On Key Performance Indicators (KPIs)

KPIs…naturally

Measurement as a human activity is not new. It emerged in early history as a mean for discovery
and sense making. Archaeologists consider the first measurement tool used in human history to
be the Lebombo bone, a baboon fibula containing 29 cut notches. Dated 35,000 BC, this tally
stick was discovered in the Lebombo mountains in Swaziland.

Evaluation, as a form of measurement was used as early as the 3rd Century AD, when emperors
of the Wei Dynasty rated the performance of the official family members. The biased nature of
individual performance evaluation was noticed by Chinese philosopher Sin Yu, who reportedly
criticized a rater employed by the Wei Dynasty with the following words: “The Imperial Rater of
Nine Grade seldom rates men according to their merits, but always according to his likes and
dislikes”.

A major milestone in making the connection between measuring as a human activity and
performancewas in 1494, when Luca Pacioli published in Venice ‘Summa de arithmetica,
geometrica, proportioni et proportionalita’ (‘Everything on arithmetic, geometry, proportions and
proportionality’). It detailed a practice the Venetian sailors had in place to evaluate the
performance of their sailing expeditions, which became the basis of the double-entry accounting
system.

The subjective nature of individual performance evaluations and the dominance of financial
indicators for evaluating enterprise performance became stepstones for performance
management in human activities.

The industrial revolution added to this combination the “organization as a machine” metaphor
that played a major role in driving improvements in efficiencies and effectiveness. The result
was an organizational performance management model based on mechanistic, command-and-
control thinking, driven by subjective individual assessments and financial indicators and
crowned by pay-for-performance arrangements.

Did it work? To a certain extent, yes. Many organizations flourished and matured based on this
model.

Does it have flaws? Many. And while historical circumstances attenuated them in time, today’s
environment amplifies and exposes them at an accelerated rate.

Is there a better way? Yes, but it is not simple. It requires a change at multiple levels, from the
underlying philosophy of performance, to mentalities and processes. This is not easy.

Over time, the use of Key Performance Indicators (KPIs) became synonym to performance
measurement and management. KPIs are the link between the old and the new in performance
management. Their use, however, is much richer and rewarding in an environment based on
organic performance architecture principles:

Organizations are echo-systems in their own right. They vary in terms of maturity and the
environment in which they operate. As such, their use of performance management systems
should reflect their own “personality”. You can try an igloo in Sahara, but it won’t work. The
performance architecture of each organization needs to be unique and to reflect its internal and
external environment.

System thinking provides a much richer context for understanding and improving
performance. Command-and-control worked in time for the army, for increasing productivity of
unskilled workers during the industrial revolution and for organizing large organizations (such as
the public service). Today, knowledge workers form the majority of the workforce in developed
economies, operate in a much more interconnected environment and have to make decisions at
an accelerated pace. Understanding the systems in which we operate, analyzing flow and
learning based on data become ever more important today, and complement the traditional
simplistic managerial approach of executing orders from above.

KPIs should be used primarily for learning. The role of KPIs should be the one of providing
the required information to assist in navigating towards the desired results. The same principle is
used by ants, who leave pheromone trails to assist each other in navigating towards the food
source. Similarly, the nerve impulses travel through the different points of the nervous system,
transmitting information. KPIs results should travel through the organization, facilitating
communication, providing a base for analysis /synthesis and ultimately decision making across
all levels of the organization.

Data accuracy in human administration is an elusive desideratum. Niels Bohr once said:
“Accuracy and clarity of statement are mutually exclusive”. Accuracy is a challenge in exact
sciences and even more in human administration. Striving to obtain any KPI data is a challenge
in itself for many organizations and data accuracy is an even bigger ask. The use of KPIs should
acknowledge this aspect and be oriented towards making the most out of existent data,
oftentimes by using variance intervals. This approach is used by the human body. If the
temperature drops under a safe limit, we shiver. If the temperature increases, we sweat. Both are
performance improvement initiatives of the body, aimed to regulate its temperature back to safe
limits. The KPI here is the temperature. While it is not a constant, its trend is good when within
certain safe limits.

The use of KPIs for rewards and punishment should be limited and driven by self-
assessment. Purposeful oriented behavior is a characteristic of living organisms. For humans and
many other species, this behavior is amplified by rewards and punishment. Along with this
amplification, risks are amplified, too. Gaming of results, lack of cooperation, decreased morale
and work accidents are some of the undesired consequences. On the other hand, the majority of
nerve impulses in the human body transmit general information. Only in particular situations,
pleasure or pain signals. Similarly, the use of KPIs for rewards and punishment should be the
exception to the rule, rather than the norm.
Embedding KPIs in organizations through visualization and communication of KPIs
results is the key to maximizing their value added. Variations in the KPIs used by the human
body are felt by our senses as their impact is sensory rich. Similarly, KPIs used in an
organizational context should be embedded in everyday use and be a part of the working
experience. The most important aspect of communicating KPI results is their visual
representation. This is key, both in terms of optimizing the layout of the data representation and
the presence of visual displays in the working environment. The range of media is diverse today:
posters, whiteboards, banners, LED and LCD monitors should be combined to bring results to
life across the organization. KPI results should not be restricted to paper reports and computer
screens anymore.

