of sales’ using the dimension of time, in this instance one week.
Thus, metrics define the parameters in which performance is measured. They may be directly measured, or calculated using a combination of measures. For instance, if a sales goal is to be defined in terms of net sales, the metrics used to define performance include gross profit, fixed costs, variable costs, tax and interest. From these direct metrics, the Net Profit metric is calculated.
Metrics also help define performance that is not always directly measurable, often being subjective and intangible. A metric may be also composed from two or more measures, generally providing more meaning to the information.
Dimensions act like a context filter by defining performance to goals in terms of time, product, sales channel, territory, customer type, market segment, promotion etc.
An Indicator is a metric or set of metrics that provide insight into a process or product. This is often a ratio of two measures across a dimension such as Year on Year sales.
Key Performance Indicators [KPI] are indicators that have strategic importance. They indicate performance that directly contributes to achieving high level corporate objectives. It is important to understand the difference between a KPI and Metric. A KPI is a Metric but a
Metric is not necessarily a KPI.
- Is linked to a strategic objective
- Is meaningful on all organizational levels
- Provides context to the performance being measured
- Is based on legitimate data
- Is easy to understand
- Leads to action
This extract was taken from ‘SELL MORE – AND HAVE YOUR CUSTOMERS LOVE YOU FOR IT‘