Don’t try to get a definitive list; the KPI’s will develop over time and you may discover that some are less relevant and that others need to be added.  Review and update the KPI’s as the business goals change.   Once you have the first pass of a set of KPI’s, you need to define ownership.

2 Ownership

Defining and creating the KPI’s cannot be done in isolation; you also have to ensure that someone in the business is accountable for that indicator and has the authority to do something about it when it doesn’t meet target or plan.  Each KPI needs to be owned by a Manager in the business and their roles and responsibilities should reflect the targets that are set.  At this stage you can also start to define the frequency with which each indicator needs to be measured.  For example, an Operations Manager would be accountable for KPI’s that measure manufacturing output, productivity and costs; it would be their responsibility to ensure that the targets are met, just as a Customer Services Manager would ensure that customer complaints are dealt with efficiently and quickly.  Without ownership, the collection and reporting of KPI’s has no priority or urgency.  I have seen this lead to poor recording, and eventually incomplete, and out of date reporting.  This creates a vicious circle, since out of date KPI’s are ignored, and because they are ignored, they are given low priority for completion and accuracy, and so on.  

Try to establish accountability at the definition phase.  Remember the bit about behaviour change; if you are trying to introduce KPI’s and need people in the business to take ownership it’s much easier if it’s linked to a business objective or a personal goal.  They can be linked to performance reviews on an individual level if appropriate.

3 Comprehensive  

For the people in the business to be content owning the defined KPI’s, they must be comprehensive and cover the key areas.     They must be relevant and measured at the right levels and frequency, to allow the owner time to react to what it’s telling them.  At the same time they must not swamp people with additional tasks that cannot be covered.  The main problem solving activities will happen on a daily and weekly basis and for this reason there will need to be some recording of issues that led to poor performance. 

Example: Recording the number of customer complaints will be fine for a high level view but the Managers expected to deal with this on a daily basis will also need to be recording the reasons for the complaints so that they can target their actions more specifically.

There is a rule of thumb that says no one person should have responsibility for more than 4-5 KPI’s.  They could be 4-5 very high level one’s such as shareholder value, or revenue, but they will be disseminated down to the various levels in the company.  

Each of the KPI’s defined needs to link through the organisation to the daily level of management.  This enables the company to control the day-to-day impact on the weekly and monthly outcomes.     It is also a consistent way in which to communicate the business goals to all areas.  

KPI’s must be linked from top to bottom so that the day-to-day business activities are impacting on the monthly and quarterly figures.

You can start to form a checklist by department or area: department goals, what are the key measures that will fulfil the goal, how will it be measured, with what frequency, who will be responsible for it.   KPI Trees are another good way to see how the KPI’s link together and if all the elements of each KPI have been captured.

Example checklist

Use the KPI tree and checklist to document whether the measurements already exist and if the data to calculate the KPI is already being captured, this will give you an indication of how much more data is required and also may give clues as to how you could combine data collation if figures are required for more than one KPI.

4 Action Driven

Once you have a comprehensive set of KPI’s, with owners, definitions and frequency, you need to implement the processes required to measure and report on those KPI’s.  As already mentioned this may take some time to do, depending on the senior level of sponsorship and the KPI owners.  If they are convinced they need these indicators to manage the business they will help provide the level of visibility and urgency required to get the reports completed.  In some cases it might make sense to start with a few and build up to the complete report.

Once you have the KPI’s being measured, captured and reported on at each level in the business, you now need to implement a process of using the KPI’s to drive business performance.  People will perform in the way that they are measured, and it is important that the measures, and targets are understood throughout to ensure the correct types of action are being delivered.  The best way to do this is to introduce a number of reviews at appropriate levels and frequency to review the KPI’s and set the actions required. All of the KPI’s should be measured against targets and if possible a base; this will help focus the actions on the ones that have not met target.

5 Applying KPI’s within a management reporting system 

KPI’s can help achieve great results when used as part of a management reporting system.  The measures form one element of the organisations reporting framework.   The following system flow example highlights how you might produce a series of reports and use them in review meetings throughout the company to ensure actions are taken on issues of poor performance.  The framework starts with a forecast or budget, which feeds a weekly plan.  The plan is controlled on a short interval basis that may be hourly or daily.  The short interval control is the point where an activity is completed and where the data is captured.  Performance is then reviewed on a daily basis and actions agreed.  Action plans should clearly identify what is going to be done, who will be doing it and a due date by when it will be completed.  The action plans are reviewed at each meeting to ensure completions are on target.

Management Reporting System example

This review process continues weekly and monthly, then feeding back into the forecast that may be adjusted based on current and historic performance.  There may be several daily and weekly reports by department that are then collated into one Monthly Business Report.

Example Report format:

6 Communication and Training

Underpinning each of the stages there must be consistent and frequent communication.  Training should be provided for everyone.
 
Some reasons why a KPI report does not succeed:

• Reports are not being reviewed: Go back to the alignment stage and try to understand if the KPI’s are relevant. If they are, then, it needs to be communicated again and in different ways if necessary. If the KPI’s are not relevant then replace them with some that are, and train and communicate again.
• The report is out of date: Find out what is out of date, is it that the report isn’t ready on time, or that the numbers are taking too long to generate? Are the KPI’s irrelevant? It might be that no one is reviewing the report and so the person generating it has decided its not important.  Or it could be that the source of the data has changed. Again revisit how the numbers are generated; there may be quicker or alternative ways to get to the data.
• Poor understanding or KPI’s too complicated: Revisit the goals and KPI trees; are there too many KPI’s? Can they be simplified? Initiate more training and communication.

We don’t know what to do – what actions should we take? Are the reasons for poor performance also being captured? It might be that you have to introduce some more detailed reporting to establish the reasons why a KPI did not meet target.  It could be that the owner of the KPI is the wrong person and they are unable to influence the KPI.

7 Technology

Of course the collating and reporting of KPI’s can be made much easier when automated using technology.  There are many products on the market that aim to provide just that type of support.   Technology should be used wherever appropriate where there are benefits to be gained from automating the reports.  It can make it easier to implement the reports as your focus can be on driving the action rather than gathering the numbers.  But you will still have to go through the stages of implementation and if you are spending money on a software package you also need to define it better than if you were writing by hand or typing it into a spreadsheet.

In all cases, the reporting requirements need to drive the technology rather than the other way round.  It is easy to become bogged down in implementing a piece of software and lose sight of what the real value to the business is.

Example: I have known companies to spend a large part of their budget on buying the latest software, to discover that it’s not going to do what they need.  But because this investment is so high they have no choice but to implement an “almost there” solution rather than seek a better alternative.  In my experience these reports can be generated using relatively simple technology.