Some of these definitions were obtained from US federal government agencies such as the Office of Management and Budget (OMB) or the Government Accountability Office (GAO); some were obtained from other authorities. Links are provided to sites that add more details.
Activity-Based Costing (ABC): A business practice (invented by Dr. Robert Kaplan of Harvard, who also invented the balanced scorecard) in which costs are tagged and accounted in detailed activity categories, so that return on investment and improvement effectiveness can be evaluated. Implementing ABC requires proper data structures and an adequate data collection and reporting systems (such as ERP) involving all employees in the activity. Recently Dr. Kaplan has simplified and modified ABC into Time-Driven ABC.
Activity-Based Management: The use of ABC data to ascertain the efficiency or profitability of business units, and the use of strategic initiatives and operational changes in an effort to optimize financial performance.
Agency: In most US Federal Government legislation, an organization with a budget of at least $20 million per year.
Applied Information Economics (AIE): AIE is a practical application of scientific and mathematical methods to the Information Technology investment process. AIE uses statistical methods to maintain consistency in risk analysis and decision making with a specified level of uncertainty.
Architecture: Design; the way components fit together to form a unified system. May be conceived of any complex system such as "software architecture" or "network architecture" [Free On-line Dictionary of Computing]. An IT architecture is a design for the arrangement and interoperation of technical components that together provide an organization its information and communication infrastructure. [ICH].
Assessment: Any effort to gather, analyze and interpret evidence which describes organizational effectiveness. See also Evaluation.
Balanced Scorecard: A measurement-based strategic management system, originated by Robert Kaplan and David Norton, which provides a method of aligning business activities to the strategy, and monitoring performance of strategic goals over time.
Baldrige Award: A prestigious award, developed by US Commerce Secretary Malcom Baldrige in 1984 to offer an incentive to companies that score highest on a detailed set of management quality assessment criteria. The criteria include leadership, use of information and analysis, strategic planning, human resources, business process management, financial results and customer focus and satisfaction. The award is currently administered by the National Institute for Standards and Technology.
Baseline: Data on the current process that provides the metrics against which to compare improvements and to use in benchmarking. [GAO]
Benchmarking: The process of comparing one set of measurements of a process, product or service to those of another organization. The objective of benchmarking is to set appropriate reliability and quality metrics for your company based on metrics for similar processes in other companies.
Business case: A structured proposal for business improvement that functions as a decision package for organizational decision-makers. A business case includes an analysis of business process performance and associated needs or problems, proposed alternative solutions, assumptions, constraints, and a risk-adjusted cost-benefit analysis. [GAO]
Business Process Improvement: A methodology for focused change in a business process achieved by analyzing the AS-IS process using flowcharts and other tools, then developing a streamlined TO-BE process in which automation may be added to result in a process that is better, faster, and cheaper. BPI aims at cost reductions of 10-40%, with moderate risk.
Business Process Reengineering: A methodology (developed by Michael Hammer) for radical, rapid change in business processes achieved by redesigning the process from scratch and then adding automation. Aimed at cost reductions of 70% or more when starting with antiquated processes, but with a significant risk of lower results.
Capability Maturity Model: A scale for assessing the degree of built-in documentation and discipline in a process, in which the scale is:
- Level 1 - Initial - with no formal process
- Level 2 - Managed - processes are planned and controlled
- Level 3 - Defined - processes described in standards, tools, and methods
- Level 4 - Quantitatively Managed - subprocesses are controlled using data analysis
- Level 5 - Optimizing - data are used to continuously improve processes.
CMM was developed by the Software Engineering Institute of Carnegie Mellon University, and is being extended to a broader range of applications in management.
Capability Maturity Model® Integration (CMMI): A process improvement approach that provides organizations with the essential elements of effective processes. It can be used to guide process improvement across a project, a division, or an entire organization. CMMI helps integrate traditionally separate organizational functions, set process improvement goals and priorities, provide guidance for quality processes, and provide a point of reference for appraising current processes. See [http://www.sei.cmu.edu/cmmi/general/general.html].
Core competency: A distinctive area of expertise of an organization that is critical to its long term success. These are built up over time and cannot be imitated easily. The concept was developed by C.K. Prahalad and G. Hamel in a series of articles in Harvard Business Review around 1990. Sometimes called core capability.