New philosophy of performance, driven by self-assessment and purposeful achievement as

a mean to happiness. While happiness means many things to many, a common expression of
this feeling is the result of the purposeful achievement of a desideratum. Achieving something
we want, while shared with others, is about us and reverberates strongly in our inner self.
Transposing this powerful catalyst of performance in both our personal and organizational life is
facilitated by a new paradigm: Happiness is driven by achievement. Achievement is an
expression of performance. If we want to be in control of our happiness, we should be in control
of our performance.

Self-assessment of performance results is not easy. However, if more emphasis is placed on

building this capability in each employee, organizations can benefit by creating a rewarding
environment conducive to happiness. In this environment, managers can focus on understanding
and improving the working system, while employees can focus on self-assessment of the results’
achievement, learning and communicating. Purposeful achievement of results in a well-
structured working system would bring both individuals and organization much closer to
happiness and fulfilment compared to the payment of bonuses in the current command-and-
control driven dominant paradigm.

KPIs are here to stay. The question we have to answer is how do we want to use them:
mechanistically or naturally?

Measure, Metric, Performance Indicator or Key Performance Indicator?

In many domains of human activity, the use of tools is essential for the achievement of results.
Measurement and evaluation make no exception, being equipped with both conceptual and
physical tools. Of the first category, at the core of any performance measurement and
management system are the measures, metrics, indicators or KPIs used.

Both academic and practitioner literature uses interchangeably these terms, oftentimes even
within the same organization. At smartKPIs.com, we have adopted the following definitions for
these terms:
Measure - A number or a quantity that records a directly observable value or performance. All
measures are composed of a number and a unit of measure. The number provides magnitude
(how much) for the measure, while the unit gives number a meaning (what). Examples of unit
measures are: dollars, hours, meters, inches, etc.

Indicator - Indicators are defined in many ways but the common sense for all of them is that
they refer to specific information. Thus, the Organisation for Economic Co-operation and
Development (OECD) defines an indicator as “a qualitative or quantitative factor or variable that
provides a simple and reliable means to measure achievement, to reflect changes connected to an
intervention, or to help assess the performance of a development actor”.

Metric, Performance Measure or Performance Indicator - A generic term encompassing the

quantitative basis by which objectives are established and performance is assessed. It helps
quantify the achievement of a result, the quantifiable component of an organization's
performance. In the context of measuring and managing performance these terms are used
interchangeably.

Key Performance Indicator (KPI) - A selected indicator considered key for monitoring the
performance of a strategic objective, outcome, or key result area important to the success of an
activity and growth of the organization overall. KPIs make objectives quantifiable, providing
visibility into the performance of individuals, teams, departments and organizations and enabling
decision makers to take action in achieving the desired outcomes. Typically, KPIs are monitored
and distributed in dashboards, scorecards and other forms of performance reports.

While on paper the terms listed above can be differentiated, in practice the difference the
difference between them is blurred and at some extent irrelevant. As long as their purpose and
use is clear and understood by members of the organization, whether they are called performance
measures or KPIs is a matter of preference.

What is a smartKPI?

At smartKPIs.com, we assess each example entered in the online database and label it as
measure, performance indicator or KPI. It is an empirical and subjective approach to catalogue
each entry based on relevance. Ultimately, all entries in the online database are considered KPI
examples. In addition, to single out the entries that stand out in terms of relevance, we introduced
a new label:

smartKPI - A Key Performance Indicator example available on smartKPIs.com, that is

recommended as being the most relevant and truly "Key" for organizational performance. They
are selected by the editorial team of the website based on criteria such as:

 Listing in academic and practitioner publications that analyze their usefulness;

 Frequency of use by Functional area / Industry;
 Fulfillment of the criteria of how good KPIs should be defined and used.
Performance measurement terminology popularity

Regarding the popularity of performance measurement terminology, as of March 2011,

www.google.com searches illustrated the following results:

 “kpi” = 7,520,000 results

 “kpis” = 7,330,000 results
 “key performance indicator” = 298,000 results
 “key performance indicators” = 1,690,000 results
 “performance measure” = 891,000 results
 “performance measures” = 6,180,000 results
 „performance indicator” = 420,000 results
 „performance indicators” = 10,700,000 results

Types of KPIs – A taxonomy

The following list provides an explanation of several popular terms characterizing KPIs

Leading KPI - Drive the performance of the outcome measure, being predictor of success or
failure.. Examples of leading indicators are: “%Employees involved in the innovation process”,
“% Conversion rate”, or “%Inventory quality ratio (IQR).

