Key Performance Indicators

Performance indicators are a key component of any basic planning. Any strategic planning process develops around the organizations vision, mission, values. The vision draws the picture of the desired future and indicates the purpose of the organization; the vision talks about the status the organization wants to attain. The mission derives from the vision but it is more concrete. It presents the activity of the organization, in other words the vision says the organization exists and the mission statement explains what the organization does in order to pursue its vision. The values are the principles which guide the organization on its way to accomplish the mission, they help individuals make decisions and take action in accordance with he vision. The goal(s) are the means through which the vision can be reached and strategies will be developed in order and effective. When setting goals it is critical to make them S.M.A.R.T. attainable, realistic, timely exciting and recorded). simple, we start from the mission, we set the goals and than break them down into smaller pieces (objectives) and we establish some performance indicators to help us measure the progress made towards the goals. But, setting incorrect, incomplete performance indicators will mislead the organization from the right track towards success. Performance indicators should help the organization align the activity to the strategic objectives. The KPIs will help you make decisions, guide you to where you need to collect data and will give an indication of what improvement(s) have (not) been made and how the data should be used. Critical Success Factors
Critical success factors are the list of issues or aspects of organizational performance that determine ongoing health, vitality, and wellbeing. Normally there are between five and eight CSFs in any organization.

Types of Performance Measurement

David Parmenter in his book says that there are four types of performance measurements as shown in Fig Key Result Indicators which speak about what we have dome from a perspective or critical success factor Result Indicators which tell what we have done Performance Indicators which tell us what to do Key Performance Indicators which tell us what to do in order to increase performance very much

Key result indicators (KRI) are most of the time mistaken for key performance indicators. They can tell us whether or not the activity has an output (result) but they do not tell anything about the value, the usefulness of the output, in other words if the output is an outcome. The key result indicators tell us whether we are travelling in the right direction but they do not tell what is needed to be done in order to improve the results and they look over a longer period of time like months or quarters as opposed to result indicators (RI) which look at a shorter time span (a day, a week); KRIs bring complementary information to that of the KPIs. The result indicators (RI) summarize the activity and all financial facts and they look at the increase in value the results bring to the organization. Value in this context does not refer to money but to the status/position of the organization and to the satisfaction the stakeholders get from the activity of the organization. KPIs are measures that focus on the aspects of the organizational performance that are of high importance for the success of the organization. To conclude, it can be said that KPIs are important not only for measuring performance but also for driving the business and, at the same time, for establishing where we are in comparison with the targets. Every organization should create and use KPIs, as they show what has been successful and also which are the problems and the ways in which organizations can this way companies can proactively plan and manage their future activity. Another Benefit of using PI is that using PIs is that employees can readily understand what needs to be done and which are the standards they should meet. At the same time performance indicators can provide information on what strategies bring success for the long-run. To be most useful, performance indicators must be simple and timely and used to control other factors than the programs effectiveness.

Fig : Four Types of Performance indicators KRI

Can be financial and nonfinancial (e.g., Return on capital employed, and customer satisfaction percentage) Measures mainly monthly and sometimes quarterly

KPI

Characteristics of KPI
KPI Guideline s : Relevant to and consistent with the specific agencys vision, strategy and objectives

Focused on agency wide strategic value rather than non-critical local business outcomes selection of the wrong KPI can result in counterproductive behaviour and sub optimised outcomes; Representative appropriate to the agency together with its operational performance; Realistic fits into the agencys constraints and cost effective; Specific clear and focused to avoid misinterpretation or ambiguity; Attainable requires targets to be set that are observable, achievable, reasonable and credible under expected conditions as well as independently validated; Measurable can be quantified/measured and may be either quantitative or qualitative; Used to identify trends changes are infrequent, may be compared to other data over

a reasonably long time and trends can be identified; Timely achievable within the given timeframe; Understood individuals and groups know how their behaviours and activities contribute to overall agency goals; Agreed all contributors agree and share responsibility within the agency; Reported regular reports are made available to all stakeholders and contributors; Governed accountability and responsibility is defined and understood; Resourced the program is cost effective and adequately resourced throughout its lifetime; and Assessed regular assessment to ensure that they remain relevant.

