Key Performance Indicators (KPI)

What is a Key Performance Indicator (KPI)?

2011-06-14T08:42:00.000-07:00

What is a Key Performance Indicator (KPI)?

Key Performance Indicators (KPIs) help organisations understand how well they are performing in relation to their strategic goals and objectives.

In the broadest sense, a KPI provides the most important performance information that enables organisations or their stakeholders to understand whether the organisation is on track or not.

Measuring what matters the most

KPIs serve to reduce the complex nature of organisational performance to a small number of key indicators in order to make it more digestible for us. This is the same approach we use in our daily lives. For example, when you go to your doctor he might measure blood pressure, cholesterol levels, heart rate and your body mass index as key indicators of your health. With KPIs we are trying to do the same in our organisations.

The problems with KPIs

In practice, the term KPI is overused and often describes any form of measurement data and performance metrics used to measure business performance. Instead of clearly identifying the information needs and then carefully designing the most appropriate indicators to assess performance, we often observe what we have termed the ‘ICE’ approach:
Identify everything that is easy to measure and count
Collect and report the data on everything that is easy to measure and count
End up scratching your head thinking “What the heck are we going to do with all this performance data stuff?

Why do we measure performance?

The reason why we measure performance in organisations is often reduced to simple homilies, such as ‘you can’t manage anything unless you measure it’ or ‘what gets measured gets done’. The tree main reasons for measuring performance are (see also Figure 1):
To learn and improve
To report externally and demonstrate compliance
To control and monitor people
Of these three the first is the most important, the second is something organisations just have to do and the third one can cause major problems.

Measuring to learn and improve performance

Measuring for learning and improvement is the most natural form of using KPIs and something we do every day in our daily lives. The aim is to equip our employees with the information they need to make better informed decisions that lead to improvements. In this context, KPIs are used internally as the evidence to inform management decisions, to challenge strategic assumptions and for continuous learning and improvement.

Measuring to report externally and demonstrate compliance

Another reason for collecting KPIs is to inform external stakeholders and to comply with external reporting regulations and information requests. When measuring for external reporting and compliance purposes, any reports and associated indicators can either be produced on a compulsory basis such as annual financial statements, accounts, or performance reports for regulators; or can be on a voluntary basis such as environmental impact reports, for example.

Measuring to control and monitor people

KPIs can also be used in a top-down command-and-control fashion to guide and control people’s behaviors and actions. Here, measures are used to set goals or rules, to objectively access the achievement of these goals, and to provide feedback on any unwanted variance between achievements and goals. Here, the aim of measurement is to eliminate variance and improve conformity. In this context, measures are often tightly linked to reward and recognition structures. Research has shown that this approach is dangerous and often leads to a culture in which people focus on delivering the measures but not the performance (i.e. hitting the target but missing the point).

Using KPIs correctly

Best practice organisations (a) clearly understand what indicators are required for learning and improvement and focus on those, (b) they separate out the external reporting indicators if they are not relevant internally to avoid confusion and data overload, and (c) they try to avoid using indicators for controlling people.

KPIs are more than numbers

We often associate KPIs with quantifications and numbers. The perceived objective is to provide us with an objective, uniform and rigorous picture of reality. However, this seems to work in some areas better than in others. We find it easy to quantify things like money earned, customer transactions in a day, number of patients treated and we can count incoming complaints or number of service visits. Some things though are not easily counted. Things like overall service delivery, organisational culture, our know-how, the strengths of customer relationships or the reputation of your organisation are all inherently difficult to simply count.

Therefore measurement in our modern world goes beyond numbers and can equally include words, pictures and videos to describe and assess performance. Measurement is much more of a social activity. Just think about choosing a restaurant for the next special occasion. You reflect on your previous experiences of the restaurants you have visited and you might read reviews of new restaurants on restaurant websites or restaurant guide books in order to form an opinion about the different restaurants in your area. You might watch videos of the restaurant and look at pictures. Based on the different reviews, star ratings and pictures you then subconsciously, or even consciously, rank different elements such as food quality, service, atmosphere and price to choose the right restaurant for that occasion.

Can we measure anything?

Yes, there is nothing that we cannot measure. But at the same time we have to be aware that we can’t design perfect indicators that will measure things perfectly. KPIs are there to give us information which helps us to make better informed decisions. It is about reducing uncertainty and it is therefore okay to use proxy indicators. In the same way we are used to using proxies when measuring things like temperature - where we might measure the expansion of mercury in a thermometer as a proxy for temperature.

Words, numbers, star ratings or traffic lights are all valid forms of measurement. What matters the most is that you measure the relevant things that will help you answer the questions that matter the most in your organisation. We prefer therefore to use the word ‘indicator’, rather than ‘measure’. A performance indicator ‘indicates’ a level of performance, but it does not claim to ‘measure’ it (see Figure 2). If, for example, we introduce a new indicator to assess customer satisfaction, this indicator will give us an indication of how customers feel; however, it will never ‘measure’ customer satisfaction in its totality. In the same way an IQ test will give us an indication of intelligence (especially our mathematical and logical reasoning), but will never completely measure all dimensions of human intelligence (e.g. emotional intelligence, hand-eye coordination, special awareness).

How to design KPIs: The question is the answer

KPIs should be clearly linked to the strategy, i.e. the things that matter the most. Once you have agreed, defined and mapped your strategy you can design KPIs to track progress and gain relevant insights to help manage and improve performance. KPIs have to provide you with answers to your most important questions. KPIs should be primarily designed to empower employees and provide them with the relevant information to learn. This in turn should improve the decision making and lead to improved performance (see Figure 3).
A good starting point is therefore to come up with the questions you want to have an answer to before you start designing KPIs. One or two so-called Key Performance Questions (KPQs) are identified for each strategic objective. For more information see our white paper on KPQs. KPQs will help you articulate the information needs which in turn allow you to design the right performance indicators to help you answer your KPQs. For detailed guidance on designing indicators please refer to our white papers, books and articles which include easy to follow templates and step-by-step frameworks for designing KPIs.

