Capability vs Performance
Roger Knocker • November 30, 2023
Capability vs Performance
Capability measures the future whereas Performance measures the past.
For many years, Capability has been measured as part of Key Performance Indicators [1]. In some organisations, this is explicit and formalised, but for most it’s bundled into performance management and it confuses the proper assessment of performance.
In recent years, organisations have separated Key Risk Indicators [2] from performance to reduce the confusion surrounding performance. We believe it’s better to separate KCIs, KPIs and KRIs as they are fundamentally different and provide measurements of different business issues.
Corporate Finance
In corporate finance, investors assess the strength of a company’s balance sheet to determine the sustainability of future earnings. The earnings are ultimately measured through the Income and Cashflow statements. The strength of balance sheet is therefore a measurement of capability rather than performance.
Military
The capability of a country’s military power is measured in terms of the amount of equipment/arms and number of vehicles, planes, ships and personnel. The performance of any army can only be assessed during and immediately after a war.
Sport
The capability of a football player is measured in terms of their fitness, physiology, track record, experience and reputation. Their performance (depending on their position) is measured by (among others) the number of goals scored, goal assists, successful tackles, goal saves, metres gained and successful passes during the match.
Footnotes:
[1] Key Performance Indicators are the selected measures that provide visibility into the performance of a business and enable decision makers to take action in achieving the desired outcomes.
[2] Key Risk Indicators are metrics used by organizations to provide an early signal of increasing risk exposures in various areas of the enterprise.
For many years, Capability has been measured as part of Key Performance Indicators [1]. In some organisations, this is explicit and formalised, but for most it’s bundled into performance management and it confuses the proper assessment of performance.
In recent years, organisations have separated Key Risk Indicators [2] from performance to reduce the confusion surrounding performance. We believe it’s better to separate KCIs, KPIs and KRIs as they are fundamentally different and provide measurements of different business issues.
Examples:
Corporate Finance
In corporate finance, investors assess the strength of a company’s balance sheet to determine the sustainability of future earnings. The earnings are ultimately measured through the Income and Cashflow statements. The strength of balance sheet is therefore a measurement of capability rather than performance.
Military
The capability of a country’s military power is measured in terms of the amount of equipment/arms and number of vehicles, planes, ships and personnel. The performance of any army can only be assessed during and immediately after a war.
Sport
The capability of a football player is measured in terms of their fitness, physiology, track record, experience and reputation. Their performance (depending on their position) is measured by (among others) the number of goals scored, goal assists, successful tackles, goal saves, metres gained and successful passes during the match.
Footnotes:
[1] Key Performance Indicators are the selected measures that provide visibility into the performance of a business and enable decision makers to take action in achieving the desired outcomes.
[2] Key Risk Indicators are metrics used by organizations to provide an early signal of increasing risk exposures in various areas of the enterprise.
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