- 1.1 Chapter Topic
- 1.2 Key Corporate Participants
- 1.3 Management Steps Required to Execute the Approach
- 1.4 Solving the Right Problem
- 1.5 Developing an Understanding of the Problem
- 1.6 Defining Goals and Objectives of a Company or Organization
- 1.7 Defining the Framework for the Decisions Being Made
- 1.8 Metrics for Measuring Success
- 1.9 Definition of a Metric
- 1.10 Developing Decision Criteria and Metrics
- 1.11 Data Used to Support Metrics
- 1.12 Structure and Definition of the Problem
- 1.13 Key Concepts in Defining the Objectives
This chapter is from the book
This chapter is from the book
This chapter is from the book
1.10 Developing Decision Criteria and Metrics
Numerous private sector and government applications provide us an approach to developing decision criteria and metrics. This approach to metrics development is to relate metrics directly to the accomplishment of the goals and objectives of the organization. This process requires the management team to critically examine goals and objectives to ensure the decisions directly relate to these objectives. Decision makers must first establish the goals and objectives and their relative importance in the final decision process. The development of goals and objectives is mentioned in the previous section.
Decision criteria and metrics are then established to support these established goals and objectives. Group decision-making techniques are also utilized to provide a means for developing the decision criteria and weighting their importance. All the decision makers should have a say in the final selection of decision criteria to ensure objectivity and avoid having dominant personalities overly control the process. The steps involved in this time-tested approach follows:
- Step 1. Establish overall objectives and goals.
- Step 2. Weight the objectives to determine their importance.
- Step 3. Select the decision criteria.
- Step 4. Weight the criteria to determine their importance.
- Step 5. Develop metrics.
Overall, this approach provides a consistent, traceable, and defensible basis for making decisions. This avoids the "I feel this is what should be done" without any justification. The following is an example of the five steps of this process for developing goals, criteria, and metrics.
1.10.1 Step 1: Establish Overall Objectives and Goals
The first step is establishing objectives and goals for an organization. Goals and objectives are established, noting their common basis and required common theme to represent these objectives. These objectives are then used in the development of the preliminary metrics schema. The initial cut is continued to be refined until a final set of goals and objectives are established that satisfies the group. Group decision-making techniques are used to gain this consensus (see Section 1.6.1).
Through a series of meetings and the use of the Nominal Group Technique, a corporation has arrived at the following senior executive corporate objectives.
- Improve customer management.
- Improve financial soundness.
- Improve market position.
- Enhance technology development.
These objectives may be consistent on a year-to-year basis, or may shift on a yearly basis based on corporate strategy.
1.10.2 Step 2: Weight the Objectives to Determine Their Importance
The goals and objectives are then weighted to assess the relative importance of the selected goals and objectives. Group decision-making techniques are also utilized to facilitate this process. A resulting importance weighting scheme is then developed and reviewed with the decision makers. In each step of the process, the decision makers must understand and agree to the methodologies used in the process.
Table 1.2 is an example of input importance weighting and overall corporate weighting for the four objectives previously identified.
Table 1.2. Example of Importance Weighting by Executives
|
Objective |
VP Operations Input |
VP Operations Weights |
VP Sales/Marketing Input |
VP Sales/Marketing Weights |
VP Customer Management Input |
VP Customer Management Weight |
Total Input Values |
Overall Weight |
|
Max/Improve Customer Management |
9 |
28.10% |
10 |
30.30% |
10 |
33.30% |
29 |
31% |
|
Max/Improve Financial Soundness |
6 |
18.80% |
7 |
21.20% |
3 |
10.00% |
16 |
17% |
|
Max/Improve Market Position |
9 |
28.10% |
7 |
21.20% |
7 |
23.30% |
23 |
24% |
|
Max/Enhance Technology Development |
8 |
25.00% |
9 |
27.30% |
10 |
33.30% |
27 |
28% |
|
TOTAL |
32 |
33 |
30 |
95 |
1.10.3 Step 3: Select the Decision Criteria
For each of the objectives established in step 1, the group must establish a hierarchy of decision criteria to represent the various objectives. Define the decision criteria so that there is a clear understanding of the criteria used and what metrics will be used to measure the criteria. This definition phase provides the framework for establishing the metrics associated with each of the decision criteria. A "first cut" of the overall decision criteria will be developed, reviewed, and revised as necessary by the decision makers and senior management. Table 1.3 shows an example of the corporate goals with their associated decision criteria and metrics.