Can we measure it, or should we measure it?

2009-04-12T17:05:00.001-07:00

When defining a set of Key Performance Indicators (KPIs) to control performance, the most likely debate is probably around measuring KPIs. Usually those KPIs that are important to its stakeholders, are those KPIs that cannot (easily) be measured. Too often these “unmeasurable” KPIs are deferred, and are stacked in a wish list.

I would like to argue that we should put effort in trying to create or enhance an information architecture to enable measurement of KPIs instead of deferring them, as they are key to the insight in the performance of the organization. I see two common roads to travel:

Enhance the information system by specifying the requirements from a KPI perspective.

In my experience it is most common that vendor software, or software build in-house, is not able to answer the most important questions, including providing priority KPI reports to its stakeholders. Information systems are usually build around automating business processes, and not for providing management information around those business processes. The goal is to specify the needs based on the KPI reporting needs, and adapt the systems.

Use available information, although it does not exactly measure the KPI, to get at least a feel for its trend.

For example, a common KPI in Information Technology (and service support call centers) is “First line resolution” - percentage of calls that are solved by the first line support organization. Most information systems in use are not able to give the exact number, however, a workaround might be to look at time stamps of calls closed; arguing that calls closed fast most-likely have been solved without help of second and/or third line support employees. It does not give the exact number but when measuring periodically, the trend will give some (valuable) information.

These roads can be travelled in parallel. While waiting for changes in the underlying data architecture, one might want to choose to use less exact numbers to feel the trend.

This is a guest contribution by Erik Hoffmann, VP Products at Mirror42. Mirror42 delivers solutions that put IT Executives back in charge. Mirror42’s products and solutions are built around the three pillars of define, measure, improve. Define your goals as an IT executive, translate those into measurable metrics, start measuring and improve your organization to reach your goals.

Best rated KPIs in category Human Resources

2009-04-12T17:04:00.001-07:00

The best rated KPIs in the category ‘Human Resources’ as rated by our users are as follows:

1- [-] Compensation cost as % of revenue
2- [-] Employee efectiveness
3- [-] Average performance scores of departing employees
4- [-] Average time employees are in same job/function
5- [-] Turnover of new hire during first year
6- [3] Average number of training hours per employee
7- [-] Employer satisfaction rate
8- [1] Average time to recruit
9- [2] Job satisfaction (index)
10- [-] Workforce stabilitity
Within the brackets we have included the previous position of this rating. The following KPIs have dropped from this list

Cost of office space per employee
% of early retirements
% of HR budget spent on training
ROI of training
% of new employees/candidates with a recruiting fee
% of employees gone through training
Staff turnover

KPI Library - Recruitment

2008-10-08T09:35:00.000-07:00

KPI Library - Recruitment
Recruit, source, and select employees. Recruitment refers to the process of finding possible candidates for a job or function.

Offer conversion rate
Actual joinings vs offers

# of MPP adjustments
of many adjustments of manpower plan (MPP) per Department

Recruitment achievement %
% of meet hiring plan

Average interviewing costs
Average interviewing costs per interview. Interviewing costs includes costs of staff.

Average sourcing cost per hire
Average sourcing cost per hire. Sourcing costs include advertising, referral and agency costs.

Actual versus budgeted cost of hire
This is a measure of amount spent during an employee hire. Actual cost of hire as a percentage of budgeted cost of hire.

% of job vacancies for (previously) filled positions
Percentage of job vacancies for (previously) filled positions, for example due to people changing of role/position or people leaving the company.

% of job vacancies for new positions
Percentage of job vacancies for new open positions.

Turnover of new hire during first year
Use to calculate turnover of new hire within first 12 months in the organization.

% of screened newly recruited employees
Percentage of screened newly recruited employees. The reasons for performing employment background and drug screening today are to mitigate risk, improve the quality of hire, promote ...

Cycle time from job acceptance until job start
Cycle time (e.g. in days) from job acceptance until new hire begins in the agreed position.

New hire satisfaction rate with recruiting process
New hire satisfaction rate with the recruiting process. Based on survey.

Developing key performance indicators in projects

2008-09-21T08:54:00.000-07:00

Developing key performance indicators in projects

Setting performance indicators starts with a brain storming session

Key performance indicators should preferably meet the following essential criteria:

Be direct (no complex calculations)
Be objective
Be adequate
Be quantitative
Be practical
Be reliable

Developing key performance indicators is best done in a kick-off meeting during the planning phase of a project.

It involves the following steps:

Carefully consider the results desired
Avoid overly broad results statements
Develop a lot of possible indicators during a short brain storming session.
Assess each indicator against the above criteria (be direct, be objective...)
Select the best performance indicators

It can be an iterative process: if the resulting indicators do not look too good, restart a new brain storming session.

Using key performance indicators (KPI) for effective project management

2008-09-21T08:49:00.000-07:00

Using key performance indicators (KPI) for effective project management

The key to success of a business is dependant on good management information. Thus while monitoring profitability and cash flows, a business also need to keep its Key Performance Indicators (KPI) under a tight check.

Examples of key performance indicators on a balanced scorecard

Key Performance Indicators are quantifiable measurements that reflect the critical success factorsof an organization. Based on beforehand agreed measures, they reveal a high-level snapshot of the organization. They vary depending on the kind of organization they characterize; for instance a business may have a KPI as the annual sales volume, while KPIs of a social service organization may have to do more with the number of people helped out. Moreover, colleges may have number of students graduating per year, as one of their KPIs.

Thus before any Key Performance Indicators are selected, it is vital to identify what the organization's goal is, which are in turn dependent upon the its mission and its stakeholders. Consequently, KPIs act as a measure of progress towards these goals. Whatever they may be, they must be critical to the success of the organization.

