Red/Yellow/Green Scorecards: What should the colors mean?

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You will find a lot of complaints about Red/Yellow/Green (RYG) scorecards on this Blog and in the writings of Forrest Breyfogle. Most of the complaints relate to the decision to set the color based on an arbitrary set of goals. The adoption of the RYG format implies a stop sign type behavior: Stop if Red, Warning if Yellow, and Good is Green.

When most RYG scorecards are introduced they are built with Microsoft Excel and use the conditional formatting of a cell. Setting the colors to change automatically based on the  conditions based on the value in the cell. This works fine if you are using this on a metric that has a true specification, but falls short with there is not specification. If you do not believe me, look at the RYG scorecards in most organizations that are full of red metrics that are continuing to operate normally. What message does it give the workforce? Ignore the scorecard? I think of it like setting a curfew rule for my children at 10pm and then not doing anything if they come in after that time, as long as they are safe. If I acted like that with my children, do you think that they would respect the curfew or any other rule I set for them. NO WAY.

So what should a company do with their score cards? The RYG format is so compelling, but how can we implement it so that it leads to the right behavior of the workforce? Well Smarter Solutions has developed a set of rules that we believe will make the RYG formatted scorecard a driver of positive behavior in an organization. It involves two aspects of the RYG coding:
Behavior expectations and the type of metric.

The behavior expectations are based on the required actions taken by different levels in the management. This aspect of the RYG is important to accept, because one goal of a scorecard is that you provide the workforce a consistent set of rules for all of the monitored metrics.

Management Behavior
RYG Management Behavior

The second part of the RYG scorecard is the metric specific treatment.  Of course an organization will not want to treat all metrics the same, but the differences should be rule based and consistent. In our model, the three categories of metric rules are for: financial metrics, Final quality metrics, and internal process metrics. This differentiation is based on the type of performance goals and the ability to directly change the performance. The financial metrics are unique in that the organization has limited ability to change them due to the market forces that impact the financials. The customer final quality metrics have negotiated specifications that clearly define good and bad performance. The internal metrics generally have internally set goals and targets that do not define a clear good and bad condition. An organization may choose to accept the failing of an internal requirement as long as the final quality metrics are acceptable.

RYG actions by Metric Type
RYG Metric Types

Given these two sets of rules for RYG, we believe an organization will be able to provide an excellent RYG scorecard.

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