Key Performance Indicators KPI - A puzzle solved
Key Performance Indicators KPI has been the buzz word around. What is the meaning of KPI? KPI is most of the times confused with performance target values itself. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. The KPIs differ depending on the nature of the organization and the organization’s strategy. They help an organization to measure progress towards their organizational goals, especially toward difficult to quantify knowledge-based processes.
KPI Best Practices Overview
- Key Performance Indicators are NOT performance targets.
- Key Performance Indicators are put in place primarily as a monitoring facility with a view to moving the organization to a desired end state as expressed as objectives or performance targets
- Key Performance Indicators should be designed to prove that performance targets are being met.
- Performance targets should form part of an objective definition. Assuming this is the case, and objectives are drawn from Mission and Vision, then it should be possible to clearly demonstrate that
KPI’s contribute to successful execution of strategy
- Key Performance Indicators should be implemented with a view to eliminating variance in any process such that all outputs are fit for purpose
- Key Performance Indicators fall into two board categories, Qualitative and Quantitative.
In order to use Key Performance Indicators effectively, two things must be identified:
1) The point(s) in processes at which data to support the monitoring effort must be collected
2) The places in the organization where the data collected is to be presented as management information
It follows therefore that when building a KPI based performance management system, one of the by products will be a business driven information infrastructure that reflects the key information needs of the organization.
Whatever you measure, should be measured with a view to assisting the organization to determine its success or failure within the context of its objectives, goals and mission.
For any performance measure, accountability for the level of performance being measured is clear and unambiguous. Performance Measures and their results should be subject to regular team based review. The aim is to determine what can be learnt from results achieved and how the organization can improve on those results. Once a review has been completed, there should be an “actions on” list. Defining a performance measure will more than likely highlight deficiencies in your current IS/IT strategy.
The “1KEY KPI Application Module” in 1KEY Agile BI suite is one of the most cost effective tools of its type capable of supporting the principles outlined above.
Managing KPI Reports.
Creating KPI Group.
Adding Reports
Adding Reportwise conditions.
Selecting level for condition.
Selecting Column & Trend for which KPI is created. KPI Column settings.
Condition Builder.
Can generate more conditions with trends.
KPI Common Parameters
Posted on February 22nd, 2008 by Amit Mehendale
Filed under: Business Intelligence, Emerging Trends, View Points & Perspective
Very informative article on KPIs, however could you also shed some more light on how KPIs could be related to KRAs of the management at an individual as well as at a cumulative level, thereby enabling the KPIs to be a more precise snapshot of the organization.
Prasad, thanks for comments. Taking note of your comments, have posted an article for KPIs in relation to KRAs. Please visit http://blog.maia-intelligence.com/2008/02/25/key-performance-indicators-kpi-related-with-key-result-areas-kra/ to view the complete article.
Can you help me with identifying essential or ideal key performance indicators for an IT company?
Can you list them? Kindly reply
Jesitha, a company must establish its strategic and operational goals and then choose the KPIs which best reflect those goals. For example, if a software company’s goal is to have the fastest growth in its industry, its main performance indicator may be the measure of revenue growth year-on-year. A company’s KPIs will be stated in its annual report. Also, KPIs will often be industry-wide standards, like “same store sales”, in the retail sector.
Hi,
Is it possible to add multiple Indicator in KPI List?
Yes Sandeep, it is very much possible to add multiple indicators in a KPI list.
Multiple indicators are combined in a single list so that users see at a glance the high-level information that they need.
Each entry in the KPI list needs a data source. The data can be sourced from multiple objects.
Hi,
Could you please share your views on whether if in an organization we already have a set of static but well detailed MIS reports and on the other side we want to build more real-time but less detailed dashboards (read BI), then what is better option. More real-time less detailed BI suite or more detailed but static MIS reports.
Warm Regards,
Ritesh
@ Jesitha above
Well as rightly said, KPIs depend upon the organisational specific strategy of an organization. But broadly speaking of an IT services company, the KPIs would be
1) Utilization : Headcount on Billable Projects as a percentage of total employees (minus the support staff)
2) The Employee Pyramid structure of the organization : Percentage of Software engineers/Programer Analyst/PM etc as a percentage of total employees. This being crucial as 60-70% of the costs are people costs.
3) Average cost ( in $ terms ) for each offshore and onsite employee
4) Atrrition Numbers and it’s trend: IT services being a knowledge industry, attrition is a very crucial metric. To counter this a organization need to have solid Knowledge management structure.
5) A metric to showcase the supply chain information ( people management accross projects )
Hope that answers your question to some extent.
Cheers,
Ritesh
Ritesh, any organization, whether small or big requires actionable information & MIS at various levels in the organization. Top management level would always require strategic information which is quick, analyzed already and based on which action can be taken related to customers, employees, production programs, global supply chains. They require more real-time but less detailed dashboards and KPIs. Whereas at middle management level, information related to tactical decisions & operational matters is required. And finally at grass root level, field people, sales officers, frontline executives, back-office team requires information related to customer interfaces which are more detailed & could be drilled down to the transaction.
