ANOTHER HELPFUL GUIDE FROM INTRAFOCUS

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Table of Contents

Preface....................................................................................................................2

Introduction............................................................................................................3

SuccessfulStrategyImplementation...................................................................3

DevelopingMeaningfulKPIs................................................................................3

KeyPerformanceIndicators...................................................................................4

WhatareKeyPerformanceIndicators?..............................................................4

TheMethodology...................................................................................................6

Step1–CreateObjectives.....................................................................................7

Step2–DescribeResults.......................................................................................9

Step3–IdentifyKPIs............................................................................................11

Step4–DefineThresholds...................................................................................19

Step5–Measure..................................................................................................24

CreatingaScorecardStructure.........................................................................24

AddingData.......................................................................................................27

Step6–InterpretResults.....................................................................................29

Dashboards........................................................................................................29

Reports...............................................................................................................31

InterpretingResults...........................................................................................31

Step7–TakeAction.............................................................................................39

RemedialActivity...............................................................................................39

StrategicInitiatives............................................................................................39

InConclusion.........................................................................................................44

Appendix...............................................................................................................46

StrategicObjectivesTable.................................................................................46

KPIDescriptionTable.........................................................................................47

StrategyMap.....................................................................................................48

StrategicInitiativeInitiationDocument............................................................49

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Preface Theelementsofthismethodologyarenotnew.Theyhavebeendrawnfromdecadesofin-the-fieldexperienceandotherpublishedmethodologies.Thewayinwhichtheyhavebeenputtogethermaybenew.ThismethodologysimplifiestheprocessofdevelopingmeaningfulKeyPerformanceIndicators(KPIs).Thisdocumentprovidesastep-by-stepguide.Intheappendixyouwillfindasetoftemplatesthatwillhelpyouthroughtheprocess.

MythanksgotoStaceyBarr,WorldRenownedPerformanceMeasureSpecialistandHowardRohm,CEOoftheBalancedScorecardInstitutefortheirhelpinproducingthisdocumentandtheirclarityindescribingtheperformancemeasurementprocess.IhighlyrecommendStacyBarr’sPuMP®PerformanceMeasureBlueprintandTheBalancedScorecardInstitutes’TheInstituteWay,bothofwhichshouldbereadtocompleteyourunderstandingofperformancemeasurementandstrategicplanning.

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Introduction

Successful Strategy Implementation Thesuccessofastrategyisnotdeterminedbydefinitionanddocumentation.Someofthegreateststrategieshavebeendefinedcarefullywithprodigiousthoughtandinsight.Theyaremasterpiecesthatcannotbefaultedotherthanbeingleftontheshelfinhead-officesaroundtheworldtogatherdust.Mostcompaniesandorganisationsaregoodatdefiningstrategy;veryfewaregoodatsuccessfullyimplementingstrategy.

Whenastrategyhasbeendefinedoneofthemosttroublesometasksanorganisationfaces(andisoftenthereasonimplementationfails)isdevelopingmeaningfulobjectivesandtheirassociatedkeyperformanceindicators(KPIs).Thistaskhastobestructured.WithoutagoodmethodologytocreateObjectivesandKPIs,astrategywillneverbeimplementedsuccessfully.

Developing Meaningful KPIs Thefollowingmethodologyprovidesaguidetotheprocessofdevelopingclearobjectivesandkeyperformanceindicatorstosupportastrategy.ItdescribestheprocessestoensurethatKPIshavetargetsandowners.ItshowshowtobuildKPIsthatprovideevidencethatobjectivesarebeingmet,(ornot!)

Itdoesnotendtherethough.OnceKPIshavebeendefined,theyneedtobepresentedinawaythatwillensureaccurateinterpretation.ThemethodologyprovidesexamplesofKPIautomationthatshowhowtolinkinterpretationtoactionthusmovinganorganisationclosertoitsobjectivesandultimatelyitsstrategy.Themethodologyhassevensteps.

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Key Performance Indicators

What are Key Performance Indicators? Inbusiness,governmentandnon-profitorganisationswemeasureamultitudeofthings.Wedothistokeepontrack,tomakeimprovementsandtodriveourstrategy.Unfortunately,oftenwherewethinkwehaveadecentsetofkeyperformanceindicators,actuallywehaveahotchpotchoftasks,objectivesandprojectswithafewbadlydescribedmetrics.ThereisarealneedtounderstandexactlywhatwemeanwhenwetalkaboutaKeyPerformanceIndicator.

AKeyPerformanceIndicator(KPI)isoftenreferredtoasaKeyPerformanceMeasure,PerformanceMeasure,MeasureoraMetric.Thisisperfectlyvalid,theimportantthingisthedefinitionnotthelabel,ifMetricistermgenerallyusedinyourorganisation,thenuseit.InaformalBalancedScorecardstructure,asdefinedbytheBalancedScorecardInstitute,thetermPerformanceMeasureisused.MorefrequentlyinbusinessKeyPerformanceIndicatororKPIisused.Forthepurposeofbrevity,theterm‘KPI’willbeusedinthisdocument.

AKPIissomethingthatcanbecountedandcompared;itprovidesevidenceofthedegreetowhichanobjectiveisbeingattainedoveraspecifiedtime.

Thedefinitionaboveincludesasetofwordsthatneedfurtherexplanationtoensurethestatementisfullyunderstood:

Counted Thismayseemalittletrite,however,countedmeansthataquantitycanbeassigned.Examplesareanumber,percentageorcurrency.‘Counted’,doesnotmeanapercentageachieved.OneofthemostfrequentmistakesinsettingKPIsistocreateaprojectandassessitssuccessthroughhowmuchworkhasbeendone.Justbecauseaprojecthascompleteddoesnotmeanithasbeenasuccess.Successisdependentonanoutcomenotanactivity.

Compared Anumberorvaluemaybeinterestingbutitonlybecomesusefulwhenitiscomparedtowhatisoptimal,acceptableorunacceptable.EveryKPImusthaveacomparatororbenchmark.Usinganindustrybenchmarkgivesanobjectivequalitytothecomparator,objectivityisnotrequired,butitisdesirable.

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Evidence Theevidencewillfalloutbycountingandcomparingcorrectly.Itisimportanttostriveforameasurethatwillbeobservedinthesamewaybyallstakeholders.Theevidenceshouldbeclearandhavespecificmeaning.

Objective AKPIonlyhassignificanceifitiscontributingtoanobjective.Ifthereisnoobjective,whyisitbeingmeasuredinthefirstplace?Thisdoesnotmeanweshouldignorealloperationalmeasures;theystillneedtobeinplace–butevenoperationalmeasuresshouldultimatelycontributetoanobjective.

Specified Time Everythingistimebound;progresstowardsmeetinganobjectiveandthereforeastrategymustbemeasuredoveraspecifiedperiodoftime.

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The Methodology Thismethodologyisbasedonyearsofexperienceinthisfield.Themethodologyisaimedatcompaniesandorganisationsthatalreadyhaveadefinedstrategyandareasonableideaaboutwhattheirprimaryobjectivesare.Themethodologyhassevensteps.StepsfiveandsixhavebeenillustratedbyusinganautomationsystemcalledQuickScore.Itisnottheonlyautomationsystemavailableinthemarket.Ithasbeenusedtoprovideaninsightintotheadvantagessoftwareautomationbringtomanagingperformancedata.

Inanybusinessperformancemanagementsystem,thedataaddedintothesystemhastohelpdrivethebusinessforward.Itistemptingtomeasurefartoomuchandnotbespecificinthehopethesystemwill‘sortitout’.Thefollowingmethodologyensurestherightactivitiesarepursued.

Thekeyistostartsmall.Assmallasasingleobjectivewilldo.OncepracticedincreatingafewsuccessfulobjectivesandKPIs,thenacompany-widechallengecanbetaken.

Steps1-4ofthemethodologyaretemplatedriven,thesestepsneedtobecompletedseveraltimes.Thefirsttimethroughmaytakeawhile,thereafter,itbecomesmuchsimpler.

Steps5-7aremoredescriptive.

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Step 1 – Create Objectives TheGoldenRule:KPIsarebasedonobjectives.AKPIshouldnotexistunlessitcontributestoanobjective.ItistruethatthethoughtprocessesthatgointocreatingKPIsandobjectivescanmovesoquicklythattheseactivitiesmayruninparallel,nevertheless,aKPIshouldnotexistwithoutanobjective.

Writedownanobjectiveortwothatyoubelievewillresultinabusinessimprovementinyourorganisation.

Herearesomeexamplesthatyoumayhaveconsidered:

• Increasecompanyprofit

• Increaserevenueby10%nextyear

• Reducesalescosts

Thesearereallygoodobjectivesandeasilymeasurableandstartingatthetopisadmirable.

