Posts Tagged ‘Key Performance Indicators’

The role of Key Performance Indicators (KPIs) in the organization is to provide internal and external clients with actionable metrics in easily accessible, customizable formats they can use to increase the effectiveness and efficiency of their operations. What differentiates KPIs from the wealth of metrics that can be generated from any business is that they are key leading and lagging indicators that can be used to reflect the strategic performance of the organization.

In selecting your KPIs it is important not to be tempted to label as KPIs the “top 40” metrics but rather generally at the top level you should limit yourself to the top 1-3 KPIs per strategic objective. These should only include those metrics that are essential to the success of the organization. In addition, each department will have their own contributing KPIs. The departmental KPIs should be selected so that they can be rolled up in support of the overall strategic goals.

The effectiveness of KPIs can be directly related to the care with which they are defined and implemented. Critical questions to consider when developing your KPIs include:

  1. How does this measure contribute to the strategic goals?
  2. Is it quantifiable?
  3. Is the data currently available?
  4. Can current performance, benchmarks, and target values be defined?
  5. How will it be used as a management tool?
  6. What is the high level plan for the establishment of reporting?
  7. Is there an outline for how continuous improvement activities will be implemented?
  8. Has a cascading plan to all levels of the organization been developed?

A brief discussion of the detailed considerations for each of the above questions is included to assist with the process of initiating a KPI program.

  •  How does this measure contribute to strategic goals? –  The success of using KPIs will be dependent on how effective they are at contributing to a better understanding of what drives the success of the organization. Keep in mind that KPIs will differ based on the type of organization and its goals. For example, a non-profit organization such as a school or a hospital will have different fiscal KPIs than a publically traded company. Each KPI should reflect the mission and goals of the organization.
  • Is it quantifiable? – A common mistake in developing KPIs is to take too general a statement such as “Improve customer service” as a KPI. To be effective it needs to be specific and measurable so “improve customer service satisfaction scores or increase customer repeat order rates” would be more appropriate measures.
  • Is the data currently available? – Another factor to be considered is whether the data to be used for each potential KPI is currently available. The expense of gathering additional data including system changes should be weighed against the value that the measure will provide.
  • Can current performance, benchmarks, and target values be defined? – To be effective a KPI must define a clear target so success can be determined. Industry benchmarks can often be useful in setting these targets. For example, an IT department may have as a target 99.999% availability of key systems. Meeting this target in turn will enhance customer satisfaction, ordering functions, etc. and support the other strategic objectives.
  • How will it be used as a management tool? – A clear understanding of how this KPI will be used, how improvement opportunities will be developed, and consequences for deteriorating performance should all be clearly mapped out before implementation.
  • What is the high level plan for reporting? – Publishing and reporting of KPIs is critical to monitoring progress. Formats for reports should be customized by role and function so that executives will see a summary view while department heads would have a much richer set of detailed metrics. Consideration should be given to the mix between dashboards, scorecards, detailed reports, and self-service tools for ad hoc analysis.
  • Is there an outline for continuous improvement activities? – A process improvement process allows the KPI values to be used to identify where focus should be placed to enhance performance.
  • Has a cascading plan been developed? – Each level of the organization needs to understand how their operations support the overall strategic goals. Cascading the KPIs clearly delineates their contributions and their opportunities for improvement.

Implementing a well thought out and comprehensive set of KPIs is the first step to a more proactively performance- based operation. This program will provide all levels of the organization clear targets and objectives with the ultimate goal of materially contributing to the success of the organization.

NBA, NHL and your company’s Key Performance Indicators

by Brian Superczynski on June 7, 2010

For sports fans this is an exciting time of the year with both the NBA and NHL finals taking place simultaneously.

There’s added excitement this year with the renewal of the classic Lakers and Celtics rivalry and the Chicago Blackhawks looking for their first Stanley Cup championship since 1961.

As in sports, companies and internal departments need to identify key performance metrics which translate to success in their industry.

Just as analysts review a company’s balance sheet and operational metrics, many fans and sports analysts refer to team and player statistics in order to support their predictions of who will win their respective league championship.   In the NBA finals, they’ll be citing each team’s shooting percentage from the free throw line and the field as a key performance indicator. In hockey, there are the obvious statistics of number of power play goals and goals against average.  But this year, analyst have cited the unusual statistic of Chicago’s offense scoring 11 goals with 10 different players as a key indicator of its success through game 3 of the championship series.   The implication is identifying the Stanley Cup series specific statistics over and above the commonly followed season statistics in order for either team to make adjustments to win the Cup.

Many organizations today do a terrific job at measuring their own teams’ statistics – take the airline industry for example: they measure the use of number of seat miles for which the company earned revenues.  What’s more difficult is identifying meaningful performance indicators at the departmental or individual level within an organization?  Effective identification and translation of organizational specifics makes an executive’s job easier when identifying and adjusting to trends, defending team budgets, identifying savings opportunities, and even negotiating contracts.  This is especially true within an IT organization.

One of my favorite Information technology metrics which typically does not appear on the company’s balance sheet or in the annual report but translates into effective IT performance are the metrics related to desktop or PC support. I like these metrics because Joe the worker at Company X probably does not care anything about IT metrics.  But Joe and his peers know who to call for problems with their PC’s.  You know – the “IT guy” who the department takes out to an appreciation lunch once or twice a year.  Keep Joe and his peers happy and that will translate to good scores for IT support.  Remotely identifying and correcting Joe’s PC problems at the help desk is almost always the most efficient and cost effective way to provide desktop support.  Therefore statistics such as average time to answer and mean time to repair (MTTR) are often cited as an accurate performance measurement of the desktop support unit.  These statistics have further downstream implications for identifying the desktop to technician ratios or the number of technicians required to be in the field when problems cannot be solved remotely or over the phone with an agent.  Organizations which typically resolve most incidents remotely with an agent do not need as many field technicians and therefore have high desktop to field technician ratio’s and are considered the most cost efficient.