Lagging KPI - Type of indicator that reflect the success or failure after an event has been
consumed. Examples include: “$ Operating profit per room”, “$ Earnings before interest and
taxes (EBIT)”, or “$ Cost avoidance savings”.

Input KPI - Reflects assets and resources invested in or used to generate business results.
Examples include: "# Headcount", "$ Cost per broadcast hour" and "# Knowledge materials
distributed to employees".

Process KPI - Refers to the efficiency or productivity of a business process. Examples include:
"# Product-repair cycle time," "% On time delivery" "# Conflicts arose during the project", "#
Average call handling time", and “# Mean time to repair".

Output KPI - Measures the financial and nonfinancial results of business activities. Examples
include: "$ Bonus payout", "# New customers acquired", or “$ Revenue per successful call”

Outcome KPI - Reflects overall results or impact of the business activity in terms of generated
benefits, as a quantification of performance. Examples include: “% Customer retention”, “%
Employee turnover” or “% Brand awareness”
Qualitative KPI - A descriptive characteristic, an opinion, a property or a trait. The most
common ones gauge customer or employee satisfaction through surveys. While the survey data
itself is quantitative, the measures are based on a subjective interpretation of a customer’s or
employee’s opinions.

Quantitative KPI - A measurable characteristic, resulted by counting, adding, or averaging

numbers. Quantitative data is most common in measurement and therefore forms the backbone
of most KPIs. Operational systems that manage inventory, supply chain, purchasing, orders,
accounting, financial systems, all gather quantitative data by means of KPIs. Other examples of
quantitative KPIs are “# Employee tenure”, “# Units per man-hour” or “# Maintenance backlog”

Functional area KPI - A KPI that is relevant for an organizational main capability and is valid
across multiple organization typed and industries.

Industry KPI - A KPI that is specific for a particular line of operations or industry

Note: The management of a particular situation, however, will often require a combination of
more than one of the above. Performance indicators should be actionable in the sense that when
an indicator reflects a situation or change that exceeds a pre- agreed tolerance, managerial
intervention or corrective actions should be possible.

All KPIs are based upon measurement. There are different types of measurements with the use of
KPI.

 Binary or absolute: these are in effect ‘yes’ or ‘no’ KPIs, and they are indicators of
whether a ‘desired state’ is present or not.
 Comparative: these KPIs take the situation as it is and measure it to against a relevant
and anticipated state:

- comparisons of cost, savings, efficiency gains, etc actual against budgets or plans

- comparison of system development progress with pre-approved schedule

- comparison against industry or sector benchmarks

- comparison against known result for the organization for a similar period or event or project.

 Trend based: these KPIs require the collection and presentation of comparative
information across a period of time:

- systems performance

- software development performance against schedule

- software maintenance backlog

A KPI taxonomy by Functional Area and Industry

KPIs by Functional Area

Accounting KPI

 Accounting Systems KPI

 Cash Management KPI
 Control KPI
 Cost Analysis KPI
 Planning and Reporting KPI
 Transactions / Accounts Payable / Accounts Receivable KPI

Corporate Services KPI

 Administration / Office Support KPI

 Corporate Travel KPI
 Facilities / Property Management KPI
 Legal Services KPI

CSR / Sustainability / Environmental Care KPI

 Corporate Social Responsibility KPI

 Environmental Care KPI

Finance KPI

 Asset / Portfolio management KPI

 Financial stability KPI
 Forecasts & Valuation KPI
 Liquidity KPI
 Profitability KPI

Governance, Compliance and Risk KPI

 Compliance and Audit Management KPI

 Governance KPI
 Risk Management KPI

Human Resources KPI

 Compensation and Benefits KPI

 Efficiency and Effectiveness KPI
 Recruitment KPI
  Retention KPI
 Service Delivery KPI
 Talent Development KPI
 Workforce KPI
 Working Environment KPI

Information Technology KPI

 Application Development KPI

 Enterprise Architecture KPI
 IT - General KPI
 IT - Security KPI
 Network Management KPI
 Service Management KPI

Knowledge and Innovation KPI

 Innovation KPI
 Knowledge Management KPI
 R & D KPI

Marketing & Communications KPI

 Advertising KPI
 Marketing KPI
 Public Relations KPI

Online Presence - eCommerce KPI

 eCommerce KPI
 Email Marketing KPI
 Online Advertising KPI
 Online Publishing - Weblogs KPI
 Search Engine Optimization (SEO) KPI
 Web Analytics KPI

