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Performance management glossary
One of the first steps to facilitating performance management success is to ensure that your organisation has a common language for talking about performance. Below is a guide to key performance management terminology and concepts to help get everyone on the same page.
Alignment: The
act or state of being properly positioned, especially in
relation to one another; see also operational alignment.
Balanced Scorecard: One of the more prevalent methodologies in use today, the Balanced Scorecard framework has three main tenets: 1) emphasis on outcomes and objectives to be achieved, rather than measures; 2) separation of objectives into disparate, supporting points of view such as Customer, Financial, Process, and Employee; and 3) consideration of non-financial assets such as processes and intellectual property so that leading and qualitative measures are also included.
Benchmarking: The comparison of similar processes across organisations and industries to measure progress, identify best practices, and set improvement targets. Results may serve as potential targets for key performance indicators.
BHAGs (Big Hairy Audacious Goals): Often used
to describe an organisation's high-level, long-term aspirations, or vision.
Business performance management: A brand of
performance management that includes finance —— covering
compliance issues, competition, risk and profitability —— and human
resources performance management —— encompassing
employee performance appraisals and incentive compensation. Other
types of performance management include operational performance
management and IT performance management.
Cascading: The process of developing aligned goals throughout an organisation, connecting strategy to operations to tactics, allowing each employee to demonstrate a contribution to overall organisational objectives. Methods of cascading include identical (objectives and measures are identical), contributory (translated, but congruent, objectives and measures), unique (unique objectives and measures; do not link directly to parent) and shared (jointly-shared unique objective or measure).
Cause and effect: The way perspectives, objectives, and/or measures interact in a series of cause-and-effect relationships demonstrate the impact of achieving an outcome. For example, organisations may hypothesize that the right employee training (Employee Learning and Growth Perspective) will lead to increased innovation (Internal Process Perspective), which will in turn lead to greater customer satisfaction (Customer Perspective) and drive increased revenue (Financial Perspective).
Customer-facing operations: Encompasses those facets of the organisation that interface directly with customers; typically an organisation's sales, service and marketing functions. Also referred to as the demand chain.
Dashboard: A visualization of important information, often tailored to a specific role or point of view, consolidated and arranged on a single screen so the information can be monitored at a glance. For most deployments, this information contains actual results represented as metrics.
Economic Value Added (EVA): A financial performance measure aiming to determine whether a company or activity has truly created shareholder value; in other words, EVA aims to distinguish real profit from paper profit. EVA is determined by calculating a business's after-tax cash flow minus the cost of the capital it deployed to generate that cash flow.
Goal: See objective below.
Goal plan: Used primarily in the public and not-for-profit
sectors, a goal plan is a performance plan outlining an organisation's
goals and/or objectives. Also see Strategy plan below.
Government Performance and Results Act (GPRA): Enacted
in 1993, the US Government Performance and Results Act (GPRA) requires
federally-funded agencies to develop and implement an accountability
system based on performance measurement, including setting goals
and objectives and measuring progress toward achieving them. Emphasises
accomplishments/outcomes and performance-based budgeting versus
expenditures and zero-based budgeting.
Human capital: A metaphor for the transition in organisational value creation from physical assets to the capabilities of employees ― knowledge, skills, and relationships, for example. Closely related to terms such as intellectual capital and intangible assets. Some experts suggest that as much as 75 percent of an organisation's value is attributable to human capital.
Initiatives: The lifeblood of an organisation's
operations, initiatives organise people and resources and dictate
which activities are required to accomplish a specific goal by
a particular date; initiatives provide the how while goals
provide the what. As differentiated from projects, initiatives
directly support an organisation's strategic goals; projects may
or may not have strategic impact. Examples : Supporting
the objective “"Ensure 100% in-stock merchandise" might
be initiatives such as "Upgrade of inventory management software
to include demand chain and" Migration to store-specific assortment
plans from uniform assortments.”"Initiative management
solutions help ensure that activities are aligned with goals, increase
coordination of resources, and allow prioritization based on importance,
not just urgency.
