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Balanced Scorecard Measures: Choosing effective KPIs

This is a series of articles about balanced scorecard measures: understanding them and their choice, design and use.  The articles apply to all generations of balanced scorecard.  They will help you better understand, develop and use measures and KPIs in your balanced scorecards.   The articles cover:

  1. Clarifying the language around balanced scorecard measures.
  2. Understanding leading and lagging measures
  3. Why manage with measures, and the implications for measure choice and design
  4. Choosing and designing balanced scorecard measures and KPIs
  5. Balanced Scorecard Measures: design problems and the culture of performance
  6. Why you should never do weightings across the measures on a balanced scorecard

1. Clarity of language around KPI & measure design

Before you go too far with measures, let alone the scorecard, it is vital you are all talking the same language, and understand what each other actually means. These two articles break through some of the jargon and vague language around balanced scorecards and measures:

2.Understanding leading and lagging measures

Leading and lagging indicators cause a lot of confusion.  This article explains how you make sense of the difference between leading and lagging indicators.  This article explains ten quite different ways to create a leading indicator.

3. Why manage with measures?  And the implications for measure choice and design

Why use a KPI in the first place:  We explain what is going on in some people’s minds when they leap to the idea of using measures to manage performance, in the KPI substitution heuristic

Actually, there is a really good way to choose measures.  Train your staff how to choose them for themselves.  Yes, you actually trust them! I know, it is radical isn’t it.  have a read of “Trusting staff to develop and provide measures for you

4. Choosing and designing Balanced Scorecard Measures and KPIs

When it comes to choosing balanced scorecard measures and KPIs, this series of articles will help ensure you have effective KPI development.

With a balanced scorecard, you should start with objectives.  Do not start  with measures.  Start with objectives.  Work out what you want to measure, before you start choosing measures for your balanced scorecard.  Only when you have the objectives, then ask, what is the best way to measure progress with this objective in this perspective.  This is so important I have written three different articles about it.

Here is an example of enforcing such an approach in a KPI workshop to create meaningful measures.

One aspects to think about in measure choice is “Where is your point of performance?”  Have a read of Choosing KPIs: first determine your point of performance.   When you look at a point of performance, you need to be aware of focusing attention on one single aspect and missing the implications of the wider system. Here is an example: the failure of single point targets: a tragic NHS story.

We often see a scorecards or balanced scorecard that have milestones and other activities where you would expect to see a measure.  This article explains why milestones and activities are not measures, but are still useful

At some point you must consider how a set of measures will cascade.  What works at the top level might be completely inappropriate of meaningless two levels down the organisation.  This article explains how to cascade your balanced scorecard to ensure you have meaningful measures at each level.

When you realise a measure no longer works, and want to replace it, what is the best way?  Having objectives before measures dramatically simplifies measure replacement and refinement.

5. Balanced Scorecard Measures:  design problems and the culture of performance

So often you will hear, “What gets measured gets managed” as the treason for having a scorecard.  However, “what gets measured gets managed” can create problems, and this is a better way to avoid them.

Often measures get wrapped up in targets, incentives and punishments.  This whole cultural layer can completely distort what was originally intended.  To appreciate some of the things that need to be considered, have a read of how incentives and punishments affect measures.

The worst cultural problem we hear about is dysfunctional behaviour:  Gaming the system or doing what was not intended, just to deliver a target.   Here are some tips on how to avoid dysfunctional behaviour due to measures.

One problem that occurs is measure mania.  This can happen slowly, measure by measure.  You might think that, surely one more beer/KPI won’t do any harm, bit it will.

If you want more reading, head across to the “Performance Management zone”. There is a whole section of the website dedicated to the discipline and culture of performance, which I recommend you have a look through.

6. A warning: Never do weightings across perspectives

At some point someone will suggest you do weightings across the measures in perspectives on your balanced scorecard.  It’s a popular idea to try and create single “composite measure” of overall performance.  It is also a mistake!  It is such a big mistake we have written three articles about it and Kaplan and Norton also chip in.