Table 1.3. Develop the Decision Criteria
|
Corporate Objectives |
Decision Criteria and Metrics |
|
Customer Calls |
|
|
Customer Turn Over |
|
|
Improve Customer Management |
Customer Satisfaction |
|
OBIDA |
|
|
Free Cash Flow |
|
|
Improve Financial Soundness |
Debt |
|
Market Share |
|
|
Brand Loyalty |
|
|
Improve Market Position |
Ability to Attract New Customers |
|
First to Market |
|
|
Technology Development |
|
|
Enhance Technology Development |
Innovation |
1.10.4 Step 4: Weight the Criteria to Determine Their Importance
Team members then weight the criteria established in step 3 for their relative importance in the decision process. Again, use group decision-making techniques to facilitate this process. The team must develop a "first cut" of the decision criteria weights and review and revise their findings to ensure reasonableness. Table 1.4 shows an example of a criteria weighting scheme based on corporate objectives and decision criteria importance.
Table 1.4. Decision Criteria Weighting
|
Corporate Objectives |
Objective Weights |
Decision Criteria and Metrics |
Decision Criteria Weights |
Resulting Criteria Weights |
|
Customer Calls |
20% |
6% |
||
|
Customer Turn Over |
40% |
12% |
||
|
Improve Customer Management |
31% |
Customer Satisfaction |
40% |
12% |
|
OBIDA |
50% |
9% |
||
|
Free Cash Flow |
30% |
5% |
||
|
Improve Financial Soundness |
17% |
Debt |
20% |
3% |
|
Market Share |
50% |
12% |
||
|
Brand Loyalty |
25% |
6% |
||
|
Improve Market Position |
24% |
Ability to Attract New Customers |
25% |
6% |
|
First to Market |
30% |
8% |
||
|
Technology Development |
50% |
14% |
||
|
Enhance Technology Development |
28% |
Innovation |
20% |
6% |
1.10.5 Step 5: Develop Decision Criteria Metrics
From the decision criteria established in step 3, you can identify the metrics. This involves determining what data to use to measure and quantify the decision criteria. The criteria can be either subjective or quantitative in nature. You can measure criteria using "hard," quantitative data or a subjective scale of the decision makers. Expert opinion can be subjectively used when objective data is not available or when objective data is too costly or time-consuming to obtain. Again, the group must develop a "first cut" of the decision criteria metrics and review and revise its findings as needed to satisfy the decision makers. Table 1.5 shows an example of decision criteria and whether these criteria will be quantified with objective or subjective measures.
Table 1.5. Decision Criteria Definitions
|
Corporate Objectives |
Decision Criteria and Metrics |
Definition |
Metrics (Objective or Subjective Criteria) |
|
Customer Calls |
Total Monthly Calls to Customer Service Organization |
Objective |
|
|
Customer Turn Over |
Percent of all customers that leave the company |
Objective |
|
|
Improve Customer Management |
Customer Satisfaction |
Measure of Customer Satisfaction |
Subjective |
|
OBIDA |
Operating income before depreciation and amoritization |
Objective |
|
|
Free Cash Flow |
The sum of operating cash flow, financing cash flow and investment Cash Flow |
Objective |
|
|
Improve Financial Soundness |
Debt |
Debt Ratio - Total assets divided by total liabilities |
Objective |
|
Market Share |
Percent of total market held by the company |
Objective |
|
|
Brand Loyalty |
Customers who are repeat buyers |
Subjective |
|
|
Improve Market Position |
Ability to Attract New Customers |
Assessment of ability to attract new customers |
Subjective |
|
First to Market |
Assessment of the number of new technologies that are first to market |
Subjective |
|
|
Technology Development |
Assessment of proficiency of technology development processes |
Subjective |
|
|
Enhance Technology Development |
Innovation |
Assessment of the ability to innovate |
Subjective |