Cost-benefit analysis: A technique used to compare the various costs associated with an investment with the benefits that it proposes to return. Both tangible and intangible factors should be addressed and accounted for. [GAO]
Customer: In the private sector, those who pay, or exchange value, for products or services. In government, customers consist of (a) the taxpayers; (b) taxpayer representatives in Congress; (c) the sponsors of the agency; (d) the managers of an agency program; (e) the recipients of the agency's products and services. There may be several more categories of 'customers'; they should be carefully segmented for maximum strategic benefit. Compare with primary customer and stakeholder. (Note: the term "internal customer" is deprecated because by definition a customer is external to the organization).
Critical success factor: See key success factor.
Discount factor: The factor that translates expected financial benefits or costs in any given future year into present value terms. The discount factor is equal to 1/(1 i)t where i is the interest rate and t is the number of years from the date of initiation for the program or policy until the given future year. [GAO] Discount rate is the interest rate used in calculating the present value of expected yearly benefits and costs. [GAO]
Economic Value Added (EVA): Net operating profit after taxes minus (capital x cost of capital). EVA is a measure of the economic value of an investment or project.
Earned Value Management: Earned value is a project management technique that relates resource planning to schedules and to technical cost and schedule requirements. All work is planned, budgeted, and scheduled in time-phased ''planned value'' increments constituting a cost and schedule measurement baseline. There are two major objectives of an earned value system: to encourage contractors to use effective internal cost and schedule management control systems; and to permit the customer to be able to rely on timely data produced by those systems for determining product-oriented contract status. (http://www.acq.osd.mil/pm/evbasics.htm)
Effectiveness: (a) Degree to which an activity or initiative is successful in achieving a specified goal; (b) degree to which activities of a unit achieve the unit's mission or goal.
Efficiency: (a) Degree of capability or productivity of a process, such as the number of cases closed per year; (b) tasks accomplished per unit cost.
EFQM: The European Foundation for Quality Management's Model of Excellence, which provides benchmarking and self-assessment in a framework similar to that of the Malcom Baldrige criteria.
Enterprise: A system of business endeavor within a particular business environment. An enterprise architecture (EA) is a design for the arrangement and interoperation of business components (e.g., policies, operations, infrastructure, information) that together make up the enterprise's means of operation. [ICH].
Evaluation: Any effort to use assessment evidence or performance measurements to improve organizational effectiveness. See also Assessment.
Executive Information System: Generic term for a software application that provides high-level information to decision makers, usually to support resource allocation, strategy or priority decisions. This could include a balanced scorecard system, Enterprise Resource Planning (ERP) system, Decision Support System (DSS), etc. Technologies include databases, a data warehouse, and analytic applications such as OLAP (On-Line Analysis Protocol), and many mission-specific data reporting systems.
Federal Enterprise Architecture Framework (FEAF) - An organizing mechanism for managing development, maintenance, and facilitated decision making of a Federal EA. The Framework provides a structure for organizing Federal resources and for describing and managing Federal EA activities.
Feedback: Information obtained from the results of a process that is used in guiding the way that process is done. There should be feedback loops around all important activities. Strategic feedback (for each strategic activity) validates effectiveness of the strategy by measuring outcomes (long-term). Diagnostic feedback tracks efficiency of internal business processes (usually generic across all mission activities). Metrics feedback allows for refining the selection of metrics to be measured. Measurement feedback allows for the improvement of measurement techniques and frequency.
Five Forces Model: A tool developed by Michael Porter that analyzes an industry in terms of five competitive forces: bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitute products, and rivalry between existing competitors.
Framework: A logical structure for classifying and organizing complex information. [Federal Enterprise Architecture Framework] See also Zachman framework.
Functional Economic Analysis (FEA):An analytical technique for assessing the value added at various stages or functions in a process. Most relevant in manufacturing industries, where such increments in value can be readily measured.
Gap Analysis: Gap analysis naturally flows from benchmarking or other assessments. Once we understand what is the general expectation of performance in industry, we can then compare that with current capabilities, and this becomes the gap analysis. Such analysis can be performed at the strategic or operational level of an organization.