Inputs: Commonly used within the Logic Model
to describe the resources an organisation invests in a program,
such as time, people (staff, volunteers), money, materials, equipment,
partnerships, research base, and technology, among other things.
IT performance management: A brand of performance
management that assists organisations with the increasing demands
of maximising value creation from technology investments; reducing
risk from IT; decreasing architectural complexity; and optimising
overall technology expenditures. Other types of performance management
include operational performance management and business
performance management.
Key outcome indicator (KOI): Often used in the public sector to describe key performance indicators, those metrics most critical to gauging progress toward objectives. KOIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target.
Key performance indicator (KPI): Distinguished from other metrics, key performance indicators (KPIs) are those metrics most critical to gauging progress toward objectives. KPIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target.
KPI/KOI Scorecard: A specific application of a scorecard, a KPI/KOI scorecard is used to measure progress toward a given set of KPIs or KOIs.
Lagging indicator: Backward-looking performance indicators that represent the results of previous actions. Characterizing historical performance, lagging indicators frequently focus on results at the end of a time period; e.g., third-quarter sales. A balanced scorecard should contain a mix of lagging and leading indicators.
Leading indicator: Forward-looking in nature, leading indicators are the drivers of future performance. Improved performance in a leading indicator is assumed to drive better performance in a lagging indicator. For example, spending more time with valued customers (a leading indicator) is hypothesized to drive improvements in customer satisfaction (a lagging indicator).
“"Letter grade" rating system: A threshold rating system in which letter grades of A/B/C/D/F are used to describe and/or depict performance (usually based on the gap between the target and actual) in easily understandable terms.
Logic Model: Having gained prominence in the'90s
largely in response to the US Government Performance and Results
Act (GPRA), the Logic Model is now a widely accepted management
tool
in the public and nonprofit sectors as well as in the international
arena. The model is a roadmap or picture of a programme that shows
the logical relationships among resources or inputs (what
an organisation invests); activities or outputs (what
an organisation gets done); and outcome-impacts (what
results or benefits happen as a consequence).
Malcolm Baldridge: Established by the U.S. Congress in 1987, the Malcolm Baldridge performance framework is a rating tool that assesses management systems and helps identify major areas for improvement in seven categories of performance criteria: Leadership; Strategic Planning; Customer and Market Focus; Measurement, Analysis, Knowledge Management; Human Resource Focus; Process Management; and Business Results.
Measure (also called metric): Public sector
term to describe a standard used to communicate progress on a particular
aspect of a programme. Measures typically are quantitative in nature,
conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue,
headcount number, % increase, survey rating average, etc.) though
they may be describing either quantitative (e.g., sales made) or
qualitative (e.g., employee motivation) information.
Metric (also called measure): Term used in commercial organisations to describe a standard used to communicate progress on a particular aspect of the business. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue, headcount number, % increase, survey rating average, etc.) though they may be describing either quantitative (e.g., sales made) or qualitative (e.g., employee motivation) information.
Mission: Concise statement that describes, in motivating and memorable terms, the current top-level strategic goal of the organisation. A mission provides both an internal rallying cry and external validity. Usually financial-, process-, or customer service-oriented, with a mid-term (three to five years) horizon, an effective mission is inspiring as well as easily understood and communicated.
Objective or outcome scorecard: A specific application of a scorecard, objective scorecards monitor progress toward a given set of objectives or outcomes using a threshold-based rating scale. Typically, objective status is determined by normalizing one or many key performance indicators and comparing it to a given rating scale.
Objective (also called goal ): A concise statement
describing specific, critical, actionable and measurable things
an organisation must do in order to effectively execute its strategy
and achieve its mission and vision. Objectives often begin with
action verbs such as increase, reduce, improve,achieve,
etc. Whereas the vision and mission statements provide an organising
and mobilising “"rallying cry," objectives translate
the vision and mission into measurable and actionable operational
terms. Examples:“"Be
a one-stop shop for all my interactions with the company" (Customer);
"Maximise customer lifetime value" (Financial); “"Integrate
disparate customer processes" (Process); and “"Foster
a culture that rewards customer intimacy" (Capabilities).
