Performance Management Glossary
One of the first steps to facilitating performance management success is to ensure that your organization has a common language for talking about performance. Below is a guide to key performance management terminology and concepts to help get everyone on the same page.
Alerts: Notifications to email or to a home page, updating users to changes to items that they have subscribed. Examples might include notifications about performance changes or commentary.
Alignment: The act or state of being properly positioned, especially in relation to one another; see also operational alignment.
Balanced Scorecard: One of the more prevalent methodologies in use today, the Balanced Scorecard framework has three main tenets: 1) emphasis on outcomes and objectives to be achieved, rather than measures; 2) separation of objectives into disparate, supporting points of view such as Customer, Financial, Process, and Employee; and 3) consideration of non-financial assets such as processes and intellectual property so that leading and qualitative measures are also included.
Benchmarking: The comparison of similar processes across organizations and industries to measure progress, identify best practices, and set improvement targets. Results may serve as potential targets for key performance indicators.
BHAGs (Big Hairy Audacious Goals): Often used to describe an organization’s high-level, long-term aspirations, or vision.
Business performance management: A brand of performance management that includes finance — covering compliance issues, competition, risk and profitability — and human resources performance management — encompassing employee performance appraisals and incentive compensation. Other types of performance management include operational performance management and IT performance management.
Cascading: The process of developing aligned goals throughout an organization, connecting strategy to operations to tactics, allowing each employee to demonstrate a contribution to overall organizational objectives. Methods of cascading includeidentical (objectives and measures are identical), contributory(translated, but congruent, objectives and measures), unique (unique objectives and measures; do not link directly to parent) and shared(jointly-shared unique objective or measure).
Cause and effect: The way perspectives, objectives, and/or measures interact in a series of cause-and-effect relationships demonstrate the impact of achieving an outcome. For example, organizations may hypothesize that the right employee training (Employee, Learning and Growth Perspective) will lead to increased innovation (Internal Process Perspective), which will in turn lead to greater customer satisfaction (Customer Perspective) and drive increased revenue (Financial Perspective).
Comments: Used to provide further information about a performance management object including questions, issues or background.
Composite Measure: A measure based on a number of performance measures, weighted to reflect relative importance. Composite measures provide summary level information to higher management.
Customer-facing operations: Encompasses those facets of the organization that interface directly with customers; typically an organization’s sales, service and marketing functions. Customer-facing operations are also referred to as the demand chain.
Customer Perspective: One of the four standard perspectives used with the Balanced Scorecard. Measures are developed based on the answer to two fundamental questions - who are our target customers and what is our value proposition in serving them? The role of the Customer perspective is often elevated in public sector and not for profit applications of the Balanced Scorecard.
Customer Relationship Management (CRM) - CRM entails all aspects of interaction a company has with its customer. It includes methodologies, software, and usually Internet capabilities that help an organization manage customer relationships in an organized way. The Customer Perspective of the Balanced Scorecard may contain references to a CRM program.
Dashboard: A visualization of important information, often tailored to a specific role or point of view, consolidated and arranged on a single screen so the information can be monitored at a glance. For most deployments, this information contains actual results represented as metrics.
Economic Value Added (EVA): A financial performance measure aiming to determine whether a company or activity has truly created shareholder value; in other words, EVA aims to distinguish real profit from paper profit. EVA is determined by calculating a business’s after-tax cash flow minus the cost of the capital it deployed to generate that cash flow.
Effectiveness Enhancement System: An approach to performance management developed by Bacal & Associates. Its strength is that it recognizes that BOTH manager and employee need to define how performance is to be planned and evaluated. The employee becomes the "customer" of the process. Puts employee and manager on the same side.
Employee Learning and Growth Perspective: One of the four standard perspectives used with the Balanced Scorecard. Measures in this perspective are often considered "enablers" of measures appearing in the other three perspectives. Employee skills, availability of information, and organizational climate are often measured in this perspective.
