Metrics

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What are 'Metrics'

Metrics are parameters or measures of quantitative assessment used for measurement, comparison or to track performance or production. Analysts use metrics to compare the performance of different companies, despite the many variations between firms.

BREAKING DOWN 'Metrics'

These measurements have traditionally been based in finance, but with increasing ability to measure and quantify how and how effectively we work, metrics can encompass almost all aspects of a business. Metrics can refer to a company's EBITDA, earnings per share, or any other financial measures. They can also be industry specific, such as barrels of oil produced by  exploration companies. Taking the ratios of some metrics forms multiples, which further allow analysts to compare diverse firms.

Metrics refer to a wide variety of tools that managers and executives can use to evaluate the performance of their employees, their products, services, and customer satisfaction. In order to establish a metric, a company first needs to find a critical process, find outputs correspond to amount or type of work, and then set goals for those outputs. 

One way to measure project health is to break down the measurements you want to keep track of into seven criteria: resources, cost, time, scope, quality, safety, and actions. However these are chosen or measured, it’s common that any metric or set of metrics is linked with an overarching strategy, and are chosen in order to measure the performance of the overall strategy of that business or corporation against a ‘critical success factor’.

One of the dangers involved in using performance metrics to evaluating the performance of a department, company, or specific employee is choosing the wrong outputs to measure. Measurement inversion is the term used to describe this misplacement of importance, something that usually occurs when a business uses what is immediately measurable in order to try and evaluate performance. Businesses wanting to use performance metrics must focus on more valuable measures, what have come to be known as key performance indicators, or KPIs​. An entire decision analysis method, called applied information economics, is devoted to finding the right kinds of outputs to measure and analyze.

Some of the first examples of the use of performance metrics can be dated all the way back to the Venetians in the mid to late 1400s. A merchant city gave rise to accounting, and by extension the ability to take measurements and evaluate the performance of a business. 

Measurement of performance in the US became increasingly important during the industrial revolution as businesses grew and became harder to track. DuPont (DD) began using metrics to better their own business, and in the process came up with some of their own types of analysis. Later on, GE commissioned a set of metrics that are commonly used today, including market share, productivity, attitude and responsibility. 

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