There are different ways to measure performance.  We might want to minimize cost/maximize revenue, maximize productivity of people, equipment and facilities, minimize response times and service failures, or meet any of a range of business goals.

Uncertainty reveals itself as variability in our ability to meet our goals, and requires designing metrics that capture how we need to manage uncertainty.  The most popular ways of handling variability include

  • Averages - We want to minimize average costs/maximize average profits
  • Volatility - We want to minimize the variability in costs, profits and service
  • Risk - We want to minimize the risk of:
    • Losses that exceed a planned tolerance
    • Service failures
    • Late arrivals
  • Reliability - We may want to maximize the probability that we reach particular goals, either over a period of time, or for specific instances (finishing a project, meeting a sales goal).
  • Worst-case - What is the smallest safety margin for meeting demand or avoiding accidents?

In practice, we often want to balance averages with some measure that captures variability.  The right variability measure depends on your setting.