David Paramer : 1. Are nonfinancial measures (e.g., not expressed in dollars, yen, pounds, euros, etc.) 2. Are measured frequently (e.g., 24/7, daily, or weekly) 3. Are acted on by the CEO and senior management team 4. Clearly indicate what action is required by 5. Are measures that tie responsibility down to a team 6. Have a significant 7. They encourage appropriate action Are realistic fits into the constraints of the organization and is cost effective. Specific clear and focused to avoid misinterpretation or ambiguity; Attainable requires targets to be set that are observable, achievable, reasonable and credible under expected conditions as well as independently validated; Measurable can be quantified/measured and may be either quantitative or qualitative; Used to identify trends changes are infrequent, may be compared to other data over a reasonably long time and trends can be identified; Timely achievable within the given timeframe; Understood individuals and groups know how their behaviours and activities contribute to overall agency goals; Agreed all contributors agree and share responsibility within the agency; Reported regular reports are made available to all stakeholders and contributors; Governed accountability and responsibility is defined and understood; Resourced the program is cost effective and adequately resourced throughout its lifetime; and Assessed regular assessment to ensure that they remain relevant.

10/80/10 Rule
Kaplan and Norton1 recommend no more than 20 KPIs. Hope and Fraser2 suggest fewer than 10 KPIs. The 10/80/10 rule is a good guide. That is, there are about 10 KRIs, up to 80 RIs and PIs, and 10 KPIs in an organization (see Exhibit 1.5). Very seldom are more measures needed, and in many cases even fewer measures are necessary. Organization is made up of many businesses from very different sectors; in that case, the 10/80/10 rule can apply to each diverse business, providing it is large enough to warrant its own KPI rollout.

KPI Development Process

The KPI Development process is developed based on Deming Cycle (PDCA) cycle . Key Performance Indicators (KPIs) help organizations understand how well they are performing in relation to their strategic goals and objectives. In the broadest sense, a KPI provides the most important performance information that enables organizations or their stakeholders to understand

whether the organization is on track or not. KPIs serve to reduce the complex nature of organizational performance to a small number of key indicators in order to make it more digestible . The fig shows the PDCA approach of KPIs

Monitor Progress Take Corrective Action

Need Determining Drivers Define Indicators

Act

Plan

Check
Collect Data Create Improvement Plan

Do
Find Owners Keep Score Prioritise

Step1: Understand and define strategic objectives

KPIs should be clearly linked to the strategy, i.e. the things that matter the most. Once you have agreed, defined and mapped your strategic objectives you can design KPIs to track progress and gain relevant insights to help manage and improve performance. KPIs have to provide you with answers to your most important questions.
Step 2 : Identification of Key Performance Questions

KPQ captures precisely what managers need to know for the delivery of strategic objectives. KPQs steers the KPI designers into asking: what is the best data and management information that we need to collect in order to help us answer our most important and unanswered questions? Starting with KPQs ensures that all subsequently designed performance indicators are relevant. Moreover, KPQs put performance data into context and therefore facilitate communication, guide discussion and direct decision making. KPQs should be open questions and not closed and should look forwards and not backwards. For example simple, ask how well are we managing our budget rather than have we met our budget.
Step 3 Defining the need for Measuring KPIs

Separating out strategic and operational KPIs is very important, its equally vital that organizational leaders understand the broader purpose of collecting metrics be they strategic or not. The three main reasons for measuring performance are:

To lean and improve To report externally and demonstrate compliance To control and monitor people

Measuring to learn and improve performance In this application, KPIs are used to equip employees with the information they need to make better and more informed decisions, with the goal of triggering performance improvement. In this context, KPIs are used internally as the evidence to inform management decisions, to challenge strategic assumptions and for continuous learning and improvement.

Measuring to report externally and demonstrate compliance In this application, KPIs are used to inform external stakeholders and to comply with external reporting regulations and information requests. When measuring for external reporting and compliance purposes, any reports and associated indicators can either be produced on a compulsory basis such as annual financial statements, accounts, or performance reports for regulators; or can be on a voluntary basis such as environmental impact reports, for example.

Measuring to control and monitor people In the final application, KPIs are used in a top-down command-and-control fashion to guide and control peoples behaviors and actions. Here, measures are used to set goals or rules, to objectively assess the achievement of these goals and to provide feedback on any unwanted variance between achievements and goals. The aim is to eliminate variance and improve conformity. In this context, measures are often tightly linked to reward and recognition structures.
Step 4 : Analysis of Data

Those organizations that use KPIs to learn and improve routinely use indicators to extract relevant insights, The fact is that once organizations have collected meaningful data, they must analyze it before they can work out what it means e.g., how they may need to change things to improve success against key strategic goals.

