Can you choose and discuss two metrics that an organization might consider when developing a strategic plan?

9.2 
 Tracking Performance Using Metrics

Two old adages underscore why the use of metrics is so vital in organizations:
•	"What gets measured gets managed."
•	"You can't improve what you can't measure."
By way of illustration, consider the true example of a nonprofit organization that provided educational workshops for high-school students in an effort to reduce the teen crime rate in the area around the city in which it operated. The directors were asked how they knew how the organization was performing and what information was reported to its sponsors periodically. They said they kept records of student attendance at every workshop they gave, the number of workshops each week and at which school, who gave the workshops, and the content of each workshop. In other words, what they said they were going to do and what they did was what was measured and reported. But how effective were the workshops? What was the purpose for developing and giving them? Did the teen crime rate decline over the couple of years that this organization was giving its workshops? And even if they did—which no one knew—was it because of the workshops?
In this example, the donor was as much at fault as the people in the organization for not insisting on better measures and better data. Clearly, like many other organizations, this one measured what is easy to measure, not what needed to be measured. Unfortunately, those running the programs didn't know, or had never considered, the difference. There are many ways to measure performance, but the more systematic and reliable the method is, the more credible the data will be in supporting strategic plans and their implementation.

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The manager's job is to collect and organize current project data by project.
Organizations mistakenly measure the results of their activities or effort, not progress toward achieving objectives. Although impact measurement is important, process evaluation is critical to strategic management. Evaluating progress at numerous stages throughout implementation allows the manager and his or her team to make adjustments and modifications to the strategy.
Operational objectives, discussed in Chapter 8, must be set carefully. Making good progress toward objectives that were set too low is of little value and won’t implement the strategy properly. Setting them too high de-motivates the workforce and is just as bad. So let us assume that "stretch" objectives—set at just the right level but that demand a little more from everyone to achieve—have been set all the way down the line, plans were devised forever unit that matched its budget allocations, and that it was these plans that are now being carried out by everyone in the organization.
How does top management monitor whether everything is "on track" or "on plan?"
The manager's job is to collect and organize current project data for there view period, by project, in their respective areas of responsibility. The example shown in Figure 9.1 is a step in the right direction, but has to be summarized for the month. For example, the figure shows an almost instantaneous picture for daily monitoring, a time frame and level of detail required only by the people actually doing the work. From such daily reports and the status of projects at the end of the month, manager would need to extract and summarize information on each major project, being careful to note which projects were on schedule and under budget and which weren't and by how much. The latter could constitute a separate "exception" report of negative variances (discussed immure detail later), which are projects that have slipped their schedule or are over budget, together with additional information on how much extra it might cost to get all of them back to meeting their deadline.
The Budget as a Control System
Recall the vignette about Pacifica Corporation recounted in a box in Section 2.9. As part of the rapid change in its culture, five original managers including the CFO were replaced. The CFO was let go because he did not understand the concept of budgeting but for months had fooled management into thinking he did. When asked if everything were "on budget," he would reply, "Yes," which was accepted at face value given his position as CFO. After about six months, when it became evident that costs were really out of control, he was asked if everything was still on track with the original budget that had been approved. Of course they weren't. Each month, when expenses had exceeded the budget, he had simply raised the budget amount accordingly and reported that things were "on budget," rather than take steps to reduce expenses.
The budget is a control system in that it allows management to compare actual performance to a standard, measure the variance, take action to reduce the variance, reset or update, and test again. Another example of a control system is a packaging machine that automatically fills boxes with a precise weight of cereal and signals the operator the moment the filled weight exceeds or falls short by a preset small amount, enabling immediate adjustment of the machine. In the case of a budget as control system, action is taken only if expenses exceed the budget. Further, cumulative expenses are compared to cumulative budgets so that an operational unit that has overspent one month can "make up" and spend less than its budget in the following month (Figure 9.2).
One of the hallmarks of a good control system is that corrective action is taken as soon as it is found to be needed. Why wait until the end of the year to discover that you have gone over budget? At the other end of the scale, should you check every week? That makes no sense, either. Monthly checking is about right, and most information systems can provide such information monthly, either as needed onscreen or in customized monthly report sent to all operational managers.
In large organizations that have federal contracts, for example, government auditors closely examine expense reports, time sheets, and invoices related to programs. So, for example, when a contractor requests increased funding, budget controls are in place to quickly advise regulators alto the legitimacy of the request. In this way, the government can determine when increased expenses are justified, or when to tell its contractors to cut costs.
Addressing Negative Variances
Managers in well-run corporations make a point of meeting with their direct reports regularly to go over progress and discuss any problems. One focus of the meeting should be variances and any exception reports that detail differences between plans or standards and actual performance. A negative variance is an instance where a project's progress is delayed and could miss a deadline, or where its budget has-been exceeded, or where performance comes up short of a quantitative standard or expectation.
Figure 9.2: The budget as control system