Financial Perspective: One of the four standard perspectives used with the Balanced Scorecard. Financial measures inform an organization whether strategy execution, which is detailed through measures in the other three perspectives, is leading to improved bottom line results. In public sector and not for profit applications of the Balanced Scorecard measures in the Financial perspective are often viewed as constraints within which the organization must operate.
Forecast: Forecast usually refers to a projected value for a metric. Organizations will often create a forecast that is different than their target for a given metric. There are multiple types of forecasting methods for creating forecasts based on past data and usage of them varies widely across organizations.
Goal: See objective below.
Goal plan: Used primarily in the public and not-for-profit sector, a goal plan is a performance plan outlining an organization’s goals and/or objectives. Also seeStrategy plan below.
Goal diagram: Generically used to describe the one-page visualization that shows the different goals of the organization and how they are related. Examples of goal diagrams include strategy plans,strategy maps and process diagrams.
Government Performance and Results Act (GPRA): Enacted in 1993, the Government Performance and Results Act (GPRA) requires federally-funded agencies to develop and implement an accountability system based on performance measurement, including setting goals and objectives and measuring progress toward achieving them. Emphasizes accomplishments/outcomes and performance-based budgeting versus expenditures and zero-based budgeting.
Human capital: A metaphor for the transition in organizational value creation from physical assets to the capabilities of employees ― knowledge, skills, and relationships, for example. Closely related to terms such as intellectual capital andintangible assets. Some experts suggest that as much as 75 percent of an organization’s value is attributable to human capital.
Index KPIs: Index KPIs are an index of multiple KPIs. Often times these KPIs might actually be measured in completely different units and an index KPI normalizes the underlying KPIs to provide a single score. Sometimes used in the public sector, an example might be a Health Index, which is composed of multiple health related KPIs.
The information supply chain (ISC): The full set of elements, technology-based, process-specific and organizational in nature, which is necessary to collect information from discrete processes, transform this information from data into knowledge, and deliver the right data to the right stakeholders in the right way and at the right time.
Initiatives: The lifeblood of an organization’s operations, initiatives organize people and resources and dictate which activities are required to accomplish a specific goal by a particular date; initiatives provide the how while goals provide the what. As differentiated from projects, initiatives directly support an organization’s strategic goals; projects may or may not have strategic impact. Examples: Supporting the objective “Ensure 100% in-stock merchandise” might be initiatives such as “Upgrade of inventory management software to include demand chain and “Migration to store-specific assortment plans from uniform assortments.” Initiative management solutions help ensure that activities are aligned with goals, increase coordination of resources, and allow prioritization based on importance, not just urgency.
Inputs: Commonly used within the Logic Model to describe the resources an organization invests in a program, such as time, people (staff, volunteers), money, materials, equipment, partnerships, research base, and technology, among other things.
Initiatives - The specific programs, activities, projects or actions an organization will undertake in an effort to meet performance targets.
Internal Process Perspective - One of the four standard perspectives used with the Balanced Scorecard. Measures in this perspective are used to monitor the effectiveness of key processes the organization must excel at in order to continue adding value for customers, and ultimately, shareholders.
IT performance management: A brand of performance management that assists organizations with the increasing demands of maximizing value creation from technology investments; reducing risk from IT; decreasing architectural complexity; and optimizing overall technology expenditures. Other types of performance management include operational performance management and business performance management.
Key outcome indicator (KOI): Often used in the public sector to describe key performance indicators, those metrics most critical to gauging progress toward objectives. KOIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target.
Key performance indicator (KPI): Distinguished from other metrics, key performance indicators (KPIs) are those metrics most critical to gauging progress toward objectives. KPIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target.
KPI/KOI Scorecard: A specific application of a scorecard, a KPI/KOI scorecard is used to measure progress toward a given set of KPIs or KOIs.
Lagging indicator: Backward-looking performance indicators that represent the results of previous actions. Characterizing historical performance, lagging indicators frequently focus on results at the end of a time period; e.g., third-quarter sales. A balanced scorecard should contain a mix of lagging and leading indicators.
