Designing Performance Measurement Systems: Theory and Practice of Key Performance Indicators

220 Pages·2019·6.25 MB·English

by  Fiorenzo Franceschini, Maurizio Galetto, Domenico Maisano

Management for Professionals
Fiorenzo Franceschini
Maurizio Galetto
Domenico Maisano
Designing
Performance
Measurement
Systems
Theory and Practice of
Key Performance Indicators
Foreword by Andy Neely
Management for Professionals
Moreinformationaboutthisseriesathttp://www.springer.com/series/10101
(cid:129) (cid:129)
Fiorenzo Franceschini Maurizio Galetto
Domenico Maisano
Designing Performance
Measurement Systems
Theory and Practice of Key Performance
Indicators
Foreword by Andy Neely
FiorenzoFranceschini MaurizioGaletto
DepartmentofManagement DepartmentofManagement
andProductionEngineering(DIGEP) andProductionEngineering(DIGEP)
PolitecnicodiTorino PolitecnicodiTorino
Turin,Italy Turin,Italy
DomenicoMaisano
DepartmentofManagement
andProductionEngineering(DIGEP)
PolitecnicodiTorino
Turin,Italy
ISSN2192-8096 ISSN2192-810X (electronic)
ManagementforProfessionals
ISBN978-3-030-01191-8 ISBN978-3-030-01192-5 (eBook)
https://doi.org/10.1007/978-3-030-01192-5
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Foreword
Having been a student of performance measurement for over 25 years, it is a real
treat tocomeacross abookthatsheds newlightonasubjectthat hasbeensowell
explored. Numerous authors have tackled questions such as “How to design a
performance measurement system?”, “How to ensure that metrics, behaviours and
strategyarealigned?”,“Whatmakesagoodkeyperformanceindicator?”,“Howand
whyshouldtargetsbeset?”and“Whatroledoincentivesplayindrivingorganiza-
tionalperformance?”.
Designing Performance Measurement Systems: Theory and Practice of Key
PerformanceIndicatorsbyFiorenzoFranceschini,MaurizioGalettoandDomenico
Maisano tackles many of these classic questions, but doesn’t rely on the standard
treatments to do so. Instead, by combining historical insights with ideas from
mathematics,qualityandprocessengineering,thisbookdoesnotsimplyshednew
light on the subject, but rather it sheds new lights. The multiple perspectives and
differentideaspresentedinthebookwillhelpyoulookatperformancemeasurement
innewandinterestingways.
The books consists of five chapters. The first explores the meaning of perfor-
mance indicators, especially in the context of process performance. Exploring
concepts such as the function and use of indicators, as well as different methods
forclassifyingthem,thisintroductorychaptersetsoutthebreadthofmaterialtobe
coveredintherestofthebook.Inthesecondchapter,Franceschinietal.lookatuses
and abuses of key performance indicators. Drawing on a wide range of examples,
from life expectancy to air quality, they explore the strengths and weaknesses of
different types of indicators. The third chapter draws on traditional measurement
theorytodevelop“indicatortheory”,arguingthatacoreconceptistheconditionof
“non-uniqueness”forindicators.Inthefourthchapter,Franceschinietal.turntheir
attentiontopropertiesofindicators,buildingontheideassetoutonindicatortheory.
Finally,thebookcloseswithachapterdevotedtodesigningperformancemeasure-
mentsystems,whichcoverssomeofthemajorreferencemodelsinusetoday,along
withobservationsontheprocessofconstructingperformancemeasurementsystems.
Overtheyears,Ihavereadliterallyhundredsofbooksandpapersonperformance
measurement. I have worked with thousands of managers, seeking to help them
design and deploy better measurement systems. In Designing Performance Mea-
surement Systems: Theory and Practice of Key Performance Indicators,
v
vi Foreword
Franceschinietal.introducesomenewandinterestingconceptswhichIamsure—
like me—many students of performance measurement will find fascinating and
rewarding.
Pro-Vice-ChancellorforEnterpriseandBusinessRelations AndyNeely
UniversityofCambridge
Cambridge,UK
August2018
Preface
Inrecentyears,theuseofindicatorsasavehicletotransmitinformation,behavioural
codes and rules of governance has dramatically increased. Indicators often accom-
panythedailylifeofpublicandprivateorganizationsinmanyfields:fromthestock
exchange to the meteorology and from the manufacturing processes to the sport
specialties. Indicators regulate and influence organizations and their behaviour. In
the broadest sense, they often give the impression to be the real driving force of
socialsystems,economyandorganizations.
The need to establish long-term objectives, rules and behaviours in order to
achieve the planned results puts indicators in the spotlight of stakeholders of
organizations.
