Management indicators, what are they and why use them?

It is known as a management indicator that data that reflects what were the consequences of actions taken in the past within the framework of an organization. The idea is that these indicators lay the foundations for actions to be taken now and in the future.

It is important that management indicators reflect truthful and reliable data, since the analysis of the situation, otherwise, will not be correct. On the other hand, if the indicators are ambiguous, the interpretation will be complicated.

What a management indicator allows is to determine if a project or an organization is being successful or if it is meeting its objectives. The leader of the organization is the one who usually establishes the management indicators, which are used frequently to evaluate performance and results.

Management indicators

Means, instruments or mechanisms to evaluate to what extent or to what extent strategic objectives are being achieved. They represent a managerial unit of measure that allows evaluating the performance of an organization against its goals, objectives and responsibilities with reference groups. Information to analyze the performance of any area of the organization and verify compliance with the objectives in terms of results Detect and foresee deviations in the achievement of the objectives The analysis of the indicators leads to generate Alerts About Action, not to lose the management, under the assumption that the organization is perfectly aligned with the plan.

Why measure and what for?

If what is done is not measured, it cannot be controlled and if it cannot be controlled, it cannot be directed and if it cannot be directed it cannot be improved.

Starting in the last decades of the 20th century, companies are undergoing a process of revolutionary changes, moving from a situation of regulated protection to highly competitive open environments. This situation, of constant transformations of the business environment, makes it necessary for companies, in order to maintain and increase their market share under these conditions, to be clear about how to analyze and evaluate their business processes, that is, they must be clear about their performance measurement system.

Performance measurement can be generally defined as a series of actions aimed at measuring, evaluating, adjusting and regulating the activities of a company. In the literature there is an infinity of definitions in this regard; Its definition is not an easy task given that this concept involves physical and logical elements, it depends on the vision of the management body, the composition and hierarchical structure and the company's support systems.

So why measure?

Why the company must make decisions Why it is necessary to know the efficiency of the companies (otherwise, they go "blindly", making decisions on assumptions or intuitions). Why it is necessary to know if they are on the right track or not in each area Why is it necessary to improve in each area of the company, mainly in those points where it is weakest Why is it necessary to know, as far as possible, in real time, what is happening in the company (efficiency or inefficiency)

Why measure?

To be able to interpret what is happening To take measures when the variables go outside the established limits To define the need to introduce changes and / or improvements and to be able to evaluate their consequences in the shortest time possible To analyze the historical trend and appreciate productivity over time To establish the relationship between productivity and profitability To direct or redirect financial plans To relate productivity to salary level To measure the risk situation of the company To provide the basis for development strategic and focused improvement.

Attributes of indicators and types of indicators

Each meter or indicator must satisfy the following criteria or attributes:

Measurable: The meter or indicator must be measurable. This means that the described characteristic must be quantifiable in terms of either the degree or frequency of the quantity. Understandable: The meter or indicator should be easily recognized by all those who use it. Controllable: The indicator must be controllable within the structure of the organization.

Indicator types

In the context of process orientation, a meter or indicator can be process or results. In the first case, you want to measure what is happening with the activities, and in the second you want to measure the outputs of the process.

Indicators can also be classified into effectiveness or efficiency indicators. The effectiveness indicator measures the achievement of the proposed results. It indicates if the things that had to be done were done, the correct aspects of the process. The efficiency indicators focus on what should be done, for this reason, in the establishment of an efficiency indicator it is essential to know and operationally define the customer's requirements of the process to compare what the process delivers against what he expects. Otherwise, you may be achieving great efficiency in aspects not relevant to the client.

Efficiency indicators measure the level of process execution, focus on how things were done and measure the performance of the resources used by a process. They have to do with productivity.

Indicator categories

It is necessary to know how to distinguish between indicators of compliance, evaluation, efficiency, effectiveness and management indicators. As an example is worth a thousand words, this will be done taking into account the indicators that can be found in the management of an order.