Leading indicator: Forward-looking in nature, leading indicators are the drivers of future performance. Improved performance in a leading indicator is assumed to drive better performance in a lagging indicator. For example, spending more time with valued customers (a leading indicator) is hypothesized to drive improvements in customer satisfaction (a lagging indicator).
“Letter grade” rating system: A threshold rating system in which letter grades of A/B/C/D/F are used to describe and/or depict performance (usually based on the gap between the target and actual) in easily understandable terms.
Lifecycle Performance Management:Lifecycle Performance Management is the systematic implementation of an enterprise-wide performance strategy involving all business units, systems and personnel. It is a sequence of management processes, when combined, achieves a complete approach to managing performance from start to finish. Lifecycle Performance Management focuses on all areas that determine the success of an enterprise, including: Employees, Departments / Divisions, Processes, Programs (e.g. implementing organizational policies), Products / Services, Projects, Business Units / Teams.
Logic Model: Having gained prominence in the ’90s largely in response to the Government Performance and Results Act (GPRA), the Logic Model is now a widely accepted management tool in the public and nonprofit sectors as well as the international arena. The model is a roadmap or picture of a program that shows the logical relationships among resources or inputs (what an organization invests); activities or outputs (what an organization gets done); and outcome-impacts (what results or benefits happen as a consequence).
Malcolm Baldridge: Established by the U.S. Congress in 1987, the Malcolm Baldridge performance framework is a rating tool that assesses management systems and helps identify major areas for improvement in seven categories of performance criteria: Leadership; Strategic Planning; Customer and Market Focus; Measurement, Analysis, Knowledge Management; Human Resource Focus; Process Management; and Business Results.
Measure (also called metric): Public sector term to describe a standard used to communicate progress on a particular aspect of a program. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue, headcount number, % increase, survey rating average, etc.) though they may be describing either quantitative (e.g., sales made) or qualitative (e.g., employee motivation) information.
Metric (also called measure): Term used in commercial organizations to describe a standard used to communicate progress on a particular aspect of the business. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue, headcount number, % increase, survey rating average, etc.) though they may be describing either quantitative (e.g., sales made) or qualitative (e.g., employee motivation) information.
Mission: Concise statement that describes, in motivating and memorable terms, the current top-level strategic goal of the organization. A mission provides both an internal rallying cry and external validity. Usually financial-, process-, or customer service-oriented, with a mid-term (three to five years) horizon, an effective mission is inspiring as well as easily understood and communicated.
Objective or outcome scorecard: A specific application of a scorecard, objective scorecards monitor progress toward a given set of objectives or outcomes using a threshold-based rating scale. Typically, objective status is determined by normalizing one or many key performance indicators and comparing it to a given rating scale.
Objective (also called goal): A concise statement describing specific, critical, actionable and measurable things an organization must do in order to effectively execute its strategy and achieve its mission and vision. Objectives often begin with action verbs such asincrease, reduce, improve, achieve, etc. Whereas the vision and mission statements provide an organizing and mobilizing “rallying cry,” objectives translate the vision and mission into measurable and actionable operational terms. Examples: “Be a one-stop shop for all my interactions with the company” (Customer); “Maximize customer lifetime value” (Financial); “Integrate disparate customer processes” (Process); and “Foster a culture that rewards customer intimacy” (Capabilities).
Ongoing Performance Communication: Communication between manager and employee all throughout the year to ensure that problems are identified early, and so there are NO SUPRPRISES during the performance appraisal.
Operational alignment: The means to and/or state of alignment of an organization’s day-to-day activities with its strategic goals or objectives, operational alignment helps ensure that an organization’s daily activities are advancing its longer-term goals and mission.
Operational performance management: A brand of performance management that addresses the growing pressure to increase revenue while managing costs, while meeting ever-evolving and expanding customer demands. Other types of performance management include business performance management and IT performance management.
Operational Reviews: Usually used to describe the regularly scheduled internal status meetings of an organization. Going by different names based on the organization, manufacturing companies typically call them Operational Excellence (OPX) meetings, other organizations sometimes just refer to them as Performance reviews.