Operational alignment: The means to and/or state of alignment of an organisation's day-to-day activities with its strategic goals or objectives, operational alignment helps ensure that an organisation's daily activities are advancing its longer-term goals and mission.
Operational performance management: A brand of performance management that addresses the growing pressure to increase revenue while managing costs, while meeting ever-evolving and expanding customer demands. Other types of performance management include business performance management and IT performance management.
Outcome: Commonly used within the Logic Model,
outcomes (also called outcome-impacts) describe the benefits
that result as a consequence of an organisation's investments and
activities. A central concept within logic models, outcomes occur
along a path from shorter-term achievements to medium-term and
longer-term achievements. They may be positive, negative, neutral,
intended, or unintended. Examples of outcomes include changes in
knowledge, skill development, behaviour, capacities, decision-making,
and policy development.
Output: Commonly applied within the Logic Model,
outputs describe what an organisation gets done ; e.g., “"what
we do" or “"what we offer"and may include
workshops, delivery of services, conferences, community surveys,
facilitation, in-home counseling, etc. Outputs lead to outcomes.
PART: See Program Assessment Rating Tool below.
Pathway: Descriptive statement and visualization that describes/depicts the progressive stages in realizing an organisation's long-term vision, and provides an understanding of the phases in which particular objectives play primary contributory roles. Examples: “"Launch
in NYC"; “"Scale in Northeast"; “"Expand
across U.S."
Performance-based budgeting: A performance budget is an integrated annual performance plan and budget that shows the relationship between program funding levels and expected results. It indicates that a goal or a set of goals should be achieved at a given level of spending.
Performance gap: The “"difference" between
actual and target, the trend of the performance or target gap shows
an organisation's momentum.
Perspective (also called point of view): Representing
the various stakeholders, both internal and external, critical
to achieving an organisation's mission . Together, the perspectives
provide a holistic, or balanced,framework
for telling the “"story
of the strategy" in cause-and-effect terms. While the traditional
Balanced Scorecard includes the four perspectives of Financial,
Customer, Internal Process, and Employee Learning and Growth ,
an organisation may choose to modify and/or add to these to adequately
translate and describe their unique strategy.
Customer perspective: Measures are developed based on an organisation's value proposition in serving their target customers. In many organisations, especially public sector and non-profit, the Customer perspective is often elevated above or placed alongside the Financial perspective.
Employee Learning and Growth perspective: May
also be termed “"Skills
and Capability." Measures in this perspective are often
considered enablers of measures appearing in other perspectives;
therefore, this perspective is often placed at the bottom ― or
foundation ― of a strategy plan. Employee skills and training,
availability of information, and organisational culture are often
measured in this perspective.
Financial perspective: The perspective that looks at bottom line results. In public sector and non-profit organisations, the Financial perspective is often viewed within the context of the constraints under which the organisation must operate.
Internal Process perspective: The perspective used to monitor the effectiveness of key processes at which the organisation must excel in order to achieve its objectives and mission.
PMA: See President's Management Agenda below.
Point of view: See perspective above.
President's Management Agenda (PMA): The President's
Management Agenda, announced in the summer of 2001, is an aggressive
strategy for improving the management of the US federal government.
It focuses on five areas of management weakness across the government
where the greatest improvements and progress can be made.
Program Assessment Rating Tool: Developed
by the Office of Management and Budget within the Office of the
President of the United States, the Program Assessment Rating Tool
(PART) was developed to assess and improve program performance
so that the US federal government can achieve better results. A
PART review helps identify a program's strengths and weaknesses
to inform
funding and management decisions aimed at making the program more
effective. The PART therefore looks at all factors that affect
and reflect program performance including program purpose and design;
performance measurement, evaluations, and strategic planning; program
management; and program results.