However,thinkaboutsomeobjectivesthatcanbemoreeasilycontrolledtocontributetothesetop-linestrategicobjectives,forexample:

• Increasethenumberofprojectsworth£250kormore

• Improveskilllevelofseniorconsultants

• Implementasalesplan(moreonthis‘objective’later!)

Atthisstageitisnotimportanttobeprecise,duringthenextstagewewillcrispuptheobjectivedefinitions.

Thoughtshouldbeputintohowtheobjectiveswillcontributetoanoverallstrategy;whetherornotyourorganisationhasanycontrolovertheobjectives(it’sbesttohavesomelevelofcontrol);thattheobjectivesaresingleobjectivesandnotseveralundertheguiseofasingleobjectiveandfinallytheyshouldbeimportantorrelatedtosomethinginneedofattention.

Gobacktotheobjectivesyouhavewrittenandanswerthesequestions:

1. Willtheycontributetothecompany/organisationstrategy?

2. Aretheyimportantandwilltheymakeadifference?

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3. Aretheysingleobjectives?

4. Doyouhavesomelevelofcontroltoinfluencetheresult?

5. Cantheybemeasured?

Iftheanswertoall(ormost)ofthequestionsaboveisYes,thenmoveontostep2.Iftheanswertomostofthequestionsisno,thenrefinetheobjectives.Theydonothavetobeperfect,buttheydoneedtobehalfwaythere.

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Step 2 – Describe Results EarlieritwasnotedthatoneofthemostcommonmistakesmadewhendefiningaKPIistofocusonactivitiesratherthanresults.Objectives,likeKPIs,areconcernedwithresults.Itisessentialtocreatearesultforeachobjectiveusingaresults-orientedlanguage.Thisforcesustothinkmorepreciselyaboutwhatweareactuallytryingtoachieve.

Forexample,ifwelookatoneoftheobjectivesgivenaboveImplementasalesplanthismayseemtobeaverysensiblethingtodobutitisnotaperformanceobjective.Itisanactivitythatcanonlybemeasuredthroughthetimeittakestoimplementtheplan.Itwilltellusnothingaboutsuccessorfailurerelativetothebusinessstrategy.

[Importantnote:Activities,initiativesandprojectsarevitallyimportant.Theyarethemeansbywhichweimplementchangetomakeimprovements.However,weneedtomeasuretheimprovementnotthechange,todemonstratesuccessorotherwise.Therefore,weneedresults-orientedobjectives]

Thepreviousexamplemightbemoreusefulifitincludedwhywewanttoimplementasalesplan.Itmaybetoreducethesalescycle.Thisisstillabitvagueandmaybebetterexpressedastoreducethetimetakentoconvertaqualifiedleadintoasale.Thisismuchbetterandhasproducedanobjectivewithatangibleresult.Thisalsoillustratestheneedtobringclarityintothelanguageweusetocreateourobjectives.Thatis,whatareweactuallytryingtoachieve?

Inbusinesswehaveatendencytousewordsandphraseslikebestpractice,optimised,worldclass,efficient,effective,productive.Althoughtheimpliedmeaningispositive,theactualmeaningisvague.Objectivesusingthesewordsarenotresults-orientedandwillthereforealwaysfallshortwhenusedinperformanceimprovementactivities.Itisalwaysbettertousewordsthathavecommonmeaningandcannotbevaguelyinterpreted.

Usingwordsthatrelatetohowwephysicallyperceivethingsintheworldisagoodtechniquetosense-checkweareontherighttrack.Usingourpreviousexample;reducethetimetakentoconvertaqualifiedleadintoasaleifwethinkabouthowwewouldphysicallyperceivethis,itwouldalmostcertainlyresultinaskingthequestion;whatistheoptimumtime?Thisinturnwouldleadtoamoresuccinctexpressionthatwouldincludeaphysicalparameter,forexample:

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reducethenumberofdaystoconvertaqualifiedleadintoasale.Wenowhaveanobjectivethatdescribesaresult,hasclarityininterpretationandinthiscasehasatimeparameter.

Atthisstageitisnotimportanttogosofarasincludingatargetwithintheobjective.Itwouldhavebeeneasytoexpressourexampleasreducethenumberofdaystoconvertaqualifiedleadtoasalefrom30to25.Targetsarethedomainofthemeasureratherthantheobjective.Whenwelookatmeasuresinthenextstepwewilllookcloselyathowtosettargetsinthecontextofviablecomparatorsorbenchmarks.

Insummary,thestep2taskisto:

1. Checkthattheobjectiveisanobjective(notanactivity,planorproject)

2. Frametheobjectiveusingresult-orientedlanguage

3. Removevaguewordsandincludethingsthatcanbephysicallyperceived

Examples:

OriginalObjective ResultsOriented PhysicallyPerceivedImplementasalesplan Reducethetimetakento

convertaqualifiedleadintoasale

Reducethenumberofdaystoconvertaqualifiedleadintoasale

Allseniorconsultantstobetrainedtodeliverresultschainanalysis

Improveskilllevelofallseniorconsultantstodeliverresultschainanalysis

Improveskilllevelofallseniorconsultantstostage2accreditationinresultschainanalysisorabove

Increasethenumberofprojectsworth250kormore

Increasethenumberofprojectsworth£250kormore*

Increasethenumberofconsultancyprojectsworthmore£250kinrevenue

*Note:Noteverythinghastobeimprovedormodified.Asyougetbetteratthisprocessyouwillautomaticallystartcreatingresults-orientedobjectives.

Ifyouarehappywiththeseobjectives,gotostep3.Ifthisprocesshasshownyouarelookingatthewrongthingsloopbacktostep1.

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Step 3 – Identify KPIs TherearethreekeyactivitiesthatneedtooccurwhenidentifyingaKPI:

1. TheKPIneedstobeclearlydescribed(andbasedonanobjective)

2. TheKPIneedstoberatedintermsofimportance

3. TheKPIneedstobecalculatedandownershipassigned

The KPI needs to be clearly described ItdoesnotmatteratthemomentiflotsofwordsareusedtodescribeaKPI.Laterontheshort‘label’willbecreatedforconvenience.Fornow,itneedstohaveaverycleardescriptionandthereforewillendupasastatementorshortsentence.Startwithoneofyourobjectivespreviouslydefined.

Next,focusonthephysicallyperceivedpartoftheobjective,thiswillgiveyouaclueastothetangiblethingsyouneedtomeasure.IntheexampleaboveReducethenumberofdaystoconvertaqualifiedleadintoasalethetangibleitemsare‘days’and‘qualifiedleads’and‘sales’.ThesearethethingsthatcanbemeasuredandwillbeincludedinthefinalKPI.Atalaterpointwewillincludedescriptionsforeachofthetangibleitems.

Awordofwarning:don’tatthispointsimplygobacktowhatyouaremeasuringalreadyandsaysomethinglike“gotthatcovered,wealreadyhavealeadtosalesratio’’.Itmaybethatyoudohaveitcovered,however,itismorelikelythattheparticularKPIyouarethinkingofwascreatedyearsagobasedonaformulathatisnolongerrelevant.ClearlythiswillnotbetrueofallKPIs,butthecheckneedstobemade.

ItisnowtimetoconsiderleadandlagKPIs.AlltoooftenourKPIsconcentrateonlagmeasures.Thatis,thosemeasuresthatoccuraftertheevent.Typically,financialmeasuresfallintothiscategory;revenue,grossmargin,netprofitandcostsareallthingsthatwemeasureafteraneventhashappened.Weneedtodothisaswecanlearnandadjust,buttheactofmeasurementdoesnotcausechange.WhydoweconcentrateonlagKPIs?Simplybecausetheyareeasytocountandprovideproofofsuccessorfailure.IfIstandonasetofscales,theytellmewhetherornotIhavelostorgainedweight.Ifmyobjectiveistoloseweight,gettingonthescaleshasnothelped.However,ifImeasurehowmany

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timesIgoforarunandhowmuchIhaveeaten(andplanforthis)thenIhaveputinplacetwoleadKPIsthatshouldhelpmesucceed.LeadKPIsarehardertoidentifybuttheyaretheonlyKPIsthatcanbeinfluencedandthereforemakeadifference.

WemustnotunderestimatetheimportanceofleadKPIswhenidentifyinganddescribingourKPIs.ItmaytakealittlelongertoidentifytheseKPIsbutitisworththeeffortinthelongrun.Eveniftheyarediscardedtheymayprovideadditionalinsightintothewayanorganisationisbeingrun.

AnotherqualityofatypicalleadKPIisthatitmaynotholdaguaranteeofsuccess.Inthefollowingexample;ThenumberofsalespeopletrainedinsellingourproductstogradeIIIcertificationwebelievethatthiswillhaveapositiveimpactonourobjective.Commonsensedictatesthattrainedpeoplewillperformbetterthanuntrainedpeople.However,wewillonlyhavetheproofwhenweseeapositivechangeinalagKPI.