Goal: A specific intended result of a strategy; often used interchangeably with Objective. See also Outcome Goal, Output Goal, Performance Goal, Strategic Goal. [Note: the term "goal" is used in a wide variety of ways in planning; e.g. as a a task or function to perform, strategic result or outcome; an objective, a measure, a target, a deliverable, a vision, etc. For this reason readers are advised to avoid this term, or else to define it carefully and use it consistently in planning documents.]
Governance: The systems and processes in place for ensuring proper accountability and openness in the conduct of an organization's business. A company's Board of Directors has ultimate responsibility for the governance of a company. [Solium Capital].
Impact: Changes in outcomes that can be attributed to a particular project, program or policy, in a situation where there may be many other influences on outcomes. Impact evaluation attempts to answer the question, "What would the situation have been if the intervention had not taken place?" [World Bank].
Improvement: An activity undertaken based on strategic objectives such as reduced cycle time, reduced cost, and customer satisfaction. This includes improvements directly in mission activities (production, design, testing etc.) and/or in support activities for the mission.
Indicator: A simple metric that is intended to be easy to measure. Its intent is to obtain general information about performance trends by means of surveys, telephone interviews, and the like.
Input: Resources (funds, labor, time, equipment, space, technology etc.) used to produce outputs and outcomes.
Information technology (IT): Includes all matters concerned with the furtherance of computer science and technology and with the design, development, installation, and implementation of information systems and applications [San Diego State University]. An information technology architecture is an integrated framework for acquiring and evolving IT to achieve strategic goals. It has both logical and technical components. Logical components include mission, functional and information requirements, system configurations, and information flows. Technical components include IT standards and rules that will be used to implement the logical architecture.
Intermediate Outcome: An outcome from a business activity that can be identified and measured in the near term, and is an indicator of longer-term outcomes. This is practical when long-term outcomes are diffuse, delayed or otherwise difficult to measure. Intermediate outcomes often relate to customer satisfaction, which can be measured by means of customer surveys or interviews.
ISO 9000: ISO, the International Organization for Standardization, has established a series of performance and quality management system standards for industrial organizations. Organizations may receive certification from the ISO Certification body if they are in compliance with the relevant international standards.
IT investment management approach: An analytical framework for linking IT investment decisions to an organization's strategic objectives and business plans. The investment management approach consists of three phases--select, control and evaluate. Among other things, this management approach requires discipline, executive management involvement, accountability, and a focus on risks and returns using quantifiable measures. [GAO]
Key Performance Indicators (KPI): A short list of metrics that a company's managers have identified as the most important variables reflecting operational or organizational performance.
Key Success Factors (KSF): The three to five broad areas on which an organization must focus in order to achieve its vision. They may be major weaknesses that must be fixed before other goals can be achieved. They are not as specific as strategies. Sometimes called strategic themes or critical success factors (CSF). (Mark Graham Brown, Winning Score).
Knowledge Management: "Knowledge Management caters to the critical issues of organizational adaptation, survival and competence in face of increasingly discontinuous environmental change. Essentially, it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings." (http://www.brint.com/interview/maeil.htm)
Logic Model: A generic model of any business process, which breaks it down into inputs, activities (or processes), outputs, and outcomes (or results). Sometimes intermediate outcomes are also included.
Managing for Results (MFR): A process, inspired by the US Government Performance and Results Act (1993), that combines strategic planning, performance measures, and budgeting to place the focus on results or accomplishments of government programs, not just how much money was spent or how much work was done. MFR has been a very popular approach in management of state, county and city governments. Its general approach is consistent with the balanced scorecard.
McKinsey / General Electric Matrix: A portfolio planning tool that uses a 3 x 3 matrix. One scale is market attractiveness, the other is competitive strength. The Strategic Business Units of a large company can be compared within this matrix.
Measurement: An observation that reduces the amount of uncertainty about the value of a quantity. In the balanced scorecard, measurements are collected for feedback. The measurement system gathers information about all the significant activities of a company. Measurements are the data resulting from the measurement effort. Measurement also implies a methodology, analysis, and other activities involved with how particular measurements are collected and managed. There may be many ways of measuring the same thing.
Metrics: Often used interchangeably with measurements. However, it may be helpful to separate these definitions. Metrics are the various parameters or ways of looking at a process that is to be measured. Metrics define what is to be measured. Some metrics are specialized, so they can't be directly benchmarked or interpreted outside a mission-specific business unit. Other metrics will be generic, and they can be aggregated across business units, e.g. cycle time, customer satisfaction, and financial results.