Portfolio and Project Management KPI

 Benefits Realization Management KPI

 Portfolio Management KPI
 Project Management KPI

Production & Quality Management KPI

 Maintenance KPI
 Production KPI
  Quality Management KPI

Sales and Customer Service KPI

 Customer Service KPI

 Sales KPI

Supply Chain, Procurement, Distribution KPI

 Contract Management KPI

 Inventory Management KPI
 Logistics / Distribution KPI
 Procurement / Purchasing KPI
 Supply Chain Management KPI

KPIs by Industry

Agriculture KPIs

 Crops KPIs
 Forestry and Logging KPIs
 Livestock, Hunting and Fishing KPIs

Arts and Culture KPIs

 Event Production and Promotion KPIs

 Libraries and Archives KPIs
 Museums KPIs

Construction & Capital Works KPIs

 Civil Engineering KPIs

 Construction of Buildings KPIs

Education & Training KPIs

 Academic Education KPIs

 Training and Other Education KPIs

Financial Institutions KPIs

 Banking, Mortgages and Credit KPIs

 Insurance KPIs
 Investments KPIs

Government - Local KPIs

  Budget and Finance KPIs
 Community - Quality of Life KPIs
 Culture, Recreation and Entertainment KPIs
 Economic & Business Affairs KPIs
 Environment KPIs
 General Local Administration KPIs
 Public Safety KPIs
 Public Services KPIs
 Social Services KPIs

Government - State / Federal KPIs

 Agriculture, Fisheries and Forestry KPIs

 Education KPIs
 Employment and Workplace Relations KPIs
 Finance / Treasury KPIs
 Foreign Affairs and Trade KPIs
 General State Administration KPIs
 Healthcare KPIs
 Human / Social Services KPIs
 Law and Justice KPIs
 Military, Security and Defense KPIs
 Resources and Energy KPIs
 Tourism KPIs
 Transportation and Infrastructure KPIs

Healthcare KPIs

 Emergency Response / Ambulance Services KPIs

 Healthcare Support Services KPIs
 Hospitals KPIs
 Medical Laboratory KPIs
 Medical Practice KPIs
 Preventive Healthcare KPIs
 Veterinary Medicine KPIs

Hospitality & Tourism KPI

 Food and Beverage Service KPIs

 Hotel / Accommodation KPIs
 Tour Operator KPIs
 Travel Agency KPIs

Infrastructure Operations KPIs

 Airports KPIs
  Ports KPIs
 Railways KPIs
 Roads KPIs

Manufacturing KPIs

Media KPIs

 Broadcasting (TV and Radio) KPIs

 Film and Music KPIs

Non-profit / Non-governmental KPIs

Postal and Courier Services KPIs

Professional Services KPIs

 Accounting Services KPIs

 Business Consulting KPIs
 Engineering KPIs
 Legal Practice KPIs
 Recruitment / Employment Activities KPIs

Publishing KPIs

Real Estate / Property KPIs

 Property Management KPIs

 Real Estate Development KPIs
 Real Estate Transactions KPIs

Resources KPIs

 Coal and Minerals Mining KPIs

 Oil and Gas KPIs
 Sustainability / Green Energy KPIs

Retail KPIs

Sport Management KPIs

 Coaching / Training KPIs

 Sport Club Management KPIs
 Sport Event Organization KPIs

Sports KPIs
  American Football KPIs
 Badminton KPIs
 Baseball KPIs
 Basketball KPIs
 Cricket KPIs
 Football / Soccer KPIs
 Rugby KPIs
 Tennis KPIs

Telecommunications / Call Centre KPIs

 Call Centre KPIs

 Telecommunications KPIs

Transportation KPIs

 Airlines KPIs
 Land Transport (Road & Rail) KPIs
 Local Public Transport KPIs
 Marine Transport / Shipping KPIs

Utilities KPIs

 Electricity KPIs
 Natural Gas KPIs
 Water and Sewage KPIs

KPIs formulation and selection

The saying “What gets measured gets done” illustrates the importance of the right things being
measured and inappropriate things being left out. The choice of KPIs will have a major impact
on the operation and direction of the organization, and knowledge of the factors driving behavior
and influencing performance becomes crucial.

An organization tackling the task of developing a suite of KPIs needs to address a couple of
questions like:

 What topics should the KPIs focus on? and

 What aspects should be measured with KPIs?

Focus on the right topics

KPIs should focus on aspects that are important for the organization. This means that the
organization should be at all-time clear about what is seeking to achieve – its core objectives-
and how is going to achieve them. KPIs should focus on the actions and services provided at
each level in the organization to achieve its objectives. High level KPIs will address corporate
issues while lower level KPIs will look at operational and day to day matters. Also an important
rule is that organizations should be careful to avoid the common pitfall of measuring that which
is easily measured, rather than that which should be measured.

Focus on the right KPIs

It is important to develop a balanced set of KPIs that reflect all the aspects of the service. There
are several different frameworks that can be used to do this.