ThetangiblepartofanobjectiveneedstobeextractedandwrittenintotheKPI.Forexample:

Objective KPIDescriptionReducethenumberofdaystoconvertaqualifiedleadintoasale

Theaveragenumberofdaysbetweenaqualifiedleadandasale

or

Theaveragenumberofdaysbetweenqualifiedleadsandsalesthatresultinanordervaluegreaterthan£250k

or

Thepercentageofsalesgeneratedwithin30daysofleadqualification

or

ThenumberofsalespeopletrainedinsellingourproductstogradeIIIcertification(notethisisa‘lead’measure)

Ascanbeseenfromtheabove,eachKPIisrelevanttotheobjectivebutismeasuringitinaslightlydifferentway.Also,wecanseethatthemeasuretype

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hasbeenadded,inthecasesabove‘average’and‘percentage’.Furthermore,wecanseethatacalculationisbeginningtoform,theKPIcalculationisaveryimportantpartoftheidentificationasitprovidesthescientific/objectivebasisforitsaccuracy.

Fornow,let’sconcentrateonthedescription,thekeythingstorememberare;

• Writethedescriptionintheformofasentence

• Includethetangiblewords,thethingsthatcanbecounted

• Don’timmediatelythinkyouhaveitcovered

• Thinkintermsofacalculationthatwillbeperformed

The KPI needs to be rated in terms of importance TimeandeffortshouldbeputintoratingKPIs.Itisimportanttoensuretherightthingsaremeasured.

Asimpledecisionmatrixcanbeused,startwiththefollowing:

• HowapplicableistheKPItoarelatedbusinessobjective?

• WhatistherelativeworthoftheKPI,doyoureallyneedtoknow?

• Howeasilycanthedatabefoundtomakethemeasurement?

ForeachKPIaskthethreequestionsaboveandratethemHighMediumorLow.Asaguidetheusethefollowing:

ForApplicability:

• High–ThisKPIwillgivemeenoughinformationtodeterminewhetherornotweareachievingthisbusinessobjective

• Medium–ThisKPIwillgivemeenoughinformationtomakeaninformeddecisionastowhetherornotthebusinessobjectivehasbeenmet,provideditisaugmentedwithsomeadditionalinformationoranothermeasure

• Low–ThisKPIwillnotgivemeverymuchinformationatallandatbestwillallowmetomakeareasonableguess

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ForRelativeWorth

• High–ThisKPIisreallyimportanttothebusinessbecauseit;1.Isatop-lineindicatore.g.Profitor2.Isimportanttoourstakeholdersregardlessofitsassociationwithanybusinessobjectives

• Medium–ThisKPIisnotspecificallyassociatedwithanybusinessobjectivesbutitcan/doescontributetotheeffectivenessofotherKPIs

• Low–ThisKPIhasbeenaskedforbutdoesnotsignificantlycontributetoverymuch

ForEaseofIdentification

• High–ThisKPIisalreadyavailableinexistingdatasystemsorcanbecalculatedeasilyfromexistinginformationinexistingdatasystems

• Medium–ThisKPIdoesnotexistandwouldrequireanewprocesstobeputinplacetocollecttheinformation.Thetaskwouldnotbeonerousandwouldbeworththeeffort

• Low–ThisKPIdoesnotexistandwouldrequireasignificantchangetoworkingpracticesthatwouldseemunreasonableatthistime

ThematrixforafewsampleKPIsmightenduplookingsomethinglikethis:

PerformanceMeasure/KPI Applicability Worth Identify

Theaveragenumberofdaysbetweenaqualifiedleadandasale

Low Medium Medium

ThenumberofsalespeopletrainedinsellingourproductportfoliotogradeIIIcertification

Medium Low Medium

Thepercentageofsalesgeneratedwithin30daysofleadqualification

Medium Low Low

Thenumberofdaysbetweenqualifiedleadsandsalesthatresultinanordervaluegreaterthan£250k

High High Medium

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TheimmediateresultofcreatingamatrixsuchastheoneaboveistheabilitytoexcludeKPIsquickly.Forexample,wecanseethatthefirstmeasurehasalowApplicabilityrating.Ingeneral,allLowapplicabilityratedKPIswouldbediscounted.Theonlytimethismightnotbethecasewouldbewhentherewaspressurefromstakeholders(HighWorth)toincludeaKPI.ThetwolowratingsonthethirdKPIalsoindicatethatthisoneshouldbediscarded.

Itisgoodpracticetogothroughthisexercisetoreachgeneralagreement,butattheendofthedaysomeonewillhavetomakeadecisionbasedontheneedsofthebusiness.ThetableaboveprovidessupportingevidencethatthecorrectprocesshasbeengonethroughtochooseoneKPIoveranother,however,theimportantthingistogetagreementthatarationalchoicehasbeenmade.Usingoneofourexamplesabove,youcouldimaginetherationalisationbehindadecisioncouldlooksomethinglikethis:

KPI RationalisationTheaveragenumberofdaysbetweenqualifiedleadsandsalesthatresultinanordervaluegreaterthan£250k

80%ofourbusinesscomesfromprojectsgreaterthan£250k,thesecustomersareimportanttous.Ingeneral,theremaining20%areverysmallcustomersandtendnottoleadtolargersales.Thistogetherwiththedifficultyintrackingsalestoverysmallcustomersmeansweshouldcounttheleadtosaleconversionforourhigh-endcustomers

Theaboveshouldprovidethebasisforfocusedeffortandmostimportantlygeneratetherightlevelsofdiscussiontoultimatelygainagreementfromallpartiesastotheinclusion/exclusionofKPIsforthebusiness.

The measure needs to be calculated and ownership assigned Ownershipandcalculationhavebeenputtogetherintentionally.Practicallyspeaking,assigningownershipofaKPIshouldbeundertakenbeforethecalculationismadetoensuretherightpersonisresponsiblefortheactivity.Thisbeginstohighlighttheimportanceofownership.Togetanythingdone,allobjectivesandKPIsmusthaveownersandthatmeansanindividualnotanentitysuchasadepartment.

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Therearetwotypesofownershipweneedtoconcernourselveswith:OwnersandUpdaters.AnowneristhepersonwhotakesfullresponsibilityfortheKPI.Theupdater(whocouldbetheowneraswell)isthepersonwhogatherstherequireddataandupdatestheKPIwhenrequired.

Aneffectiveownershould:

• HavesomelevelofcontrolovertheKPI

• OwnoractivelycontributetotheKPI’sobjective

• AgreetoowntheKPI(andnotjustbeassignedtoit)

• Knowwheretoacquirethemeasurementdata

• EnsuretheKPIisupdatedontimewithvaliddata

AnownerwhoisinapositiontocomplywiththeaboveismuchmorelikelytotakethejobofmanagingtheKPIseriously.

Alltoooften,KPIsarefoisteduponindividualswhohavenorealcontrolorinterestintheKPIitself(ortheassociatedobjective)andthereforeupdatetheinformationbegrudgingly,orworse,withincorrectinformation.

ThefirstjoboftheowneristoensurethattheKPIisproperlydescribed,thatthereisagreementonthevalidity(i.e.therightKPIhasbeenchosen)andthattheKPIcalculation(ifthereisone)canbebasedonavailabledata.Availabledatainthiscontextcanmeandatathatwillbemadeavailableinthefutureaswellasexistingdata.

Usingtheexampleabove;Theaveragenumberofdaysbetweenqualifiedleadsandsalesthatresultinanordervaluegreaterthan£250k,let’sseewhatthismeansinpracticalterms.TheKPIdescriptionusuallyprovidesenoughinformationtogiveanindicationastowherethedatabeingmeasuredresides.Forexample,intheKPITotalrevenuegeneratedforconsultancyservicesthedatawillalmostcertainlyresideinthecompanyfinancialsystem.Inthecaseofourexample,acalculationwillberequiredandthereforethecollectionofdatamaybealittlemorecomplicated.

ForeachKPIthefollowingthingsneedtobetakenintoconsideration:

• Description:AsentencetodescribeasaccuratelyaspossiblewhattheKPIisfor.

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• Label:Theshortdescription,usedforpresentationalpurposes,generally1-5words.

• Owner:TheindividualwhoownsandwilldrivetheKPI(thisappliesequallytoobjectives,indeed,ownershipofobjectivesismoreimportantthanownershipofKPIsastheformerdrivesthelatter).

• Updater:TheindividualwhoisresponsibleforupdatingtheKPIatthepre-definedtimes.

• Calculation:Amathematicalformulathatdescribeshowthedataelements(tangibleperceivableitems)arecombinedtoprovideanumber,percentageorcurrency(sometimesayes/no).

• Frequency:HowoftentheKPIiscountedandrecorded.

• Scope:Whatshouldbeincludedordiscounted,oftenacapordatarange.

