E The Performance Evaluation Report Card (PERC) Methodology Explained

PERC is very different from methodologies like Six Sigma and Business Process Engineering, and it is important to communicate these differences to executives and managers, especially those who have been involved in, and perhaps disappointed by, the results of other methodologies.

PERC uses business metrics to analyze operations and provide regular, consistent, and clear feedback to individual managers who have both the authority and the responsibility to improve their operations and now the attention of executive management to help facilitate any necessary higher level changes.

In contrast, methodologies like Six Sigma and Business Process Re-engineering that impose new work processes and structures from the top down can leave individual managers less accountable and often disengaged from the process. Because they are not experts in these methodologies, they are asked, at least initially, to turn over vital parts of their operation to an outside team of experts or consultants.

Implementing a full process reengineering across a large business unit can take months, during which two processes may be performing in parallel. Only at the end of the project can the results be seen and evaluated. PERC, in contrast, captures any improvement as it is occurring, incentivizing managers to focus on the simplest changes that will have the greatest immediate impact, better allocating their scarce resources.

And while Six Sigma and PERC may share similar goals, the improvement of business processes, the issue is that Six Sigma, by itself, provides no insight into which processes to focus on or how much effort is to be expended in refining them. While consultants are often tempted to simplify and abstract operations, business realities are much more complex and dozens or hundreds of work steps are typical. Turning every single one into a nearly error-free process isn’t realistic in any reasonable time frame.

PERC can co-exist with any other process improvement methodology, and in fact, can provide a means to evaluate their performance. If one organization uses a Six Sigma approach, assuming that refinements in their processes will lead to better output, then PERC can test that assumption and deliver an ongoing evaluation. PERC is results-driven rather than tied to any specific management approach and thereby encourages solution-oriented efforts.

Current PERC Application—2008-9 Bank Analysis

It’s clear there is no greater challenge to the economy than the working through this financial crisis and presenting future ones. To show the relevance and utility of PERC, we decided to identify which of the more than 8,300 banks in the US performed well over the past fifteen years and which ones have not. Our data source for this evaluation was not from any private data work files, but from publically provided information available on the internet regarding the quarterly financials provided to the Federal Deposit Insurance Corporation (FDIC).

To show PERC’s predicting capability, we have attached to our innovation submission an Excel Spreadsheet (Quanta Analytics List of Trouble Banks) which displays the list of banks that we believe are currently in jeopardy of being taken over or shut down by the FDIC. The attached list was compiled in less than one day (August 28, 2009--one day after the most recent June 2009 FDIC-submitted data became available to the public) using simple ratios and standard business indicators and PERC analysis.

Since making this list available to colleagues more than two months ago, twenty-three out of the first twenty-five banks that the FDIC has shut down since August 28 were on our list—a list that represents less than 3.5% of the more than 8,300 FDIC-monitored banks, and a list that is less than two-thirds the size of the FDIC’s own publically stated, but not publically shared, list of banks in trouble. Institutions are sorted by those most in jeopardy.

Aside from being able to predict failures, PERC can prevent them. Our goal is that this methodology becomes a standard part of managing the global financial sector and preventing these types of crises in the future. Of course, this requires executive sponsorship in order to be effective.

In Summary

PERC is a methodology designed to facilitate rapid and ongoing performance improvements across peer groups. It can be applied to any populations that have measurable processes and outputs and in which distinctions can be drawn between the best and worst performers and some historical data is available.

PERC, via a performance rating system, provides clear, consistent, and frequent feedback. For the poor performers in a population, this is a challenge to improve and to bring their scores closer to the average. At this point they have responsibility, accountability, and the benefits and pressures associated with executive management’s attention. This is an environment in which operational issues can be identified, prioritized, and addressed.

Over time, positive efforts by these organizations will yield results, thereby raising the average indicator scores for the peer group and improving performance for the population as a whole. Rising averages provide pressure to all organizations in the peer group to maintain their rate of improvements or risk declining in the rankings.

PERC is performance oriented and does not try to reengineer existing business processes, but instead challenges managers to make good decisions as to where efforts should be allocated. It also relies upon a natural preference for individuals to be evaluated with clear feedback and rewarded quickly and fairly for their efforts large and small.

A PERC program can be put in place in response to a crisis to drive rapid improvements, but can be also run for years or decades in order to prevent future problems. It is a powerful system with a light touch, as the monthly reports become part of the regular feedback received by all managers on their efforts and an opportunity for executives to identify and arrest potential problems when small and manageable.

Given its capabilities and wide applicability, PERC is an important tool for executives and managers in both public and private organizations that can be carried from project to project. As such, it merits a place in the education of every manager, analyst, and executive.

PERC is also uniquely suited to address the challenges of the current financial crisis, having done so once before in the aftermath of the Savings & Loan crisis. It provides a mechanism for monitoring and improving a large population of organizations by using transparent and relevant indicators, and it can be implemented rapidly. An effectively implemented PERC program would have the potential to reduce both the likelihood and severity of future financial crisis.

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Bitcoin Bandit 1 month ago Member's comment

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