How to Classify and Prioritize Metrics
In this article, I’ll cover both the classification of metrics and prioritization of metrics. I’ll provide examples of each type of metric and give you links to downloadable and printable resources. If you prefer to watch the video version of this blog, click here.
Before I get started, if you don’t know the difference between a measure, metric and KPI, be sure to check out my video which explains all three. Now, on to classification.
How to Classify Metrics
Metrics can be classified into several types:
efficiency,
effectiveness and
compliance.
Efficiency metrics measure how optimized something is from a resource point of view. Resources are factors such as time or cost. As an example, if you work in HR, Time-to-Hire measures how fast the hiring function is performed. However, that doesn’t measure how well the hiring process served its customers.
In the accounting department, an efficiency metric would be the time it takes to process an invoice. It may be quick, but it’s not necessarily accurate.
On the manufacturing floor, an assembly line to produce a product can be quick, but that doesn’t mean the product coming off the end of the line is defect free.
Effectiveness metrics measure how well you met your customers’ expectations. If we return to our recruitment example, we could measure the quality of hire. For our accounting example, we could measure the accuracy of invoice processing and on the manufacturing floor, we could measure the number of defects produced for every million widgets made. These are all effectiveness metrics.
The third category, compliance metrics, are those that are tracked to show that you are adhering to internal or external requirements that are mandated by regulations. These regulations may be mandated by your geographical region, your government or your industry.
Prioritizing Metrics: Effort vs. Impact
The creation of metrics and tracking of metrics takes time, and inside a business, time has a cost associated with it. First, you want to ensure that your metrics are aligned to your business goals. Then, from a practical business point of view, it is prudent to examine the effort it takes to produce each metric and compare it to the value there is in knowing the value of the metric.
Essentially, we want to determine the effort vs. the impact (value) of each metric.
Effort: The amount of resources required to produce the metric.
Impact: What is the value to the company in knowing this metric? What would be the impact to the company if we did not produce this metric?
In reality though, it would be quite time consuming if we decided to determine the effort required by calculating the number of hours it takes to report on each metric.
· How much time does it take to extract the necessary data?
· How much time does it take to process that data into the desired metric?
· How much time does it take to create a report which includes that metric?
A more practical approach is to simply classify the effort in terms of three levels: low, medium and high.
In the same regard, we can determine the value of knowing the metric by classifying the impact of the metric as low, medium and high.
Combining this information will generate a simple three-by-three grid like the one above. In this example, I and a client, have taken a list of 56 departmental metrics and classified them all in terms of effort and impact.
The first area to examine in this chart is the section where we have metrics that require a high amount of effort to produce but we deem them to have low impact or low value to the company. For the company used in this example, there are 5 metrics in this area. For these five metrics, a decision needs to be made as to whether these metrics should still be produced. Is the company willing to expend substantial time to produce these metrics? Since these metrics are of low impact, likely these metrics were eliminated. Since this company began with a list of 56 metrics, they wanted to reduce the number of metrics on their list and reduce the amount of time spent producing this information.
The most optimistic section of this grid are the metrics which are of high impact to the company and they require little effort to produce. For the company in this example, seven metrics fall in this category. Given the large number of metrics being evaluated in this grid, this company is likely to keep the metrics in the high impact and low effort box and then make a decision based on resources as to how many additional metrics they are willing to track.
In Summary
In the business world, there are an infinite number of metrics you can produce. The key is in determining which metrics are of value. Once you have aligned your metrics to your company goals, you can use the tools mentioned in this video to classify your metrics and prioritize them.
