The Vital Few: How to Identify Your Key Performance Measures

I know it’s coming, but I dread it just the same:

“So, how many performance measures do you think we should have?”

Ummm…

My left brain immediately offers this unhelpful answer: “No more than what you need to effectively manage performance.”

Although it’s technically good advice, it raises more questions than it answers.

So let’s take a different tack. Why do we measure performance?

Ideally, it’s to define intended organizational outcomes and provide insight into progress towards achieving those outcomes. Performance indicators should tell a story and provide insight into the real world results that your team intends to achieve.

At this point, it might be helpful to define what I mean by performance indicators.

These are the measures that describe outcomes or results. They typically take the shape of discrete and quantifiable data that describe success for a particular effort. That includes effectiveness (e.g., “how much have we reduced opioid overdoses” or “what percent of residents are satisfied with our performance?”); efficiency (e.g., “cost per lane mile” or “permits issued within 15 days.”) or achievement of certain sub-goals (e.g., “AAA bond rating” or “no auditor comments in the CAFR.”) Most of these measures would feed into your performance analytics system.

There are other uses for data, of course—process, workload, input, descriptors and the like—but those are used by your department teams to manage service delivery and don’t really belong in a performance management system. Budget books are filled with these kinds of measures, but they mostly take up space and don’t really describe what the department is attempting to accomplish.

The first time I tried to create a performance management program in a local government, I ran into this reality like a brick wall. I asked departments to submit the measures they wanted to include (you can already see where I went wrong) and I received a list of over 300 measures city-wide.

While we wrestled with that, I did a little benchmarking. Sunnyvale, California was the poster child in government for excellence in metrics, so I gave them a call. They offered to send me their Planning and Management System (PAMS) report to use as a guide.

You should have seen the size of the box that showed up a couple of weeks later.

Inside was a two-inch-thick bound stack of continuous feed ledger-sized paper covered with tiny dot-matrix print. Remember the green bar, pin feed paper? I estimated that there were easily more than two thousand different data points.

Although I felt a little better about my measly 300, I still wasn’t sure what to do next. (Sunnyvale got smart soon after and switched to an outcome-based approach that vastly reduced the measures they track—they’re still way ahead of the curve in performance management.)

I asked my boss what he needed.

Mike Levinson, the city manager in Coral Springs I worked with for 16 years, offered me this advice: “Just tell me what I need to know to understand if we’re on track to achieve our goals. The vital few that give the overall performance of the organization.”

In Coral Springs, we called them Key Intended Outcomes, or KIOs. While their number varied from year-to-year depending on the strategic plan priorities, we usually had about two to three dozen, averaging four to five per priority area.

The City of Baltimore, Maryland calls them Key Indicators and there are usually two to four per Priority Outcome. Andrew Kleine discusses this in his book, City on the Line: How Baltimore Transformed Its Budget to Beat the Great Recession and Deliver Outcomes (Check out webinar with Andrew on outcome-based budgeting).

Baltimore’s initial effort had six Priority Outcomes and 80 indicators. “Having eighty key measures is like making eighty New Year’s resolutions. Most of us have difficulty keeping one; city governments are no different.”

Andrew goes on to say that they had to improve by “getting more focused about priorities. That spirit shows in the 21 Key Indicators […] used—perhaps still too many, but far more manageable than the hodgepodge we started with.”

My manager at Coral Springs (and Baltimore’s Mayor) understood that tracking too many measures will cause staff to lose sight of what contributes directly to achieving strategic outcomes.

So how do you identify the key performance measures that will actually tell you how the organization is performing?

Start by looking at the results you’re trying to achieve and ask yourself: “How would I know if I achieved this outcome?”

One of our priority outcomes in Coral Springs was “Financial Health & Economic Development.” Most cities and counties have something similar. It was the pre-recession version of “Financial Resiliency.”

How would we know we had achieved financial health? We discussed what that looked like and what indicators would apply and came up with seven KIOs:

1. Maintain City bond ratings of Moody Aaa, Fitch AAA, and S&P AAA
2. Commercial square footage development initiated within the Downtown CRA
3. Percent of plan reviews completed within 15 days
4. Non-residential value as a percent of total taxable value
5. Residents’ value rating (A question in our resident survey)
6. Percentage increase of operating millage rate (property tax rate)
7. Estimated rate of return for the City in economic development incentive

At the time, this was a pretty good picture of what we wanted. We were approaching build-out and were concerned about the balance of residential and commercial properties and the impact on property taxes. They were the results that we felt mattered at the time. I’m sure they would be different today.

By connecting outcome indicators to plan elements, you provide direction for staff and create alignment between day-to-day activities and results. And fewer is better.

So how many is the right number? As Mike says; “The vital few.”