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Monday, August 15, 2022

7 Pitfalls to Avoid When Selection the Right Metrics

Choosing the right metrics is critical to success, but the road to good metrics is fraught with pitfalls. As your endeavors to become more metrics-driven, beware of errors in the design and use of metrics.

Here I compile the most common mistakes that teams are committing when using metrics, so you’ll know what not to do when adopting them.

1. Metrics for the sake of metrics (not aligned)

KPIs are only useful if they are aligned to your strategy and inform strategic decision making. Anything else is just window dressing. When KPIs are not linked to your strategy, you’re wasting huge amounts of time and money collecting information that is not going to benefit the business. KPIs are useful if they deliver mission-critical information that is relevant to your business.

2. Too many metrics (no action)

A common belief is that if you capture every type of metric, it will tell you magically what works and what doesn’t. Unfortunately, that is not how we get to insights, and would be comparable to having to find a needle in a haystack.

Too many metrics may be worse than no metrics. They require large amounts of resources to track and produce reams data that call for substantial time and effort to analyze. A large amount of data can create the impression of knowledge but is useless if it doesn’t lead meaningful insights and actionable recommendations.

3. Metrics not driving the intended action

If you collect metrics, you need to use them somehow. Therefore, one of the most common mistakes is doing nothing about the metrics you are seeing. Metrics can give you process improvement insights and, to react, you need to understand how they work and what they mean.

4. Lack of follow-up

Your KPIs are your window into understanding how various parts of the business are doing — your health metrics. When these areas aren’t progressing as intended, it’s crucial to take timely action to ensure your business stays on the right track.

5. No record of methodology

Companies that generate metrics reports also should have a robust metrics analysis framework or record of methodology. Without a statistical framework for measuring, analyzing and improving process performance, the value of metrics diminishes. Metrics and reports are a means to an end, not the end themselves. They should be analyzed to assess process stability and capability, and to trigger process improvements efforts.

6. No benchmark (unrealistic targets)

Many organizations set targets without any thought to current performance, process stability or process capability. Industry benchmarks are helpful, but before applying these benchmarks to an organization, the team should analyze current process performance to ensure that unrealistic targets are not set. Unrealistic targets create resistance within an organization and impact team and people performance. In some cases, they also lead to data manipulation or incorrect reporting.

7. Underestimation of the data extraction (and data quality)

A common pitfall is to underestimate the importance of data quality. Working with bad entry data is pointless: no magic formula or algorithm can reverse it. And you will be measuring something wrong.

You need to identify good sources of data. I always recommend working hand in hand with IT. This way, they will know your needs better and you will understand your company’s data management (governance, architecture, databases, master data etc.)

A well-designed set of KPIs should provide a clear indication of current levels of performance and help your people make better decisions that bring the business closer to achieving its strategic objectives. By avoiding these 7 pitfalls, you can ensure your KPIs are designed, implemented and used exactly as they were intended – to help your company succeed.

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