 The 3Es framework: use the three dimensions of economy, efficiency and effectiveness
 The Balanced Scorecard: suggests that four perspectives are needed in an KPI set to
present a comprehensive view of the performance of the organization (service, user
perspective; internal management perspective; learning perspective and financial
perspective)
 Best Value KPI

Focus on KPIs formulation

The formulation of the right KPIs should follow certain specific steps. First of all, avoid
reinventing the wheel. The World Wide Web gives access to a vast range of KPIs and may
therefore be great help in a first orientation.

Secondly, attempts to formulate a complete indicator straight away seldom results in good
quality KPIs. Therefore, based on the characteristics of SMART KPIs (Specific, Measurable,
Achievable, Relevant, Time-bound) during the formulation of a KPI, the following questions
need to be asked:

 What? (brainstorm on the variables, which may provide means to measure change in the
objectives or phenomena)
 How much? (to define the magnitude of the change we want to achieve)
 Who? (in order to clarify who belongs to the target group)
 Where? (specific information on the intervention area)
 When? (definition of the time frame)

A taxonomy of sources used for KPI selection

Working with Key Performance Indicators (KPIs) requires selecting a group of relevant KPIs
first. There are many options for this: start with a blank page, review other sources, or get
someone else (such as a consultant) to do this for you among others.

Some of the general rules to follow on embarking on such a journey are:

  Do your research. Selecting KPIs is a learning experience, a journey in itself. There are
many insights to gain by taking it step by step instead of just getting to the destination.
Research is an important component of this journey.
 Acknowledge the uniqueness of your environmental settings. While some KPIs are
widely used across organizations (i.e. % Satisfied customers, $ Sales revenue and %
Profit rate), others are unique to each organizations as they reflect their strategy and
specific conditions of operating. Each organization should select the KPIs based on their
relevance and not on their popularity.
 Clarify what you want to achieve. If you want to improve things and learn from KPIs,
you should not avoid selecting challenging KPIs, difficult to measure or difficult to
improve. The easy choice is selecting KPIs that make you look good. While this may
serve some purpose on the short term, on the medium to long term it will impact the
relevance and credibility of KPIs in the organization.

Having these general rules in mind, the question is: “Where do we do our research to inform the
KPI selection process?”. The main sources of information can be grouped in three categories:

Primary Sources

 Front-line employees input – they are at the core of the value generation chain and know
what matters for operational success.
 Input from managers – due to their perspective across the value generation process, role
in shaping strategy and their relationship with various stakeholders.
 Board input – in many instances they mandate the use of specific KPIs and their selection
in strategic / operational is non-negotiable.
 Input from suppliers – their insight in the supply chain is valuable as they can bring an
external perspective to what needs to be measured and improved
 Customer input – their opinion matters.

Secondary sources

 Strategic development plan (3-5 years)

 Annual business/strategic plan
 Annual reports
 Internal operational reports
 Competitor review reports

External sources

 Printed catalogues (books such as: Performance Prism)

 Online catalogue (www.smartKPIs.com)
 Annual reports of other organizations (a good repository is KPIs in Practice)
 Expert advice (recommended lists such as the one in Performance Architect Update 35)
 Questions in discussion forums (such as LinkedIn or Answers)
Individually or in combined, these sources can generate a list of prospective candidates for KPI
selection, anchored to organizational objectives. Ultimately the decision on which KPIs will be
used should be based on discussions within the organization to determine the most relevant ones.
Consultants can be useful in this process as facilitators, but not necessarily as “fountains of
truth”. Their role should be more as guides on this journey, providing tools, information and
advice, but not developing the final list of selected KPIs in an ivory tower.

Using KPIs

KPIs are the measures that monitor the performance of key result areas of business activities,
which are absolutely critical to the success and growth of the business. The development and use
of the KPIs should form the basis for the analysis of an organization’s current performance, its
future requirements and the improving strategies required for ongoing success.

Getting the most from your KPIs

The ultimately purpose of performance management being to drive future improvements in

performance, there are two main ways you can use KPIs to achieve this kind of management
power.

The first is to use your KPIs to spot potential problems or opportunities. Remember, your KPIs
tell you what's going on in the areas that determine your business performance. If the trends are
moving in the wrong direction, you know you have problems to solve. Similarly, if the trends
move consistently in your favor, you may have greater scope for growth than you had previously
forecast.

The second is to use your KPIs to set targets for departments and employees throughout your
business that will deliver your strategic goals.

Principles

During the use and applications of KPIs certain principles should be taken in consideration:

 KPIs should not be an end in themselves, but be considered as an aid to management.

They are a start to a proper informed debate that should lead to a plan for improvement.
 KPIs should be seen within their local context and have more a meaning as a comparison
over time than as a comparison between organizations.
 A set of KPIs should be balanced. For example, measures of efficiency should be set
against measures of effectiveness and measures of cost against quality and user
perception.
 After being proposed and applied, KPIs should be reviewed and updated. The review
determines the management utility of each indicator and the feasibility of getting source
data for continuing use.
  The targeted performance description, which is described in measurable terms through
the KPIs, must be deployed to the organizational level that has the authority and
knowledge to take the necessary action.

