Key Performance Indicators for

Business Excellence

Maria Micallef

Partner RSM Malta

Agenda

• What should the entity measure besides

financial results?

• A framework for performance information

• What makes a good performance measure?

• What is a KPI?

• What are Key Performance Questions?

• Designing KPIs to achieve excellence

Measurement – essential concept?

‘When you can measure what you are speaking about, and

express it in numbers, you know something about it; but

when you cannot measure it, when you cannot express it

in numbers, your knowledge is of a meager and

unsatisfactory kind’

Lord Kelvin (1870)

‘You cannot manage what you cannot measure’

Anon

Scientific method and bloodletting

Market share

Other input/process/output/outcome

measures

One needs to have a balanced view of the organisation and

not concentrate only on financial results. Other

measures may include/relate to:

Customer satisfaction/dissatisfaction

Customer retention/behaviour

Product and service quality

Waste

Carbon footprint

Organisational capabilities

Yield/ Productivity

......................................and so on....and so on

Doing things

‘People and their managers are working so hard to

be sure things are done right that they hardly

have time to decide if they are doing the right

thing’

Stephen Covey

Measurement frameworks

• Balanced Scorecard

• TQM

• Performance Prism

• Tableau du Bord

Etc, etc, etc…

Objectives of a measurement

framework

A good performance measurement system will

facilitate 3 main objectives:

• Learning & Empowerment

• Better decision making

• Improved organizational performance

TQM framework

BSC framework

Properties of a good Performance

Information System

• Focused: on the organisation’s aims and objective

• Appropriate: to, and useful for, the stakeholders likely to use it

• Balanced: giving a picture of what the organisation is doing,

covering all significant areas of work

The efficiency trap in call centres

‘we make important what we can measure’

(Feinberg et al, 2000)

‘ease of measurement leads to automatic

reporting, which in turn can lead to the deceptive

belief that reported measures are important and

motivating’ (Silverman and Smith 1995)

Properties of a good Performance

Information System

• Focused: on the organisation’s aims and objective

• Appropriate: to, and useful for, the stakeholders likely to

use it

• Balanced: giving a picture of what the organisation is doing,

covering all significant areas of work

• Robust: in order to withstand organisational changes or

individuals leaving

• Cost effective: balancing the information against the costs

• Integrated: into the organisation, being part of the business

planning and management processes

Developing measures to support an

objective

Develop results and process measures

Challenges to overcome

Tendency to identify many

measures – hoping for a few

good men ( i mean measures!)

Tendency to rush to judgement – not

thinking deeply about what

measures are important and why

Leading and lagging indicators

Lagging

• Software bugs reported

to Support in Release x.x

• Q2 revenue

• Call center calls

completed within 2

minutes

• Product returns in

November

Leading

• % of identified software

bugs fixed in Release x.x

• Contracts in negotiation

for Q2

• Customer cases

currently open

• Customer complaints 3

month trend

What makes a good performance

measure ?

A performance measure should be:

• Relevant to what the organisation is aiming to achieve;

• able to Avoid perverse incentives - not encourage unwanted or

wasteful behaviour;

• Attributable – the activity measured must be capable of being

influenced by actions which can be attributed to the organisation;

and it should be clear where accountability lies;

• Well-defined - with a clear, unambiguous definition so that data

will be collected consistently, and the measure is easy to understand

and use;

Measures need to be well defined

What makes a good performance measure ?

A performance measure should be (con):

• Timely, producing data regularly enough to track progress and,

and quickly enough for the data to still be useful;

• Reliable - accurate enough for its intended use, and responsive

to change;

• Comparable with either past periods or similar programmes

elsewhere; and Verifiable, with clear documentation behind it, so

that the processes which produce the measure can be validated.

What is a KPI?

KPI’s are clearly defined, quantifiable measures that reflect the critical success factors of an organisation.

KPI’s help organisations understand how well they are performing in relation to their strategic goals and objectives.

KPI’s should be clearly linked to objectives to enable stakeholders to determine if the organisation is on track.

The ICE approach

Instead of clearly identifying the information needs and then carefully designing the most appropriate indicators to assess performance, we often observe what has been 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?

Moving From Process to Outcomes

Using KPIs correctly

Best practice organisations:

• Understand what indicators are required for

learning and improvement

• Separate out external reporting indicators if not

relevant for internal purposes

• Try to avoid using indicators to control people

and concentrate on organisational performance

How to design KPI’s

KPI’s should be:

• clearly linked to strategy ie. the things that matter most

• properly defined

• measurable

All units within an organisation should have their own KPI’s which should in turn be linked to the organisation’s KPI’s (cascading effect)

How to design KPIs

The question is the answer!

? = Answer

Key Performance Questions

KPQs are an API innovation in the field of corporate performance management.

KPQ is a management question that captures exactly what managers need to know when it comes to each of their strategic objectives.

KPQs are designed to raise the most important questions and trigger a search for the answers

KPQs

KPQs

KPI design template

Source: Advanced Performance Institute BWMC Ltd.

KPI design template (cont)

KPI design template (cont)

Good targets

• ‘We will reduce the number of missed household

bin collections by 5% by next year.’

• ‘We will cut the number of unfilled places in

primary schools by 10% by 31 December 2010’

• ‘We will increase the number of customers from

Italy by 20 per cent before the end of 2011.’

Bad targets

• ‘We aim to have the best transport service in the

region.’

• ‘We will improve the way we handle complaints.’

• ‘We will answer 75 per cent of all complaints

within 5 days’ (a poor target if the remaining 25

per cent take 3 months to answer).

KPI design template (cont)

KPI design template (cont)

Concluding comments

KPIs are one of the most powerful tools available to

enable organizations to achieve improved

performance and aim towards excellence. But using

KPIs appropriately comes replete with challenges.

KPIs should be primarily deployed for learning and

improvement and not for command control. When

KPIs are used inappropriately they also become the

most ‘resisted’ of management tools.

Thank You