Step 5 Reporting of Data

Analytics is most powerful when the analyst (or whoever is conducting the analysis) has both qualitative and quantitative metrics to work with. Most organizations have a preference for choosing quantitative metrics (those collected in numbers). This is not surprising as quantitative data is easier to collect and to translate into meaningful metrics. However, it is important to balance numeric data with qualitative (non numeric) assessment of performance, as this can be a powerful way to highlight issues that are important to customers and stakeholders.

Metrics should be actionable. Measures that are nice to know but do not trigger stepchange performance improvement typically have no place on in strategic performance management systems. For instance if an organization has an objective to retain talent and has clearly defined what constitutes talent and has an agreed common enterprise-wide metric, and the measures shows that strategically critical employees are walking out the door, then this should trigger an intervention. Simply put, we have a strategic objective, the measure indicates we are failing to meet that goal and so we do something about it. This represents the most basic, and oldest, premise of performance management turning strategy into action

The API Key Performance Indicator Template

To help organization select appropriate KPIs, API has created a 20-point Indicator Design Template which has been used successfully in many of its clients. Strategic Objective Which strategic objective is this indicator relating to? Key Performance Question (KPQ): 2 What Question do you want to have an answer to? What are our information needs? 3 Who is asking this question? Who is the information customer? 4 What will they do with the information? Why are they asking? Performance indicator basics: 5 KPI ID 6 KPI Name 7 KPI Owner How will the data be collected 8 What is the data collection method? 9 What is the source of the data? 10 What is the formula / scale / assessment method? 11 How often, when and for how long do we collect the data? 12 Who collects the data? Target 13 What is the target or performance threshold(s)? Good measures tests 14 How well is the indicator measuring performance? 15 What are the costs for collecting the data? Justified? 16 What dysfunctional behavior could this indicator trigger? Reporting 17 Who is the primary and secondary audience for this indicator 18 Reporting frequency (when and for how long will this indicator be reported?) 19 Reporting channel (which channels will be used to report this indicator?) 1

20

Reporting formats (in which formats will the information be reported?)

Benchmarking
A benchmark is a standard of excellence or achievement used to compare and measure against. It represents a best in class performance for a specific process that can be used to compare against in an effort to drive improvement. Essentially, it is about looking at the way things are done and seeing why the performance is at a certain level, and using external comparators to improve performance. It uses data as evidence to identify who is performing better and using that understanding to drive improvement. Internal an internal benchmark is concerned with comparing against the best within your own organization, such as the performance between different construction projects for example. The data is easy to collect and practices more easily transferred, however it is unlikely to be a spur for large scale innovation. Competitive a competitive benchmark is comparing processes between organisations within the same industry. This will be directly relevant to your processes, and could provide large levels of innovation. However, it is often difficult to collect comparative benchmarks unless you are a member of a Benchmarking Club . An example of a competitive benchmark may be Health and Safety records. Generic a generic benchmark is concerned with comparing the same or similar process, but within a different industry. This may lead to high levels of innovation, but there may be difficulties in adapting practices from radically different industries. An example of a generic benchmark might be a comparison between construction and aerospace supply chain management techniques. Functional Benchmarking - A company will focus its benchmarking on a single function
in order to improve the operation of that particular function. Complex functions such as Human Resources, Finance and Accounting and Information and Communication Technology are unlikely to be directly comparable in cost and efficiency terms and may need to be disaggregated into processes to make valid compariso

Process of Benchmarking

Planning

Collection of Information

Analysis of Data

Implementation

Monitoring

Planning:

Prior to engaging in benchmarking, it is imperative that stakeholders identify the activities that need to be benchmarked. The next step in the planning process would be for the company to choose an appropriate benchmark against which their performance can be measured. The benchmark can be a single entity or a collective group of companies, which operate at optimal efficiency. if such a company operates in a similar environment or if it adopts a comparable strategic approach to reach their goals, its relevance would, indeed, be greater. Measures and practices used in such companies should be identified, so that business process alternatives can be examined. Also, it is always prudent for a company to ascertain its objectives, prior to commencement of the benchmarking process. The methodology adopted and the way in which output is documented should be given due consideration too

Collection of Information

Information can be broadly classified under the sub texts of primary data and secondary data. To clarify further, here, primary data refers to collection of data directly from the benchmarked company/companies itself, while secondary data refers to information garnered from the press, publications or websites. Exploratory research, market research, quantitative research, informal conversations, interviews and questionnaires, are still, some of the most popular methods of collecting information. When engaging in primary research, the company that is due to undertake the benchmarking process needs to redefine its data collection methodology. Drafting a questionnaire or a standardized interview format, carrying out primary research via the telephone, e-mail or in face-to-face interviews, making on-site observations, and documenting such data in a systematic manner is vital, if the benchmarking process is to be a success.