• Metrics:Thedataandthesourcesofdatausedinthecalculation,itisimportanttoprovideadescriptionofthemetricitemsindividuallytoavoidambiguity.

ItisonlywhenlookingcloselyataKPIrequiringacalculationthatitbecomesevidentalloftheinformationaboveisrequired.ItisgoodpracticetoidentifyandrecordthisinformationforeveryKPIduringthisphase.Typically,atablesuchastheonebelow,canbeused:

ObjectiveandIntendedResultObjective: Reducelargeordersalescycle

IntendedResult: Reducethenumberofdaystosellalargeorder

KeyPerformanceIndicator

Label: Largeordersalescycle

Description: Theaveragenumberofdaysbetweenqualifiedleadsandsalesthatresultinanordervaluegreaterthan£250k

Owner: JimJones

Updater: JillJohnson

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Frequency: Monthly

Scope: Forsalesthatoccurduringthereportingmonth

Calculation: InasingleMonth,forallsalesgreaterthan£250k;addthenumberofdaysbetweenthequalifiedleaddatesubtractedbythesalesdateanddividebythenumberofsalesgreaterthan£250k

MetricsUsedintheCalculation:

• Qualifiedleaddate–thedateassignedtoaleadmovingtostage3(qualifiedlead)inthesalesmanagementsystem

• Salesdate–thedateassignedtoaleadmovingtostage6(sale)inthesalesmanagementsystem

• Salegreaterthan£250k–salerecordedinthefinancesystemashavingbeeninvoicedandworthmorethan£250k

UsetheKPIDescriptiontableintheAppendixtodescribeyourKPIs

Insummary,whencalculatingaKPIandassigningownershiptakecareto:

• Assigntherightowners,itistheonlywaytoensurethingswillgetdone

• Createarealisticcalculationthatisbasedonmetricsthatexistorcanbefound

• Berealisticaboutfrequency,noteverythinghastobedoneinreal-time!

Gettingtothisstagecantakeawhile;itgetsaloteasierandmuchfasterafterthesecondorthirdgo.Whenyouhave3or4KPIsgotostep4.

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Step 4 – Define Thresholds AKeyPerformanceIndicatorhaslimitedvalueunlessitcanbecomparedtosomething.Theremaybesomevalueasarecordofchangeovertime;however,unlessitisknownwhatsortofchangeisrequired,eventhishaslittlevalue.

AKPIwithoutacomparatorcanbeusedtohelpstabiliseperformance.Forexample,withanewprocessitisoftenthecaseactualvalueswillvarywildlymonthonmonthuntilaprocessisbeddedin.Wemaynotknowwhatavalidvarianceshouldbebutrecordingthevalueswilleventuallyprovideenoughdatatogenerateanupperlimitandalowerlimit.Soeventually,evenaKPIwithoutacomparatorwillcreatevaluestobecomparedto!

TheselimitswillbecometheThresholds.

Thresholdsarefrequentlybasedontargets.Thiscanbeanareaofcontentioninbusinessperformancemanagementcircles.Targetsareoftensetusingarbitrarymethodsorjustifiedusingunhelpfulinterpretationsofdata.However,targetscanbehelpfulwhenstartingtheprocessofdefiningthresholds.Thekeypointaboutanytargetisthatitneedstobereasonableandachievable.

Targetsandthresholdsarewellunderstoodwhenlookingatfinancialmeasures.Weoftenlookatavariance(threshold)toanexpectedresult(target).Forexample,ifexpectedmonthlyrevenuewas£325kandtheactualrevenuerecordedwas£309kthevariancewouldbe-£16k.Thismayormaynotbeacauseforconcerndependingonwhatwasconsideredanacceptablevariationtothetarget.ForaKPItobeusefulweneedtoclearlystateboththeacceptableandunacceptableresults,thethresholds.Thereareseveralthresholdmodels;forthepurposeofillustrationwewillstartwiththemostcommon:Red,Amber,Green(RAG).

Red, Amber, Green Model IntheRAGmodeltherearetwothresholdpoints:

• WhentheKPIshouldturnGreen(fromAmber)

• WhentheKPIshouldturnRed(fromAmber)

Therearenohardandfastrulestothemeaningsattributedtoeachofthecolouredareasbutingeneralitisasfollows:

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• Green–anacceptableresult,weareontarget

• Amber–theremaybeaproblem,weshouldinvestigate

• Red–anunacceptableresult,thereisapotentialproblemthatneedsrectification

ByusinganexampleKPI,forinstanceCustomerSatisfactionSurveyPercentagewecanillustrateusingthefollowingthresholdvalues:

• Green–95%

• Red–85%

WhentheseKPIstogetherwiththresholdsareenteredintoaperformancemanagementsystemtheresultmightlooklikethis:

Ascanbeseen,bysettingthresholdvaluestheviewercaninstantlyandverygraphicallyseethecurrentsituationandmoreimportantlythehistoryleadingtothispoint.HistoryprovidesacontexttobetterunderstandtheperformanceoftheKPI,moreofthisinchapter6.

Outofthenumerousthresholdmodelstherearetwomorethatshouldbelookedat.ThefirstisasimpleextensionoftheRAGmodel,thesecondavariantthataccommodatesmeasuresthatarenotlinearinnature.

Red, Amber, Green, Blue Model Oftenthereisaneedforabetterunderstandingofan‘over-achieved’status.Thisisparticularlytrueintheareaofsalesandclientmanagement.Salesbonusesmaybebasedonnotonlyachievingatargetbutover-achievingitaswell.Forexample,itmaybedesirabletoover-achieveinclientmanagementengagementwherenon-salestimespentwithaclientisdeemedtobea

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positiveactivity.InthiscaseanextensionoftheRAGmodelcanbeused;theRed,Amber,Green,Bluevariant.ForRAGBitisnormaltosetfivethresholds:

• Thelowestacceptableresult

• WhentheKPIshouldturnRed(fromAmber)

• WhentheKPIshouldturnGreen(fromAmber)

• WhentheKPIshouldturnBlue(fromGreen)

• Thehighestacceptable(orcapped)result

Usingthistypeofthresholdmodel,apre-determinedover-achievedstatuscanbemonitoredandmanaged.UsingtheexampleofclientengagementmanagementandlookingattheKPIAveragehour’sclientengagementpermonth,theresultmightlooksomethinglikethis:

HerewecanseethattheKPIfellintotheAmberandhasbeensteadilyclimbingthroughtheGreenandintotheBlue.WithsixdatapointsintheBlue,wemaywanttothinkaboutresettingthethresholds(Moreaboutthisinchapter6)

Red, Green, Red Model ThethirdthresholdexampleisthestabiliseKPI.OccasionallyKPIsaredeemedunacceptableiftheresultiseithertoohighortoolow.Agoodexampleisatrainingbudget.Intrainingwewanttospendtothebudgetbutnotexceedorgobelowthebudget.Inthiscasewedefinethebestresultandthendetermineacceptableandnon-acceptableresultsbelowandabovebest.Usingtheexampleofatrainingbudget,theresultmightlooklikethis:

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HerewecanseeRedboundariesaroundtheacceptablevaluesof£5,100to£5,300permonth.TheKPIappearstobeperformingwithintheboundarieswithtwoexceptions.

Oneoftheby-productsofdefiningthresholdsistheabilitytoturntheKPIintoarelativescore.Inthethreeexamplesabove,thefirstwasapercentage,thesecondwasanumber(hours)andthethirdacurrency.Eachhaddefinedthresholds.Aperformancemanagementsystemcantakethisinformationandcreateacalculationtonormalisethedataandthenturnitintoacommonscore,forexamplebetween1-10.Withanormalisedscore,thescoresacrossthesystemcanberolleduptohigherlevels.

Forexample,asetnormalisedKPIscorescanaveragedtoproduceanObjectivescore.AsetofObjectivescorescanbeaveragedtoproduceaPerspectivescoreandasetofPerspectivescorescanbeaveragedtoproduceaDepartmentscoreandsoonuptoacompanyorgrouplevel.Toillustratethispoint,thefollowingchartshowsthecombinednormalisedscoresfortheKPIexampleswehaveusedfortheObjectiveImproveCustomerSatisfaction:

Herewecanseeacombinednormalisedscoreoutof10.TheObjective,whichismeasuredthroughthesuccess(orfailure)ofthethreeKPIscanbeseenasachartinitsownright.