Hi Amit,
When should one think of preparing a digitized balanced scorecard for an organization ? I mean are there any pre requisites to start with preparing BSC considering you want to create the BSC to be based on a BI system?
Is it advisable to have BU/Function wise Dashboards ready and operational before one can go ahead with a BSC which logically will sit above these Dashboards ?
Are BSC popular amongst indian companies ?
Your views would be highly appreciated.
Cheers,
Ritesh
Ritesh, to know more about how to make BSC as a strategic tool & why use them in reporting and analysis visit http://blog.maia-intelligence.com/2008/04/23/bi-and-balanced-scorecards/
Amit, could you help me to get the KPI’s for the Project Department. Regards, Prasad
Krishna, KPI’s for the Project Department could be like Projects completed per week/month, Project Profitability % (Margin), Value of Project Profitability (Margin), etc.
I would like you to breifly explain the concept of ‘fit for purpose’ KPIs. Thanks
Zaheer, for KPIs to be useful, they must be consistently quantifiable, have an established correlation to the area of the business in need of improvement, and not give false readings.
A really sophisticated technology system should drive what the people and the organisation need, along with what’s expected so that you the performance management processes are fully utilized. This is the concept of fit-for-purpose KPIs.
Sir, i have been told to find out the KPI’s for Training, Customer Service & Finance dept. by way o Process and Functions. I am working for a Driving School. Hope based on that you will give me a reply as early as possible. I have to submit this report in two days time. Thanks.
Sheibu, KPI’s for Training could be:
- Training hours per employee
- Employee attendance level in training sessions
- Number of cross-training sessions
- Complete training of skills through training programmes
- Level of training completed by all specialists
- Training cost headcount factor
- Training hours ratio
- Investment in training by number of customers
KPI’s to enhance the level of Customer Service could be:
- Customer service performance against standard
- Number of customer complaints
- Customer profitability
- Cost per lesson per customer
- Customer lessons delivered in full
- Customer lessons delivered on time
- Correct documentation
- Customer responsiveness
- Revenue forecasting accuracy
- First request versus negotiated
KPI’s of a Finance department could be different for different objectives like monitoring financial performance, costs, ROI, procurement & supplier management, health & safety costs, HR costs, operational costs, etc.
- Total Revenue generated
- Revenue by major customers
- Renue per tutor hour
- Gross margin for each lesson type
- Revenue growth rate
- Cost of lessons offered
- Receivables / Payables turnover ratio
- Total Receivables / Payables
- Budget Variance
- Budgeted Expenses
- Actual Expenses
- Capacity Utilization
- Return on Capital
- Productivity
- Average Delivery Cost
- Growth Against Market
Bro … I like to read this informative blog on BI, KPI & KRA.
Bless you and regards
Carmichael H Singh
Kuala Lumpur/Malaysia
Sir….. would like to ask about KPI in SCM or KPI in SCOR
Regrads, Andy, Indonesia
Andy, the objective for KPIs in SCM (Supply Chain Management) could be transportation, cycle time, inventory turnover, on-time shipping, defects per million orders, monitor stock financials, Monitor performance of shipping / fill rate, and so on.
The KPIs could be:
Truck turnaround time
% of Cargo accountable at any given time
Number of on-time pickups
Number of carriers used per cargo transported
Average transit time
% of accuracy for freight bills
% of accessorial cost of total freight cost
% of truckload capacity utilized
Claims as % of freight costs
Cost of freight per unit shipped
Expected customer order cycle time
Purchase order cycle time
Customer order actual cycle time
Manufacturing cycle time
Supply chain cycle time
Inventory replenishing cycle time
Cash to cash cycle time
Planned inventory turnover for period
Actual inventory turnover for period
Count of on-time stock keeping units
Number of orders shipped on time
Value of orders shipped on time
Number of orders shipped
Number of orders shipped inline with requested date
Total number of defects
Inventory carrying rate
Inventory carrying costs
Gross margin return on inventory
Value of fill rate
Cases fill rate
Stock keeping units fill rate
Orders shipped inline with requested date
KPI for Supply-Chain Operations Reference (SCOR) could be:
- Cost of goods sold (COGS)
- Cost of managing processes
- Perfect Order Measure / Fulfillment
- % of orders delivered to customer in the committed date
Hi,
Im looking at some KPI’s for the engineering & project department. Pls help with some sample KPI’s.
