Should You Use a Performance Index?

How cool would it be to have just one, single, solitary performance measure to tell you everything that's going on with your business or organisational performance? You just have to look at this one performance index, and immediately know where you're heading, and what to do about it.

Hmmm. Sounds a bit too much like a crystal ball, the kind that a dark-haired, hoop-earinged russian gypsy would gaze into and see your future. Yet so many people love the idea of the performance measurement equivalent to the crystal ball - the performance index.

What is a performance index?

When you take a raft of performance measures and mathematically combine them into a single figure, you've got yourself a performance index.

This raft of performance measures might be a collection of customer survey questions that get rolled up into a pseudo "overall satisfaction" index. Or perhaps a department's or business group's entire suite of performance measures, cleverly combined into a "current status" indicator.

Sometimes some extra magic is woven into the performance index, in the form of weightings that are given to each performance measure involved, with the intent of allowing the more important measures (or sometimes the better-performing measures) to have more influence in how the overall index looks.

Why do you want to have a performance index?

Too many performance measures to review and analyse is one of the most popular reasons behind the pleas for a performance index. "I don't have time for all these measures! But I don't want to miss out on anything either!"

The performance index is often just some ointment applied to treat symptoms of a deeper problem that many don't realise can be solved directly.

If you have too many measures, then perhaps you're not sharing them around enough among your colleagues, or perhaps your measures aren't displayed in a way that makes for fast and easy and accurate interpretation at a glance. Perhaps you're measuring things that you just don't need to give your attention to?

What price will you pay for a performance index?

The trends of each of the underlying performance measures in your performance index cancel each other out. For example, if cycle time is improving and customer satisfaction is declining, the net effect of these two measures on your performance index is highly diluted. But these are two very important signals for you to see and respond to, that the performance index is hiding from you!

And even if most of the underlying performance measures did lean the same way, and your performance index thus showed some kind of signal itself, what would you do next? You'd probably ask "why?" and then go searching for the answer. And how do you find the answer? You have to detangle the performance measures from the index to find causes. The performance index is just giving you extra work, not saving you any.

Should you use a performance index?

In a word, no. Certainly avoid using a performance index as your first solution to a performance measure overload problem. Much better for the performance of your business or organisation will be your taking time to ensure that you're only measuring the things that matter most, that you're able to quickly and easily and accurately detect the signals in your performance measures, and that you've got readily available information to make cause analysis a natural part of using your performance measures.

Remember that performance measurement is about valuable feedback to inform your future choices and actions toward improving the performance of your business or organisation. Most performance indexes don't have the power to do this.