Therefore,weneedtoaddthefinalelementstoourKPIdefinition.Usingthe‘largeordersalescycle’exampleitwilllooklikethis:

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ObjectiveandIntendedResultObjective: Reducelargeordersalescycle

IntendedResult: Reducethenumberofdaystosellalargeorder

KeyPerformanceIndicator

Label: Largeordersalescycle

Description: Theaveragenumberofdaysbetweenqualifiedleadsandsalesthatresultinanordervaluegreaterthan£250k

Owner: JimJones

Updater: JillJohnson

Frequency: Monthly

Scope: Forsalesthatoccurduringthereportingmonth

Calculation: InasingleMonth,forallsalesgreaterthan£250k;addthenumberofdaysbetweenthequalifiedleaddatesubtractedbythesalesdateanddividebythenumberofsalesgreaterthan£250k

MetricsUsedintheCalculation:

• Qualifiedleaddate–thedateassignedtoaleadmovingtostage3(qualifiedlead)inthesalesmanagementsystem

• Salesdate–thedateassignedtoaleadmovingtostage6(sale)inthesalesmanagementsystem

• Salegreaterthan£250k–salerecordedinthefinancesystemashavingbeeninvoicedandworthmorethan£250k

Thresholds Red(fromAmber):20 Green(fromAmber):25

OnceyouhavedefinedthethresholdvaluesforanumberofKPIsgotostep5.

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Step 5 – Measure ItisatthisstagethatobjectivesandKPIscanbeloadedintoadedicatedperformancemanagementsystem.ItispossibletokeeptrackofyourKPIsusingaspreadsheet,however,spreadsheetsarenotoriouslydifficulttomanageandmaintain.Giventherearenumerouscosteffectiveoptionsavailablewewouldnotrecommendtheuseofspreadsheets(exceptforsetupandtrialpurposes).

Therearetwopartstostep5:

1. Creatingascorecard(Organisation/Perspective/Objective/KPI)structure

2. Uploadingorenteringdataonaregularbasis

Creating a Scorecard Structure Thisrequiressomethought.Atalaterdateyoumaywanttorestrictaccesstocertainpartsofyourorganisationalstructure.Mostperformancemanagementsystemswillallowyoutomovethingsaroundsodon’tbetooconcernedaboutgettingthestructureperfect,justkeeppermissionallocationinmind.Youcanstartbybasingyourscorecardstructureonyourexistingorganisationalstructure.ExperiencesuggeststhatattheHQstrategiclevelabalancedscorecardapproachisbestandthatthisissupplementedbyadivisional/departmentalsub-structurethatfeedsKPIsintothetoplevel.

Forthepurposeofillustration,wewillbeusingtheQuickScoreperformancemanagementsystem.Thisstartswithanodestructureuponwhichallpermissionstothesystemarebased.Atypicalorganisational/balancedscorecardstructuremightlooklikethis:

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Ontheleftaretheorganisationalnodesandscorecardtrees.InthiscasethecompanyHQbalancedscorecardatthetopissetoutintheclassicfourperspectives:Financial,Customer,InternalProcessesandOrganisationalCapacity.Youwillnoticethattherearesymbolsdenotingtheperspectives(triangles),theobjectives(ovals)andtheKPIs(circles)andeachiscolourcodedwithadottotherighttoreflectthecurrentstatusoftheelement.

YoumayalsonoticethatintheMetricstabthereisaredexclamationmark.Thisisindicatingthatalthoughtheoverallscoreisgreen,somewherewithinthetreethereisaredmetric.

The‘International’scorecardshowaboveisaclassicBalancedScorecardstructure.Scorecardwithindepartmentcanfollowthissamestructurebutareoftensimplifiedtosuittheneedsofthedepartment.Forexample,intheFinancedepartmentthestructuremightconsistofaProfitandLossstatementandlooklikethis:

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AlthoughallofthemetricsinaprofitandlossstatementshouldnotbeconsideredKPIs,itistheoneareawhereitissometimesusefultoholdacopyofafullsetoffinancialmeasurestoallowdrilldownasandwhendetailisrequired.UpdateofamonthlyP&Lorbalancesheettoaperformancemanagementsystemisusuallyatrivialtaskandcanbeeasilyautomated.

Onceyouhavedecidedontheoverallstructure,youcanbuildthesystem.Mostsystemswillallowyoutomanuallycreatethestructureandsomewillallowyoutocreatethestructureinaspreadsheettemplateandthenuploadit.Thelatterapproachislesstimeconsumingandcanallowyoutosetupandteardownstructuresquicklyandthereforeintroducesthemeanstoexperiment.

Whenlookingatperformancemanagementsystems,besuretochecktheyallowyoutoinputallofthedataintheKPIDescriptiontablesyouhavecreated.

Insummary,tocreateastructureforyourscorecard,answerthefollowingquestions:

• WhowillbelookingatthesystemandwhatdoIwantthemtosee?Thiswillprovidethefirstinsight.Ifthereareareasyouwanttorestrictaccesstoe.g.afinancialbalancesheet,placetheminanorganisationalnodebythemselves.

• DoIwantacross-organisationalview?Inwhichcasethinkaboutabalancedscorecardapproach

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• DoIwantastrategicscorecardanddepartmentalscorecards?Thisisatraditionalapproach;itallowsyoutomaintainafewKPIs(agoodthing)whileatthesametimeallowingdepartmentheadstheflexibilitytomeasureotherthingsthatmaybeimportanttothem.

Onceagain,startsmall.WorkonafewobjectivesandafewKPIs,getproficient,youcanalwaysaddmore.

Thesecondpartofstep5istolookathowthedataisenteredoruploadedintothesystem

Adding Data Asaruleofthumb,foratop-levelHQscorecardyoushouldhavenomorethan36KPIs.IfyouareusingtheBalancedScorecardmethodology,thiswillbebasedonfourPerspectives,eachofwhichhastwoorthreeObjectives,eachofwhichhastwoorthreeKPIs.ThereisaverygoodchanceyouwillhavemanymoreKPIs.Mostorganisationswanttomeasuremuch,muchmorethanisnecessary.Thisbeingthecaseyouneedtolookverycarefullyattwothings:

• Howfrequentlyupdatestakeplace

• Howtoautomateupdatesifrequired

Frequency-PreviouslyweincludedaFrequencyiteminourKPIdescriptionbutdidnotsaymuchaboutit.Wearelivingina‘now’worldandassuchweoftenfeelitisimportanttoknowwhatishappeningatthisverymoment.Thisforcesusdownarouteofmeasuringthingsinreal-time.Operationallythismaybeveryimportant.Onaproductionlineyouneedtoknowaboutthehealthoftheproductateverystageofthemanufacturingprocess.However,strategicallythisisoflittleimportance.Whatmaybeimportantistheresultofthemeasurement.Forexample,thenumberofdefectsperweekorpermonth.Allbusinessesaredifferent,butasaguide:

KPIsshouldbepartofthemonthlymanagementreportingcycle;occasionallytheremaybeaneedtomeasurethingsweeklyandrarely,underextraordinarycircumstances,daily.

Why?Thetimeittakestoimplementacorrectiveactionmeansevenforasmallbusiness,thetimetoreactwillbedaysorweeksandnothours.

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Updates–whethertoautomateornotwillbecomeatrade-offbetweentheexpenseofbuildinganautomatedsystemandvalueofthereleasedtimeoftheindividualsthatupdatethesystemonaregularbasis.MostPerformanceManagementsystemswillprovidebuilt-inautomationcapabilitytoallowadirectconnectiontospreadsheets,databasesandtothemorepopularback-endERPsystems.Thisisusefulifyouwanttoincludemetrics(asdistincttoKPIs)aspartofthesystemtoallowuserstodrilldowntodetailwhenrequired.Agoodexampleofthismaybeanendofmonthfinancialsummary.

Uploadingfinancialdataisusuallyquitestraightforward.Thesimplestwayistodumpthefinancialdatatoaspreadsheetofaspecifiedformat,placethespreadsheetintoacommonarea(usuallyasecureftpserver)andthenschedulearegularupload.Typically,inanoperationlikethistherewillbeaone-offtaskofmappingthespreadsheetdatatotheKPIsyouhavepreviouslydefinedinyoursystem.

Withfinancialmeasures,themetricscouldbeusefulindrill-downscenariosbutthejobofupdatingeachonemanuallyeverymonthwouldbetedious.Mostfinancialsystemshaveanexporttospreadsheetfunction,sothedatacaneasilybeexportedtoaspreadsheetandimportedintotheperformancemanagementsystem.Thisisaverylow-costmechanismthatnotonlyspeedsuptheprocessbutensuresgreateraccuracy.

Onceyouhavedecidedonanupdatemechanism,beitmanualorautomated,youcanstartaddingactualdatatothestructure.Forthedatatobemeaningful,youwillneedatleast5-9months’history.Thismaymeanfeedinginsomehistoricaldataorwaitinguntilthereisenoughdatatoworkwith.

YouwillthenbereadytomovetoStep6.

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Step 6 – Interpret Results Onceyouhaveasetofhistoricalactualdatayoucanstartinterpretingtheresults.Therearetwophasestothisactivity,firsttocreateasetofdashboardsandreportsfromthedataandsecondtointerprettheresults.