Outcome: Commonly used within the Logic Model, outcomes (also called outcome-impacts)describe the benefits that result as a consequence of an organization’s investments and activities. A central concept within logic models, outcomes occur along a path from shorter-term achievements to medium-term and longer-term achievements.
They may be positive, negative, neutral, intended, or unintended. Examples of outcomes include changes in knowledge, skill development, behavior, capacities, decision-making, and policy development.
Output: Commonly applied within the Logic Model, outputs describe what an organization gets done; e.g., “what we do” or “what we offer” and may include workshops, delivery of services, conferences, community surveys, facilitation, in-home counseling, etc. Outputs lead to outcomes.
PART: See Program Assessment Rating Tool below.
Pathway: Descriptive statement and visualization that describes/depicts the progressive stages in realizing an organization’s long-term vision, and provides an understanding of the phases in which particular objectives play primary contributory roles. Examples: “Launch in NYC”; “Scale in Northeast”; “Expand across U.S.”
Performance-based budgeting: A performance budget is an integrated annual performance plan and budget that shows the relationship between program funding levels and expected results. It indicates that a goal or a set of goals should be achieved at a given level of spending.
Performance Appraisal: The regular (usual annual) process where an employees performance for the year is assessed by manager and/or employee. It is only one part of the performance management approach. Usually means the same as "performance review".
Performance Gap: The “difference” between actual and target, the trend of the performance or target gap shows an organization’s momentum.
Performance Management: The larger process of defining how people, processes and systems should be performing, ongoing communication during the year, linking of performance to organization needs, and the evaluating of appraising of performance.
Performance Review: Usually refers to a meeting to review and evaluate performance, involving supervisor and employee. Often done once a year, but to be effective performance reviews, or at least informal meetings to discuss performance should be undertaken at least every few months.
Perspective (also called point of view):Representing the various stakeholders, both internal and external, critical to achieving an organization’s mission. Together, the perspectives provide a holistic, or balanced, framework for telling the “story of the strategy” in cause-and-effect terms. While the traditional Balanced Scorecard includes the four perspectives of Financial, Customer, Internal Process, and Employee Learning and Growth, an organization may choose to modify and/or add to these to adequately translate and describe their unique strategy.
PMA: See President’s Management Agenda below.
Point of view: See perspective above.
President’s Management Agenda (PMA): The President’s Management Agenda, announced in the summer of 2001, is an aggressive strategy for improving the management of the federal government. It focuses on five areas of management weakness across the government where the greatest improvements and progress can be made.
Process Diagram: Process diagrams typically are used to represent specific processes that are undertaken in an organization and the key steps involved in the process. An example might be a high-level diagram that highlights the customer experience.
Program Assessment Rating Tool: Developed by the Office of Management and Budget within the Office of the President of the United States, the Program Assessment Rating Tool (PART) was developed to assess and improve program performance so that the federal government can achieve better results. A PART review helps identify a program’s strengths and weaknesses to inform funding and management decisions aimed at making the program more effective. The PART therefore looks at all factors that affect and reflect program performance including program purpose and design; performance measurement, evaluations, and strategic planning; program management; and program results.
Qualitative: Subjective, as opposed to quantitative (measured). A common source of qualitative metrics are surveys of customers, stakeholders or employees.
Quantitative: Measured, as opposed to qualitative (subjective). Quantitative measures often come from transactional systems.
Readiness scorecard: A specific application of a scorecard, a readiness scorecard can be used to evaluate an organization’s state of readiness/acceptance of a given strategy.
Reports: Typically show the details of performance for a metric or multiple metrics. Reports are often used to drill down to the root cause of performance issues.
Scorecard: A scorecard is a visual display of the most important information needed to achieve one or more objectives, consolidated and arranged on a single screen so the information can be monitored at a glance. Unlike dashboards that display actual values of metrics, scorecards typically display the gap between actual and target values for a smaller number of key performance indicators.