The application of Key Performance Indicators provides business executives with a high-level, real-time view of the progress of a company. They may consist of any combination of reports, spreadsheets and charts. They may be sales figures (global or regional), trends over time, supply chain information or any other long-term consideration which may be essential in gauging the health of the organization. However, it should be noted that Key Performance Indicators should not only reflect the organizational goals but should also bequantifiable.

For a Key Performance Indicator to be of any value there must be a way to accurately define and measure it. This is so because a KPI may meet the criteria of reflecting the organizational goal, which may for instance pertain to being the most popular company. However, since a company's popularity can not be measured or compared to others, therefore the KPI would be useless.

Considerations regarding how a Key Performance Indicator is to be measured should also be established in advance. Definitions as to exactly how the indicator is to be calculated and whether it is to be measured in dollar amounts or units should also be specified. Moreover, it is imperative that the organization then sticks to these definitions from year to year in order to allow for annual comparisons.

key performance indicators can be used for all types and in all areas of project management: IT (information technology), construction, engineering, risk management, supply chain, safety, quality, manufacturing, financial management, sales...

After the Key Performance Indicator has been defined and a way to measure it has also been determined, a clear target has to be demarcated which should be understandable by everyone. The target should also be specific so that every individual can take actions towards accomplishing it.

Here it is needless to say that to achieve a particular target level of Key Performance Indicator for a company, every department has to work in synergy towards it. For this purpose, all the units of an organization need to define their respective KPIs which should in turn work towards accomplishing the overall KPIs of the organization.

It is important that after Key Performance Indicators and their relative components have been identified, they should be used as a performance management tool. Best ways to represent variance (from the target levels) should be defined, eventually making sure that everyone in the organization is focused towards meeting target levels of the Key Performance Indicators.

The Big Book of Key Performance Indicators

2008-09-21T08:48:00.000-07:00

The Big Book of Key Performance Indicators is the ultimate resource for anyone managing web analytics reporting and includes nearly 100 metrics, measures, and indicators
described in detail. The perfect reporting reference book!

The Last Word on KPIs

Key performance indicators are fundamental to every web analytics reporting program, bridging the gap between "standard reports" and "information about your business". But few vendors treat key performance indicators with any depth, instead trying to impress their customers with the sheer number of reports they can generate.

The Big Book of Key Performance Indicators solves this problem by describing in detail nearly 100 of the most important metrics for any site. The book addresses the metrics most valuable to online retail, advertising, marketing, and customer support sites, describing in detail both the calculation and likely usage of each metric.

Comes with Valuable Worksheets

The Big Book of KPIs also comes with the Web Analytics Demystified Key Performance Indicator worksheets, the fastest possible way to jump-start your KPI reporting program. The combination of the book and KPI worksheets has helped thousands of companies worldwide ramp up to web analytics success.

Article : Key Performance Indicators (KPI)

2008-08-07T23:15:00.001-07:00

How an organization defines and measures progress toward its goals

By F. John Reh, About.com

Key Performance Indicators, also known as KPI or Key Success Indicators (KSI), help an organization define and measure progress toward organizational goals.

Once an organization has analyzed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals. Key Performance Indicators are those measurements.

What Are Key Performance Indicators (KPI)

Key Performance Indicators are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ depending on the organization. A business may have as one of its Key Performance Indicators the percentage of its income that comes from return customers. A school may focus its Key Performance Indicators on graduation rates of its students. A Customer Service Department may have as one of its Key Performance Indicators, in line with overall company KPIs, percentage of customer calls answered in the first minute. A Key Performance Indicator for a social service organization might be number of clients assisted during the year.

Whatever Key Performance Indicators are selected, they must reflect the organization's goals, they must be key to its success,and they must be quantifiable (measurable). Key Performance Indicators usually are long-term considerations. The definition of what they are and how they are measured do not change often. The goals for a particular Key Performance Indicator may change as the organization's goals change, or as it gets closer to achieving a goal.

Key Performance Indicators Reflect The Organizational Goals

An organization that has as one of its goals "to be the most profitable company in our industry" will have Key Performance Indicators that measure profit and related fiscal measures. "Pre-tax Profit" and "Shareholder Equity" will be among them. However, "Percent of Profit Contributed to Community Causes" probably will not be one of its Key Performance Indicators. On the other hand, a school is not concerned with making a profit, so its Key Performance Indicators will be different. KPIs like "Graduation Rate" and "Success In Finding Employment After Graduation", though different, accurately reflect the schools mission and goals.

Key Performance Indicators Must Be Quantifiable

If a Key Performance Indicator is going to be of any value, there must be a way to accurately define and measure it. "Generate More Repeat Customers" is useless as a KPI without some way to distinguish between new and repeat customers. "Be The Most Popular Company" won't work as a KPI because there is no way to measure the company's popularity or compare it to others.

It is also important to define the Key Performance Indicators and stay with the same definition from year to year. For a KPI of "Increase Sales", you need to address considerations like whether to measure by units sold or by dollar value of sales. Will returns be deducted from sales in the month of the sale or the month of the return? Will sales be recorded for the KPI at list price or at the actual sales price?

You also need to set targets for each Key Performance Indicator. A company goal to be the employer of choice might include a KPI of "Turnover Rate". After the Key Performance Indicator has been defined as "the number of voluntary resignations and terminations for performance, divided by the total number of employees at the beginning of the period" and a way to measure it has been set up by collecting the information in an HRIS, the target has to be established. "Reduce turnover by five percent per year" is a clear target that everyone will understand and be able to take specific action to accomplish.

Key Performance Indicators Must be Key To Organizational Success

Many things are measurable. That does not make them key to the organization's success. In selecting Key Performance Indicators, it is critical to limit them to those factors that are essential to the organization reaching its goals. It is also important to keep the number of Key Performance Indicators small just to keep everyone's attention focused on achieving the same KPIs.