Thepurposeofreportingistoprovideenoughdetailtoenableanorganisationtobemanagedeffectively.TheadvantageofusinganautomatedsystemisthereportsareupdatedwhenanyKPIvalueischanged.Careneedstobetakenwhendesigningadashboardorreport,thekeyquestiontobeaskedis:

• Whoistheaudienceforthedashboardorreport?

Dashboards Alldatavisualisationhastostartwiththeaudienceinmind.Achiefexecutivewillwantaverydifferentviewofabusinessascomparedtoanoperationsmanagerorafinancialdirector.One-sizewillneverfitallindashboardcreation.Typically,adashboardwillprovideanovervieworat-a-glanceviewofthebusiness.TheexamplebelowisaclassicstrategymapusingtheBalancedScorecardapproach:

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Wecanimmediatelyseethroughthe‘RAG’coloursthecurrentstatus.Inthiscasetherearealsoarrowssymbolsthatshowthestatusfromthepreviousmonthprovidinguswithsomelimitedtrenddata.Theelementscanbeclickedontodrill-downintolowerlevelobjectivesandKPIs.Pleasenote:thischartshouldneverbeusedinisolation!

AdashboardmightbeaimedataSalescommunityusingaverydifferentformatandlooksomethinglikethis:

Whoeverorwhateveradashboardistobeusedfor,considerthefollowingquestionsduringthecreationphase:

• Isthedashboardsuitedtotheaudienceitisbeingbuiltfor?

• Doesthedashboardhaveanintuitiveuserinterfaceandnavigation?

• Whenprovidingdrill-down,doesitprovideenoughadditionalinformation?

• Havetherightaccesspermissionsbeensetup?

• Isthebalancebetweencurrentandhistoricaldatacorrect?

• Visually,dotheimportantitemsstandout?

Finally,fordashboardcreation;don’tgetcarriedawaywiththetechnologyoracolourfulchart,simplicityisthebestwaytogetoveracomplexmessage.

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Reports Toclarify,forthepurposeofthisdocument,reportsareclassifiedspecificallyasrowandcolumnrepresentationsofdata.

Inaperformancemanagementsystem,aKPIreportmightlooksomethinglikethis,noticehowtheRAGcoloursaresubduedunlessrolled-overwithamouse:

Thisisverysimilartoaspreadsheetview.Typically,thistypeofreportwillbeusedduringadrill-downactivitywhenmoreinformationonaKPIisrequired.

Interpreting Results Earlierwespenttimelookingatthresholds.Oneoftheunfortunateby-productsofdefiningthresholdsistoreinforceaknee-jerkreactionwheninterpretingdata.Forexample,whenapplyingcolourcoding,asinthereportabove,theeyeisimmediatelydrawntotheredvalues.Whereitmightbeworthwhileexploringstringsofredinstances,itisrarelyworthwhilespendingtimeonsingleredinstance;itwillneverprovidethewholestory.WemayhavetakenastepforwardbutcannotsimplyrelyonaRAGstatustoenabledecisionmaking.

Why?Becausebusinessesarecomplexentities,nosingleoridentifiablecausecanholdthekeytoasolution.JustbecauseaKPIis5%downonlastmonth’sperformanceorisdifferenttolastyear’sperformanceorhasgonebelowanartificiallyimposedthreshold,doesnotautomaticallymeanthereisaproblem.

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UsingthresholdsgivesuswhatweneedtoundertakeapointanalysisofaKPI.Simplyput,iftheKPImovesfromanacceptableposition(green)towardsanunacceptableposition(red)thenwemightneedtostartalineofenquiry.

Youmayconsiderthefirstlineofenquiryistoasktheownerofthemeasureforanexplanation.Thisdoesseemareasonablecourseofactiontotake.However,askinganownerwillalmostcertainly,atbest,resultinadefensiveresponseand,atworst,causetamperingwiththeKPIinanattempttoremovetheproblem.Tamperingisanissueinbusinesswherefocusisplacedonindividualperformanceratherthanonbusinessperformance.Amuchbettercourseofactionistolookatpatternsinthedataandnotattheindividualsresponsibleforthedata.

Clearlytherewillbetimeswhentheownersofthedataneedtobeapproached,especiallywhenexploringanomalies.Thisshouldbedonewithcareandsensitivity,focusingonthedata.Again,anothergoodreasontolookatpatterns,atleastthatwayaconversationwillbemoreobjective.

Inbusinessitisrarethatpoorperformanceinoneareawillbeisolated;thereareusuallymultiplecontributingfactors.Therefore,apatternwillemergefromthedata.(Note:therewillalwaysbeanomalies,ifwhenlookingatanunusualpatterninoneKPIeverythingelselooksfine,thenitmaysimplybeananomaly,moreonthislater).WhenpoorperformanceisidentifiedinoneKPI,itisimportanttolookforpatternsacrossrelatedKPIs.

LookingforpatternsisthemostcrucialactivitywheninterpretingKPIs.Toillustratethis,wewilluseanewexample,themetricTheaveragetimetocontractindays.ThisKPImeasuresthetimebetweenasalesorderbeingtakenandacontractbeingsigned,indays.Drivingdowncontactnegotiationtimeisacommonobjectiveaslegal/commercialfeesareusuallypricedinhoursandcanbeveryexpensive.

Trends ThefirstthingtocheckwhenlookingataKPIoveraperiodoftimeisthestabilityofthemeasure.IntheexamplebelowwecanseethatduringtheperiodJanuarytoJulytheKPIresultswerehighlyerratic.Thisinitselfisacauseforconcern.However,itisimportanttorecognisethedifferencebetweenrectifyingunpredictablebehaviourandattemptingtoimproveperformance.

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Anybusinessperformanceimprovementplanneedstobebasedonperformancethatisreasonablypredictableorstable.

IntheexampleabovewecanseethatfromAugustonwardsthehistoricalperformanceofAveragetimetocontractindayshasbeguntostabilise,thevarianceisplusorminus3days.Thisprovidesagoodbasetothinkaboutimprovement.TogettothebottomoftheinstabilityfromFebruarytoJuly,weneedtolookatsomeassociateddata.

IfwelookatanassociatedKPI,Numberofsalespermonth,wecanseethatwithoneexception,thenumberofsalesisreasonablyconsistent:

Thisindicatesthatitwasnotthevolumeofbusinessthatcausedthechangebutsomethingelse.Inthisinstancethereasonforthechangewasduetoresourcing;uptoJanuarytwocommercialmanagerswereworkingforthecompany,inearlyFebruarythiswasreducedtoone.Duringtheunstableperiod,thesinglecommercialmanagersimplycouldnotcopewiththevolumeofwork.InAugust,asecondcommercialmanagerwastakenonandtheKPIstabilised.

However,thelong-termtrendindicatedthattheproblemhadnotbeensolved.Theperformancewastrendingupwards.Atthispointadecisioncouldbetakentodooneofthreethings:

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1. Livewiththeproblembecauseitistoocostlytofix

2. Addfurtherresourceinanattempttoresolvetheproblem

3. Changethethresholdsbecausethingshavemovedon

However,westillmightnotbeseeingthewholestory;thelatteroptionforcestheneedtolookatatimeperiodclosertothecurrentdate.IfwedothisandchangethedaterangefromAugusttoMarch,theresultisasfollows:

Hereweseethatalthoughthepreviouslong-termtrendwassuggestinganadverseperformanceswing,theshortertermview(still8monthslong)isindicatingapositivetrend.AlthoughtheKPIhasveeredupwardsinMarch,thetrendsuggeststhisisananomalyandthingsshouldgetbetterovertime.

XmR Charts Usingpointanalysisandtrend-linescanbeinformativebutaswehaveseenfromabove,theycanalsobemisleading.AtypeofchartthatisincommonuseandprovidesrealvalueistheXmRchart.

XmRChartsfallunderthecategoryofcontrolchartsusedtomonitorindustrialorbusinessprocesses.TheXstandsfor‘Individual’.Inamanufacturingprocessthismaybeameasurablefeatureofanitemproduced(orabatchofitems).Forexample,thevisualqualityofacarscreenattheendoftheproductionline.InabusinessprocessthismaybeaKeyPerformanceIndicatorsuchascustomersatisfaction.

TheXmRchartisactuallytwocharts.TheXisthedatapointbeingmeasuredandmRtheMovingRangewhichisthedifferencebetweenconsecutivedatapointmeasurements.

AnXmRchartmightlooksomethinglikethis:

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Theupperchart(X-Chart)displaysthedata-pointsovertime(Observation)togetherwithacalculatedaverage(Average).ThelowerchartdisplaystheMovingRange(mR-Chart)withitsAverageandUpperControlLimit.ThemovingrangeaverageinthemRportionofthechartisusedtocalculatetheUpperandLowerControlLimitsofthex-chartportion.

