Strategy-Based Metrics for Measuring Business Performance

by Ronald G. Ross with 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.

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.

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.

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.