Qualitative: Subjective, as opposed to quantitative (measured). A common source of qualitative metrics are surveys of customers, stakeholders or employees.
Quantitative: Measured, as opposed to qualitative (subjective). Quantitative measures often come from transactional systems.
Readiness scorecard: A specific application of a scorecard, a readiness scorecard can be used to evaluate an organisation's state of readiness/acceptance of a given strategy.
Scorecard: A scorecard is a visual display of the most important information needed to achieve one or more objectives, consolidated and arranged on a single screen so the information can be monitored at a glance. Unlike dashboards that display actual values of metrics, scorecards typically display the gap between actual and target values for a smaller number of key performance indicators.
Six Sigma: A quality management and process improvement methodology particularly well-suited to process-intensive industries like manufacturing. Six Sigma measures a given process by its average performance and the standard deviation (or variation) of this performance, aiming to reduce the occurrence of defects in a given process to a level of “"Six
Sigma"outside the norm; no more than 3.4 times per million.
Strategy: Strategy is the way an organisation seeks to achieve its vision and mission. It is a forward-looking statement about an organisation's planned use of resources and deployment capabilities. Strategy becomes real when it is associated with: 1) a concrete set of goals and objectives; and 2) a method involving people, resources and processes.
Strategy map: A specific version of a strategy plan that adheres to the Balanced Scorecard methodology. Strategy maps depict objectives in multiple perspectives with corresponding cause and effect linkages.
Strategy plan: A visual representation of an organisation's strategy and the objectives that must be met to effectively reach its mission. A strategy plan can be used to communicate, motivate and align the organisation to ensure successful execution.
Target: A target is the defining standard of success, to be achieved over a specified time period, for the key performance indicators associated with a particular strategic objective. Providing context to make results meaningful, targets represent the organisation's “"stretch
goals."
Theme: Descriptive statement representing a major
component of a strategy, as articulated at the highest level in
the Vision. Most strategies can be represented in three to five
themes. Themes are most often drawn from an organisation's internal
processes or the customer value proposition, but may also be drawn
from key financial goals. The key is that themes represent vertically
linked groupings of objectives across several scorecard perspectives
(at a minimum, Customer and Internal). Themes are often stated
as catchy phrases or “"buzz" words that are easy
for the organisation to remember and internalize. Example: “"Top
Innovator,"“"Customer Intimate,"“"Operationally
Excellent"“"Processes/Tools,"“"Thinking,"“"Content,"“"Pipeline"(I/T
organisation).
Threshold: A means of describing and/or depicting
the performance gap in easily understandable terms. Examples of
threshold methods include “"letter-grade"(A/B/C/D/F)
and “"traffic-light" (green/yellow/red).
Values: Representing an organisation's deeply-held and enduring beliefs, an organisation's values openly declare how it expects everyone to behave and are often embedded in its vision.
Value proposition or discipline: Describes how
an organisation intends to differentiate itself in the marketplace
and what particular value it will deliver to customers. Many organisations
choose one of three “"value
disciplines" ― operational excellence, product leadership,
or customer intimacy ― articulated by Treacy and Wiersema
in “"The Discipline of Market Leaders."
Vision: A concise statement defining an organisation's
long-term direction, the vision is a summary statement of what
the organisation ultimately intends to become five, 10 or even
15 years into the future. It is the organisation's long-term “"dream",
what it constantly strives to achieve, its “"raison
d'etre". A powerful vision provides everyone in the organisation
with a shared mental framework that helps give shape to its abstract
future. An effective vision statement provides as concrete a picture
of the desired state as possible, as well as provides the basis
for formulating strategies and objectives. Example: in
the 1980s, Microsoft's vision was “"to have a computer
on every desk".
“"Wobble" test: A litmus test
used to determine whether a given objective is truly necessary
to achieving organisational mission; if an objective can be dropped
from the strategy plan and the organisation can still reach your
mission, then the objective is not necessary and should be excluded.
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