ThereisnoLowerControlLimitinthemRchartasthevalueofthedifferencebetweenconsecutiveobservationsisrecordedasanAbsoluteValue(positivenumber).Takealookat‘WikipediaControlCharts’foraquickoverviewofhowthecalculatedvaluesarecalculated.DouglasMontgomery’sbook,IntroductiontoStatisticalControl,providesmuchmoredetailifyouareinterested.

TheXmRchart,throughtheupperandlowercontrollimits,providesinformationtodeterminewhatanaturalprocesslimitis.Whenlookingatbusinessperformance,wealltoooftenover-reactwhenaperformancemeasurechangeswithoutconsideringthenaturallimitsofchange.All

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performanceindicatorschange;itisthenaturalorderofbusiness.Understandingthenaturallimitsofchangeisvitallyimportanttothesuccessfulmanagementofanorganisation.

Thereareseveralthingsweneedtoconsider.Firstly,therewillalwaysbespecialcases.Inthechartabove,theSeptember2013metricisanoutlier.Ithasfallenoutsidethenaturallimitsoftheoftheprocessvariation.Itisalsoasingleinstance.Thecausesofsingleinstancesareusuallyveryeasytodetermine.Itmaybeaseasonalvariation;itmaybetheresultofanaturaldisaster.Whateveritis,itcanusuallybediscountedveryquicklyandnotconsideredacauseforconcern.

Secondly,aminimumof5datapoints,andsometimesmore,areneededtoaccuratelycalculatetheupperandlowercontrollimitsandaverage.Andoften,atleast7pointsareneededtoaccuratelydetermineasignalofchange.However,inbusinessitmightbedifficulttowaitsevenmonthstotakeaction.Ifwaitingforsevenmonthstotakeactionisjusttoolong,exploretheoptiontoalterthefrequencyofmeasurement(forinstancefrommonthlytoweekly)thusgatheringtherequired7datapointsmorequickly.AnothersignaltolookforinanXmRchartistheshortrun;itisasignalthatshowsabigchangehasoccurred.Thisiswhere3or4consecutivedatapointsmoveclosertoaControlLimitthantotheAverage,(andareonthesamesideoftheAverage).IntheexampleabovewecanseethistakingplacefromJuly2014onwards.Itwouldbereasonabletoexaminethecauseoftheshortrunandtakeaction.

Thirdly,thedurationofanXmRchartneedtoberevisitedwhenalong-runofdataremainsaboveorbelowtheAverageline.Intheexampleabove,wecanseethatfromApril2014onwardsallofthedatapointsareabovetheAverageline.Thisindicatestherehasbeenachangeinthebusinessprocess.Wecanalsoseethatthevariationbetweenthedataisless.IfthisgroupofdatawasrecalculatedasaseparateXmRchart,theupperandlowercontrollimitswouldbeverydifferent.

Lastly,althoughthereisaverystrongcasetoalwaysusebothchartscontainedwithintheXmRchart,thewholechartcanbeconfusingtoageneralbusinessuser.GreatvaluecanbegainedbyusingtheXpartoftheXmRchart.

Inoneofthepreviousparagraphs,thetermsignalwasintroduced.Formoreinformationonsignalsandhowtointerpretnumericalvariationwewould

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highlyrecommendDonaldWheeler’sbook:UnderstandingVariation:TheKeytoManagingChaos.

TheXmRchartabovewascreatedusingstandardspreadsheettechniques.Addingtheaxisandvaluesandcalculatingthelimitsisarelativelysimplethingtodo.However,usingspreadsheetscanbefraughtwithdifficultiesiftheinformationhastobeprovidedtoagroupofpeopleoritispartofamuchlargerbusinessperformanceactivity.Ifthisisthecase,thenturningtoasoftwaresolutionisprobablyabetteralternative.Therearemanysoftwarepackagesavailable.Theycanbeconfiguredtotakeintoaccountthingslikelong-runeffectsanddisplayresultstoprovideagreaterlevelofinformation.Forexample,thechartabove(usingtheX-Chartportion)wouldlooklikethis:

Herewecanseetheupperandlowercontrollimitsinterpretedasthegreenportionofthechart.Theuppercontrollimithasbeensettotheuppervalueofthegreenareaandthelowercontrollimitasthelowervalueofthegreenarea.TheAverageisthedifferencebetweentheupperandlowergreenvalues.Anadditionallowerlimit,intheformofanamberbandhasbeenaddedprovidingthefamiliarred/amber/green/blue(RAGB)businessparameters.Thecharthasalsore-calculatedthelatterOctobertoAprillong-runsetofdatapointsandchangedtheupperandlowercontrollimitsaccordingly.

Whateversystemisusedtolookatperformancedata,thekeyistolookatthedataasawholeandoverareasonableduration.Thiscontrolchartprovidesfarbetteranalysisofthedataascomparedtotraditionaltrendlinesormonthonmonthoryearonyearcomparisons.Thereis,ofcourse,stilltheneedtotakeintoaccountassociateddataandotherexternalorinternalfactors.

Allsituationswillbedifferent;hereissomeguidancetobeusedwheninterpretingtheresultsprovidedbyyourKPIs:

• Donotrelyonpointanalysis,businessistoocomplexforthat

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• CheckthattheKPIisstableandpredictable

• AlwayslookatrelatedKPIs

• TrainyourselftolookatpatternswithinKPIsandacrossmultipleKPIs

• Bepreparedformorequestionsratherthananswers

• Drilldownintosourcedataformoreinformation

• Lookatlong-termandshort-termtrends(short=6months,notless)

• TalktotheowneroftheKPI(usingdata,notemotion)

• Thekeyistoseethedifferencebetweennormalvariationandabnormal

• Lookforwaystochangeandnotcontroloutcomes

Thelastitemonthelistleadsintostep7.WhenitisclearaKPI(orandobjective)ismovinginthewrongdirectionthenactionneedstobetaken.TheactionneedstobelinkedtotheKPI(orobjective)andprogressmonitoredandmanagedovertimetocorrectorimprovethesituation.

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Step 7 – Take Action TakingActioncomesintwomajorforms.Thefirstistoputinplacearemedialactivitywhenaproblemoccurs;thesecondistocreatestrategicinitiativestopromotechange.

Remedial Activity Puttinginplacearemedialactivityorassigninganactionisarelativelysimpleprocessandsomethingthatorganisationsdoalmosteveryday.Thekeyhereistoensurethattheactivityoractioniswellthoughtthroughandnottheresultofaknee-jerkreactionduetoananomaly.Thereareanumberofthingsthatshouldbetakenintoaccountwhencreatingaremedialactivityoraction:

• ItshouldbeassociatedtoaKPI–TheonlywaytoconfirmanactionhashadapositiveeffectistoobserveapositivechangeintheKPI.Justbecauseanactionhasbeencompleteddoesnotmeanthesituationhasbeenresolved.

• Itshouldnotbetheresultofashort-termanomaly–ReferbacktoStep6forguidanceonthis.IfaKPIgoesintothered,itdoesnotnecessarilymeanthereisaproblem.

• Besuretoassigntheactiontoanindividual–taskedindividualsfeelresponsibleandaccountable,departmentsdonot.

• Ensuretheactionisclear–inmuchthesamewayasaKPIhastobedescribedproperly,anequalamountofattentionhastobegiventodescribinganaction.Besuretoasktheowneroftheactioniftheyunderstandwhatisrequired,whenitisrequired,andwhowillbeinvolved.

• Actionstendtobeshort-termactivities–Ifanactionturnsintoalong-termactivity,thenitshouldbemoreproperlydescribedasaStrategicInitiative.

Strategic Initiatives CreatingandmanagingStrategicInitiativesisacomplexprocess.StrategicInitiativescausechange.Whenabusinessisstagnantorfailing,settingastrategy,buildingobjectives,settingtargetsandKPIswillbetonoavailunlessactivitiesareputinplacetoevokechange.StrategicInitiativescancausesignificantorganisationalimpact.Theymustalwaysbeassociatedtooneormorestrategicobjectives.

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Therearefivethingsthatneedtobeconsidered:

1.Generatingalistofcandidateinitiatives

2.Developingtheselectioncriteria

3.Selectingandprioritisingtheinitiatives

4.Describingtheprioritisedinitiatives

5.Funding,implementingandmanagementoftheinitiatives

Generating the list of initiatives DuringtheprocessofcreatingObjectivesandKPIsyouwillhaveundoubtedlythoughtofthingsthatneedtobedonetofulfiltheobjectivesandcauseimprovementintheKPIs.Thesethingsmayhavebeenparkeduptothispoint.Ifyoudonothavealist,thenonehastobecreated.GobackoveryourobjectivesandKPIsandwritedownallofthethingsthatyouthinkneedtobedonetoenableimprovement.Thiscanbeundertakenasagroupexerciseorindividually.