Compliance indicators: based on the fact that compliance has to do with the completion of a task. Compliance indicators are related to the reasons that indicate the degree of achievement of tasks and / or jobs. Example: fulfillment of the order schedule. Evaluation indicators: evaluation has to do with the performance obtained from a task, job or process. The evaluation indicators are related to the reasons and / or the methods that help to identify our strengths, weaknesses and opportunities for improvement. Example: evaluation of the order management process. Efficiency indicators: taking into account that efficiency has to do with the attitude and ability to carry out a job or a task with the minimum of resources.The efficiency indicators are related to the reasons that indicate the resources invested in the achievement of tasks and / or jobs. Example: Manufacturing time of a product, parts / hour ratio, inventory turnover. Indicators of effectiveness: effective has to do with making an intention or purpose effective. The efficiency indicators are related to the reasons that indicate ability or success in the achievement of tasks and / or jobs. Example: degree of customer satisfaction in relation to orders. Management indicators: taking into account that management has to do with managing and / or establishing concrete actions to make scheduled and planned tasks and / or work a reality. Management indicators are related to the reasons for actually managing a process. Example:administration and / or management of warehouses for products in the manufacturing process and bottlenecks.

Purposes and benefits of management indicators

It could be said that the objective of measurement systems is to provide the company with a correct path for it to achieve the established goals.

Every measurement system must satisfy the following objectives:

Communicate the strategy Communicate goals Identify problems and opportunities Diagnose problems Understand processes Define responsibilities Improve company control Identify initiatives and necessary actions Measure behaviors Facilitate delegation to people Integrate compensation with performance.

The reason for being of a measurement system is then: Communicate, Understand, Guide and Compensate the execution of the strategies, actions and results of the company.

The processes that commonly make up a measurement system are: Planning, Budgeting (resource allocation), Information, Monitoring (control), Evaluation and Compensation.

One of the most common problems is its alignment; Each of these processes is "managed" by different organizations, by different managers, in many cases none of them "talk" to each other; While the Planning process is executed separately by the planning organization, the Resource Allocation, Information and Follow-up processes are executed by the finance organization, the Evaluation and Compensation processes are managed by the Human Resources organization.

This lack of alignment generates inconsistency when clarifying, prioritizing, communicating, executing and measuring the strategy. What is important for one organization for another is not, what for one organization is urgent for another is not, in short, there is no integration of each and every one of the components of the company in pursuit of a single objective or consistent for the company.

Implementing a strategy to achieve your chosen future involves an appropriate combination of structure and control. The structure assigns the tasks and specifies how they are coordinated, however it does not provide enough motivation for the structure to function and the need for control arises.

A measurement system is required because not everyone is capable or willing to do what is best for the organization. The measurement system must avoid undesirable behaviors and motivate desirable actions.

An important type of problems that measurement systems address can be called personal limitations: People do not always understand what is expected of them, they may lack some required skills, training or information. On the other hand, some individuals decide not to perform well what they are charged with because their individual objectives and those of the organization may not coincide perfectly. There is an incongruity of objectives.

A good management system should stimulate action, marking significant variations from the original plan and highlighting them to organizations that can correct them.

Management monitoring must be future-oriented A good measurement system must consider the significant dimensions of a multi-objective activity Greater management control and monitoring is not always economically desirable What should I expect from a management system? indicators? That it becomes an early warning system "Pre-alarms" That determines the trends and the root cause of productive behavior. That it establishes the relationship between added value and labor cost to define the size and optimal value of the equipment that relates the productivity of human capital, that of physical capital, profitability, indebtedness and liquidity in order to guarantee balance, that facilitates decision-making, that allows building knowledge, that guides people, that feeds the politics,that allows operating production processes,…

The indicators for an area are based on the processes in which it intervenes, and has to do with processes, structure, performance and customers.

Functions: The function of the area is, in short, the reason for being. It is the foundation of the area and constitutes the primary guide to understand the role of the area in the overall management of the organization.

Processes: show how the area transforms inputs (data, information, materials, labor, energy, capital and other resources) into outputs (results, knowledge, useful products and services), the points of contact with customers, the interaction between the elements or sub components of the area. Structure: more than the organization chart of the area, it presents the way in which the elements that compose it are aligned to operate. Performance: It is the relationship that exists between what is delivered to the area, with what is produced and what it is expected to deliver. Customers: The outputs or products of the area, whether they are goods, services or both, are for someone, and an internal or external customer, since customers have needs and expectations regarding what they receive from the area.

Basic conditions that the indicators must meet

First, the indicator must be relevant for management, that is, it must provide essential information to inform, control, evaluate and make decisions.

In turn, the calculation that is made from the observed quantities cannot give rise to ambiguities. This quality must allow the indicators to be auditable and their reliability to be externally evaluated whenever necessary. To this quality it must be added that an indicator must be unambiguous, that is, it must not allow conflicting interpretations.

The concept expressed by the indicator is clear and is maintained over time. The indicator is appropriate to what it is intended to measure (relevance). The information must be available at the moment when decisions must be made (to carry out a project to expand an urban bus line, updated data on the use of the service must be available at the time of decision-making).