Every initial proposal for KPIs is expected to be imperfect. However, it is important for the
organizations to understand and apply the appropriate KPIs so that they can develop some
experience in using them from which they can derive real expertise.

KPI visualization and enabling software

The premise behind data visualization is that looking directly at the numbers is not always the
best way to understand the data. Data visualization is the process of converting raw numerical or
tabular data into a graphical depiction of the data. One of the main goals of data visualization is
to support decision making through the use of properly designed graphical representations of
information. When information is presented in a visual format, it allows users to more quickly
perceive patterns or properties that may not have been anticipated or even discovered had the
data been displayed differently - allowing users to draw valuable conclusions more intuitively,
holistically and rapidly. In relation with KPI visualization and representation graphical
approaches adopted by the public and private sector include:

KPI Dashboard

This is an analogue of a vehicle dashboard or aircraft cockpit display. The intention is to provide
the person with a graphical representation of KPIs that enable them to take action. Techniques
applied include digital, ribbon and dial displays, moving bar graphs, and ticker tape analogues.
Dashboards, which provide graphical depictions of up-to-the-minute KPIs across a company, are
becoming increasingly vital. Customized information relating to the KPIs can be integrated from
multiple components into a unified display. The goal is to respond faster to change and put out
fires before it is too late. Dashboards may be customized in a multitude of ways to display
various data points and provide a powerful way of monitoring the organization's performance in
real time.

By visualizing data through the use of charts, graphs and maps, properly designed dashboards
provide a high-level view combined with the ability to drill down into underlying information
thus making it easier to identify trends and locate exceptions to the trends The proper use of
color in a dashboard cannot be underestimated. For example, some managers might like a display
that looks similar to a series of stoplights, which is populated with KPIs such as daily sales or
hourly factory output. If all systems are green, the situation is fine. If one turns red, there is a
problem that needs immediate resolution. Thousands of separate measurements can be abstracted
into relatively simple representations. Drill down allows the decision-maker to dig into the red
light details without getting bogged down with departments which are working fine.

Traffic Light
When reviewing KPIs, color signals, are used to visualize the difference between the current
situation when it is compared to the desired outcomes. This is an effective tool for
communication. Red signals visualize that immediate action is necessary, while yellow is used to
express that close attention is needed. Green is used when the relationship between current and
target measures are satisfying.

Graphs

These are particularly useful where the KPI is most informative when viewed as part of a trend
or when compared with other linked or comparable factors.

Characteristics of good KPIs

There are a number of general characteristic that can help to ensure that proposed KPIs will be
useful and effective.

Relevant

A KPI should be relevant to the organization. One way of helping to ensure the relevance is to
relate the KPI to the strategic goals and objectives of the organization or of a specific service
area. KPIs should ideally also be relevant to the people providing the data and to the users of the
KPIs, but it may not be possible for a single KPI to be relevant to all users due to differences in
perspectives and interests.

Clear definition

A KPI should have a clear and intelligible definition in order to ensure consistent collection and
fair comparison. Vague descriptions can lead to misinterpretation and confusion. To tight or to
broad definitions could also create problems.

Easy to understand and use

It is important that KPIs are described in terms that the users of the information will understand,
even if the definition itself have to use technical terminology. KPIs focused on the public should
avoid management jargon, or abstract concepts.

Comparable

A KPI should ideally be comparable on a consistent basis both between organizations and over
time. An essential aspect of the comparability of KPIs is the inclusion of the context within
which the comparison is taking place. External and internal circumstances can differ to such a
degree that comparison is invalid.

Verifiable
A KPI also needs to be collected and calculated in a way that enables the information and data to
be verified. The KPI should be based on robust data collection systems, and it should be possible
for managers to verify the accuracy of information and the consistency of the methods used.

Cost effective

Another important criterion is to balance the cost of collecting information with its usefulness.
Where possible, a KPI should be based on information already available and linked to existing
data collection activity.

Attributable

Service managers should be able to influence the performance measured by the KPI. If this is not
the case, the incentives for making an effort to improve performance will diminish, and the KPIs
may be regarded as unfair, and discourage staff and managers.

Responsive

A KPI should be responsive to change.

Allow innovation

The definition of a KPI ought not to deter organizations from developing innovative processes or
coming up with alternative methods, systems or procedures to improve service delivery. KPIs
should ideally be constructed to allow such innovations take place.

Statistically valid

All KPIs should be statistically valid.

Timely

The KPIs should be based on data that are available within a reasonable time scale. This time
scale will depend on the use made of the data. Some data is collected on a weekly or even a daily
basis, as it is needed in the operation management of the services, whereas other is available
once a year for more strategic and long term purposes.

