How to Develop a Performance Management System
A performance management system gives business leaders a way to tie project selection and employee assessment to core processes and key metrics. By ensuring that everyone is clear about the company's goals and that decisions are made based on those goals, managers can create a culture of accountability and optimize business results. Establishing this type of system involves a focus on process management and improvement, in line with methodologies such as Six Sigma and Lean manufacturing.
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Instructions
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Establish Core Processes and Dashboard
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Determine your company's core processes---three to six basic functions or steps in accomplishing what you exist to do. For instance, a software company might have core processes such as Plan Product, Create Product, Sell Product and Support Customers.
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Break down each of your core or first-level processes into its corresponding three to six basic steps that represent the second-level process. The substeps for the Sell Product core process might be Market Product, Take Orders and Fulfill Orders.
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Continue to drill down into your processes until you have reached the level of individual departments or teams. Even small businesses should have at least three levels. At the level of individual operational areas, the processes will be much more detailed, with steps such as "Design online order form" and "Send final print ad to publisher."
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Identify the key outcomes for each core process, starting at level one. Typically a for-profit company would include measures such as revenue and market share, while a nonprofit organization might include measures of contributions received and clients assisted.
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Determine the key inputs that drive desired outcomes, being sure to account for all shareholder groups. Most businesses should incorporate measures of customer satisfaction and retention, employee satisfaction and retention and process efficiency.
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Establish a means of regularly reviewing the key metrics. The set of metrics, sometimes called a company dashboard, provides a balanced perspective on company performance and allows leaders to maintain awareness of issues that may impact results rather than waiting to evaluate outcomes after the fact.
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Create a similar set of metrics for each of the core processes, then drill down to do the same for level two and other processes. The metrics for a level two process should directly drive the results at the corresponding level one process.
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Design a set of key metrics for use in measuring individual employee performance based on the the key metrics for that operational area. Be sure to balance the measures, sometimes referred to as a scorecard, so that both results and drivers of results are included and so that they reflect the requirements of shareholders, customers and employees.
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Communicate to employees the method used to establish the business performance management system and the reasons for the use of each of the business and employee metrics.
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