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Management Basics – Guidelines For Developing And Using Efficiency and Effectiveness Measures

By Michael VanBruaene, Big4.com Guest Blogger

You should be using performance measures to gauge how well your organization is doing, More specifically measuring effectiveness – how well you are achieving your objectives; and efficiency – how well you are using your resources.  As you start to develop performance measures or improve your current measures use these guidelines.

  • Link Performance Measures to Operating Objectives
  • Track Historical Trends
  • Reporting Must Be Appropriate For Decision-Making Responsibilities
  • Data and Reports Must Be Valid, Accurate and Current
  • Know The Processes and Activities Driving the Data and Reports You Use
  • Start With A Few Measures and Use as Few as Possible
  • Use the Measures in a Positive Manner
  • How To Measure Efficiency and Effectiveness
  • Challenges When The Results Are Not Easily Quantified

Link Performance Measures to Operating Objectives. Performance measures should be directly linked to operating objectives; ideally well-defined and quantifiable objectives which in-turn are aligned with organization goals and objectives.  Obviously, performance measures become very useful to managers and employees responsible for achieving the objectives as they provide evidence that their operating unit, division and or entire organization is moving in the right direction; or if not that processes, staffing or decision-making requires improvement.

Track Historical Trends.  Performance measures become particularly useful when you can view historical trends (e.g. over the course of a year) and compare the current period to the same period a year ago.  This kind of context compels questions such as:

  • Why is this trend occurring?
  • Why are we doing better/worse than a year ago?
  • What can we do to improve efficiency and effectiveness performance?
  • What is a desired trend from month to month and year to year?

Reporting Must Be Appropriate For Decision-Making Responsibilities.  The level of performance measure detail provided to a decision-maker should become more summarized as you move up the organizational hierarchy.  Summarized reporting provided to higher level decision makers should be appropriate for their decision making responsibilities, but should not prevent them from seeing more detailed information when needed.  Equally important lower level decision makers who usually view more granular information should be able to see the reports provided to upper level decision makers.  If decision makers at all levels are not viewing the same information, something is not right.

Data and Reports Must Be Valid, Accurate and Current.  A common challenge in using performance measures is the ability to collect data that is measuring what you want to measure (valid), is accurate and current.  Therefore, it’s important that you regularly review and test your data collection and reporting methods to verify that your data is valid, accurate and current.  Over time as staff turns over, employee responsibilities change, and technology applications and work activities evolve there may be an impact on how the data is collected and reported.  Unless there is a regular review, the change may be overlooked and your data may be compromised.

The reporting that is provided to decision makers; particularly at the higher levels will normally be a summary of lower level data. It requires the combing and calculating of raw data, and sometimes calculations that include certain operating or economic assumptions.  Regularly, you should review your assumptions test your calculations to confirm that the results are what you intended.  Also, the data in the reports provided to decision-makers needs to be as current as possible and relevant to the types of decisions they are required to make.

Know The Processes and Activities Driving the Data and Reports You Use.  Users of data and reports should have an in-person understanding and knowledge of the operations, activities, and work processes that are being measured and how the data is collected and the reports are generated.  Data alone cannot provide the necessary knowledge for evaluating operational performance.  You need an operational context for the statistics and information you see on a computer screen or piece of paper.  This contextual knowledge can only occur by seeing the people and operations in-person and as frequently as possible.

Start With A Few Measures And Use As Few as Possible.  When you are starting out it’s best to use a very small number of performance measures.  You want to be sure that you are using useful performance measures and that there are no insurmountable problems in data collection, calculating and reporting.  I’ve seen instances where unforeseen problems arise when data starts to be collected and calculated; also decision makers find that the data they thought was needed really isn’t useful; or in some instances they find that their operating objectives, for which the data is collected, need to be modified.

Also, make every possible attempt to minimize the number of performance measures you use.  Many times the number of performance measures will be driven by your operating objectives so take time to make sure they are well-defined and focused on important organization operations.  You do not want to use your resources collecting and reporting data that is really not necessary; and that was being collected because “it would be nice to know” something.

Use the Measures In A Positive Manner.  You should use the measures primarily to view your progress in achieving objectives and help you identify opportunities to improve your operations and employee performance.  They should not be used as a means to find fault with employees.

How To Measure Efficiency and Effectiveness.  Measuring efficiency and effectiveness is very important for developing useful performance measures.  Even though the words “efficiency” and “effectiveness” are used a lot regarding organization performance, I see little guidance on the types of efficiency and effectiveness measures to use. Below are suggested measures to consider; and also how they can be used.

Efficiency.  These measures should be viewed in terms of how an organization uses its resources, such as available funding and staff, to achieve organization objectives.  Is it applying these resources in such a way as to maximize their contribution to organization outputs, i.e., the services it provides?  Efficiency measures include:

  • Per unit costs:  A measure of per unit cost reveals how many resources are consumed in producing a unit of service. 
  • Cycle time:  Measures the amount of time it takes for a process to be completed.
  • Response time:  Measures the amount of time it takes to respond to a request for service.  Again, it is a key measure of customer satisfaction, as it indicates how much “waiting or queue-time” customers wait for a service response. 
  • Backlog:  Measures the amount of work in queue, waiting to be processed.  Backlog is a tricky measure, as it can be defined several ways.  One way is to measure total work in queue waiting to be processed.  Another way is to measure backlog as the amount of work not processed within a required or targeted time frame. 
  • Per unit full-time equivalents (FTE’s):  Measures how many employees are required to fulfill a unit of work.
  • Staffing ratios:  Another way of looking at staffing is computing a ratio of staffing to a particular function or in comparison to the total organization.
  • Per unit equipment utilization:  Measures the efficient use of equipment. 

Effectiveness:  These measures should be viewed in terms of the extent to which the service provided meets the objective and/or expectations of the organizations and/or a customer.  Effectiveness measures include:

  • Coverage:  The number of customers you serve. 
  • Accomplishment:  Measures the overall outcome or achievement of a program.
  • Quality:  The proportion of service provided without error.
    • The proportion of services provided without a complaint or the ratio of complaints to total services provided.
    • The proportion of service produced at a specified standard.
    • The proportion of services provided with compliments from customers.
    • The number of staff hours of training conducted per year.
    • Staff turnover.
  •  Satisfaction:  Customer satisfaction as measured by a survey.

Challenges When The Results Are Not Easily Quantified.  Many organizations, particularly non-profit and government organizations, deliver services whose effectiveness is not easily quantified.  In these instances while they may not be able to directly measure the effectiveness of their services on a recipient, they should be able to link their services to formal studies which show that certain services can have a positive effect on recipients.  With this linkage described the organization will measure the service activities performed (e.g. number of clients/customers contacted or number of meals provided) and also describe the content of the services to show alignment with the formal studies.

Measuring Efficiency.  When it may be difficult to measure effectiveness, efficiency (how resources are used) can still be measured.  And you may want to demonstrate that not only are you measuring efficiency, but also using the measures to improve the use of resources.

Michael VanBruaene was a KPMG Director and blogs at “Michael VanBruaene – Pragmatic Approaches To Move You and Your Organization Forward”.  Go to his website for additional articles, tools and information. www.AdvancingYourOrganization.comHe can be contacted at mvanbruaene@pacbell.net

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