Posts Tagged KPI selection

smartKPIs.com Performance Architect update 43/2011

Advice on KPI selection

Selecting KPIs is a process which seems simple, yet is inherently complex, due to the interdependencies involved. Here are 15 things to consider before embarking on this journey.

  1. Review existing internal reports and support documents at the beginning of the KPI selection exercise. These may include previous business / strategy plans, annual reports, performance reports and other documentation that relates to performance management, measurement and benchmarking.
  2. Use external lists of examples and other secondary documentation to inform and support KPI selection. It is always a good idea to begin a journey having the end in mind. Reviewing KPI examples used in the industry or functional area, by competitors or other organizations provides context around what is in used in practice by others and improves understanding around the desired output.
  3. Engage internal stakeholders in the process of KPI selection through interactive workshops. KPI selection is not a desk exercise. It is an opportunity to communicate and learn, hence an open discussion in a workshop format is a better approach for enabling not only KPI selection, but also understanding and ownership.
  4. Calibrate KPI selection around business objectives and value drivers. KPIs are not used in isolation. They are just one component of the value creation chain and of the performance management system. A simple way to position them is al links between business objectives and related organizational initiatives.
  5. Select KPIs based on the realities of organizational activity and environment. Each organization is different, operating in different environments, with different guiding principles. Hence the KPIs used need to reflect the specifics of each organization first and industry/functional area characteristics second.
  6. Maintain a centralized catalogue of KPIs for the entire organization. Structuring KPI documentation in a central repository facilitates their understanding and usage in a similar way across the organization, growing the know-how and facilitating KPI selection and usage on an ongoing basis.
  7. Understand the difference between input, process, output and outcome KPIs. This value creation sequence is essential in facilitating the understanding of KPIs in the context of the value added by the process/activity they are related to. It is an essential mapping technique that facilitates KPI selection.
  8. Don’t hesitate in changing KPIs in scorecards and dashboards. KPIs should reflect activity and activity should adapt to a changing environment. The use of KPIs should be fluid and flexible, reflecting the change in business priorities as a result of the change in the operating environment.
  9. Review KPI relevance regularly. If new KPIs are required, they can be established at any time. An essential aspect of double loop learning. Using KPIs is not only about achieving set targets and objectives, but also about ensuring the objectives and targets were the right ones to be set in the first place and the KPIs used to track their achievement were the appropriate ones.
  10. KPI selection and target setting should be done in accordance with organizational maturity and direction. There is no one size fits all approach when it comes to using KPIs. As strategies vary from one organization to another, the use of KPIs also varies.
  11. Project milestones are not KPIs. Understanding the difference between what is and what is not a KPI is a prerequisite of successful KPI selection.
  12. Targets are not KPIs. Understanding the anatomy of a KPI is essential in KPI selection and usage.
  13. Some things are not worth measuring. For example measuring love might not be such a good idea. Not everything that can be measured should be measured with KPIs.
  14. Some things are too difficult to measure. For example cuteness. The “measuring everything that moves’ mentality should be avoided.
  15. Eliminate or replace inactive KPIs with simpler, yet measurable ones. Using some KPIs may have seemed a good idea at the time of their selection, however if measuring them proves to be too costly or time consuming, they should be replaced. An active KPI is better than an inactive KPI.

Aurel Brudan
Performance Architect,
www.smartKPIs.com

smartKPIs.com Performance Architect update 36/2010

A taxonomy of sources used for KPI selection

Working with Key Performance Indicators (KPIs) requires selecting a group of relevant KPIs first. There are many options for this: start with a blank page, review other sources, or get someone else (such as a consultant) to do this for you among others.

Some of the general rules to follow on embarking on such a journey are:

1. Do your research. Selecting KPIs is a learning experience, a journey in itself. There are many insights to gain by taking it step by step instead of just getting to the destination. Research is an important component of this journey.

2. Acknowledge the uniqueness of your environmental settings. While some KPIs are widely used across organisations (i.e. % Satisfied customers, $ Sales revenue and % Profit rate), others are unique to each organisations as they reflect their strategy and specific conditions of operating. Each organisation should select the KPIs based on their relevance and not on their popularity.

3. Clarify what you want to achieve. If you want to improve things and learn from KPIs, you should not avoid selecting challenging KPIs, difficult to measure or difficult to improve. The easy choice is selecting KPIs that make you look good. While this may serve some purpose on the short term, on the medium to long term it will impact the relevance and credibility of KPIs in the organisation.

Having these general rules in mind, the question is: “Where do we do our research to inform the KPI selection process?”. The main sources of information can be grouped in three categories:

Primary Sources

  • Front-line employees input – they are at the core of the value generation chain and know what matters for operational success.
  • Input from managers – due to their perspective across the value generation process, role in shaping strategy and their relationship with various stakeholders.
  • Board input – in many instances they mandate the use of specific KPIs and their selection in strategic / operational is non-negotiable.
  • Input from suppliers – their insight in the supply chain is valuable as they can bring an external perspective to what needs to be measured and improved
  • Customer input – their opinion matters.

Secondary sources

  • Strategic development plan (3-5 years)
  • Annual business/strategic plan
  • Annual reports
  • Internal operational reports
  • Competitor review reports

External sources

Individually or in combined, these sources can generate a list of prospective candidates for KPI selection, anchored to organisational objectives. Ultimately the decision on which KPIs will be used should be based on discussions within the organisation to determine the most relevant ones. Consultants can be useful in this process as facilitators, but not necessarily as “fountains of truth”. Their role should be more as guides on this journey, providing tools, information and advice, but not developing the final list of selected KPIs in an ivory tower. Enjoy the journey!

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21