This is a continuation of How to Create a Successful Measurements Reporting Environment, which provides an introduction to metrics reporting.

In this article, I will clearly explain the purpose of the five possible indicator color ratings, the eight different color rating outcomes that may occur, and how to strategically set meaningful threshold values which act as separation boundary lines. It will cover the vast majority of possibilities and circumstances, but not all since there are a few special conditions and exceptions that may occur.

This article will help set the framework and guidelines to clearly define and establish the optimal measurement rating performance standards for your organization’s metrics and key performance indicators (KPIs).

The Five Indicator Color Rating Zones

There are only five possible indicator color ratings needed to represent an indicator’s performance for the current reporting period. As shown in figure 1, an indicator will either display a White color rating or have the possibility of Blue, Green, Yellow or Red. This is an all-inclusive list of color rating zones to designate the performance of your reporting measurements. You may use fewer, but no additional color rating zones are needed.

The White Color Rating

The White color rating is used as an informational status and is a non-rating indicator. It denotes that the indicator (i.e. metric or measurement) is not being rated at this point in time, but that it is being displayed or shown to demonstrate the indicator is operational and in use.

The White color rating is most commonly used to show that an indicator is operational and in production, but it is unable to be evaluated because not enough data points have been collected to provide an accurate and true rating of the indicator’s performance until a later date in time.

The White color rating may also be used to present an experimental, newly created, or proposed indicator to management so that they can review how well it communicates the intended performance and if it provides value for more efficient project management.

The Blue Color Rating

The Blue color rating is used to show that the performance is exceeding the anticipated and likely expectations with no negative factors adversely affecting the expected performance. This color rating zone is an optional condition since in many cases it isn’t possible or doesn’t exist. In fact, the existence of this color rating is extremely seldom and is likely to be used sparingly.

An appropriate use for this color rating would be for exceeding the planned delivery schedule by more than 15%. That is completing tasks and activities in advance of the planned due date. This same principle doesn’t apply to the cost aspects. For example, using less than 15% of the allocated funds may appear to show that the cost was overestimated to gouge an external customer/client to produce a greater net profit.

The Green Color Rating

The Green color rating communicates a positive and favorable outcome since it is the desirable and expected result.

This color rating zone denotes that the indicator is performing within the necessary and acceptable range to produce the intended results at completion. It implies no corrective actions, counter measures or remedial steps are needed. Performance is occurring as planned.

The Yellow Color Rating

The Yellow color rating is a an early warning signal that the measurement’s performance is still performing within the normal expected range, but is approaching the outer boundary buffer area of the desirable and acceptable zone.

This color rating means that attention needs to be invested to understand the current situation and, if necessary, make adjustments to improve the results in order to prevent it from falling out of the normal expected performance.

In some rare situations, the Yellow color rating is non-existent. This would occur for any zero tolerance indicators which are considered to be binary conditions: Yes-No, True-False or Compliant-Non-Compliant. Such indicators would be a Contract Violation measure or Federal Law metric.

The Red Color Rating

The Red color rating is considered serious and is known as an alarm state that the indicator’s current outcome is out of the normal and acceptable performance range.

This color rating implies that corrective actions are required to rectify the situation as soon as possible and return the indicator’s performance back to the normal expected range. An investigation and analysis is expected to understand the underlying circumstances and situations causing the performance degradation.

The Eight Color Rating Configurations

The five color rating zones have eight different configurations or arrangements, as shown in figure 2 below, based on historical known practices. That is, these eight possible outcomes are based on real world experiences and common sense practices (or rules) – not mathematical, statistical, or defined theoretical and conceptual studies.

Setting Meaningful Color Rating Threshold Boundary Lines

First, I will explain what threshold lines are and their purpose, and then I will provide procedures for arranging them in appropriate order to display meaningful performance rating results.

Thresholds are the boundary lines which separate the different color rating zones into performance reports. These color rating zones are bounded and separated by one or two threshold lines depending on the specific situation. They must account for the indicator’s full range of possible outcomes.

The full range of possible outcomes are all values that are probable. For example, if you have an indicator that is reporting on percent complete, this would be a value between zero and 100 percent. Thus, the full range of possible outcomes is zero to 100 percent.

Color rating zones are either Unbounded, Semi-Bounded or Bounded by threshold lines.

Unbounded Color Rating Zone

An Unbounded color rating zone has no threshold lines or the boundary lines do not exist. This condition only occurs for the White color rating (informational status) when the indicator is not being evaluated.

Semi-Bounded Color Rating Zone

A Semi-Bounded color rating zone implies that it is restricted with either an upper or lower boundary line on one side and has no restrictions on the opposite of opposing end. It is half bounded. The Blue, Green and Red color rating zones can be Semi-Bounded since they may be a zone that extends to one of the full range of possible outcomes.

Bounded Color Rating Zone

A Bounded color rating zone is restricted with both an upper and lower boundary line. Only the Green and Yellow color rating zones can be bounded. In fact, the Yellow color rating zone is always bounded and the Green color rating zone is bounded only when the Blue color rating zone exists. This is known as conditionally bounded.

Color Rating Zones Depicted

The color rating zones are depicted as four different possibilities as shown in figure 3 below. These four possible arrangements of the color rating zones will generate one of the eight different possible arrangements depicted in Figure 2 above. The size of the color rating zones are determined by the different threshold boundary lines.