Mission activities: Things that an agency does for its customers. For private companies, profit or value creation is an overarching mission. For nonprofit organizations, the mission itself takes priority, although cost reduction is still usually a high priority activity.
Mission effectiveness: Degree to which mission activities achieve mission outcomes or results.
Mission value: (1) Mission outcome benefits per unit cost; a key metric for nonprofit and governmental organizations. (2) For a collection of missions within an organization, the relative value contributed by each mission. (3) The combination of strategic significance and results produced by a mission.
Mixed system: An information system that supports both financial and non-financial functions. [GAO]
Model - A representation of a set of components of a process, system, or subject area, generally developed for understanding, analysis, improvement, and/or replacement of the process [GAO]. A representation of information, activities, relationships, and constraints [Treasury Enterprise Architecture Framework].
Net present value (NPV): The future stream of benefits and costs converted into equivalent values today. This is done by assigning monetary values to benefits and costs, discounting future benefits and costs using an appropriate discount rate, and subtracting the sum total of discounted costs from the sum total of discounted benefits. [GAO]
Non-value-added work: Work activities that add no value to the mission of the organization. Such activities may or may not be necessary; necessary ones may include utilities, supplies, travel and maintenance; unnecessary ones may include searching for information, duplicating work, rework, time not working, etc.
Objective: An aim or intended result of a strategy. See goal.
Organization: The command, control and feedback relationships among a group of people and information systems. Examples: a private company, a government agency.
Outcome: A description of the intended result, effect, or consequence that will occur from carrying out a program or activity. (OMB). The end result that is sought (examples: in the private sector, financial profitability; in the public sector, cleaner air or reduced incidence of disease).
Outcome measure: A long-term, ultimate measure of success or strategic effectiveness. An event, occurrence, or condition that is outside the activity or program itself and is of direct importance to customers or the public. We also include indicators of service quality, those of importance to customers, under this category. (Dr. Harry Hatry)
Output: Products and services delivered. Outputs are the immediate products of internal activity: the amount of work done within the organization or by its contractors (such as miles of road repaired or number of calls answered).
Performance-based budgeting: A management process in which performance of various activities in an organization is measured, and budgets for further work on these activities is adjusted based on their performance. (Note: this does not necessarily imply that budgets for poorly-performing activities will be reduced; see the discussion here.)
Performance goal: A target level of performance expressed as a tangible, measurable objective, against which actual achievement can be compared, including a goal expressed as a quantitative standard, value, or rate. (OMB).
Performance indicator: A particular value or characteristic used to measure output or outcome.
Performance measurement: The process of developing measurable indicators that can be systematically tracked to assess progress made in achieving predetermined goals and using such indicators to assess progress in achieving these goals [GAO]. A performance gap is the gap between what customers and stakeholders expect and what each process and related subprocesses produces in terms of quality, quantity, time, and cost of services and products [GAO].
Performance metric: see Metrics.
PEST analysis: A planning tool for identifying the external Political/Legal, Economic, Social, and Technological issues that could affect the strategic planning of an organization.
Plan: A prescribed, written sequence of actions to achieve a goal, usually ordered in phases or steps with a schedule and measureable targets; defines who is responsible for achievement, who will do the work, and links to other related plans and goals. By law agencies must have strategic plans, business plans, and performance plans. They may also have implementation plans, program plans, project plans, management plans, office plans, personnel plans, operational plans, etc.
Policy Governance: An integrated set of concepts and principles that describes the job of any governing board. It outlines the manner in which boards can be successful in their servant-leadership role, as well as in their all-important relationship with management. It focuses the board's attention on ends, and management's attention on means. (John Carver).
Primary customer: The customer group that must be satisfied if the overall mission of the organization is to succeed. Generally this is the end user or direct recipient of an organization's products or services, and has the capabilities to report satisfaction and give feedback. In a commercial organization, it is the group that is the main source of income.
Profit: Financial gain, or revenues minus expenses. Profit is the overarching mission of private-sector companies. Nonprofit or governmental organizations either operate at a loss or attempt to achieve a zero profit; for them the overarching mission is a charter for a service, or a goal to be achieved. Therefore, there is a basic distinction in measures of strategic success between profit and nonprofit or governmental organizations.