*Adapted from East Dorset District Council (2003), Assessing ICT Performance, Information
and Communications Technology Fundamental Service Review Team, Public Report, Agenda
Item No 6.

KPI framework review and assessment

Data driven decision making is at the core of scientific management. The ability to select the
right data points and collect accurate data sets is a key enabler of organizational performance
management systems.

Assessing the organizational performance measurement capability represents a reality check that
assists in developing a roadmap for improvement. The review and analysis methodology can be
based on a Performance Measurement Maturity Model and usually takes in consideration 5
important dimensions:

 KPI Identification & Selection – The selection of right KPIs has a major impact on the
organizational strategic directions. KPIs should focus on actions and services provided at
each organizational level in order to achieve the organizational strategic objectives. Most
important it must be considered at all times the measurement of what is important and not
necessarily easy.
 KPI Documentation and Alignment – The process of KPIs documentation secures that
the selected indicators are actionable, by establishing definitions, purpose, calculation
formulas, targets, methods of data collection and reporting and data owners and
custodians.
 KPI Collection and Interpretation – The process of KPIs collection and interpretation
needs to be supported by a well-defined and optimized system solution that responds to
the performance measurement collection needs of the organization. Responsible for data
gathering must be identified and it must be assured data availability for each KPI tracked
in the Performance Scorecards and Dashboards.
 KPI Reporting & Visualization – Regardless of the parties involved in the performance
reporting process it must be assured that the process is effective and efficient. An
inefficient and ineffective reporting system will not generate any significant positive
effect on improving the performance of an organization. Another important part of the
measurement process is data visualization. Data visualization involves processing
information in a graphic description of it in order to be understood and transmitted more
easily, faster and more efficiently.
 KPI Feedback and Re-alignment – This process is one of the most important parts of
the performance measurement cycle. It secures that the KPIs are kept on track and
aligned with the organizational strategy, in order to provide with valuable information
that will allow improved organizational practices

10 KPIs recommended by smartKPIs Performance Architect

smartKPIs.com contains over 6,400 KPI examples from 14 functional areas and 24 industries. A
question raised by many is: ‘If you are to pick a handful, which ones would stand out?’

Selected below are 10 KPI examples of what we consider to be smartKPIs: they are widely used
and relevant, the superstars of KPIs. This is not to say any company should use them. Simply, a
list of 10 KPI examples anyone should take note of:
% Net profit rate – A profitable business is a sustainable business. It is however important to
have realistic expectations. Returns of over 30% may be speculative, while in some economies
returns of under 5% are lower than interest rates.

$ Revenue – Growing revenue is an expression of having the right product/service mix,

supported by the right team delivered at the right time. Converting opportunities in sales is the
essence of a sustainable business.

% Profitable customers – Getting the balance right is the basis for financial success. Although
oftentimes it is difficult to track, it is ads a great deal of insight and informs decision making.
Activity based costing is key to getting this KPI right.

# Net Promoter Score – Having customers that are not only satisfied, but are actively endorsing
a company/product/service. Recently it has become a favorite KPI of customer satisfaction, due
to its simplicity and relevance.

% On-time delivery – An operational focused KPI with wide reaching implications. It can be
used in a variety of industries and functional areas, as time is an important resource to anyone.
Oftentimes it acts as a bottleneck as it is influenced by many KPIs and it impacts a great deal of
other KPIs.

% Projects on time, on budget and according to specifications – getting the triangle right is
difficult and priorities may vary from one project to another. It is however a useful base to start
from. The KPI can be customized as per the preference of project boards and project managers to
cover only specific aspect of the triangle.

% Processes optimized – One key managerial responsibility is creating the right environment
for the staff members to operate in. This includes using a management system that is well
thought of and refined. Mapping and improving work processes is key to using a performance
oriented architecture.

# Employee engagement – Some say money can’t buy it. It is that extra level of commitment
that is induced by motivating purposes, inspiring leaders and working environments that
facilitate happiness in the professional life.

# Proposed improvement ideas per employee – inspired by H.W. Heinrich’s work in the 1930s
or “the Pyramid Theory” as some call it. They main results are visible at the top, but you need to
monitor the base to ensure the right outcomes are achieved.

$ Investment in learning per employee – Not the ideal KPI of training impact, but a widely
used substitute. It monitors both training spend and the wide allocation of funds to avoid serial
trainees.

An issue with KPI examples is that names don’t tell the complete story. To find out more about
each of these examples and thoroughly understand them a separate blog post would be required
for each, complemented by a complete KPI documentation form. In the meantime,
www.smartKPIs.com is available to further explore relevant and well documented KPI
examples.