That is not to say, for instance, that a company will have only three or four total KPIs in total. Rather there will be three or four Key Performance Indicators for the company and all the units within it will have three, four, or five KPIs that support the overall company goals and can be "rolled up" into them.

If a company Key Performance Indicator is "Increased Customer Satisfaction", that KPI will be focused differently in different departments. The Manufacturing Department may have a KPI of "Number of Units Rejected by Quality Inspection", while the Sales Department has a KPI of "Minutes A Customer Is On Hold Before A Sales Rep Answers". Success by the Sales and Manufacturing Departments in meeting their respective departmental Key Performance Indicators will help the company meet its overall KPI.

Good Key Performance Indicators vs. Bad

Bad:

Title of KPI: Increase Sales
Defined: Change in Sales volume from month to month
Measured: Total of Sales By Region for all region
Target: Increase each month

What's missing? Does this measure increases in sales volume by dollars or units? If by dollars, does it measure list price or sales price? Are returns considered and if so do the appear as an adjustment to the KPI for the month of the sale or are they counted in the month the return happens? How do we make sure each sales office's volume numbers are counted in one region, i.e. that none are skipped or double counted? How much, by percentage or dollars or units, do we want to increase sales volumes each month?(Note: Some of these questions may be answered by standard company procedures.)

Good:

Title of KPI: Employee Turnover
Defined: The total of the number of employees who resign for whatever reason, plus the number of employees terminated for performance reasons, and that total divided by the number of employees at the beginning of the year. Employees lost due to Reductions in Force (RIF) will not be included in this calculation.
Measured: The HRIS contains records of each employee. The separation section lists reason and date of separation for each employee. Monthly, or when requested by the SVP, the HRIS group will query the database and provide Department Heads with Turnover Reports. HRIS will post graphs of each report on the Intranet.
Target: Reduce Employee Turnover by 5% per year.

What Do I Do With Key Performance Indicators?

Once you have good Key Performance Indicators defined, ones that reflect your organization's goals, one that you can measure, what do you do with them? You use Key Performance Indicators as a performance management tool, but also as a carrot. KPIs give everyone in the organization a clear picture of what is important, of what they need to make happen. You use that to manage performance. You make sure that everything the people in your organization do is focused on meeting or exceeding those Key Performance Indicators. You also use the KPIs as a carrot. Post the KPIs everywhere: in the lunch room, on the walls of every conference room, on the company intranet, even on the company web site for some of them. Show what the target for each KPI is and show the progress toward that target for each of them. People will be motivated to reach those KPI targets.

http://management.about.com/cs/generalmanagement/a/keyperfindic.htm

Goal Setting

2008-03-30T12:44:00.001-07:00

Goal Setting for Your Business Life and Your Personal Life
Last week I finished an assignment that has been eating up 14-16 hours of my day. I also celebrated my birthday (yet again). Both of these events caused me to stop and reflect. Where am I going with my life?

It is important for business managers to know where they are going. It is your job to motivate other to work together toward a common goal. Trust me, that is a lot easier to do if you know what the goal is.

It is equally important that you know where you are going in your personal life. Here again, you have a greater likelihood of reaching that goal if you know what it is, and even more if you decide what it will be. The more successful you are in setting, and reaching, your personal goals, the greater the probability that you will be successful in setting and reaching the business goals that will make your personal goals achievable.

So how do you succeed in setting and achieving your goals?
For starters, you might try setting goals, or reviewing those you set earlier.
http://management.about.com/

Key to Organizational Succeess

2008-03-30T12:40:00.000-07:00

Key Performance Indicators Must be Key To Organizational Success
Many things are measurable. That does not make them key to the organization's success. In selecting Key Performance Indicators, it is critical to limit them to those factors that are essential to the organization reaching its goals. It is also important to keep the number of Key Performance Indicators small just to keep everyone's attention focused on achieving the same KPIs.
That is not to say, for instance, that a company will have only three or four total KPIs in total. Rather there will be three or four Key Performance Indicators for the company and all the units within it will have three, four, or five KPIs that support the overall company goals and can be "rolled up" into them.

If a company Key Performance Indicator is "Increased Customer Satisfaction", that KPI will be focused differently in different departments.

The Manufacturing Department may have a KPI of "Number of Units Rejected by Quality Inspection", while the Sales Department has a KPI of "Minutes A Customer Is On Hold Before A Sales Rep Answers". Success by the Sales and Manufacturing Departments in meeting their respective departmental Key Performance Indicators will help the company meet its overall KPI.

Good Key Performance Indicators vs. Bad
Bad:
Title of KPI: Increase Sales
Defined: Change in Sales volume from month to month
Measured: Total of Sales By Region for all region
Target: Increase each month
What's missing? Does this measure increases in sales volume by dollars or units? If by dollars, does it measure list price or sales price? Are returns considered and if so do the appear as an adjustment to the KPI for the month of the sale or are they counted in the month the return happens? How do we make sure each sales office's volume numbers are counted in one region, i.e. that none are skipped or double counted? How much, by percentage or dollars or units, do we want to increase sales volumes each month?(Note: Some of these questions may be answered by standard company procedures.)
Good:

Title of KPI: Employee Turnover
Defined: The total of the number of employees who resign for whatever reason, plus the number of employees terminated for performance reasons, and that total divided by the number of employees at the beginning of the year. Employees lost due to Reductions in Force (RIF) will not be included in this calculation.
Measured: The HRIS contains records of each employee. The separation section lists reason and date of separation for each employee. Monthly, or when requested by the SVP, the HRIS group will query the database and provide Department Heads with Turnover Reports. HRIS will post graphs of each report on the Intranet.
Target: Reduce Employee Turnover by 5% per year.
What Do I Do With Key Performance Indicators?
Once you have good Key Performance Indicators defined, ones that reflect your organization's goals, one that you can measure, what do you do with them? You use Key Performance Indicators as a performance management tool, but also as a carrot. KPIs give everyone in the organization a clear picture of what is important, of what they need to make happen. You use that to manage performance. You make sure that everything the people in your organization do is focused on meeting or exceeding those Key Performance Indicators. You also use the KPIs as a carrot. Post the KPIs everywhere: in the lunch room, on the walls of every conference room, on the company intranet, even on the company web site for some of them. Show what the target for each KPI is and show the progress toward that target for each of them. People will be motivated to reach those KPI targets.

