This week a friend of mine shared an interesting story.
They were told that their recent performance data showed that performance was improving. “That sounds good” they thought as they started to look at the data which was presented as a table of numbers, one number per time period, as a percentage ratio, and colour coded red, amber or green. The last number in the sequence was green; the previous ones were either red or amber. “See! Our performance has improved and is now acceptable“.
But it did not feel quite right to my friend who did not want to dampen the celebration without good reason, so enquired further “What is the ratio measuring exactly?” “H’mm, let me check, the number of failures divided by the number of customer requests.” “And what does the red, amber and green signify?” “Oh that’s easy, whether we are above, near or below our target.” “And how was the target set and by whom?” “Um, I don’t know how it was set, we were just told what the target is and the consequences if we don’t meet it.” “And what are the consequences?” No answer – just a finger-across-the-throat gesture. “Can I see the raw data used to calculate this ratio?” “Eh? I think so, but no one has ever asked us for that before.”
My friend could now see the origin of his niggle of doubt. The raw data showed that the number of customer requests was falling progressively over time while the number of successful requests was not changing. They were calculating failures from the difference between demand and activity and then dividing the result by the demand to give a percentage that was intended to show their performance. And then setting an arbitrary target for acceptability.
The raw data told a very different story – their customers were going elsewhere – which meant their future income was progressively walking away. They were blind to it; their ratio was deluding them.
And by setting an arbitrary target for this “delusional ratio” implied that so long as they were “in the green” they didn’t need to do anything, they could sit back and relax. They could not see the nasty surprise coming.
This story led me to wonder how many organsiations get into trouble by following delusional ratios linked to arbitrary targets? How many never see the storm coming until it is too late to avoid it? Where do these delusional ratios and arbitrary targets come from? Do they have a valid and useful purpose? And if so, how do we know when to use a ratio or a target and when not to?
It also gave me a new acronym – D.R.A.T. – which seems rather appropriate.