But just as the Lakers, Celtics, Blackhawks and Flyers will be identifying opportunities and adjustments based upon shot percentages and other common game time metrics, an organization must know how to translate their metrics into performance-improving activities.  Although the Flyers have allowed goals by 10 different players after three games, they have been able to hold the Blackhawks top scorers this season to just one goal in the finals.  So in some respect, part of the Flyers game plan may be working in shutting down the opposing team’s top scorers and the high number of individual goals per Blackhawk player is a positive metric.

Using the same analogy, there may be reasons why an IT organization has metrics which are out of line with industry standards and those reasons need to be well understood to justify costs.  In the desktop support example cited above, a company may require higher PC to technician ratios due to Joe’s high availability requirements.  For example, our friend Joe is an order taker on a trading floor and does not have the time to call the help desk and work with an agent to solve problems with his PC while the markets are open.  The same dynamic is also seen in the healthcare industry within clinical environments, where nurses and doctors are focused on treating patients and do not have the bandwidth to diagnose problems accessing automated medical records from PC’s.  In these environments, it would obviously be acceptable to experience higher desktop to field support ratio’s to insure key functions within the company have highly available systems and support.  Understanding these dynamics is critical when performing organizational benchmarking activities and considering out source opportunities.  With regard to outsourcing, you’ll want to understand how a supplier is proposing to achieve savings.  Are they proposing to increase the number of PC’s a technician supports from 250 to 500 devices? If their model is predicated by resolving more calls remotely at the help desk you’ll want to closely examine the impact to your organization.  Having a deep understanding of your metrics will allow you to better negotiate support costs within your company and negotiate actionable savings strategies offered by department heads and suppliers.

The challenge is to drive meaningful measurements to all levels within your organization.  Ask your management chain to identify metrics which translate to their group’s success.  Then ask them why the metrics are meaningful and actionable and what needs to be done to improve the scores.  I would also suggest that if the measurements are not actionable then they are probably not the right performance indicators to be tracking.

For those deep thinkers out there, I hope these insights will not cause you to become distracted with thoughts of your company’s metrics while watching the NBA and NHL finals.

For those of you wondering, Blackhawks in six games with Kane becoming the scoring leader and Lakers in five by taking advantage of Celtic fouls and a higher free throw percentage.

Making the transition from spreadsheet-based Financial Planning and Analysis to a leading Enterprise Performance Management Solution (e.g., Hyperion, Cognos, etc..) requires commitment, executive sponsorship, and significant adjustment by those involved.  Before moving forward with haste, certain items should be considered to ensure a successful and sustainable implementation:

  1. Assess the Current Environment: Before a company can even consider beginning to scope out the analytical and reporting needs of a given organization, it is important to take a careful look at the current environment. Many organizations make the mistake of implementing analytical tools that only produce what is currently being used. The only difference may be a more complex user front end.  Doing this will not create any value for the organization and will only lead to frustration and a low adoption rate.
  2. Get to Know Users and Understand User Needs: It is important to meet with the key people in the organization that will be using or relying on the new tool to make business decisions.  Approach these conversations in a way that opens the door so that they are intricate in the design and development.  Keep in mind, fulfilling the needs of the Finance is important, however, providing a tool that has the power to directly impact the business and profitability is the goal.  It is important to have a strong executive sponsor of the project which will assist with driving the project and promoting it through-out the executive team of the company. However, receiving input from the data experts / users of the data will lay the foundation for a useful tool which will have an impact on the day to day operation and management of the company.
  3. Identify Key Performance Indicators (KPI’s): During the discussion with management and the users in the organization, it is not only important to understand the business drivers, but also being able to measure business performance by applying KPI’s.  KPI’s need to be measurable, but one simple aspect to keep in mind, is they should be useful. Don’t overwhelm your user base with complex KPI’s that do not add value.  During your information gathering sessions you should be able to get a feel of what is needed, and you may find in most cases there is a common theme.  Some examples of KPI’s include:
    • Profit and Loss
    • Inventory Turn
    • DSO (Days Sales Outstanding)
    • Customer Loyalty/Attrition
    • Market Share Indicators
    • Other relevant measurements
  4. Good Project Management Skills Are Key: Once the information gathering sessions are complete and a signed-off proof-of-concept is in place, it is time to create a Statement of Work (SOW). The SOW is a detailed road map of the project. While drafting the SOW, it is important to keep in mind that you are providing a solution to an existing problem. Therefore it is important not to over complicate as this will only create resistance and lack of acceptance. When drafting the Statement of Work, the following should be defined:
    • Project Scope
    • Risks identified
    • Timelines defined
    • Any additional terms of the project

It is a good practice when managing a project of this scope to schedule weekly update meetings and to track the progress of the project to ensure that key deliverables are being met. This will keep the project in line with goals and timelines detailed in the SOW. Lack of diligence can most certainly result in an overage in project budget and delays in implementation. Some others points to keep in mind include:

  • Implement in phases and conduct User Acceptance Testing along the way.
  • Ensure proper training is made available not only users, but the administrators of the new tool.
  • Do not over complicate. In some cases, less is more. Provide a sustainable, usable system that can provide standardized reporting, yet have the flexibility to provide ad-hoc analysis as needed by users.

There are many styles to managing a project in the IT or Finance world. Information Technology people have their own style, understanding, and expertise. Finance and operational people have the ability to bring a different angle that is also very important to a successful implementation. Using the items detailed above as a guideline and engaging the necessary key people upfront, will make a big difference in the success of the project.