Key Performance Indicators KPI’s

Purposes of (KPI’s) Performance Measurement Systems Providing direction and support for continuous improvement Identifying trends and progress Facilitating understanding of cause-and-effect relationships Allowing performance comparison to benchmarks Providing a perspective of the past, present, and future

Key Task In designing a performance measurement system, organizations must consider how the measures will support: Senior executive performance review Organizational planning Address the overall health of the organization, and How the measures will support daily operations and decision making.

Key Issues Organizations need comparative data, such as: Industry averages Best competitor performance As well as world-class benchmarks to gain an accurate assessment of performance and know where they stand relative to competitors and best practices.

KPI’s & Shareholder Value Shareholders invest to make money. Management invest that money to achieve the objectives of the shareholders. KPI’s should focus on achieving the objectives of the shareholders but not ignore the other stakeholders.

KPI’s Practical Guidelines Fewer is better. Link to the key business drivers. Include a mix of past, present, and future Address the needs of all stakeholders. Start at the top and flow down to all levels of employees Combine multiple indexes into a single index Change as the environment and strategy changes Have research-based targets or goals

Linkages to Strategy KPI’s Measures and indicators Key business drivers (key success factors) Strategies and action plans KPI’s Measures and indicators

KPI’s - Measurements Does the measurement support our mission? Will the measurement be used to manage change? Is it important to our customers? Is it effective in measuring performance? Is it effective in forecasting results? Is it easy to understand and simple?

Key objective The things an organization needs to do well to accomplish its vision are often called: key business drivers or key success factors. They represent things that separate an organization from its competition and define strengths to exploit or weaknesses to correct.

Key Criteria Good measures and indicators are actionable They provide the basis for decisions at the level at which they are applied.

Customer Measures Customer satisfaction and dissatisfaction Customer retention Gains and losses of customers and customer accounts Customer complaints and warranty claims.

Product and Service Measures Internal quality measurements Field performance of products Defect levels Response times

Human Resource Measures Employee satisfaction Training and development Work system performance and effectiveness Safety Absenteeism Turnover of Staff (longevity of employees)

Organizational Effectiveness Measures Cycle times Production flexibility Lead times and setup times Time to market Product/process yields Delivery performance Cost efficiency Productivity

Governance and Social Responsibility Measures Organizational accountability Ethical behavior Regulatory/legal compliance (ISO 9000) Community service

Common Production Quality Measures Defects per unit of Production Errors per opportunity Customer returns Patient or Customer Waiting Times Production per employee Sales per square metre

Creating Effective Performance Measures Identify customers requirements and expectations Define work processes Define value-adding activities and process outputs Develop measures for each key process Evaluate measures for their usefulness

Analyzing and Using Data Analysis – an examination of facts and data to provide a basis for effective decisions. Examples Examining trends and changes in key performance indicators Making comparisons relative to other business units Calculating means, standard deviations, and other statistical measures Seeking to understand relationships among different performance indicators

The Cost of Quality (COQ) COQ – the cost of avoiding poor quality, or incurred as a result of poor quality Translates defects, errors, etc. into the “language of management” – $$$ Provides a basis for identifying improvement opportunities and success of improvement programs

Managing KPI’s and Information Validity – Does the indicator measure what it says it does? Reliability – How well does an indicator consistently measure the “true value” of the characteristic? Accessibility – Do the right people have access to the data?

Common Operating Ratios for the Hotel Industry Average room rate (ADR) Revenue per available room (RevPAR) Revenue per available customer (RevPAC) % room occupancy Average Food Service Check Seat Turnover (Covers)

Call Centre KPI’s

Questions Suggest suitable KPI’s for an airline. Suggest suitable KPI’s for the retail sector. Suggest suitable KPI’s for the legal profession. Suggest suitable KPI’s for schools & colleges. Suggest suitable KPI’s for a manufacturer.

Improving Operational Performance A Medical Practice – Worked Example

Patient Care Response Times Clinical Performance Customer Service

Employee Wellbeing Retention Health / Safety / Welfare Satisfaction Compensation Recruitment

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