Sunday, November 29, 2009

performance dashboards

Wayne W. Eckerson, author of Performance Dashboards: Measuring, Monitoring and Managing Your Business, has written a definitive guide to business intelligence and its applications. In the opening lines, Eckerson concisely highlights the importance of dashboards in managing performance. We're not talking just about the performance of a specific asset or product, but the performance of every individual across the enterprise. Much like the driver of an automobile depends on the gauges in front of them, each employee depends on some form of feedback in order to determine the conditions of their progress.

In a world with perfectly effective management who provided adequate feedback and had a good grip on every project delegated to their staff, dashboards might not seem terribly useful. Realistically, this isn't the case. Employees are all too often left wondering how they're progressing towards their goals. Work groups push diligently towards deadlines while losing sight of the big picture and having little indication of how their current work is contributing to the overall annual goal.

The driver of an automobile has some fantastic tools at their disposal to determine the success of their journey. The speedometer is indicative of their rate of travel, while the odometer tells them how far they've come and, granted they set their destination in advance, how far they have to go. These two tools alone are more than the majority of today's workforce has at their disposal.

The employment of key performance indicators (KPIs) helps ensure that individuals and groups are focused on the tasks that are most critical to the achievement of end goals. KPIs, by definition, should be closely linked to goals in a manner such that they indicate progress towards them. For example, consider a small financial institution that has an asset sensitive balance sheet (i.e. loans and mortgages are "repricing" more quickly than deposits and investments). The board of directors has decided that a liability sensitive balance sheet is more desirable, as their expectation is that interest rates will decrease in the short- and medium-term, causing margins to compress. In this environment, it is desirable to fix the rates received on lending products while allowing deposits to float.

The KPI used by a lending manager could be very simple: two small pie charts, one for assets, the other for liabilities. The asset pie chart would show % of assets that are fixed rate vs. floating rate, and the liability pie chart would show the same.

Let's assume that the current mix shows 40% of assets and 70% of liabilities are fixed rate. The board of directors would need to set a simple mandate to grow fixed rate assets to 55% while decreasing exposure to fixed rate liabilities to 55% by encouraging customers to take advantage of floating rate deposits. The pie charts mentioned above could be updated in real time from the data warehouse and the product managers would have their finger constantly on the pulse of their team's progress towards the board's goal.

How does this help the staff on the front lines? Simple. Another KPI linked directly to their own compensation. In order to incentivize staff, their bonus compensation can be linked directly to the goal of rebalancing the balance sheet. The mix of products they sell to customers can be displayed for them individually, or a simple point system can be established to reflect their contribution to the goal (i.e. +1 point for every $1,000 in fixed rate product, +0.5 points for every $1,000 in variable rate products with the point goal linked to their annual sales goal).

With today's technology, these are not pie-in-the-sky concepts. Solutions such as these are relatively easy to implement in a cost effective fashion. In fact, there's almost no excuse for the absence of performance dashboards in an organization.

So, what's on your dashboard?

No comments:

Post a Comment