Key Performance Indicators (KPI)

2008-03-30T12:38:00.000-07:00

How an organization defines and measures progress toward its goals
Key Performance Indicators, also known as KPI or Key Success Indicators (KSI), help an organization define and measure progress toward organizational goals.
Once an organization has analyzed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals. Key Performance Indicators are those measurements.

What Are Key Performance Indicators (KPI)
Key Performance Indicators are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ depending on the organization. A business may have as one of its Key Performance Indicators the percentage of its income that comes from return customers. A school may focus its Key Performance Indicators on graduation rates of its students. A Customer Service Department may have as one of its Key Performance Indicators, in line with overall company KPIs, percentage of customer calls answered in the first minute. A Key Performance Indicator for a social service organization might be number of clients assisted during the year.
Whatever Key Performance Indicators are selected, they must reflect the organization's goals, they must be key to its success,and they must be quantifiable (measurable). Key Performance Indicators usually are long-term considerations. The definition of what they are and how they are measured do not change often. The goals for a particular Key Performance Indicator may change as the organization's goals change, or as it gets closer to achieving a goal.

Key Performance Indicators Reflect The Organizational Goals
An organization that has as one of its goals "to be the most profitable company in our industry" will have Key Performance Indicators that measure profit and related fiscal measures. "Pre-tax Profit" and "Shareholder Equity" will be among them. However, "Percent of Profit Contributed to Community Causes" probably will not be one of its Key Performance Indicators. On the other hand, a school is not concerned with making a profit, so its Key Performance Indicators will be different. KPIs like "Graduation Rate" and "Success In Finding Employment After Graduation", though different, accurately reflect the schools mission and goals.
Key Performance Indicators Must Be Quantifiable
If a Key Performance Indicator is going to be of any value, there must be a way to accurately define and measure it. "Generate More Repeat Customers" is useless as a KPI without some way to distinguish between new and repeat customers. "Be The Most Popular Company" won't work as a KPI because there is no way to measure the company's popularity or compare it to others.
It is also important to define the Key Performance Indicators and stay with the same definition from year to year. For a KPI of "Increase Sales", you need to address considerations like whether to measure by units sold or by dollar value of sales. Will returns be deducted from sales in the month of the sale or the month of the return? Will sales be recorded for the KPI at list price or at the actual sales price?

You also need to set targets for each Key Performance Indicator. A company goal to be the employer of choice might include a KPI of "Turnover Rate". After the Key Performance Indicator has been defined as "the number of voluntary resignations and terminations for performance, divided by the total number of employees at the beginning of the period" and a way to measure it has been set up by collecting the information in an HRIS, the target has to be established. "Reduce turnover by five percent per year" is a clear target that everyone will understand and be able to take specific action to accomplish.

http://management.about.com/cs/generalmanagement/a/keyperfindic.htm

Pareto’s Principle and business performance

2008-03-30T12:36:00.001-07:00

This interesting blog post comments on choosing Key Performance Indicators (KPIs) wisely to avoid an information overload. Although focused on supply chain management I believe this principle applies when measuring any business process.

“Following Pareto’s Principle and focusing on the 20% of metrics that are actually telling you how 80% […] of business performance is actually being generated does deliver better results. The issue will become what are you going to use? Concentrating on the basics will provide a far better […] dashboard to equip managers to focus on the real drivers of the […] process.“

“Look to provide more than this and you are heading into information replication and data overload resulting in management delays in exercising decision making power and confusion over what the metrics are actually trying to tell you.“

Five Tips For Using KPI Master Lists

2008-03-30T12:33:00.001-07:00

Five tips from Stacey Barr when using KPI master lists (and we think the KPI Library is THE ultimate master list) when defining KPIs for your business/unit/process/etc. She mentions the following 5 tips, and these fit in the

Tip 1: Know how to recognise a real performance measure from a fake. Tip 2: Before you even go looking for KPIs, clearly define your priority business results. Tip 3: List potential measures first, then evaluate to select the best. Tip 4: Be prepared to tailor the measures to your business. Tip 5: Don’t fit a square peg to a round hole.

As we state in our about section: “Measuring your organization’s success depends on identifying and prioritizing the KPIs that really matter for your organization”. Your selection and adaptation of KPIs from the KPI Library should therefore depend on your (business) goals.

KPI Library News: Best rated KPIs in category Supply Chain & Logistics

2008-03-30T12:30:00.000-07:00

The best rated KPIs in the category Supply chain & Logistics’ as rated by our users are as follows:

1- [new] Perfect Order Measure
2- [new] Freight cost per unit shipped
3- [new] Customer order promised cycle time
4- [new] Freight bill accuracy
5- [1] Stock cover
6- [4] Inventory lead time
7- [3] Stockouts in period
8- [2] Transit time
9- [5] On time ship rate
10- [6] Manufacturing cycle time
Within the brackets we have included the previous position of this rating. KPIs that were previously in the top 10 but have dropped out are:

Schedule production activities cycle time
% of backorders
Inventory turnover
Delivery Schedule Adherence (DSA)

Key Performance Indicators (KPI)

2008-03-30T12:22:00.000-07:00

Key Performance Indicators (KPI) are financial and non-financial metrics used to help an organization define and measure progress toward organizational goals[1]. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. The act of monitoring KPIs in real-time is known as business activity monitoring. KPIs are frequently used to "value" difficult to measure activities such as the benefits of leadership development, engagement, service, and satisfaction. KPIs are typically tied to an organization's strategy (as exemplified through techniques such as the Balanced Scorecard).

