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KPIs Key Performance Indicators Which way for true performance reporting? 27 th July 2017 Swati Nathwani, CIMA Kenya Chair

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Page 1: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

KPIsKey Performance Indicators

Which way for true performance reporting?27th July 2017

Swati Nathwani, CIMA Kenya Chair

Page 2: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

CIMA

Swati Nathwani, CIMA Kenya Chair

Page 3: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Introduction

• Why use KPIs?

• How to set effective KPIs

• How to present KPIs

Page 4: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Why use KPIs?

Strategy KPI Resources

Page 5: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Why Use KPIs?

• To monitor progress towards accomplishing the strategic objectives, typically communicated in a strategy map

• Typically included in a reporting scorecard or dashboard that enables top management, the board or other stakeholders to focus on the metrics deemed most critical i.e “key” to the success of an organisation.

Page 6: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Why use KPIs?

Too little information

Too much information: Big Data

KPI

KPI

KPI

KPI

Page 7: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Why use KPIs?

Example:

Count the times the players wearing white, pass the basketball

(No talking out loud)

Page 8: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Why use KPIs?

Page 9: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Why use KPIs?

• There is so much going on at the same time in business and in terms of data that it is difficult to focus

• Hence the need for KPIsWhether there is too much or too little data, the KPI relates to the core of the business

Page 10: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Developing KPIs

•What is truly essential to the growth and success of the organisation?

•Understand the core activities and competencies that define the organisation’s success and that underpin it

Page 11: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Developing KPIs

• Once core values / priorities are established, they need to be translated into meaningful KPIs for every level of the organisation.

•Only a few KPIs at the top level

• The wrong KPI = wrong behaviour

• The right KPI = aligning behaviour with strategy

Page 12: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Developing KPIs

KPIs are financial and non financial.

The definition of “key” is unique to each company and its strategy, whether private, public or non profit

Why non financial KPIs?

Page 13: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Non Financial KPIs

Non-financial KPIs are the intellectual capital of an organisation:

• knowledge, skills,

• brands, corporate reputation, relationships, information and data,

• patents, processes, trust or an innovative organisational culture.

Page 14: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Developing KPIs

KPIs

FinancialInternal Business Process

Human ResourcesEnvironmentalCompetitor

Customer

Page 15: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Financial KPIs

*Unilever 2015 Annual Report - extract

Page 16: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Non Financial KPIs Example

* Source Safaricom Sustainability report 2015

“Our network is core to our business. The quality and availability of our network is an essential part of our business since all of the services we provide to our customers are delivered through the network platform. Our network allows us to differentiate ourselves in a highly competitive market and is the medium through which we transform lives. It is also a dynamic environment that constantly evolves as we keep up with growth, both in terms of number of customers (e.g. volume of traffic) and their increasingly sophisticated needs.”

Page 17: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Non Financial KPIs Example

Two factors in the Management’s Approach:

• Network Quality

•Network Availability

Page 18: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Non Financial KPIs Example

* Source Safaricom Sustainability report 2015

Network Quality

“network quality, a key constraint is the fact that spectrum is allocated evenly among network providers in Kenya…Our response to this is primarily managed through our Best Network in Kenya (BNK) programme, which remains a strategic pillar of the company”

Page 19: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Non Financial KPIs Example

* Source Safaricom Sustainability report 2015

Page 20: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Non Financial KPIs Example

* Source Safaricom Sustainability report 2015

Second factor in Management’s approach:Network Availability

“network availability, a key factor is ensuring a secure and sustainable supply of energy. The reliability and growth of our network is directly dependent on the availability of energy”

Page 21: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Non Financial KPIs Example

* Source Safaricom Sustainability report 2015

Page 22: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Safaricom KPIs Example

KPIs

FinancialEnergy Costs

Internal Business Process

Which department responsible

Human Resources

EnvironmentalGreen Energy

CompetitorBest Network

CustomerGrowth

Retention

Network Quality and Availability

Page 23: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Other factors in setting KPIs

• ActionableØTimely - which is more important than ‘perfect’ØRelevant – is it meaningful and able to influence

• Forward-looking – Predictive KPIs rather than backward looking• Feedback, both upwards & downwards –Strategies are not set in stone. KPIs are not set perfectly. Is the KPI dynamic?

Page 24: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Other factors in setting KPIs

Are our existing management information systems adequate to support the collection, analysis and reporting process?

Page 25: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Presenting KPIs

The future of management accountants

Do we present numbers and data?Or

Do we provide insight?

Business Partner

Page 26: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Providing Insight

ABC Ltd

• Bank Balance

130,000Business Current Account

•Invoice Status

50,000 1 Open64,000 1 Overdue

• Bill Status

150,000 2 Open24,000 1 Overdue

•Payments in the next 7 days

Corporation Tax,year ending

4th August 2017 80,000

Rent on Warehouse 70,000150,000

KPI : 7 Day Cashflow27th July 2017

Page 27: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

In Summary

ØDefine your core values

Ø Determine the key factors in driving the success of core values

Ø Design financial and non financial KPIs that align with these core values, taking into limiting factors

Page 28: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

In Summary

ØPresent the KPIs in a meaningful way with maximum impact: the number of KPIs, format, etc.

Ø Have a feedback system – and

ØRefine the KPIs in line with the feedback

Page 29: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Wrong KPI = Wrong Behaviour

* From United Airlines website, posted 8th February 2017 by Oscar Munoz, CEO, United Airlines

“Our Shared Purpose Connecting People.Uniting The World.”

“Every day, we help unite the world by connecting people to the moments that matter most. This shared purpose drives us to be the best airline for our employees, customers and everyone we serve.”

Page 30: KPIs Key Performance Indicators Which way for true ... Key Performance Indicators Which way for true performance reporting? ... • Bank Balance ... CEO, United Airlines “

Interactive Session