Strategy-Based Metrics for Measuring Business Performance

Ronald G.  Ross
Ronald G. Ross Co-Founder & Principal, Business Rule Solutions, LLC , Executive Editor, Business Rules Journal , and Co-Chair, Building Business Capability (BBC) Read Author Bio       || Read All Articles by Ronald G. Ross
Gladys S.W.  Lam
Gladys S.W. Lam Co-Founder & Principal, Business Rule Solutions, LLC , Publisher, Business Rules Journal , and Executive Director, Building Business Capability (BBC) Read Author Bio       || Read All Articles by Gladys S.W. Lam
Excerpted with permission from Building Business Solutions:  Business Analysis with Business Rules, by Ronald G. Ross with Gladys S.W. Lam, An IIBA® Sponsored Handbook, Business Rule Solutions, LLC, October 2011, 304 pp.  URL:http://www.brsolutions.com/bbs

Developing the right metrics or key performance indicators for an operational business capability requires a solid understanding of what things are crucial for on-going business success.  Such understanding is embodied in the strategy on which the capability is based, in particular on business goals and business policies.  Basing metrics on business goals and business policies permits you to demonstrate true business alignment quantitatively.

Strategy-Based Performance Metrics

The most critical metrics for a business capability focus on the strategy for the business solution.  (Our deliverable for such strategy is called a Policy Charter.)  These metrics aim toward assessing the success (performance) of the strategy on a continuing basis.  Strategy-based metrics fall into two categories:  goal-based and policy-based.

Goal-Based Strategy Monitors

Goal monitors are metrics for determining whether business goals are being satisfied.  At first glance, goal monitors often seem relatively straightforward.  The devil is in the details.  Capturing and specifying practicable business rules that support goal monitors often requires significant analysis.  An example:

Business Goal:  To keep customers satisfied

Ask:  How can we determine whether this business goal is being met?

Table 1 illustrates some analysis for this business goal.

Table 1.  Potential Goal Monitors and Related Business Questions
for Developing Practicable Business Rules.

Potential Goal Monitor

Related Business Questions for Developing Practicable Business Rules

No more than 10% attrition rate of customers per year.

The manner in which the attrition rate is determined.

At least 50% of customers placing more than one order in a six-month period.

The manner in which the number of orders placed in a given period by a given customer is determined.  Are rejected orders counted?  Are cancelled orders counted?  Are customers who haven't paid counted?

At least 33% of customers providing at least one referral per year.

The manner in which referrals are
associated with customers.  What constitutes a referral?

Policy-Based Strategy Monitors

Policy monitors are metrics for determining whether the true business intent of a business policy is being satisfied.  Here are some facts of life about actors in the everyday drama of business activity:

  • Actors will modify their behavior to adjust to your business rules.

  • Actors will come to know some of your business rules — including some you probably didn't want them to.

  • Actors will see that some of your business rules could be exploited or subverted — and some actors will attempt to do so.

If the exploited or subverted business rules are based directly on business policies, that can't be good!  Table 2 presents an example.

Table 2.  Example of a Policy Monitor for the Business Capability Order Fulfillment.

Unacceptable
Business Risk

Orders $1,000 or over on credit without a credit check.

Business Policy

Orders on credit over $1000 should be
credit checked
.

Potential Pattern
of Subversion

Instead of one order for $5,000, the bad guys might start putting in five orders for $999 each.

Policy Monitor

Number of defaults in the last 2 months on orders whose total amount is between $850 and $999.

Related Business
Questions for
Developing Practicable
Business Rules

The manner in which the total number of defaults is determined based on time frame and order total amounts.  What constitutes
a default on an order?

The policy monitor in this example keeps tabs on actor activity right at the threshold of business risk ($1,000).  Other policy monitors might address changes in rates of compliance and changes in related patterns of actor behavior.

Unintended Effects Will Happen

A colleague of mine on the Business Motivation Model (BMM) standards team, John Hall, relates a humorous but telling example of thwarted business intent.  (He tells the story much better.)

The buses in London always ran late.  To improve on-time performance, someone had a bright idea for a new business policy.  Why not give drivers a monetary incentive for on-time end-of-route arrivals?  So that's exactly what they did.

In due course they conducted a survey to determine how well the new business policy was performing.  What did they find?  Not at all what they expected.  To their dismay many bus drivers had simply stopped picking up passengers when running late!  But on-time, end-of-route arrivals?  You betcha!

Performance Metrics for Business Processes

Discussion of metrics often focuses on business processes, rather than on strategy (Policy Charter).  Although metrics for the former can be important, we think metrics for the latter are generally much more so.

