In my last post on How to Measure the Hard to Measure, I focused on strategies for narrowing large quantities of measures down to the critical few for a Balanced Scorecard. Here are some approaches to consider with this issue:
One approach is to use a measure that focuses on HOW MANY of the child measures actually hit their targets. Now, rather than having a green indicator that hides the red performance of one of 10 child measures we talked about earlier, we would actually see that 9 out of 10 of the children met their goal. That might give me a better feel for what is going on and at the very least makes me feel more comfortable that I'm not missing anything if the measure stoplight is green (this approach is called "percent of measures which achieved target" in ActiveStrategy Enterprise).
Another approach is to track the average variance (i.e. how big was the performance gap vs. target) across the child measures. Assume again 10 child measures, 8 of which are on target, one is 10% below and another is 20% below. The average variance would be 30% / 10 = 3%. By itself, this roll-up approach has many of the defects of the average and attainment indexes described above, but when used with one of the other approaches it can give some better insight to the health of the child measures.
Before all my black-belt friends start commenting: let's just say there are many more complicated statistical techniques that can be used to analyze and roll up the results of child measures. But unless you organization is firmly grounded in those techniques (i.e. Six Sigma and statistical problem solving) you may have a very hard time explaining how they work to executives and staff. This is a topic you will see in future posts.
Ultimately, there is no universal "best" choice for rolling up the results of many child measures. By being aware of the different approaches available, as well as the pitfalls, you can evaluate different approaches or combine approaches to get the best results.
Keep in mind that:
- Whatever you choose, you need to make sure that the people participating in the business reviews fully understand how the parent is calculated. Involve them in determining an approach.
- Keep it simple: you might be able to find the 10 best approaches to 10 different index measures by mixing and matching the techniques above. But if they are all different you are just going to cause a lot of confusion.
- Remember, you are on a journey. You don't need to figure out THE best approach from the get -go. Make sure you document clearly the approach you are using and then discuss in business reviews if it can be improved. I've seen many companies evolve their approach to using index measures over time.
- Encourage measure owners to provide good variance reports for the top-level measure. Are all of the child measures green? Say that in your comment. Just one is red? Name it and describe what you are doing to make it better. Good comments can reduce the need to drill in and look at all of the components of an index.
- You might find that another way of presenting the information helps clarify the whole picture. Looking at stoplight charts or multi-series trend charts in conjunction with the index measure during a business review might answer questions before they are asked.
If you'd like to hear more about creating good Scorecard measures (more of the fundamentals), join me for a free webinar I'm presenting next week: Wednesday April 16th at 2 pm Eastern Daylight Time. To learn more and register, click here.
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