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1.10 Developing Decision Criteria and Metrics

Numerous private sector and government applications provide us an approach to developing decision criteria and metrics. This approach to metrics development is to relate metrics directly to the accomplishment of the goals and objectives of the organization. This process requires the management team to critically examine goals and objectives to ensure the decisions directly relate to these objectives. Decision makers must first establish the goals and objectives and their relative importance in the final decision process. The development of goals and objectives is mentioned in the previous section.

Decision criteria and metrics are then established to support these established goals and objectives. Group decision-making techniques are also utilized to provide a means for developing the decision criteria and weighting their importance. All the decision makers should have a say in the final selection of decision criteria to ensure objectivity and avoid having dominant personalities overly control the process. The steps involved in this time-tested approach follows:

  • Step 1. Establish overall objectives and goals.
  • Step 2. Weight the objectives to determine their importance.
  • Step 3. Select the decision criteria.
  • Step 4. Weight the criteria to determine their importance.
  • Step 5. Develop metrics.

Overall, this approach provides a consistent, traceable, and defensible basis for making decisions. This avoids the "I feel this is what should be done" without any justification. The following is an example of the five steps of this process for developing goals, criteria, and metrics.

1.10.1 Step 1: Establish Overall Objectives and Goals

The first step is establishing objectives and goals for an organization. Goals and objectives are established, noting their common basis and required common theme to represent these objectives. These objectives are then used in the development of the preliminary metrics schema. The initial cut is continued to be refined until a final set of goals and objectives are established that satisfies the group. Group decision-making techniques are used to gain this consensus (see Section 1.6.1).

Through a series of meetings and the use of the Nominal Group Technique, a corporation has arrived at the following senior executive corporate objectives.

  • Improve customer management.
  • Improve financial soundness.
  • Improve market position.
  • Enhance technology development.

These objectives may be consistent on a year-to-year basis, or may shift on a yearly basis based on corporate strategy.

1.10.2 Step 2: Weight the Objectives to Determine Their Importance

The goals and objectives are then weighted to assess the relative importance of the selected goals and objectives. Group decision-making techniques are also utilized to facilitate this process. A resulting importance weighting scheme is then developed and reviewed with the decision makers. In each step of the process, the decision makers must understand and agree to the methodologies used in the process.

Table 1.2 is an example of input importance weighting and overall corporate weighting for the four objectives previously identified.

Table 1.2. Example of Importance Weighting by Executives

Objective

VP Operations Input

VP Operations Weights

VP Sales/Marketing Input

VP Sales/Marketing Weights

VP Customer Management Input

VP Customer Management Weight

Total Input Values

Overall Weight

Max/Improve Customer Management

9

28.10%

10

30.30%

10

33.30%

29

31%

Max/Improve Financial Soundness

6

18.80%

7

21.20%

3

10.00%

16

17%

Max/Improve Market Position

9

28.10%

7

21.20%

7

23.30%

23

24%

Max/Enhance Technology Development

8

25.00%

9

27.30%

10

33.30%

27

28%

TOTAL

32

33

30

95

1.10.3 Step 3: Select the Decision Criteria

For each of the objectives established in step 1, the group must establish a hierarchy of decision criteria to represent the various objectives. Define the decision criteria so that there is a clear understanding of the criteria used and what metrics will be used to measure the criteria. This definition phase provides the framework for establishing the metrics associated with each of the decision criteria. A "first cut" of the overall decision criteria will be developed, reviewed, and revised as necessary by the decision makers and senior management. Table 1.3 shows an example of the corporate goals with their associated decision criteria and metrics.

Table 1.3. Develop the Decision Criteria

Corporate Objectives

Decision Criteria and Metrics

Customer Calls

Customer Turn Over

Improve Customer Management

Customer Satisfaction

OBIDA

Free Cash Flow

Improve Financial Soundness

Debt

Market Share

Brand Loyalty

Improve Market Position

Ability to Attract New Customers

First to Market

Technology Development

Enhance Technology Development

Innovation

1.10.4 Step 4: Weight the Criteria to Determine Their Importance

Team members then weight the criteria established in step 3 for their relative importance in the decision process. Again, use group decision-making techniques to facilitate this process. The team must develop a "first cut" of the decision criteria weights and review and revise their findings to ensure reasonableness. Table 1.4 shows an example of a criteria weighting scheme based on corporate objectives and decision criteria importance.

Table 1.4. Decision Criteria Weighting

Corporate Objectives

Objective Weights

Decision Criteria and Metrics

Decision Criteria Weights

Resulting Criteria Weights

Customer Calls

20%

6%

Customer Turn Over

40%

12%

Improve Customer Management

31%

Customer Satisfaction

40%

12%

OBIDA

50%

9%

Free Cash Flow

30%

5%

Improve Financial Soundness

17%

Debt

20%

3%

Market Share

50%

12%

Brand Loyalty

25%

6%

Improve Market Position

24%

Ability to Attract New Customers

25%

6%

First to Market

30%

8%

Technology Development

50%

14%

Enhance Technology Development

28%

Innovation

20%

6%

1.10.5 Step 5: Develop Decision Criteria Metrics

From the decision criteria established in step 3, you can identify the metrics. This involves determining what data to use to measure and quantify the decision criteria. The criteria can be either subjective or quantitative in nature. You can measure criteria using "hard," quantitative data or a subjective scale of the decision makers. Expert opinion can be subjectively used when objective data is not available or when objective data is too costly or time-consuming to obtain. Again, the group must develop a "first cut" of the decision criteria metrics and review and revise its findings as needed to satisfy the decision makers. Table 1.5 shows an example of decision criteria and whether these criteria will be quantified with objective or subjective measures.

Table 1.5. Decision Criteria Definitions

Corporate Objectives

Decision Criteria and Metrics

Definition

Metrics (Objective or Subjective Criteria)

Customer Calls

Total Monthly Calls to Customer Service Organization

Objective

Customer Turn Over

Percent of all customers that leave the company

Objective

Improve Customer Management

Customer Satisfaction

Measure of Customer Satisfaction

Subjective

OBIDA

Operating income before depreciation and amoritization

Objective

Free Cash Flow

The sum of operating cash flow, financing cash flow and investment Cash Flow

Objective

Improve Financial Soundness

Debt

Debt Ratio - Total assets divided by total liabilities

Objective

Market Share

Percent of total market held by the company

Objective

Brand Loyalty

Customers who are repeat buyers

Subjective

Improve Market Position

Ability to Attract New Customers

Assessment of ability to attract new customers

Subjective

First to Market

Assessment of the number of new technologies that are first to market

Subjective

Technology Development

Assessment of proficiency of technology development processes

Subjective

Enhance Technology Development

Innovation

Assessment of the ability to innovate

Subjective

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