Metrics and controls

Ok - don't fall asleep yet.

Let me set the stage: I just spent the morning exchanging increasingly heated e mails with a manager two levels down from the CEO in my company of about 100,000 people.  We were dickering about a cost-accounting measurement.  Some managers in the construction group, no doubt hoping to show "improvement" on their internal scorecard, had sandbagged the cost to install a piece of capital equipment, stating the cost as $808K, rather than the real cost of $410K.

I was calculating cost improvements for which this senior manager was responsible.  My analysis showed the improvement he had made to the capital cost of the equipment partially offset by the increase in the cost to install it, resulting in a smaller total savings.  This manager, however, had obtained the real ($410K) number on his own; then he was attempting to bludgeon me electronically for using the published number, which was "correct" for the type of cost calculation I was making.

There is a lot to learn here.  The senior manager on the other end of my e mail thread was responding to the visible scheme of metrics which had been put in place to enforce some discipline within his group.  Naturally, he wanted his improvements to seem as big as possible.

The managers in the construction group had their own agenda.  By reflecting a higher install cost this quarter and a lower one next quarter, they could show a dramatic improvement in their installation costs.

I was caught in the crossfire between these two fiefdoms, holding on to a "standard" cost of $808K, a number which had been published by the same people who provided the $410K "real" cost to the manager with whom I was arguing.  My wasted morning is proof positive of the power of measurement and visible standards.

If you don't measure something, no one will do it.  As we learned from Mr. Reagan, "Trust - but verify."  The savvy manager gathers real feedback about the results of his dictates.

Metrics must be the right metrics.  And this means primarily two things.  First, one has to recognize that metrics alter behavior.  Once something begins to be measured, those who are responsible for the results will pay attention to the thing that is being measured much more than the things that are not.  It is therefore important to create metrics for the important things.  Secondly, one must only create metrics for the truly important things.  No manager can perform to 25 metrics.  Most people can respond to 3-5 metrics.  So pick 'em carefully.

The summary for managers: If you don't have measurements in place, you probably aren't getting anything close to high performance from your operation.  If you do have measurements in place, make sure they measure the most important things in the most meaningful ways.  Make sure they are not super-abundant.  Review them periodically as your business evolves - outdated metrics will deliver outdated performance.

Sorry for the yawn-fest.  I don't even enjoy metrics or controls, but I wanted to write about what was on my mind.

Happy Thanksgiving,

MRM