KPI assessment: How good are your KPI's?

Photo at blog from webmaster - 21/09/2010 - 13:00

In a lot of discussions we had with our audience on KPI's, it was acknowledged that a lot of KPI's do not work, lead to managing on the wrong assumptions, and in general are not maintained to keep in sync with the organizations' objectives. As a result of this we are regularly asked to assess and improve KPI-sets. These are some of our general findings.

Who owns the KPI's?

Often enough KPI’s have become a sort of standards commodity item in any HR or financial controller handbook. No job profile is complete without having its own set. Weirdly enough senior management, who ought to be the prime beneficiaries of KPI-based organizations, are hardly involved with this KPI jungle. As long as the ownership of the KPI does not reside with [senior] management, it is doubtful if they will serve their intended purpose.

The purpose?

A simple definition to start with: A KPI should objectively indicate how a process/organization performs against certain criteria. These criteria can either be targets or comparisons. The key is that subject of the comparison is the execution of a business process, and not a person. That a person’s or group performance can be measured by looking at the value of the KPI, is something else. In real life most KPI's are more a function escaped yearly bonus calculator then the element by which management can steer an organization.

The more the better?

If you browse a bit on the Internet you will find dedicated websites showing hundreds of potential KPI's and their underlying calculations. Nice if you have to create your own set from scratch, but does it really help? I have seen examples of as much as 300 pages of potential variable elements, wrongly named KPI's, which can be used to measure a person's performance. A nice time spending activity for HR, but no impact on optimizing your business processes.

Less is more?

Absolutely. KPI starts with a K for Key so don't waste time on low-level, person specific indicators. A generic KPI can be calculated based on a complex algorithm. For instance, customer satisfaction can be presented in a single-digit number, the result of many underlying parameters like number of claims, defect rate, survey results, etc.

Dashboards versus projects?

Lower level KPIs sometimes do serve a purpose when focusing on optimizing individual processes. They often are underlying elements for a more generic KPI that receives temporary focus or project attention. In a typical senior management dashboard will be room for a number of project based KPI's next to the corporate ones.

Periodical review or real-time projection?

Most KPI implementations, even the better ones, are intertwined with the financial consolidation process in organizations. Monthly reviewing, a few days after month ends closure, is the standard. Real-time implementations are still quite rare. Of course various industries have different frequency needs. Bi-monthly reviews, or even worse, is something senior management cannot allow themselves anymore.

Change for the better?

When assessing the KPI usage in an organization, we meet various unexpected sources of resistance. Technology is not a limiting factor for creating powerful, cheap and up to date dashboards. It is far more the hesitation of middle management to give direct access to operational data, the love we have for PowerPoint-based communication, and the managers natural hesitance for simplification, which limits ourselves in defining and using the KPI's that really will help us to manage and improve our daily business.

As always, your comments are welcomed.

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