• Possibility 1 depicts the bounded color rating zones from Pair 1 configurations in Figure 2. They are inverse reciprocals of each other.

• Possibility 2 depicts the bounded color rating zones from Pair 2 configurations in Figure 2. They are also inverse reciprocals of each other.

• Possibility 3 depicts the bounded color rating zones from Pair 3 configurations in Figure 2. They are inverse reciprocals as well.

• Possibility 4 depicts the bounded color rating zones from Pair 4 configurations in Figure 2. Because Pair 4 in Figure 2 are symmetrical, they are already inverse reciprocals. However, the difference between the pair is the non-existence of the Yellow color rating zone, which disappears for zero tolerance indicators as mentioned above.

The final association for Figure 3 is knowing where the color threshold lines exist.

• In Possibility 1, the Yellow and Green threshold lines exists above the Yellow and Green rating zones, respectively.

• In Possibility 2, there is only a Green threshold line beneath the Green rating zone.

• In Possibility 3, the Yellow, Green and Blue threshold lines are each beneath their corresponding color rating zone.

• In Possibility 4, there are upper and lower Green threshold lines on both ends of the Green color rating zone as well as upper and lower Yellow threshold lines separating the Yellow color rating zone from the Red color rating zone.

The value of the different threshold lines will create the size of each color rating zone and guidance to set the different threshold values is provided next.

Lastly, only one color threshold line is needed for Possibilities 1, 2 and 3 for the different color rating zones because only one occurrence of a color rating zone exists. However, in Possibility 4, there are two Yellow color rating zones; therefore, upper and lower Green and Yellow threshold lines are needed to distinguish the two different Yellow color rating zones.

That is, the Yellow rating zone above the Green rating zone is bounded by the upper Green and upper Yellow threshold lines, and the Yellow rating zone below the Green rating zone is bounded by the lower Green and lower Yellow threshold lines.

Pre-condition

Prior to creating the different color threshold boundary lines, the indicator (i.e., metric) needs to be created with an indicator index, which can be a number or percentage value where 1% or 100%, respectively, is the intended target value to be reached.

I will also address the steps with two different scenarios, identified as Scenario 1 and Scenario 2. Scenario 1 will be a non-symmetric full range possible outcome color rating zone and Scenario 2 will be a symmetric full range possible outcome color rating zone. These two types summarize the two possible full range color rating zone possibilities.

Setting Meaningful Threshold Procedures

Setting threshold procedures occur in three steps:

Step 1: Threshold Procedures

Once you identify the intended target value of the indicator, determine the upper and lower values to create a range that will be considered the expected normal and acceptable performance range. The intended value may be the absolute minimum or absolute maximum, and if that is the case, then only the upper or lower value, respectively, needs to be determined.

The upper and/or lower values can be a percentage, deviation or delta (sigma) numeric value based on what makes sense and is considered allowable and expected. These values become the upper and/or lower Yellow Threshold boundary lines unless you have the special situation of a zero tolerance indicator as discussed above.

Step 2: Threshold Procedures

Determine if an overachieving performance condition exists (refer to Scenario 1 below) such that the performance exceeds expected outcomes. This can only happen if the Green color rating zone is bounded and will only apply to one of the two threshold lines. This is known as the Blue threshold line and it will replace and change one of the two Yellow threshold lines in Scenario 1.

Since the Blue threshold line is an optional situation, Scenario 2 (below) is not impacted and upper and lower Yellow threshold lines are defined at this point in time of the procedure. The upper Yellow threshold line is the boundary line at the top of the Yellow rating zone and the lower Yellow threshold line is the boundary line at the bottom of the Yellow rating zone for Scenario 2.

Step 3: Threshold Procedures

The final step is to determine how large of a warning buffer you desire to create. This is typically 25%. If you have a Yellow color rating zone warning on both sides of the Green color rating zone (Scenario 2 below) each of the two Yellow color rating zones would be 12.5%, which combined, equals 25%. Thus, the Green threshold line or lines is/are created.

Since the Blue, Green and Yellow thresholds have been established, all remaining color rating zones are Red, which occur adjacent to the Yellow color rating zone. The Blue color rating zone threshold is overachieving; therefore, you cannot go from overachieving to non-acceptable. Thus, the final boundaries are shown below.

In summary, Scenario 1 above the Blue threshold line separates the Blue and Green color rating zones, the Green threshold line separates the Green and Yellow color rating zones, and the Yellow threshold separates the Yellow and Red color rating zones.

In Scenario 2 above, the upper Yellow Threshold line separates the Red and Yellow color rating zones above the Green color rating zone. The upper Green threshold line separates the Yellow and Green color rating zones above the Green color rating zone. Note that the reverse is applicable below the Green color rating zone for the lower Green threshold and lower Yellow threshold lines.

Likely threshold values for Scenario 1 (above) with a desire target value of 1% or 100% would be:

• Blue threshold value, 1.10 or 110%
• Green threshold value, 0.925 or 92.5% (25% of the 10%)
• Yellow threshold value, 0.90 or 90%

For Scenario 2 (above) with a desire target value of 1% or 100%, the likely threshold values would be:

• Upper Yellow threshold value, 1.10 or 110%
• Upper Green threshold value, 1.0825 or 108.25% (12.5% of the 10%; [110% – 100%])
• Lower Green threshold value, 0.9125 or 91.25% (12.5% of the 10%; [100% – 90%])
• Lower Yellow threshold value, 0.90 or 90%