Nonetheless, you should consider carefully what key performance indicators you need for business processes.  A business model is not complete without them.  Aspects of business process models you might consider (factored as appropriate by time, location, role, worker, product variation, etc.):

  • Throughput,
  • Average, maximum, and minimum elapsed time between completion of business tasks,
  • Queue volumes, bottlenecks, and resource load comparisons,
  • Percent of work following exception paths or requiring manual intervention,
  • Delays, wastage, and rate of product defects.

When Are Metrics 'Done'?

Key performance indicators are really never done.  Perception of business risks changes with time; modifications of business policies produce new patterns of business activity; customers become smarter (faster and faster) … the list goes on.  Inevitably, initial specifications for key performance indicators will evolve and new key performance indicators will emerge.

Basing deployment of key performance indicators on business rules enables rapid, continuing adaptation.  And meaningful adaptation.  As business rules, the key performance indicators will remain grounded in the structured business vocabulary (concept model, sometimes called fact model).  Without such grounding, metrics can quickly come to have literally no meaning whatsoever.

# # #

Standard citation for this article:


citations icon
Ronald G. Ross and Gladys S.W. Lam , "Strategy-Based Metrics for Measuring Business Performance" Business Rules Journal Vol. 13, No. 7, (Jul. 2012)
URL: http://www.brcommunity.com/a2012/b659.html

About our Contributor(s):


Ronald  G. Ross
Ronald G. Ross Co-Founder & Principal, Business Rule Solutions, LLC , Executive Editor, Business Rules Journal , and Co-Chair, Building Business Capability (BBC)

Ronald G. Ross is Principal and Co-Founder of Business Rule Solutions, LLC, where he actively develops and applies the IPSpeak methodology including RuleSpeak®, DecisionSpeak and TableSpeak.

Ron is recognized internationally as the "father of business rules." He is the author of ten professional books including the groundbreaking first book on business rules The Business Rule Book in 1994. His newest are:


Ron serves as Executive Editor of BRCommunity.com and its flagship publication, Business Rules Journal. He is a sought-after speaker at conferences world-wide. More than 50,000 people have heard him speak; many more have attended his seminars and read his books.

Ron has served as Chair of the annual International Business Rules & Decisions Forum conference since 1997., now part of the Building Business Capability (BBC) conference where he serves as Co-Chair. He was a charter member of the Business Rules Group (BRG) in the 1980s, and an editor of its Business Motivation Model (BMM) standard and the Business Rules Manifesto. He is active in OMG standards development, with core involvement in SBVR.

Ron holds a BA from Rice University and an MS in information science from Illinois Institute of Technology. Find Ron's blog on http://www.brsolutions.com/category/blog/. For more information about Ron visit www.RonRoss.info. Tweets: @Ronald_G_Ross

Read All Articles by Ronald G. Ross
Gladys  S.W. Lam
Gladys S.W. Lam Co-Founder & Principal, Business Rule Solutions, LLC , Publisher, Business Rules Journal , and Executive Director, Building Business Capability (BBC)

Gladys S.W. Lam is a world-renowned authority on applied business rule techniques. She is Principal and Co-Founder of Business Rule Solutions, LLC (BRSolutions.com), the most recognized company world-wide for business rules and decision analysis. BRS provides methodology, publications, consulting services, and training. Ms. Lam is Co-Creator of IPSpeak, the BRS methodology including RuleSpeak®, DecisionSpeak and TableSpeak. She is Co-Founder of BRCommunity.com, a vertical community for professionals and home of Business Rules Journal. She co-authored Building Business Solutions, an IIBA® sponsored handbook on business analysis with business rules.

Ms. Lam is widely known for her lively, pragmatic style. She speaks internationally at conferences, public seminars and other professional events. She is also Executive Director of Building Business Capability (BBC) Conference, which includes the Business Rules & Decisions Forum and the Business Analysis Forum.

Ms. Lam is a world-renowned expert on business project management, having managed numerous projects that focus on the large-scale capture, analysis and management of business rules. She advises senior management of large companies on organizational issues and on business solutions to business problems. She has extensive experience in related areas, including BPM, structured business strategy, and managing and implementing information systems.

Ms. Lam is most recognized for her ability to identify the source of business issues, and for her effectiveness in developing pragmatic approaches to resolve them. She has gained a world-class reputation for fostering positive professional relationships with principals and support staff in projects. Ms. Lam graduated from the University of British Columbia with a B.S. in Computer Science.

Read All Articles by Gladys S.W. Lam
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