Itisnotimportantatthisstagetoconsiderwhetheraninitiativeisvalidorwhetherthereisfundingavailableorresourcestoallocate.Itisimportanttocreateafullandcompletelist.Youmayfindthatburiedwithinthelistisacrucialgame-changer.

Developing the selection criteria Thisisthefirstfilteringstage.Bydevelopingasetofselectioncriteriaandapplyingthecriteriatoeachitemonthelist,thelistwillbereduceddramatically.

Consensushastobereachedonthemostimportantcriteria.Thisshouldnotbeoverlycomplexandthecriteriashouldbefewinnumber,ideallyjustthreeitems.Selectioncomplexityandadditionalcriteriacanbeaddedinthenextstage.Typicalcriteriamightbe:

• Thepotentialstrategicgainsrelatedtotheorganisationalvision• Ajudgementontheanticipateimplementationandoperationalcost• Thetimerequiredtoimplement

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Usingtheabovecriteriashouldtakeoutthe‘nice-to-have’initiativesthathavenorealstrategicsignificance.

Select and prioritise the initiatives Withamanageablenumberofinitiativesleft(thisreallydependsonthesizeoftheorganisationbutshouldbenomorethan15)amoreformalrankingframeworkcanbeapplied.Thereareseveralmethodsthatcanbeusedwhichinclude:

Consensusvoting–basedonthecriteriadevelopedandsomeadditionalspecificcriteria.Participantscanthenworkshopandvoteonwhattheyconsiderarethemostimportantinitiatives.Caremustbetakentoensuretherightpeopleareattending,i.e.thosewithagoodknowledgeofthebusinessandstrategicprocesstodate.Discussionwillneedtotakeplaceafterthevotingtoestablishgood-reasonforavotetoavoidvotesmadebecauseofavestedinterestratherthanthegoodoftheorganisation.

MatrixScoring–Thisisagoodwaytopresentavisualframeworkandisusuallyundertakenintheformofatwo-by-twomatrix.Inaworkshop,agridisplacedonawallwiththeXandYaxisbeingsomethinglikeImpactandCostrespectively.Theinitiativesareplacedonthegrid.Thegroupofinitiativesplacedinthelow-impact,high-costquadrantisusuallyeliminatedandajudgementtakenontheremainder.

WeightingCriteriaScoring–Probablythemostscientificapproach.Intheexamplebelow,asetofcriteriahasbeenidentifiedtodeterminepriority.Aweightingforeachcriteriaisestablishedandeachinitiativescoredagainstthecriteria.Thiscantakealongtimeandrequiresgooddisciplefromtheparticipantsbutitdoesprovideaverygoodoutput.

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Whentheselectionmethodhasbeenapplied,theremaininginitiatives,whichshouldnumber5to7,canbeprioritised.Thisisusuallythetaskofaseniormanagementteamwhowillonceagainrefertotheoverallselectioncriteriaandrelevancetotheorganisationalvisionandstrategy.

Describing the prioritised initiatives Thisisarelativelysimplebutvitallyimportantstep.Theoutputfromtheselectionshouldbedocumentedforeachstrategicinitiative.Thiswillbereviewedandagreedbyeveryone.Itsetsthestageforfunding,implementationandmanagement.Thestrategicinitiativedescriptiondocumentneednotbeoverlydetailed,butitmustcapturepreciselywhatisrequiredandwhichobjectiveswillbeimpacted.Anexampleofastrategicinitiativedescriptiontableisintheappendix.

Funding, implementation and management Allprojectsrequirefundinganditisthisstagethatoftencausesthemostheateddebate.Ifthepreviousstageshavebeenundertakenwithcare,thenfundingshouldnotbeabarrier.Fundingshouldhavebeenconsideredintheselectioncriteria.Onethingthatoftenhappensatthisstage,however,isthatthehighestpriorityinitiativeisusuallythemostexpensiveandneedsthewholebudget.

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Itisthereforenotunusualtore-prioritisetolookforlower-costprojectsthatcanbeimplementedquicklyanddriveasignificantchange.Thismayrequiretheteamtolookatwaysofstagingordelayingthehighestpriorityinitiativetoreleasefundsforlowerpriorityinitiatives.

Whenthefundingissueshavebeenresolved,thentheimplementationcanbegin.Theinitiativesthenbecomeprojectsandaprojectmanagerassigned,thisiscrucial!

StrategicInitiativesprovidethemeanstoachievebusinessObjectives.Thisconnectionhastobemaintained.StrategicInitiativesareuselessinisolation.Tore-iterate,justbecauseaninitiativehasbeencompleted,doesnotnecessarilymeanandimprovementhasbeenmade,itjustmeanstheinitiativeiscomplete.Ifaninitiativeisconnectedtoanimprovementobjective,thenwecanmeasurewhetherornotanimpacthasbeenmade.Theinitiativebecomestheenginethatdrivesthestrategy.

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In Conclusion ThismethodologyhasaprimarygoaltoensurethatvalidKPIscanbecreated,monitoredandacteduponandensuresthattherightobjectivesareestablishedandthattheycontributetoanorganisationsstrategy.

Hereareafewthingsthatneedreinforcement:

• Thegoldenrule:KPIsarebasedonobjectives.ThereisnoreasonforaKPItoexistunlessitiscontributingtoanobjective.

• Thinkaboutobjectivesintermsofresults,theyshouldhaveatangibleelement,somethingthatcanbemeasured.

• Objectivesshouldusewordsthatrelatetohowwephysicallyperceivethingsintheworld.Thisisagoodtechniquetosense-checkyouareontherighttrack.

• WhencreatingaKPIitneedstobeclearlydescribed,basedonanobjective,ratedintermsofimportanceandassignedownership.

• ThereshouldbeagoodmixofleadandlagKPIs,donotrelyheavilyonlagKPIs,theycannotinfluenceanoutcome.

• Assigningthresholdsisnotonlyagooddiscipline(itforcesdiscussionaboutgood,badandindifferentresultsaheadoftime)butenableshighlyvisualreporting.

• Thinkaboutthestructureofyourreportsandownership.Whenyoustarttouseaperformancemanagementsolutionyoumayneedtothinkaboutassigningpermissionsandownership.

• Thinkhardabouttheneedforreal-timereporting;willitmakeadifferencetothewaythebusinessismanaged?

• Dashboardsareagreatwaytoprovideanat-a-glanceviewofthebusiness,takecareduringconstructiontothinkaboutwhothetargetaudienceis.

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• Interpretingresultsisaprocess,itisnotareaction.Anydipintotheredneedstobeexaminedcarefullyandincontext,theKPIownermustbeinvolved.

• Actionsneedtobephysicallylinkedtoobjectives/KPIsandmanagedtogether;theyareallpartofthesameprocess.

• StrategicInitiativesneedtobeconsideredasprojectsintheirownright.

Andfinally,reviewyourscorecardstructureatleasteverysixmonths.Wehaveatendencytoconsiderthisasanannualjob,intoday’senvironmentthatisnotgoodenough.Keepcompetitive,keepontopofyourKPIs.

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Appendix

Strategic Objectives Table

StrategicObjectivesLabel Description OwnerFinancialPerspectiveIncreaseRevenue Increaseoverallcompanyrevenueby5%

everyyearforthenext3yearsLeeChild

CustomerPerspective

InternalProcessPerspective

OrganisationalCapacityPerspective

ThetableaboveistypicalofaconsolidatedobjectivelistusedwhendevelopingaBalancedScorecardsolution

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KPI Description Table

ObjectiveandIntendedResult

Objective:

IntendedResult:

KeyPerformanceIndicatorLabel:

Description:

Owner:

Updater:

Frequency:

Scope:

Calculation:

MetricsUsedintheCalculation:

Thresholds: Red(fromAmber) Green(fromAmber)

Other Threshold models: Red,Amber,Green,Blue

Thresholds: Worst Red(fromAmber)

Green(fromAmber)

Blue(fromGreen)

Best

Red,Green,Red

Thresholds: LowRed(fromGreen) HighRed(fromGreen)

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Strategy Map

Vision:

Mission:

Financial

Customer

InternalProcesses

OrganisationalCapacity

ThestrategymapaboveistypicalofthestructureusedwhenfollowingtheBalancedScorecardmethodology.

Morestrategymaptemplatescanbefoundhere.

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Strategic Initiative Initiation Document

StrategicInitiative:

Owner: Description:

Department:

Phone:

E-Mail: ImpactedStrategicObjectives:

StartDate:

EndDate: Deliverables:

EstimatedCost:

StaffRequired: SkillsRequired:

Assumptions Dependencies: Risks:

Atableliketheoneabovewouldnormallybeusedduringstrategicplanningtokick-offastrategicinitiative.Itspurposeistoprovidejustenoughinformationtoallowaprojectmanagertostarttheworktoturntheinitiativeintoaproject.