The KPIs differ depending on the nature of the organization and the organization's strategy. They help an organization to measure progress towards their organizational goals, especially toward difficult to quantify knowledge-based processes.

A KPI is a key part of a measurable objective, which is made up of a direction, KPI, benchmark, target and time frame. For example: "Increase Average Revenue per Customer from £10 to £15 by EOY 2008". In this case, 'Average Revenue Per Customer' is the KPI.

KPIs should not be confused with a Critical Success Factor. For the example above, a critical success factor would be something that needs to be in place to achieve that objective; for example, a product launch.

Identifying indicators

Performance indicators differ from business drivers and aims (or goals). A school might consider the failure rate of its students as a Key Performance Indicator which might help the school understand its position in the educational community, whereas a business might consider the percentage of income from return customers as a potential KPI.

But it is necessary for an organization to at least identify its KPI's. The key environments for identifying KPI's are:

Having a pre-defined business process.
Having clear goals/performance requirements for the business processes.
Having a quantitative/qualitative measurement of the results and comparison with set goals.
Investigating variances and tweaking processes or resources to achieve short-term goals.
When identifying KPI's the acronym SMART is often applied. KPI's need to be:

Specific
Measurable
Achievable
Result-oriented or Relevant
Time-bound

Marketing KPI'S

Among the marketing KPIs top management analyzes are:

Customer related numbers:
New customers acquired
Status of existing customers
Customer attrition
Turnover generated by segments of the customers - these could be demographic filters.
Outstanding balances held by segments of customers and terms of payment - these could be demographic filters.
Collection of bad debts within customer relationships.
Demographic analysis of individuals (potential customers) applying to become customers, and the levels of approval, rejections and pending numbers.
Delinquency analysis of customers behind on payments.
Profitability of customers by demographic segments and segmentation of customers by profitability.
Many of these aforementioned customer KPIs are developed and improved with customer relationship management.

This is more an inclusive list than an exclusive one. The above more or less describe what a bank would do, but could also refer to a telephone company or similar service sector company.

What is important is:

KPI-related data which is consistent and correct.
Timely availability of KPI related Data.
Faster availability of data is beginning to become a concern for more and more organizations. Delays of a month or two were commonplace. Of late, several banks have tried to move to availability of data at shorter intervals and less delays. For example, in businesses which have higher operational/credit risk loading (that involve credit cards, wealth management), Citibank has moved onto a weekly availability of KPI related data or sometimes a daily analysis of numbers. This means that data is usually available within 24 hours as a result of automation and the use of IT.

Categorization of indicators
Key Performance Indicators define a set of values used to measure against. These raw sets of values fed to systems to summarize information against are called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-categories:

Quantitative indicators which can be presented as a number.
Practical indicators that interface with existing company processes.
Directional indicators specifying whether an organization is getting better or not.
Actionable indicators are sufficiently in an organization's control to effect change.
Key Performance Indicators in practical terms and strategy development means are OBJECTIVES to be target that will add the VALUE to the business MOST (MOST = KEY INDICATORS OF SUCCESS).

Problem's
In practice, organizations and businesses looking for Key Performance Indicators discover that it is too expensive, difficult or impossible (eg staff morale may be impossible to qualify with a number) to measure the performance indicators exactly required to a particular business or process objective. Often a business metrics with history that is similar is used to measure that KPI. In practice this tends to work but the analyst must be aware of the limitation of what is being measured which is often a rough guide rather than an exact measurement.

Another serious issue in practice is that once a KPI is created, it becomes difficult to change them as your yearly comparisons with previous years can be lost.

Furthermore you should be aware that if it is too inhouse, it may be extremely difficult for an organization to use its KPIs to get comparisons with other similar organizations.

http://en.wikipedia.org/wiki/Key_performance_indicators

Balanced Scorecard - Measurement and Feedback

2007-05-03T19:47:00.000-07:00

Measurement and Feedback

In traditional industrial activity, "quality control" and "zero defects" were the watchwords. In order to shield the customer from receiving poor quality products, aggressive efforts were focused on inspection and testing at the end of the production line. The problem with this approach is that the true causes of defects could never be identified, and there would always be inefficiencies due to the rejection of defects. What Deming saw was that variation is created at every step in a production process, and the causes of variation need to be identified and reduced. If this can be done, then there is a way to reduce the defects and improve product quality indefinitely. To establish such a process, Deming emphasized that all business processes should be part of a measurement system with feedback loops. The feedback data should be examined by managers to determine the causes of variation at each step in a process, identify the processes with significant problems, and then focus attention on improving that subset of processes. Deming proposed a continuous cycle, usually referred to as the Plan-Do-Check-Act cycle, to implement a philosophy of continuous product and process improvement.

Total Quality Management

The Deming philosophy emerged in the US government in 1987 via two initiatives, one military and one civilian. Under Defense Secretary Frank Carlucci, the Total Quality Management (TQM) program was introduced to create a new focus on total ownership cost in acquisitions. This initiative brought significant changes in DoD policies, including the near-elimination of MIL SPECs, elimination of employee performance appraisals ("Management by Objectives"), and simplifications in the Federal Acquisition Regulations (FAR).

The Baldrige Award

The civilian initiative of 1987 was the Malcom Baldrige National Quality Award, named after the first Secretary of Commerce under Ronald Reagan (who died tragically in a horseback accident). Realizing the significant strides Japan had made in industrial quality, particularly in the auto industry, Baldrige sought a way to rebuild American competitiveness. The Republican administration was unwilling to offer direct corporate handouts, but they wanted to do something to encourage the new management philosophy. So they created a prestigious award that would be given to large and small product and service companies that showed the best scores on a carefully-designed questionnaire, the "Baldrige Criteria". Winners would receive a handsome trophy in a high-visibility ceremony in Washington, and could use the publicity in their advertising. In exchange, they would be asked to reveal some of their management's best practices so that other companies could benefit from their experience.

