Using a Traffic Light to Red Yellow Green Your Metrics (KPI)
Your Metrics (also called Key Performance Indicators or KPI) should be visible at a glance. The best way to make good or bad performance stand out is to color-code the scores.
Like most people, I recommend the standard red, yellow, green colors of the traffic light for displaying the status of your Metrics on your software dashboard. Everyone intuitively understands the traffic light concept, but it is not as simple as it seems.
Based on my analysis of thousands of clients back when I worked for a company that provided a KPI software dashboard, here are my recommendations for the right way to color-code your Metric performance thresholds:
Red = Unacceptable level of performance.
This is the equivalent of seeing a red warning light on a car dashboard. We need to pull off the road and sort it out straight away. We must take action to fix this score as soon as possible.
My rule of thumb is any Metric (KPI) that is “in the red” must be discussed by the manager with the goal owner at the next applicable meeting. Here are my guidelines for how to hold people accountable.
Work together with the goal owner to come up with tangible actions to address the poor performance, and capture them as Tasks. Follow up next week to make sure these Tasks got done, and assess their impact on Metric performance.
Yellow = Anything in-between the red and green scores.
Yes, we can keep the lights on and we can keep our jobs, but we are not happy yet. We need to keep a close eye on this number to make sure everything is OK and to ensure it is tracking in the right direction.
Green = Target level of performance.
We expect the goal owner to achieve this level of performance “most of the time”. My rule of thumb is:
“A good person, doing a good job, should achieve the green level of performance 90% of the time”.
In essence, a competent person, with the right tools and training, doing an honest week’s work (i.e. they are not a slacker), should achieve the “green” performance standard 9 times out of 10 ( i.e. 9 days out of 10 for daily metrics, or 9 weeks out of 10 for weekly metrics).
If not, the green performance threshold is too high.
Most managers tend to set the green performance thresholds too high, thinking that setting stretch metrics will motivate their people, but my analysis found that it tends to have the opposite effect. When your “good people” can’t achieve the target level of performance with a reasonable amount of effort, they quickly become discouraged and demotivated. Their failure is staring at them on the software dashboard every day.
You cannot shame your people to higher performance. Shame is not a motivator. A dashboard full of Metrics that are colored red will demotivate your good people.
Research on employee motivation has shown that employees are strongly motivated by seeing progress, so it helps when you make progress visible on their dashboard, and praise and acknowledge them for their “small wins” every step of the way.
And don’t assume your good people know that you value their contribution just because their Metrics are “in the green” either. Acknowledge their good work and thank them. Studies show companies that effectively praise and recognize their staff are more profitable.
I recommend re-negotiating performance thresholds every quarter and adjusting them to reflect seasonal trends and changes in your operating environment. Set SMART Goals (achievable and relevant), with just the right amount of pressure, so that your “good people” are winning 90% of the time.
Until next time…
Stephen Lynch is the author of the award-winning book; “Business Execution for RESULTS – A practical guide for leaders of small to mid-sized firms” winner in the “Management” category of the 2014 Small Business Book Awards in the USA. He’s written articles on strategy and management for The Economist magazine and coached hundreds of companies in the USA, Canada, Australia, and New Zealand.
Do you want a Strategic Plan Facilitator for your next planning session? A Business Coach to help you scale your business? Management Training to upskill your team? Contact Stephen to discuss your needs.