Archive for July 10th, 2012
The Value of Key Performance Indicators (KPIs)
Key Performance Indicators, also known as KPI’s or Key Success Indicators (KSI’s), are essential in helping organisations define and measure progress towards organizational goals and objectives. Once an organization has identified its specific objectives and key stakeholders in support of those objectives, it is better prepared to develop a systematic approach to measure progress towards those predetermined goals.
Alongside this article which has been reproduced from (http://facilitiesmanagementadvisors.com/2011/09/15/the-value-of-key-performance-indicators-kpis/) I have provided a free template business ‘Nerve Centre’ which I hope you will find useful.
Key Performance Indicators, or KPI’s, if implemented AND sustained correctly, allow us specific advantages including but not limited to the following:
- Create organisational clarity with regard to specific performance objectives in relation to the company vision and values;
- Effectively monitor progress towards goal with viable performance metrics;
- Conduct periodic analysis as a means to evaluate whether or not short-term objectives, or milestones, are being met in support of the primary performance target;
- Foster an environment of improved performance, employee motivation, and continuous improvement strategies;
- Ensure that the business is properly aligned with the agreed-upon objectives with the client, thereby ensuring improved collaboration and visibility over all areas of the business, including contractual compliance.
When implementing an effective KPI program, at a minimum it is crucial to consider the following:
- Measurements must be “quantifiable” – if you cannot measure specific data relative to key areas of your performance, it becomes difficult to both track and monitor progress towards goal, which impacts one’s ability to more effectively manage the business;
- Measurements must be agreed upon with both the client and primary stakeholders in advance of implementation – without question, this is one of the most critical steps in the process. Ensuring that one is fully aligned with the client in all areas of the business helps create a transparent and increasingly effective partnership, most especially when client objectives are met;
- One must ensure complete alignment and understanding of the specific performance metrics within their organizations; employees must understand what is being measured, why it’s important, how it benefits them individually and as a department, and how best to contribute to the objective as a whole;
- Repetition is key! Communicate progress to goal within the organization, and communicate frequently – it is much easier as an employee and/or senior stakeholder to implement specific strategies and performance behaviors designed to contribute towards short-term milestones, most especially when they are continuously kept abreast of progress. The ability to work towards something achievable within a manageable or compressed timeframe tends to be more motivating and viewed by the employee as something they can achieve. According to Forrester Research, this contributes to employee satisfaction while increasing motivation toward meeting the specific objective(s);
- Incentivize It – be creative in implementing incentives to reward short-term contribution towards objectives designed to meet the ultimate company goal; add energy to the process by creating an enjoyable environment and backing it with specific incentives designed to both recognize and reward performance.
Key Performance Indicators must be viewed as Critical to Organizational Success
If everything is important, nothing is important. Clearly, we simply can’t measure everything! In selecting the appropriate KPI’s, it is very important that we limit them to those indicators that are essential to the organization reaching its full potential. At the same time, I strongly believe that it is critical to keep the message simple, with only a short list of very specific and equally measurable objectives. I would further argue anything more than five key company objectives may, in fact, defeat the purpose in creating added confusion within the company. However, to be clear performance goals can be customized to individual departments or product lines.
Through proper communication, frequent updates regarding progress to goal and continued positive reinforcement and recognition of efforts towards meeting specified goals, a business can most certainly achieve organizational success. To be sure, it is important to move quickly, identify both positive and negative performance trends, and respond with the appropriate gap analysis and strategies necessary to improve performance. According to Jack Welsh, “An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.”
So What Do We Measure?
Which KPIs are best for a particular organization depends on several factors:
- Where is the organization today with overall performance?
- Where does the organization want to be tomorrow?
- Who receives the KPI data and what do they do with it?
- How are KPIs and the conclusions that are drawn from the KPIs communicated to others?
Indeed, this is without question one of the most essential areas to be addressed by any business, regardless of market segment. Candidly, not all clients are created equally – what is important to some, may not be important to others. Understandably, every product and/or service is measured differently. Yet, it is commonly understood that if one can’t measure their performance, they can’t effectively manage it, nor for that matter, improve it. It is the simple premise of measure, manage, improve!
The performance measurement process attempts to measure various aspects of performance to determine where improvement is needed. Performance measurement tools provide a window into how every element of your business is functioning in an effort to meet both internal and customer specific objectives. Essentially, key performance indicators, or performance measurements, fall into two specific categories, lagging or leading. Lagging measurements provide analysis of past performance whereas leading serves to both evaluate and define future performance.
The reality is that every business strives to deliver their products or services faster, smarter, cheaper! Organizations that meet such objectives typically leverage work tools to help them better facilitate the process. There are many valuable tools that can be acquired within the marketplace to help organizations better manage all areas of their business, from field operations to sales performance. At the same time, many business owners and managers can also create their own tools, customized to both their individual clients and business methodologies. It is my belief that a healthy organization will maintain a balance between acquired business tools, as well as tools developed internally through innovation and adaptation to the evolving demands of the client, which often are a direct reflection of market conditions.
Keep the following points in mind when selecting KPIs:
- Quantity does not equal quality.
- Measure the most important things, not everything.
- Ensure field and line management buy-in.
- Consider piloting metrics before rolling them out company-wide.
- Don’t let the cost of measuring exceed the value of the results.
So what specifically should we measure? I believe that the basic foundation of any measurement program should at a minimum consist of the following partial list of performance indicators:
- Quality Audits
- Client surveys
- Trend Analysis
- Corrective Actions
- Gap Analysis
- Root Cause Analysis
- Performance against Target
- SWAT analysis
- Budget Performance against Goal
- Value Additions
- Material/Supply cost
- Value Additions
- Cost Savings & Avoidance
- BCWS (Budgeted Cost for Work Schedule)
- Purchasing Improvements
- Performance against Schedule
- Cycle Time Analysis
- Work Order Completion Rates
- Productivity Assessments
- Lost time
- Near Misses
- Safety Tracking
- Safety Audits
Clearly, there are a variety of equally important indicators that should be evaluated as part of the process including sustainability or green performance, employee performance, technology, etc.
In reality, not all clients are created equally. While some may emphasize overall safety performance as their primary indicator, others may emphasize stringent objectives tied into quality performance, often further validated through third-party audits.
It is my belief that above all else, the keyword is “customization.” Clearly, not all customers, markets, nor facility environments are created equal. Often, suppliers of both materials and/or services try to fit a square peg into a round hole in that they implement a generic quality program that lacks focus and specificity on specific aspects of contractual compliance, and what the client at the local level ultimately wants to achieve as part of the partnership.
According to an article noted within the International Facilities Management Association’s website, facilities managers, procurement professionals, and end–users suggest that one of their continued concerns with suppliers of various commodities is that they either lack a substantive performance management program, or when they do it is either far too generic, and/or far to under utilized.
For KPIs to be successful, there needs to be a system for tracking, communicating, and improving performance. If data are collected but aren’t communicated to the appropriate audience, efforts will not be successful. In an effort to increase accountability, use periodic reporting to highlight performance for leading and lagging indicators in a simple and highly visible manner. This helps foster an environment for increased accountability and awareness.
Finally, KPIs will evolve as the organization changes. Business owners and managers should be prepared to continuously evaluate their progress in tracking performance and the benefits of the KPIs. When necessary and appropriate, KPIs should be modified to reflect changing circumstances or drive further improvement.