After more than ten years of experience, the Baldrige Award has proven to be a good incentive for many companies, and a predictor of future stock performance for its winners. Although a few winners have faltered, their overall growth has outperformed the S&P 500 and other common market indices. The Baldrige Criteria, which are refined each year, have become a credible set of guidelines for business success. American competitiveness has indeed rebounded, as recent economic data amply indicate.

What is so special about the Baldrige Criteria? What 'best practices' have they revealed?

The Baldrige Award questionnaire booklet is published each year by the National Institute for Standards and Technology, which also administers the award reviews. The booklet contains, in addition to the questions, several pages describing various underlying concepts and values. In brief, what the Baldrige Award winners have in common is a management system that incorporates something like Deming's Plan-Do-Check-Act cycle, in which both strategic and tactical plans are deployed along with a measurement system, and feedback is obtained from the data to monitor results and revise the plans. This is not implemented as a special project but as a continuous cycle that is aimed at continuous improvement and continuous adjustment of strategy to new business conditions.

Lacking such a measurement system does not necessarily mean that managers are not doing a good job, nor that people are not productive or happy. The Baldrige Information and Analysis Criteria are simply looking for data to answer the question, "How well do we know how well we do our work?"

The Measurement Imperative

In private companies, measurements are simply essential in order to provide a rational basis for decisions. Jac Fitz-Enz (Benchmarking Staff Performance, 1996) offers the following admonition:

"Measurement of any work process or practice is more than possible. It is imperative. It applies in both routinized process work and in individual professional practices. Whether we are talking about a benchmarking project or just tending to day-to-day management, without number we don't really know what we are doing. If managers do not know [measurements], I have only onequestion: What do you think they are managing? Without metrics, managers are only caretakers. They are administrators of processes."

In government, is performance-based management another management fad that is going to disappear tomorrow? On the contrary, it appears to be becoming more entrenched. An illustration of that is the passing in 1993 of the Government Performance and Results Act (GPRA) - the relevant excerpt of the Act is here. This Act requires all government agencies to deploy a strategic plan, set performance targets, and measure performance over time. Future budgets for the agencies will be set (by the Office of Management and Budget, not the Departments) with consideration given to progress in achieving performance targets. This is reality -- the US taxpayer wants to see a government that has demonstrable results and progress. Otherwise, there will be massive outsourcing of every possible function to private industry, where market forces promise better performance.

In the Department of Defense in particular, it is clear that the GPRA will be taken seriously. The Secretary of Defense, William Cohen, in his previous position was one of the Senate sponsors of the GPRA. Recently he has flatly announced that there will be new rounds of Base Realignments And Closings (BRACs). His goal is to cut civilians in the DoD by 40%. At the same time, he and Congress agree that there is a need for the country to preserve its technology base and special skills, so there is a desire for judicious, surgical-style force reductions. Quantitative metrics such as scores of Baldrige-based self assessments will be one of the criteria considered in making future decisions about these reductions.

The handwriting is on the wall. Government leaders that want to survive must make significant efforts to improve performance -- and be able to prove it with verifiable measurements.

But What Must Be Measured?

The earlier era of measurement-based mangement was focused on industrial production. In operations such as automobile production, there are numerous tangible, repetitive processes that can be precisely measured and monitored. Shewhart, as early as the 1930's, had begun to institute such methods as Statistical Process Control (SPC) for industrial processes. However, in the 1990's the economic drivers are not industrial mass production companies and blue-collar workers, but office-oriented production by 'knowledge workers'. In this environment, there is much that is intangible, and some processes, such as R&D, are not even repetitive. So how can performance be measured adequately in a modern enterprise?

In most traditional industrial and government organizations, there have always been ample measurements of one particular kind: financial data. In private companies, profit or the 'bottom line' is the ultimate indicator of success, and earnings are carefully watched. Public agencies often operate at a loss and are subsidized, but the loss is targeted to a specified limit; the metric to compute this is called the Net Operating Result (NOR). This is the dial that senior staff are constantly watching.

Financial data are precise and objective. However, they do not tell the whole story of a company's health. Financials are lagging indicators -- they show what happened in the past. What we would like to have are some leading indicators to get an idea of what may be ahead. Lacking these, companies often drive straight ahead in the fog and suffer the consequences.

The balanced scorecard offers an alternative to the traditional financial indicators. It describes and explains what has to be measured in order to assess the effectiveness of strategies. The balanced scorecard approach to aligning strategy with action is just as applicable in the public sector as in the private sector, particularly for the reason that it does not focus so heavily on financial metrics, such as profit, which are not relevant in governmental organizations. Hence the balanced scorecard is being seen as an appropriate way for the government to implement the requirements of the Government Performance and Results Act. Read more about this in the other articles on this web site.

Key Performance Indicators (Construction industry)

2007-05-03T19:13:00.000-07:00

Cost of construction
Information : Change in the current normalised construction cost of a project at Commit to Construct (point B) compared with one year earlier, expressed as a percentage of the one year earlier cost.

Defects
Information : Impact, at the time of handover, caused by the condition of the facility with respect to defects using the 1 to 10 scale set out below.

The headline Defects KPI is currently recorded on projects by the Construction Clients Forum (CCF) survey using the following scoring system.
10 = Apparently defect free
8 = Few defects no significant impact on client
5/6 = Some defects some impact on client
3 = Major defect major impact on client
1 = Totally defective

Client satisfaction
Information : How satisfied the client was with the finished product using the score against the 1 to 10 scale set out below.

Profitability
Information Company profit expressed as a percentage of turnover.

Productivity
Company value added per employee expressed in dollars.

Return on capital
Return on capital employed.