Six Sigma: A quality management and process improvement methodology particularly well suited to process intensive industries like manufacturing. Six Sigma measures a given process by its average performance and the standard deviation (or variation) of this performance, aiming to reduce the occurrence of defects in a given process to a level of “Six Sigma” outside the norm; no more than 3.4 times per million.
Standards of Performance: Mutually agreed upon criteria used to describe how WELL an employee must perform, written to reduce subjective judgment.
Strategy: Strategy is the way an organization seeks to achieve its vision and mission. It is a forward-looking statement about an organization’s planned use of resources and deployment capabilities. Strategy becomes real when it is associated with: 1) a concrete set of goals and objectives; and 2) a method involving people, resources and processes.
Strategic Management System - Describes the use of the Balanced Scorecard in aligning an organization's short-term actions with strategy. The Strategic Management System is often accomplished by cascading the Balanced Scorecard to all levels of the organization, aligning budgets and business plans to strategy, and using the Scorecard as a feedback and learning mechanism.
Strategic Resource Allocation - The process of aligning budgets with strategy by using the Balanced Scorecard to make resource allocation decisions. Using this method, budgets are based on the initiatives necessary to achieve Balanced Scorecard targets.
Strategy map: A specific version of a strategy plan that adheres to the Balanced Scorecard methodology. Strategy maps depict objectives in multiple perspectives with corresponding cause and effect linkages.
Strategy plan: A visual representation of an organization’s strategy and the objectives that must be met to effectively reach its mission. A strategy plan can be used to communicate, motivate and align the organization to ensure successful execution.
Supply Chain - The supply chain represents the flow of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Many organizations are looking to supply chain optimization as a means of gaining significant competitive advantages. The Internal Process Perspective of the Balanced Scorecard often contains performance measures pertaining to supply chain performance.
Target: A target is the defining standard of success, to be achieved over a specified time period, for the key performance indicators associated with a particular strategic objective. Providing context to make results meaningful, targets represent the organization’s “stretch goals.”
Theme: Descriptive statement representing a major component of a strategy, as articulated at the highest level in the Vision. Most strategies can be represented in three to five themes. Themes are most often drawn from an organization’s internal processes or the customer value proposition, but may also be drawn from key financial goals. The key is that themes represent vertically linked groupings of objectives across several scorecard perspectives (at a minimum, Customer and Internal). Themes are often stated as catchy phrases or “buzz” words that are easy for the organization to remember and internalize. Example: “Top Innovator,” “Customer Intimate,” “Operationally Excellent” “Processes/Tools,” “Thinking,” “Content,” “Pipeline” (I/T Organization).
Threshold: A means of describing and/or depicting the performance gap in easily understandable terms. Examples of threshold methods include “letter-grade” (A/B/C/D/F) and “traffic-light” (green/yellow/red).
Values: Representing an organization’s deeply-held and enduring beliefs, an organization’s values openly declare how it expects everyone to behave and are often embedded in its vision.
Value proposition or discipline: Describes how an organization intends to differentiate itself in the marketplace and what particular value it will deliver to customers. Many organizations choose one of three “value disciplines” ― operational excellence, product leadership, or customer intimacy ― articulated by Treacy and Wiersema in “The Discipline of Market Leaders.”
Vision: A concise statement defining an organization’s long-term direction, the vision is a summary statement of what the organization ultimately intends to become five, 10 or even 15 years into the future. It is the organization’s long-term “dream,” what it constantly strives to achieve. A powerful vision provides everyone in the organization with a shared mental framework that helps give form to the often abstract future that lies ahead. Effective visions provide a word picture of what the organization intends ultimately to become - which may be five, ten, or fifteen years in the future. This statement should not be abstract - it should contain as concrete a picture of the desired state as possible, and also provide the basis for formulating strategies and objectives.
“Wobble” test: A litmus test used to determine whether a given objective is truly necessary to achieving organizational mission; if an objective can be dropped from the strategy plan and the organization can still reach your mission, then the objective is not necessary and should be excluded.