Top 10 KPIs of 2010

Key Performance Indicators (KPIs) are today some of the most popular management tools. From
the National Museum of Australia, to the First Bank of Nigeria, from the Panama Canal
Authority to Rolls Royce, from the Ministry of Education in Brunei Darussalam to the American
Medical Association, KPIs are used to understand, learn and improve performance across
industries, departments and teams.

In this environment marked by the coming to age of KPIs as management tools, smartKPIs.com
represents the go to place for information about the use of KPIs across the world. As a research
driven online platform for performance management knowledge integration, the website contains
over 6400 examples of KPIs used at organizational and individual level, pre-populated Strategy
Maps, KPI Dashboards and Scorecards, interviews with practitioners, consultants and academics
and references 1000 reports illustrating the use of KPIs and organizational objectives in practice.
At its core is the largest online database of thoroughly documented KPI examples from 14
business functional areas and 24 industries. The smartKPIs.com research program is supported
by a community formed of tens of thousands of members from over 190 countries and territories.

Interest in KPIs and their use across industries in on the rise around the world, driven by both
government regulations and by the benefits they bring in terms of accountability, transparency
and achievement of results. This trend was reflected in 2010 by the hundreds of thousands of
visits to the smartKPIs.com website and the many KPIs visited, bookmarked and rated by
members of the smartKPIs.com community.

The Top 10 KPIs of 2010 report is a synthesis of what smartKPIs.com is all about: it brings
together an overview of how KPIs are used in practice today, by combining input from the
smartKPIs.com community with research and analysis from the editorial team.

In 2010, the list of the most viewed KPIs in smartKPIs.com was dominated by KPIs specific to
functional areas (8 out of 10), which was expected considering their pervasiveness across
industries:

10) # Maintenance backlog

Monitoring and measuring maintenance backlog is one of the most effective ways for managing
maintenance workload, as an accurate managed backlog has a direct impact to effectively
planning and scheduling the production activities. These aspects were acknowledged by many
organizations throughout 2010, who acknowledged and maintenance backlog as a leading
indicator for customer satisfaction.

9) # Inventory to sales ratio

Keeping the right balance between the inventory value and volume of sales is one of the major
challenges for organizations. Especially in times of economic downturn, when the demand levels
seem to drop down behind the offer levels, organizations must stay alert and keep a close eye of
their inventory to sales ratio.

8) # Earned man-hours

One of the best ways tracking project progress and productivity is to measure the level of earned
man hours. Delivery of projects as planned is always a challenge and the use of KPIs for
managing project performance is now common in many project management methodologies.
Due to the universal presence of projects in business, the listing of a project management KPI in
Top 10 most visited KPIs of 2010 is not surprising.

7) # Management to staff ratio

In 2010, many organizations suffered major structural changes, which oftentimes had an impact
on headcount and managerial structure. The use of this KPIs is necessary the right balance is
maintained in terms of work coordination. A healthy span of control has positive effects both on
staff morale, stress levels and organizational productivity.

6) # Employee turnover

This KPI is closely linked to employee engagement and satisfaction in the workplace, as
unhappy employees are more likely to leave. In 2010 personnel fluctuation was in the spotlight,
but in an atypical way, due to the worldwide increase in unemployment, as many organizations
had to let go a part of their employees.

5) # Units per man-hour

One of the most common KPIs used to measure productivity levels in most of the industries.
Especially in the construction and manufacturing industries,it represents one of the two basic
reporting methods used along with the volume of units produced. As productivity is at the core
of traditional performance measurement, this KPI is bound to remain one of the most popular
KPIs used in operations management.

4) % Realization rate

Tracking the realization rate was in 2010 one of the major focus areas for organizations
delivering professional services. In challenging economic times, discounted rates are common
practice, however they put further pressure on profit rates. Professional services companies
achieving high realization rates usually have a strong company presence on the market and are
recognized for their service quality.

3) # Berry ratio
Companies use profitability ratios in order to measure their ability to generate returns through
effective allocation and use of available resources. A favorite for tax and transfer pricing
analysts, the Berry ratio stands out as the most popular financial ratio in 2010. It has a long
history and its name comes from Dr. Charles Berry (1930-2007), a specialist in industrial
organization and applied microeconomics and professor at the Princeton University.

2) % Slow moving stock

Slow moving stocks are one of the most significant issues organizations have to deal with as
such stocks can become obsolete and generate financial losses. In turbulent times, such as
economic downturns, closely monitoring stock turnover is essential to ensure cashflow.

1) % Hospital bed occupancy rate

Topping the list of the most popular KPIs in 2010, this healthcare KPIs reflects the high level of
interest in the sector in improving the performance of healthcare facilities. Driven by increasing
pressure from patients for improved quality and volume of service and government regulatory
compliance requirements, the use of KPIs in the healthcare industry makes it one of the most
measured in the professional spectrum. Naturally, a healthcare KPI received by far the highest
number of visits in 2010 on smartKPIs.com and continues to lead in popularity.