Three definitions of performance measurement are listed on its Wikipedia page. However, they are quite different, and it is instructive to discuss these differences. As Lucy Gagster says, “Definitions are important: they drive the whole implementation process”.
The definitions are:
- Quantifying the efficiency and effectiveness of past actions (Neely, 2002).
- Estimating the parameters under which programs, investments, and acquisitions are reaching the targeted results (Chief Information Officer, US Treasury, 2005).
- Evaluating how well organizations are managed and the value they deliver for customers and other stakeholders (Moullin, 2002, p188).
Definition A is, I believe, quite a good description of PM, particularly as it includes effectiveness as well as efficiency. However, it gives little indication as to what we should quantify or why and is not likely to make managers stop and challenge their performance measurement systems.
Definition B is also quite good, assessing the extent to which programs are achieving their targets, which is fine as far as it goes. However, it doesn’t say how those targets are drawn up, what they represent, or who was involved in setting the targets.
In contrast, definition C gives much more guidance to people involved in performance measurement. In particular, it encourages them to consider the extent to which organizations measure the value they deliver to their stakeholders and how well they are managed.
One way of comparing the three definitions is to see how they relate to the four dimensions of the Balanced Scorecard – financial, customer, internal processes, innovation, and learning. While definitions A and B embrace the financial and learning aspect, the other aspects are largely missing. In contrast, all four dimensions are implied in C. Financial aspects are included in “delivering value”, customers and stakeholders are key to the definition, while processes, innovation, and learning are central to the way organizations are managed.
Definition C also has a deliberate circularity. Because performance measurement is itself part of how an organization is managed, it too must provide value - and try to avoid wasting money on measures that are rarely used to gain relevant insights or help make decisions leading to performance improvements.
Finally, the word ‘evaluating’ in definition C is quite different from ‘quantifying’ or ‘estimating parameters’. It suggests that performance managers should not just provide numbers but also do analysis to suggest what might have caused the changes observed.
Returning to the two questions I asked at the beginning, which do you prefer and which would be most useful to performance managers and analysts?
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Moullin, M. (2002), Delivering Excellence in Health and Social Care, Open University Press, Buckingham.
Moullin, M. (2007) Performance measurement definitions. Linking performance measurement and organizational excellence, International Journal of Health Care Quality Assurance, 20:3, pp. 181-183.
Neely, A.D., Adams, C. and Kennerley, M. (2002), The Performance Prism: The Scorecard for Measuring and Managing Stakeholder Relationships, Financial Times/Prentice Hall, London.
Office of the Chief Information Officer (OCIO) Enterprise Architecture Program (2007). Treasury IT Performance Measures Guide Archived 2008-12-10 at the Wayback Machine. U.S. Department of the Treasury. May 2007.