E The Performance Evaluation Report Card (PERC) Methodology Explained

As a further follow-up on yesterday’s TalkMarkets’ article, I want to make it clear from an analytical perspective that I have always viewed Globanomics to be a simple, yet complex, math science. The origins of the math side of globanomics came from work that I did while serving as the Risk Guy on Ginnie Mae's mortgage-backed security portfolio. I started this job in 1989 just as the Savings & Loans debacle was starting to show its ugly head. I was about five-years out of Wharton, going nowhere very fast--I was yet even a manager at one of the Big Four accounting firms.

I had built an analytical system earlier for the Post Office using some simple math and making the use of the statistical package, SAS. SAS was the key for me, an analytical type. Hell, with SAS we could look at 7 million loans, run sophisticated statistical analysis, in less than a minute. This was a dream job for an analytical person like me. In the job I hired only young people into my group--looking for business types, analytical in nature, and some level of computer savvy. In total, we had about fifteen people in all working on "risk analysis".

Anyway, one of the first things I did was to try and analyze the loan portfolios of at the time about 800 mortgage loan portfolios. We would run our statistics, download them, and throw them into a micro base, (DBase II at the time). There is a good article in Mortgage Banking, written back around 1990, that talks about what we did.

In this job around the 1994 timeframe I was recognized for my work and issued a Vice-Presidential Award Hammer Award, issued to me by the Treasury Secretary, at a ceremony held over at the Treasury Building.

Key to receiving the award, was the development of our analytical system which analyzed each mortgage loan portfolio. We called it IPADS at the time (i.e., Issuer Portfolio Analysis Database System).

Now what I would like to share with you is what one of my cohorts and I called The Performance Evaluation Report Card (PERC) methodology. It is PERC, which I would use to evaluate countries, using the scaling system I have mentioned in other articles (i.e., 25% Primary Essentials; 25% Secondary Essentials; 35% Primary Growth Factors; 10% Secondary Growth Factors; and 5% Creative Development.

I want to add a couple of things in here relating to PERC before I send you to the PERC material that I believe you should see. Tristan Yates worked for me and was primarily responsible for building the so-called Expert system that we built at Ginnie Mae. Tristan did not have a college education, but I hired him because I knew he was smart, and he sounded like the kind of computer savvy kid I would like to have around me. Later in life, I had left DC in 2000, and returned home in essentially semi-retirement. Around 2004 I saw that Wharton was putting on an Innovation Tournament, so I called Tristan and asked him to help me put together this thing we ended up calling PERC.

Now the second thing I would like you to keep in mind when you look at PERC. Key to PERC is the graph which shows the poor performers moving closer and closer to the best performer. Now this is a subtle point because in a way the graph is right--poor performers should move closer to the best performers over time, but the one thing that the graph does not show, is any growth from the best performer. And when you think of it from that point, then this is where you start getting into "positive growth" and "exponentiality."

Now what follows is our PERC methodology as we explained it with Wharton's Innovation Tournament.

PERC

(Performance Evaluation Report Card)

A Wipro – Knowledge@Wharton Innovation Tournament Submission

Introduction--What is PERC?

PERC is an operational improvement methodology that uses commonly accepted performance metrics and market competition to drive process improvements and to jump start innovation throughout all levels of an organization simultaneously. PERC can be applied to individuals, teams, business units, companies, towns, cities, countries, or any other organizational form, as long as there is a common degree of similarity between comparative units. PERC relies upon simple, yet precise and relevant analytics, open communication, trust, and executive management interest and support.

The fundamental objective behind PERC is to improve business performance, not in just one portion of an organization, but throughout the entire business organization or industry, using a report card mechanism or feedback loop that is regularly updated and monitored. A conceptual view of how one might view PERC being employed over time is seen in the following Exhibit.

EXHIBIT 1

Identifying and resolving performance differences in the poor performers drives the entire population towards the best performers, improving the averages.

PERC is distinct from other analytical performance methodologies such as Six Sigma or Process Reengineering that focus on just one specific process or output and/or attempt to replicate one single “best practice” among dozens of similar entities. Although process improvement is one inevitable outcome of PERC, it is driven not by top-down decision making that may or may not be applicable across a wide range of participants, but by the efforts of individuals directly involved in and responsible for their own output.

The basic theory behind PERC relies on the following two principals: (1) “Effective” performance operations can be analytically distinguished from “less effective” performance operations using reliable methods of unbiased statistical analysis that is acceptable to all and which can be regularly updated and monitored over time; and (2) everyone within an organization prefers playing for a “winning team” rather than a “losing team”.

Just like Quality Assurance, PERC is free or a profit center if applied correctly. Proven in practice, PERC has a wide applicability and deserves to be a standard management practice for process improvements.

Individuals Behind PERC

PERC is the submission of Jim Boswell (Wharton WG ‘83) and Tristan Yates (INSEAD IG ‘03). PERC developed its roots in Washington, DC in 1990 during the U.S. Savings & Loan crisis, in which bad lending by US Savings & Loans resulted in the failures of more than 700 financial institutions resulting in an ultimate cost to the US taxpayer of $124.6B. 

Boswell, a manager at Coopers & Lybrand at the time, was tasked with analyzing, managing, and mitigating the public risk for the Government National Mortgage Association (Ginnie Mae) MBS program during the crisis. Given the magnitude of the potential crisis and the constraints faced by the government at the time, Boswell developed a methodology that would help not only identify troubled issuers, but also improve the performance of all issuers, helping to reduce the overall risk and prevent future institutional failures.

To implement this program, he hired a team of analysts. At 19, Yates was the youngest associate on the team and benefitted significantly in his career by the early exposure to PERC, using it just a few years later to help drive network performance and service improvements at UUNET Technologies, the first commercial Internet service provider. Since those earlier years, both individuals have continued to refine and develop the concept behind PERC.

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Disclosure: No positions.

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Bitcoin Bandit 2 weeks ago Member's comment

Haven't heard the phrase "Globanomics" before. Did you coin that?