Indicatorstake on therole ofreal “conceptualtechnologies”,capableof driving
organizational management in intangible terms, conditioning the “what” to focus
and the “how”; in other words, they become the beating heart of the management,
operationalandtechnologicalprocesses.
Designing a performance measurement system is not an easy task. It requires a
multidisciplinary approach that integrates knowledge from different process areas,
people and information technologies and suitable scientific methods to ensure
appropriateacademicrigour.
This monograph describes in detail the main characteristics of indicators and
performance measurement systems and summarizes methods and approaches for
identifying,constructingandanalysingindicators,combiningtheoreticalandpracti-
calaspects.
The book is intended for academics, professionals and consultants involved in
data analysis and indicator management. The description is relatively simple and
does not necessarily require familiarity with advanced mathematics. The book can
also be used in programmes for professionals, including senior executives, quality
engineers,productionengineersandprocurementspecialists.Professionalscanalso
usethebookforindividualstudy.
This book is organized into five chapters. The first chapter deals with the basic
conceptsofindicatorsandprocessperformance.Thesecondchapterdealswiththe
criticalaspects,problemsandcuriositiesthatcanarisewhenrepresentingageneric
system by means of indicators. The third chapter develops an original theory of
indicators, showing that measurements can be seen as “special” indicators. The
vii
viii Preface
concept of “non-uniqueness of representation” by means of indicators will also be
explained. Then the fourth chapter analyses in detail the properties of indicators.
Description of the third and fourth chapter is supported by a number of practical
examples and applications. Finally, the fifth chapter describes how performance
measurementsystemscanbedesigned,implementedandmaintainedovertime.
The content of this book is largely based on the monograph Management by
Measurement: Designing Key Indicators and Performance Measurement Systems,
produced by the same authors and published in 2007 by Springer-Verlag, Berlin
Heidelberg.
Authorswishtogratefullyacknowledgethesupportofallcolleaguesandfriends
whohavecontributedtotherealizationofthebookwithstimulatingsuggestionsand
helpful comments, including Emil Bashkansky, Luca Mastrogiacomo and Sergio
Rossetto.
Turin,Italy FiorenzoFranceschini
July2018 MaurizioGaletto
DomenicoMaisano
Contents
1 QualityManagementandProcessIndicators. . . . . . . . . . . . . . . . . . 1
1.1 GeneralConcepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 QualityManagementSystems. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 TheConceptofProcess. . . . .. . . . .. . . . . .. . . . .. . . . .. . . . .. 4
1.3.1 Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3.2 ProcessModeling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3.3 ProcessEvaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 ProcessIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.4.1 FunctionsofIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4.2 AimsandUseofIndicators. . . . . . . . . . . . . . . . . . . . . . . 10
1.4.3 Terminology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4.4 CategoriesofIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.4.5 AGeneralClassificationofIndicators. . . . . . . . . . . . . . . . 12
1.4.6 ComparisonofEconomicandProcessIndicators. . . . . . . . 13
1.4.7 IndicatorsandResearch:StateoftheArt. . . . . . . . . . . . . . 16
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2 UseandAbuseofIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 HumanDevelopmentIndicator(HDI). . . . . . . . . . . . . . . . . . . . . 22
2.2.1 LifeExpectancyIndicator(LEI). . . . . . . . . . . . . . . . . . . . 23
2.2.2 EducationalAttainmentIndicator(EAI). . . . . . . . . . .. . . . 23
2.2.3 GrossDomesticProductIndicator(GDPI). . . . . . . . . . . . . 24
2.2.4 CalculatingtheHDI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2.5 RemarksonthePropertiesofHDI. . . . . . . . . . . . . . . . . . 25
2.3 AirQualityIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.3.1 TheAmericanAirQualityIndicator(AQI). . . . . . . . . . . . 30
2.3.2 TheATMOIndicator. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.3.3 TheIQAIndicator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.3.4 CommentsontheMeaningof(sub)Indicators. . . . . . . . . . 42
2.3.5 ComparisonofAir-QualityIndicators. . . . . . . . . . . . . . . . 42
ix