Analysis of Data

Once sufficient data is collected, the proper analysis of such information is of foremost importance. Data analysis, data presentation , results projection, classifying the performance gaps in processes, and identifying the root cause that leads to the creation of such gaps commonly referred to as enablers, need to be then carried out.

Implementation This is the stage in the benchmarking process where it becomes mandatory to walk the talk. This generally means that far-reaching changes need to be made, so that the performance gap between the ideal and the actual is narrowed and eliminated wherever possible. A formal action plan that promotes change should ideally be formulated keeping the organization's culture in mind, so that the resistance that usually accompanies change is minimized. Ensuring that the management and staff are fully committed to the process and that sufficient resources are in place to meet facilitate the necessary improvements would be critical in making the benchmarking process, a success. Monitoring As with most projects, in order to reap the maximum benefits of the benchmarking process, a systematic evaluation should be carried out on a regular basis. Assimilating the required information, evaluating the progress made, re-iterating the impact of the changes and making any necessary adjustments, are all part of the monitoring process.

Case Studies of benchmarking in india infrastecture sector (railway or service level benchmarking )

Performance Assessment Systems (PAS) for urban water and sanitation in all local governments in two states (Gujarat and Maharashtra) in India.

PAS Project: Framework for Performance Assessment

Performance measurement is a key first component of the PAS Project. The Performance Measurement Framework (PMF) includes the overall approach, key indicators for performance measurement and reliability assessment to respond to data quality issues. Figure 2 outlines the approach to PMF for the PAS Project. The key performance indicators (KPIs) are distinguished for service delivery outcomes (or main goals of public services) and intermediate operational outcomes that reflect the plans and reforms needed to achieve the service delivery goals. This enables distinct identification of goals and reforms needed to achieve these goals. Service Goals are identified on the basis of a review of the Government of India (GoI) and state government objectives. Table 1 provides details of key service goals and related benchmarks for: (a) universal coverage; (b) levels and quality of services; and (c) financial sustainability. The Performance Measurement Framework has identified a set of KPIs under these themes, which would help central and state level governments/agencies to monitor progress of cities.

Table 1: Service Goals: Key Performance Indicators and

Benchmarks
B. Intermediate Operational Outcomes Key Reforms Efficiency in service operations

 Equity in service delivery A. Service Delivery Outcomes Service Goals Universal access and coverage Service levels and quality Financial sustainability C. Selected Indicators for Local Action For instance, for equity, water quality, nonrevenue water, consumer grievance redressal, staffing, revenue and billing Goals Water supply Sanitation/ wastewater 1. Coverage: % of households with access to individual toilets (100%) 2. Coverage: % of households with individual connections to sewerage network (100%) Solid waste management 1. Coverage: % of households and establishment s covered by municipal daily doorto door SWM services (100%) 2. Collection efficiency: % collection of solid waste generated in the city (100%) Storm Water Drainage 1. Coverage of storm water drainage network (100%)

Universal access and coverage

1. Coverage: % of households with individual connections to water supply network (100%)

Service levels and quality

2. Per capita supply of water (172 lpcd for metro cities, 155 lpcd for other cities with sewerage and 92 lpcd without sewerage)

3. Collection efficiency: % collection of waste water generated where sewerage/underground drainage exists (100%)

2. Incidence of water logging/ flooding (0)

Goals

Water supply

Sanitation/ wastewater 4. Sewage treatment: % capacity to treat waste water collected through sewerage/open drains to required standards (100%)

Service levels and quality

3. Continuity of water supply: (i) short term: daily supply at regular hours; (ii) 24*7 over time 4. Quality of water supplied: % of samples at meeting the required standards (100%)

Solid waste management 3. Segregation: % of waste at disposal/treat ment point segregated (100%) 4. Recycling: % of total solid waste recycled or processed (>80%)

Storm Water Drainage

Financial viability

5. Cost recovery: % recovery of O&M costs for water supply through ULB level taxes and charges (100%)

5. Cost recovery: % recovery of O&M costs for waste water through ULB level taxes and charges (100%)

5. Cost recovery: % recovery of O&M costs for SWM through ULB level taxes and charges (100%)

Note: Figures in brackets are the goals (benchmarks) under the GoIs SLB Initiative. Some benchmarks have been adjusted to reflect the Central Public Health and Environmental Engineering Organisation (CPHEEO) norms or the situation at the state level. For per capita supply, refer CPHEEO (1999) Table 2.1, p. 11.