Project management: A set of well-defined methods and techniques for managing a team of people to accomplish a series of work tasks within a well-defined schedule and budget. The techniques may include work breakdown structure, workflow, earned value management (EVM), total quality management (TQM), statistical process control (SPC), quality function deployment (QFD), design of experiments, concurrent engineering, Six Sigma etc. Tools include flowcharts, PERT charts, GANTT charts (e.g. Microsoft Project), control charts, cause-and-effect (tree or wishbone) diagrams, Pareto diagrams, etc. (Note that the balanced scorecard is a strategic management, not a project management technique).
Return on Investment (ROI): In the private sector, the annual financial benefit after an investment minus the cost of the investment. In the public sector, cost reduction or cost avoidance obtained after an improvement in processes or systems, minus the cost of the improvement.
Risk analysis: A technique to identify and assess factors that may jeopardize the success of a project or achieving a goal. This technique also helps define preventive measures to reduce the probability of these factors from occurring and identify countermeasures to successfully deal with these constraints when they develop. [GAO] Economic risk is the probability that a business activity or investment's actual return is lower than expected. Security and safety risks may be calculated as the product of three probabilities: the level of threat, the level of vulnerability, and the magnitude of consequences. [M. Chertoff, US Dept. of Homeland Security].
Sensitivity analysis: Analysis of how sensitive outcomes are to changes in the assumptions. The assumptions that deserve the most attention should depend largely on the dominant benefit and cost elements and the areas of greatest uncertainty of the program or process being analyzed. [GAO]
Six Sigma: Literally, refers to the reduction of errors to six standard deviations from the mean value of a process output or task opportunities, i.e. about 1 error in 300,000 opportunities. In modern practice, this terminology has been applied to a quality improvement methodology for industry.
Stakeholder: An individual or group with an interest in the success of an organization in delivering intended results and maintaining the viability of the organization's products and services. Stakeholders influence programs, products, and services. Examples include congressional members and staff of relevant appropriations, authorizing, and oversight committees; representatives of central management and oversight entities such as OMB and GAO; and representatives of key interest groups, including those groups that represent the organization's customers and interested members of the public. [GAO]
Standard: A set of criteria (some of which may be mandatory), voluntary guidelines, and best practices. Examples include application development, project management, vendor management, production operation, user support, asset management, technology evaluation, architecture governance, configuration management, problem resolution. [Federal Enterprise Architecture Framework]
Statistical Process Control (SPC): A mathematical procedure for measuring and tracking the variability in a manufacturing process; developed by Shewhart in the 1930's and applied by Deming in TQM.
Strategic Business Unit (SBU): In a commercial company, an SBU is a unit of the company that has a separate mission and objectives, and that can be planned and evaluated independently from the other parts of the company. An SBU may be a division, a product line or an individual brand; the collection of SBUs is a portfolio.
Strategic goal or general goal: An elaboration of the mission statement, developing with greater specificity how an agency will carry out its mission. The goal may be of a programmatic, policy, or management nature, and is expressed in a manner which allows a future assessment to be made of whether the goal was or is being achieved. (OMB). The quantifiable aims of strategic activities, including outcome goals and output goals.
Strategic objective or general objective: Often synonymous with a general goal. In a strategic plan, an objective may complement a general goal whose achievement cannot be directly measured. The assessment is made on the objective rather than the general goal. Objectives may also be characterized as being particularly focused on the conduct of basic agency functions and operations that support the conduct of programs and activities. (OMB)
Strategic altitude: The level of generality, scope and detail in a strategic statement. A vision statement describes the desired future of the entire organization broadly, at a high altitude. Strategic themes break the vision into a few large "chunks" and hence are lower in altitude. Strategic objectives are divided further (typically 10-20 within a theme); they reside at a middle altitude. Strategic initiatives are programs and projects described in more specific detail at a low altitude.
Strategic business unit: A portion of an organization aligned to a particular strategy.
Strategic elements: Mission, vision, values, assessment data, strategic plans and other information that serves to support strategic planning.
Strategic imperatives: Company values.
Strategic initiatives: Specific activities or actions undertaken to achieve a strategic goal, including the plans and milestones.
Strategic measures or metrics: Quantifiable indicators of status of a strategic activity.
Strategic plan - A document used by an organization to align its organization and budget structure with organizational priorities, missions, and objectives. According to requirements of Government Performance and Results Act (1993), a strategic plan should include a mission statement, a description of the agency's long-term goals and objectives, and strategies or means the agency plans to use to achieve these general goals and objectives. The strategic plan may also identify external factors that could affect achievement of long-term goals. [GAO] Strategic planning is a systematic method used by an organization to anticipate and adapt to expected changes. The IRM portion of strategic planning sets broad direction and goals for managing information and supporting delivery of services to customers and the public and identifies the major IRM activities to be undertaken to accomplish the desired agency mission and goals. [GAO]
Strategic target: See Target.
Strategic themes: The general strategy broken down into a few distinct focus areas that may lead to desired results, such as customer intimacy, operational excellence, business growth, etc. Usually general, expressed as brief titles, and not quantified.
Strategy: (1) Hypotheses or educated guesses that propose the direction an organization should go to fulfil its vision and maximize the possibility of its future success. (2) Unique and sustainable ways by which organizations create value. (from Kaplan & Norton). Answers the question, "Are we doing the right things?"
Strategy Map: A 2-dimensional visual tool for designing strategies and identifying strategic goals. It usually shows the four perspectives of the balanced scorecard in four layers, with learning & growth at the bottom, followed by business processes, customer satisfaction, and financial results (or mission value in the case of nonprofits). Activities to achieve strategic goals are mapped as 'bubbles' linked by cause-effect arrows that are assumed to occur. Sometimes called "strategic map".
Sunk cost: A cost incurred in the past that will not be affected by any present or future decision. Sunk costs should be ignored in determining whether a new investment is worthwhile. [GAO]
Support activities: Internal business activities that enable achievement of mission activities and strategic activities, but that are permanent and not directly linked to specific goals.
SWOT analysis: An assessment tool for identifying the overall strategic situation in an organization by listing its Strengths, Weaknesses, (external) Opportunities and Threats. Sometimes Challenges are substutited for Threats.
System: A collection of components organized to accomplish a specific function or set of functions. [IEEE STD 610.12]
Tactical goal: see Output goal.
Target: The numerical value of a performance metric that is to be achieved by a given date. Both the metric and the schedule need to be specified for targets. A stretch target is the same thing, but its numerical value is higher, demanding breakthrough performance to achieve.
Threshold: A specified numerical value of a performance metric. Thresholds are often used to indicate changes from red to yellow to green (or other colors) in displays of performance data.
Total Quality Management (TQM): A methodology for continuous monitoring and incremental improvement of a supply-line process by identifying causes of variation and reducing them. Originated by Shewhart and Deming in the 1950's, and widely applied in government and industry, where it was sometimes called Total Quality Leadership (TQL).
Triple bottom line:An expanded baseline for measuring organizational performance, adding social and environmental dimensions to the traditional financial "bottom line" results.
Unit: (1) A functional or business component of an agency, generally with a specified mission or support activity. (2) A standard basis for quantitative measurements.
Unit cost: A financial metric in which cost is based on the unit of delivery or consumption of a product or service, such as number of requests processed per day.
Value: (1) Benefit per unit cost; (2) one of several general guiding principles that are to govern all activities.
Value-added: Those activities or steps that add to or change a product or service as it goes through a process; these are the activities or steps that customers view as important and necessary. [GAO]
Value chain: The sequential set of primary and support activities that an enterprise performs to turn inputs into value-added outputs for its external customers. An IT value chain is that subset of enterprise activities that pertain to IT operations, both to add value directly for external customers and to add indirect value by supporting other enterprise operations.
Value proposition: 1. The unique added value an organization offers customers through their operations. 2. The logical link between action and payoff that knowledge management must create to be effective; e.g., customer intimacy, product-to-market excellence, and operational excellence [Carla O'Dell & C. Jackson Grayson].
Vision: Long-term goal of strategy. Answers the question, 'How would the country be different if your mission were fully successful?'
Zachman Framework: Classic work on the concepts of information systems architecture that defined the concept of a framework and provided a 6x6 matrix of architecture views and perspectives with products. [John Zachman, 1987, IBM Journal]