Zeran, the objective for KPI for Engineering solutions could be:
- Knowledge management (improve capabilities & knowledge of employees, performance & motivation)
- Improvement in Business Excellence Journey (Cost Reduction due to Value Engineering projects)
- Value creating partnership with suppliers & partners (Annual Service contracts, SLAs met between the division & support functions)
- Achieve Cost Reduction on continuing basis (% of Inventory (Raw Material + Work-In-Progress))
- Encourage Innovation/Suggestions (Supplier Satisfaction Index)
- Production Capacity (On-Time Delivery of Finished Goods)
- Quick service response to Machine Breakdowns (Parts delivery period)
Sample KPI for Project department could be:
- % of overdue project tasks
- Cost of managing processes
- Cost Schedule Index (CSI)
- Number of non conformities during vendor inspection
I would like to know the difference in applying KPIs and KRAs to manufacturing and service industries.
KPIs are good for all industries, aren’t they?
Toanh, KPI’s are set to manage each KRA and hence KPI is attributed to the department which can have effect on the business results and is self measured where applicable. KRAs refer to general areas of outcomes or outputs for which the department’s role is responsible. A typical role targets three to five KRA.
Hi, I would like to know about KPI’s for SCM is the industry sector and which are the most important.
How are the strategies for managing performances delivered at a national and local level?
Dear Amit,
Can you please share KRA and KPI for Project manager and a Test manager. Please take a sample for an example.
Raj, KPIs for Project Manager could be:
* DELIVERY TARGETS
*COST TARGETS
*QUALITY TARGETS
*PROJECT DELIVERABLES TARGET
*TIMELINESS OF PROJECT
*NO. OF PROJECTS PLANNED/ACTUAL
*PROJECT OBJECTIVES ACHIEVEMENTS
*PROJECT MILESTONES ACHIEVEMENTS
*RESOURCES MANAGEMENT [ ACTUAL / PLANNED]
*BUDGET [ ACTUAL vs PLANNED / BUDGETED] Revenue, Margin, Hours, Man Days, Cash Inflow, Outflow, Net`
*QUALITY ACHIEVEMENTS
*CONTROL SYSTEMS [ EFFECTIVENESS]
*BEST PRACTICES ACHIEVEMENTS
*TASK ALLOCATION EFFECTIVENESS
*RISK MANAGEMENT EFFECTIVENESS
*CONFLICT RESOLUTION EFFECTIVENESS
*PEOPLE MANAGEMENT EFFECTIVENESS
KRA for Project Manager could be:
1. Timely and quality delivery thereby ensuring client satisfaction
2. Ensuring Team satisfaction and managing the team effectively
3. Building resources and training them
I have listed on generic KRAs. You may vary with actual job description.
KRA for Testing Manager could be Project Planning, Scheduling, Preparing Test Cases, Defects Detection, etc. Quality Metrics (for Software Testing) like Number of Defects Found, Number of Test Cases, etc. can be used.
@Rembert, KPI for Supply Chain Management (SCM) could be:
- Inventory Accuracy %
- Delivery Schedule Adherence (DSA)
- Inventory Carrying Costs & Rates
- Inventory Replenishment Cycle Time
- Supply Chain Cycle Time
Hi,
How to evaluate diff between shorter actual status against a longer period target. For instance, we have a target annual sale, now only on 1st quarter, with a sale far below annual target. How to explain the variance?
tq
I’ve been asked to show how to effectively negotiate, deliver and performance manage a contract against defined outcomes and KPI’s.
Any pointers on the key areas I should cover?
Thanks
@Andrew,
The pointers to show how to effectively negotiate, deliver and performance manage a contract against defined outcomes and KPI’s may cover identifying and resolving processing bottlenecks in the purchasing and payables organizations. Monitoring key performance measures in the procure-to-pay lifecycle and compare them across operating units.
Kindly send me KRA & KPI of HR , Personnel, and Admin Manager.
Thanks & Regards,
B.N.Sharma
Hi Amit,
I have to set up the KPI for Research and Development in the industry of maintenance, repair, and overhaul. Do you have an example for KPI based on Quality Cost Delivery (Time) and Service?
Your sharing idea is greatly appreciated.
Thanks a lot.
Hi,
It would be greatly appriciated if you could help me to set up KPI for Marketing, Operation, Purchasing, Accounting, HR & Production departments please. I am very new in this subject area & I have to continue my family business.
Thank You
Hi,
I would appreciate if you can just give me and idea on what are the possible KRA & KPI for Administration Manager, Collection Officer, Loans Officer, Sales Representative, Loan Supervisor, Supervisor Operations & receptionist. I am currently working at a finance companies and we need set the KRAs and KPIs. Please help.
Hi
what would be the KRA’s in a Engineered formwork systems co?
Kindly advice.
Hello Amit
I’ve been asked to start a Key Performance Indicators Analysis only for the Procurement Office for a Aerosol Contract Manufacturing company.
Can you please give me some advices on how to start and what to measure?
Thank you very much in advance
Hi,
Would you please help to provide the KRA & KPI of HR/Personnel Manager and Adminstration Manager.
Many thanks!
Hi, How would I set KRA to improve NOC - engineers skill set. performance…