What can be accomplished in such a meeting between a manager and a direct report? First, the manager should learn about the particular circumstances surrounding negative variances of some projects, what might have caused the delays or budget overruns, and which otherprojectsmight be in jeopardy as a result. They should ask questions and listen carefully to the responses. Both the manager and direct report should note questions to which an answer could not be provided because the direct report didn't have the necessary information.

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Well-run corporations have their manager's report in every month to track progress and discuss any problems that have arisen.
Second, the manager and direct report should discuss potential solutions to the negative variances. Some projects can be pulled back on track through either the direct report getting project personnel to acknowledge problems and solve them, helping them to find solutions, and trying to remove obstacles that might be delaying progress. Also, if budgets are overrun, a new lower budget that compensates for the overrun must be communicated to project personnel. The manager should focus on projects where there is a direct relationship between schedule and budget. That is, where speeding them up will cost more, and conversely, where reducing the budget results in unacceptable delays. It is imprecisely such situations that any critical-path software becomes invaluable, because it lets a project leader or supervisor try out different alternatives until both parameters (project time and budget) meet expectations.
Third, the manager should insist that the direct report file—within the next couple of days—a revised plan containing the points that were discussed that will bring projects and budgets back in line.
Finally, meetings represent an opportunity for the manager to strengthen relationship with the direct report. In most cases, the meeting is just between the two of them (although inviting other project managers who are in a better position to provide explanations is also common). What is the direct report most worried about? Is the communication between them as "open" as it needs to be? What's really going on? Taking the time to delve a little deeper and offer guidance and counseling is often well worth the time.
Be mindful of a couple of potential red flags: Some managers don't like hearing or dealing with bad news and might even tells their reports they don’t want to hear it. So if a supervisor is repeatedly told, "everything is okay," he or she might well suspect that it's not. The manager will have to dig deeper and even go to chat informally with the direct report's colleagues and team members. A manager also needs to be sensitive to whether a direct report is losing control of the team or his or her responsibilities. If the employee feels overwhelmed and relatively powerless to stem the tide, a real problem exists.
This kind of face-to-face meeting with a direct report goes on up and down the hierarchy. Typically, a manager might have a half dozen to dozen direct reports, some fewer, some more. A manager should schedule all meetings with direct reports over the course of a day ortwobefore meeting with his or her own supervisor, taking on the role of "direct report."
If this description of the organization conveys the idea that this is one massive control system that is exactly the intent. During execution or implementation of a strategy, doing the work and controlling the work—its quality, timeliness, and adherence to a budget—is vital. And in the spirit of a good control system, actual performance is compared to a standard, the variance noted (especially negative variance), solutions developed, and a correction applied as soon as possible. Data collected about performance, especially as part of an information system, are essential, but a control system needs more; that's why the face-to-face meetings are imperative and why everyone in the hierarchy must follow-through and put the corrections into effect to improve performance the following month.
This description also gives the impression that managers take part in many meetings, and that too is by design. With so many meetings to prepare for and attend, when do managers get time to do their real work? Perhaps this is the fallacy. Recall the definition of a manager as” someone who gets work done through other people." The time spent in meetings is the work. Whether that time is wasted or not is another issue and goes directly to whether the person conducting the meeting is an effective manager. Managing well is difficult, challenging, time-consuming, but ultimately very satisfying. The job gets done on time and within budget, and your direct reports grow and develop into productive, congenial team members.