Key Performance Key Performance Indicators KPI’sIndicators KPI’s

Purposes of (KPI’s) Performance Purposes of (KPI’s) Performance Measurement SystemsMeasurement 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 TaskKey TaskIn 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 IssuesKey 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 ValueKPI’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 GuidelinesKPI’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 StrategyLinkages to Strategy

Key business drivers (key success factors)

Strategies and action plans

KPI’s Measures and indicators

KPI’s - MeasurementsKPI’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 objectiveKey objectiveThe 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 CriteriaKey Criteria

• Good measures and indicators are actionable

• They provide the basis for decisions at the level at which they are applied.

Customer MeasuresCustomer Measures

• Customer satisfaction and dissatisfaction

• Customer retention

• Gains and losses of customers and customer accounts

• Customer complaints and warranty claims.

Product and Service MeasuresProduct and Service Measures

• Internal quality measurements

• Field performance of products

• Defect levels

• Response times

Human Resource MeasuresHuman Resource Measures

• Employee satisfaction• Training and development• Work system performance and

effectiveness• Safety• Absenteeism• Turnover of Staff (longevity of

employees)

Organizational Effectiveness Organizational Effectiveness MeasuresMeasures

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

Governance and Social Governance and Social Responsibility MeasuresResponsibility Measures

• Organizational accountability• Ethical behavior• Regulatory/legal compliance (ISO

9000)• Community service

Common ProductionCommon Production Quality Measures Quality Measures

• Defects per unit of Production

• Errors per opportunity

• Customer returns

• Patient or Customer Waiting Times

• Production per employee

• Sales per square metre

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Creating Effective Performance Creating Effective Performance MeasuresMeasures

• 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 DataAnalyzing 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)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

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Managing KPI’s and InformationManaging 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 Common Operating Ratios for the Hotel Industryfor 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

QuestionsQuestions

• 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 Improving Operational PerformancePerformance

A Medical Practice – Worked Example

Patient Care– Response Times– Clinical Performance– Customer Service

Employee Wellbeing– Retention– Health / Safety / Welfare– Satisfaction– Compensation– Recruitment

Bye for now!Bye for now! I’m ready forsome leisure time.

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