Key Performance Indicators

Developing, Implementing, and Using Winning KPIs

David Parmenter

• Publisher: Wiley
• Year: 2019
• ISBN:
  9781119620822
• Edition: 4
• Topic: Commerce
• Subtopic: Stratégie commerciale

The new edition of the bestselling guide on creating and using key performance indicators—offers significant new and revised content

Key Performance Indicators (KPIs) help define and measure the organizational goals which are fundamental to an organization's current and future success. Having solid KPIs is crucial for companies that are implementing performance management systems, such as balanced scorecards, six sigma, or activity-based management. In many organizations, KPIs are often too numerous, randomly assembled, and overly complex—essentially rendering them ineffectual, or at worse, counterproductive. Key Performance Indicators provides a model for simplifying the complex areas of KPIs while helping organizations avoid common mistakes and hazards.

Now in its fourth edition, this bestselling guide has been extensively revised and updated to incorporate practical lessons drawn from major implementations. Fresh content includes a more concise KPI methodology with clear implementation guidance, original insights on how other areas of performance management can be corrected, and new in-depth case studies. A revised starter kit is included toidentify critical success factors, and the KPI resource kit contains updated worksheets, workshop programs, and questionnaires. Helping readers to better define and measure progress toward goals, this important guide:

• Dispels the myths of performance measurement and explains a simple, yet powerful KPI methodology
• Explains the 12-step model for developing and using KPIs with guidelines
• Helps readers brainstorm performance measures, sell KPI projects to the Board and senior management, and accurately report performance
• Features the "KPI Project Leaders Corner" which provides readers with essential information and useful exercises
• Includes an array of practical tools—templates, checklists, performance measures—and a companion website (www.davidparmenter.com)

Key Performance Indicators: Developing, Implementing, and Using Winning KPIs, 4 th Edition is important resource for C-suite executives, senior management, project teams, external project facilitators, and team coordinators involved in all aspects of performance management systems.

CHAPTER 1
The Great KPI Misunderstanding

Overview

Many companies are working with the wrong measures, many of which are incorrectly termed key performance indicators (KPIs). It is a myth to consider all performance measures to be KPIs. This chapter explores how the four types of performance measures differ with examples of each type. The seven characteristics of KPIs are defined. The confusion over whether measures are lead or lag indicators is addressed. The questions How many measures should we have? and How many of each measure type? are answered. The importance of timely measurement is also covered.

Key learning points from the chapter are:

1. Clarity over the different types of measures, result indicators and performance indicators
2. The definition of a KPI
3. British Airways late planes KPI story
4. The seven characteristics of KPIs
5. The 10/80/10 rule
6. The lead or lag debate is finally buried
7. The need to have more current- and future-oriented measures that act like a fence at the top of the cliff
8. Avoid measuring too much and measuring too late

For far too long organizations have measured too much, with the cost often outweighing the benefit of the measurement. They have relied too much on financial measures and have used “bottom of the cliff” monthly measures that are too late to change events. Added to this mix is often a balanced scorecard, driven by consultants, at great expense and populated by measures designed by managers to keep the boss happy. A mess of epic proportions.

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There are four types of performance measures, and thus it is a myth to consider all measures as KPIs.

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The Four Types of Performance Measures

From my research over the past 30 years I have come to the conclusion that there are four types of performance measures, and thus it is a myth to consider all measures as KPIs. These four measures are in two groups: result indicators and performance indicators.

I use the term result indicators to reflect the fact that many measures are a summation of more than one team's input. These measures are useful in looking at the combined teamwork but, unfortunately, do not help management fix a problem, as it is difficult to pinpoint which teams were responsible for the performance or nonperformance.

Performance indicators, on the other hand, are measures that can be tied to a team or a cluster of teams working closely together for a common purpose. Good or bad performance is now the responsibility of one team. These measures thus give clarity and ownership.

With both these measures some are more important, so we use the extra word “key.” Thus, we now have two measures for each measure type:

1. Key result indicators (KRIs) give the board an overall summary of how the organization is performing.

1. Result indicators (RIs) tell management how teams are combining to produce results.
2. Performance indicators (PIs) tell management what teams are delivering.
3. Key performance indicators (KPIs) tell management how the organization is performing 24/7, daily, or weekly in their critical success factors, and by taking action management is able to increase performance dramatically.

Many performance measures used by organizations are result indicators and it is thus, no wonder, why reporting these measures has not improved performance. First, I will describe each type of measure.

Key Result Indicators

What are key result indicators (KRIs)? KRIs are measures that often have been mistaken for KPIs. The common characteristics of these measures is that they are the result of many actions carried out by many teams over a period of time, hence the use of the term “result,” and they are good summary measures, hence the term “key.” These key result indicators should be reviewed typically at the bimonthly or quarterly board meetings giving the board an understanding as to how the organization is progressing with its strategy. KRIs are always a past measure.

Key result indicators are of little use to management as they are reported too late to change direction, nor do they tell you what you need to do to improve these results. You know you have a KRI when the CEO is the person ultimately responsible for the measure. For the private sector, key result indicators would include:

• Net profit before tax
• Net profit on key product lines
• Customer satisfaction (by customer group, showing the trend over an 18-month period)
• Return on capital employed
• Employee satisfaction (by groups showing the trend over an 18-month period)

For government and nonprofit agencies these measures would also include:

• Availability of the major services that are offered, e.g., average waiting time for service
• On-time implementation of infrastructure projects
• Membership numbers (for professional organizations)

Separating KRIs from other measures has a profound impact on reporting, resulting in a separation of performance measures into those impacting governance and t...