Another desirable feature is objectivity. The indicators should avoid being conditioned by external factors, such as the situation in the country or acting on third parties, whether in the public or private sphere. Also in this case they must be susceptible of evaluation by an external.

The measure of the indicator has to be effective enough to identify small variations. It is the characteristic of the sensitivity of an indicator, which must be constructed with such quality that it allows automatically identifying changes in the goodness of the data.

In turn, the indicator must be precise: its margin of error must be acceptable. Accessibility must be added to these qualities: obtaining it has an acceptable cost (that the cost of obtaining it is exceeded by the benefits reported by the information obtained) and it is easy to calculate and interpret.

In summary, the indicator must provide a reasonable quality and quantity of information (relevance) so as not to distort the conclusions that can be drawn from it (unequivocal), while it must be available at the right time for decision-making (relevance, opportunity), and all this, provided that the costs of obtaining it do not outweigh the potential benefits of the extractable information.

Methodology for the construction of the indicators

Any work proposal requires the establishment of a methodology that helps to systematize the work and that provides the key points to successfully develop the objectives that are pursued. For this reason, in this section we analyze the necessary methodology for the effective construction of a battery of indicators. Likewise, the procedure must reach the maximum consensus among all members of the organization and the terminology used must be understandable and accepted by said group. In other words, the information derived from the system cannot present any confusion that leads to misinterpretations between the different organizational levels.

For the development of indicators, a deep reflection of the organization is necessary, which leads to the formulation of the following questions:

1. What is done?

This is intended for the organization to describe its main activities, in such a way that, with the help, if possible, of a template in order to have them inventoried with the description of the result that is intended to be obtained through their execution.

2. What do you want to measure?

Next, the selection of those activities that are considered priority must be made. To do this, it is about establishing a valued relationship (for example, from 0 to 10) according to the established criteria, which allows prioritizing all activities. In this reflection, a column may be included that shows the percentage of time spent by the organization's staff in each activity, since it is advisable to focus on the tasks that consume most of the workforce's effort.

3. Who will use the information?

Once the activities have been described and assessed, the recipients of the information must be selected, since the indicators will differ substantially depending on who is to use them.

4. How often?

In this phase of reflection, the periodicity with which the information is to be obtained must be specified. Depending on the type of activity and the recipient of the information, the indicators must have one or another temporal frequency in terms of their presentation.

5. With what or who does it compare?

Finally, references must be established regarding its structure, process or result, which can be both internal to the organization and external to it and which will serve to make comparisons.

In the process of formulating the indicators, the key success factors are also identified, which are the capacities controllable by the organization in which it must excel in order to achieve the objectives: the ability to achieve user satisfaction, the ability to produce services quality, the ability to deliver fast and reliable deliveries, and the ability to learn.

In turn, it should be noted that the indicators are structured, in general, around the four key perspectives of a public organization: users 'perspective, economic-financial results perspective, internal processes perspective, and employees' perspective..

Stages for development and establishment of management indicators

The fundamental thing is not only to achieve the expected results, but to achieve them with the best and most economical method, whether it is corporate results, a part of the organization, a process, a project or the management of individuals "do the right thing correctly."

Doing the right thing: It means delivering the customer the product with the specified characteristics, in the required quantity, in the agreed time, in the agreed place and at the stipulated price. It is the customer's satisfaction with the product that is delivered.

Correctly: It means trying to always use the best methods, making the best use of available resources "being efficient".

By doing the right thing correctly we will be on the path of effectiveness and productivity.

Being in the correct box correctly means that we are being effective, since the correct thing implies that our product meets the requirements of the client and the company (effectiveness), and correctly it means that we are making adequate use of our resources.

Being in the wrong box incorrectly, is really serious since not only is our product not what the client requires, it is the wrong thing, but also we are making an inappropriate use of the resources destined to its manufacture, it is doing it incorrectly. In this position the company is ineffective and inefficient and, consequently, productivity must be seriously compromised and with it the company itself.

The wrong thing correctly means that although we are being efficient, we are not effective. In other words, the product that we are manufacturing with the best and cheapest method is not the one required by the customer.

The correct thing incorrectly places us in a position of effectiveness but inefficiency. We are attending to the client's requirements, but our resources are not being used rationally and we will very surely have very low productivity levels.

The best management is one that manages to do the right thing correctly, and is effective and efficient at the same time. Management has various levels which are associated with the traditionally established levels of the organization: