[This article was originally published in Longwoods Review, Volume 4, Number 4.]

The use of performance indicators can be a powerful driver of an organization's decisions and activities, particularly when coupled with consistently applied consequences. Given that the saying "What gets measured, gets done" is often true, it is imperative that both the actual choice of indicators and the process of how indicators are selected be carried out in a thoughtful, comprehensive and evidence-based manner.

The most critical element in selecting indicators is the alignment and fit between desired organizational goals and outcome, and the behaviours, priorities and decisions the individual indicators will encourage and support. Financial indicators can be particularly challenging. Ideally, they will be a barometer of the organization's financial strength as well as a harbinger of its future economic viability. They must, however, be tightly aligned and integrated with other key objectives and outcomes (particularly quality and service) if they are to be complementary instruments of progress. For example, hospitals that work with primary care and community systems to reduce the length of stay and per capita use are considerably more effective (and desirable) from the perspective of the public purse, although their liquidity and capitalization ratios might be similar. Therefore, it is important that financial indicators be seen as one element in a larger set of drivers and measures that will guide the organization.

A second issue that must be incorporated into a good suite of financial indicators concerns sustainability and long-term investment. Short-term thinking in training, information systems, technology adoption and leadership development can be inadvertently encouraged through rigorously enforced financial performance indicators at the expense of broader system goals.  

A third key element in selecting effective indicators is to be mindful of the law of "unintended consequences." Because indicators can be powerful motivators and drivers of behaviours, poor choices not only can be ineffective but can create the opposite effect to what is desired.  

The process undertaken by the Ontario Hospital Report Research Collaborative (HRRC) panel is a particularly interesting one. It sought to ensure, firstly, that a broad range of measures was identified and, secondly, that the potential measures were evaluated for effectiveness both by data analyses and by an expert panel of researchers and practitioners.  

The common pitfalls in choosing indicators - namely, that the list is too narrow with important measures not considered, or that indicators may actually not be useful (or may even be harmful) in guiding behaviour - have been largely negated through the breadth and magnitude of the methodology used by the HRRC. Performance indicators are critical elements in improving accountability for outcomes. They provide important information for decision-making and can be powerful motivators if linked with incentives. Choosing the right indicators is fundamental.

The process undertaken by the HRRC is a unique marriage of research (through extensive data and evidence) with practical management experience. It should result in a set of indicators that will be effective and useful for hospitals, particularly when aligned with other system indicators such as health outcomes, sustainability and integration with primary care.

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