Business Performance Measurement Methods & Their Effectiveness

Tony Ferraro | January 9, 2014

When it comes to running a business, one has to keep a careful watch on what’s being produced, how quickly it’s happening, and whether a factory is producing goods at a speed that can keep up with demand. By extension, this means that employees must be monitored to ensure that they are working efficiently and productively throughout the day. Depending on the size and nature of your business, this can either take the form of general visual overviews from management throughout the day, or they can come down to a calculated science of measurement. Let’s take a look at the possible pros and cons of various methods of performance measurement.

The Small Business Once-Over

This method involves simply giving things a visual check from time to time – this can be scheduled to ensure regularity, or random to ensure employees aren’t just behaving themselves during checks. Managers should be looking first to see whether workers are busy; are people standing around on their cell phones? Is production lax? From there, the reasons for any slumps in production need to be looked at. It’s easy to assume that a worker is just trying to cut corners, but maybe he or she has actually run out of work, indicative of another problem altogether (over-staffing, not enough orders, etc.).

The benefits of this method are namely that it is low pressure, facilitates casual conversation and interaction between management and workers, and it doesn’t “look” like a formal inspection or count. All of these things create an at-ease atmosphere. On the other hand, if problems are consistently arising with production, it may be that such an amorphous system isn’t working, and you need something with a bit more structure.

By The Numbers

The By The Numbers method is exactly what it sounds like: counting. To be more specific, you’ll be setting a count for the number of units to be produced per hours, day, week, or month, and then monitoring to see whether or not these goals are met. Here’s a good method for determining the right production numbers to set as goals.

  1. Take average daily production numbers for at least 2-3 weeks for a product with a short production cycle, or 2-3 months for one with a longer cycle.
  2. Utilize the “Once-Over” method during this interim period.
  3. Combine your results to set a suitable number. Basically you want to look at the numbers you produced during that time as ask yourself: Are production goals being met? Are we backlogged on orders? Do we need to produce more to turn a profit? If nothing needs to change, simply use your daily averages as your production goals for workers. If you fall below these marks, you’ll know something has changed. If, however, you conclude that something needs to change right away and you noticed that there was slacking off during your observations, you can set goal numbers higher than your current production and focus on correcting employee behavior to meet these.

The primary benefit of this method is that you aren’t leaving anything up to guesswork; either the numbers add up or they don’t. A downside is that it’s inflexible, and can remove the human element (one which facilitates good working relationships) from the interactions between managers and their employees.

Many mid-sized businesses opt for a sort of hybrid model, in which they use numeric goals but also involve person to person evaluations on a regular basis. The best way to make a hybrid model effective is to actively manage it and understand that goals and benchmarks need to be firm enough to keep workers productive, while at the same time flexible enough to account for seasonal and individual circumstances. Whatever you choose, having some sort of productivity accountability and measure of performance is certainly preferable to pretending you don’t need any at all.

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