KPI Example

2007-05-03T19:08:00.000-07:00

Number of new products
Calculation : Number of new products
Information : Efficiency Indicator
Frequency : Yearly

Number of patents
Calculation : Number of patents
Information : Business Management Efficiency Indicator
Frequency : Yearly

new technologies adopted
Information : Efficiency Indicator
Frequency : Monthly

System improvements implemented
Information : Efficiency Indicator
Frequency : Quarterly

Key Performance Indicators (IT)

2007-05-03T19:06:00.000-07:00

Data loss accidents
Calculation : Data loss accidents happened
Information : IT efficiency indicator
Frequency : Monthly

Quality of software
Calculation : Average score at 10-grade. Scale obtained at users survey
Information : IT efficiency indicator
Frequency : Quarterly

IT budget execution
Calculation : Actual IT costs / Planned IT costs
Information : IT efficiency indicator
Frequency : Quarterly

Quality of communications bandwidth
Calculation : Average score at 10-grade. Scale obtained at users survey
Information : IT efficiency indicator
Frequency : Quarterly

KPI Example

2007-05-03T19:02:00.000-07:00

EBITDA Profitability
Calculation : EBITDA / Revenue
Information : Operating Efficiency Indicator
Frequency : Monthly

Business Value Growth
Calculation : Business Value (current) / Business Value (previous period)
Information : Business Management Efficiency Indicator
Frequency : Quarterly

Brand Recognizebility
Calculation : Mentions Number Received by Representative Sampling
Information : Business Management Efficiency Indicator
Frequency : Quarterly

Market Share Growth
Calculation : Market Share (current) / Market Share (previous period)
Information : Marketing Efficiency Indicator
Frequency : Quarterly

Lost Clients Rate
Calculation : Lost Accounts Number / Opening Total Accounts Number
Information : Business Risk Indicator
Frequency : Quarterly

Prime Clients Rate
Calculation : Clients Generating 70% of Revenue / Total Accounts Number
Information : Business Risk Indicator
Frequency : Quarterly

Investment Project Evaluating Speed
Calculation : Projects, evaluated in time / Total projects prepared
Information : Operational Execution and Management Flexibility Indicator
Frequency : Quarterly

Key Performance Indicators (Sales)

2007-05-03T18:52:00.000-07:00

Key Performance Indicators (Human Resources)

2007-05-03T18:37:00.000-07:00

Notes: A company must establish its strategic and operational goals and then choose the KPIs which best reflect those goals. For example, if a software company's goal is to have the fastest growth in its industry, its main performance indicator may be the measure of revenue growth year-on-year. A company's KPIs will be stated in its annual report. Also, KPIs will often be industry-wide standards, like "same store sales", in the retail sector.

Key Performance Indicators (KPIs) provide vital information to the organisation for tracking and predicting business performance against strategic objectives in a way that compliments financial measures. KPIs can be part of a corporate-wide Balance Scorecard implementation or can be used to monitor each individual business function. By measuring and monitoring operational efficiency, employee performance and innovation, customer satisfaction, as well as financial performance, long term strategies can be linked to short term actions.

Staff Turnover

Calculation : Staff Leaving over the Month / Staff Number at the Last Day of the Month Information : Efficiency Indicator

Frequency : Monthly

Recruitment Quality

Calculation : New Hires Leaving Within 6 Months / Total Hires Over the Year

Information : Efficiency Indicator

Frequency : Monthly

Training Days Execution

Calculation : Actual Training Days / Budget Training Days

Information : Efficiency Indicator

Frequency : Monthly

Fill Vacancy Time

Calculation : Average time HR required to fill 1 vacancy (broken down by grades)

Information : Marketing Efficiency Indicator

Frequency : Monthly

Key Performance Indicators (Finance)

2007-05-03T18:33:00.000-07:00

EBITDA Profitability

Calculation : EBITDA / Revenue Information : Operating Efficiency Indicator

Frequency : Monthly

Accounts Receivable

Calculation : Accounts Receivable Information : Business Management Efficiency Indicator Frequency : Monthly

Days Sale Outstanding

Calculation : 30 / (Total monthly revenue / Average accounts receivable per month) Information : Business Management Efficiency Indicator

Frequency : Monthly

Outstanding debts over 2 month

Calculation : Outstanding debts over 2 month / Average accounts receivable Information : Marketing Efficiency Indicator Frequency : Monthly

Key Performance Indicators (General)

2007-05-03T18:32:00.000-07:00

A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals. KPIs vary between companies and industries, depending on their priorities or performance criteria. Also referred to as "key success indicators (KSI)". Notes: A company must establish its strategic and operational goals and then choose the KPIs which best reflect those goals. For example, if a software company's goal is to have the fastest growth in its industry, its main performance indicator may be the measure of revenue growth year-on-year. A company's KPIs will be stated in its annual report. Also, KPIs will often be industry-wide standards, like "same store sales", in the retail sector.

EBITDA Profitability

Calculation : EBITDA / Revenue

Information : Operating Efficiency Indicator

Frequency : Monthly

Business Value Growth

Calculation : Business Value (current) / Business Value (previous period)

Information : Business Management Efficiency Indicator

Frequency : Quarterly

Brand Recognizebility

Calculation : Mentions Number Received by Representative Sampling

Information : Business Management Efficiency Indicator

Frequency : Quarterly

Market Share Growth

Calculation : Market Share (current) / Market Share (previous period)

Information : Marketing Efficiency Indicator

Frequency : Quarterly

Lost Clients Rate

Calculation : Lost Accounts Number / Opening Total Accounts Number

Information : Business Risk Indicator

Frequency : Quarterly

Prime Clients Rate

Calculation : Clients Generating 70% of Revenue / Total Accounts Number

Information : Business Risk Indicator

Frequency : Quarterly

Investment Project Evaluating Speed

Calculation : Projects, evaluated in time / Total projects prepared

Information : Operational Execution and Management Flexibility Indicator

Frequency : Quarterly

Key Performance Indicators (KPI's)

2007-05-03T18:23:00.000-07:00