2. Agenda for the sessionAgenda for the session
What are Key Performance IndicatorsWhat are Key Performance Indicators
Why are KPIs importantWhy are KPIs important
KPIs: A Balanced ScorecardKPIs: A Balanced Scorecard
How to implement KPIsHow to implement KPIs
Sample KPI Measurements andSample KPI Measurements and
3. What are KPIWhat are KPI’s?’s?
“Quantifiable measurements that reflect
critical success factors of a business.”
• Key Drivers
• A handful of numbers “at a glance
view”
finger on the pulse
hot spots
act quickly!
4.
5. Why are KPIs important?Why are KPIs important?
Owners…Owners…
are overwhelmed and distracted withare overwhelmed and distracted with
day to day activities and tasksday to day activities and tasks
concentrate on the tactical decisionsconcentrate on the tactical decisions
and neglect the strategic onesand neglect the strategic ones
must make important decisions, quickly,must make important decisions, quickly,
with greater consequences, and oftenwith greater consequences, and often
with limited information on handwith limited information on hand
7. KPIs must be Strategic: How doKPIs must be Strategic: How do
we differentiate from thewe differentiate from the
competitioncompetition
Define the market to be servedDefine the market to be served
Define the customerDefine the customer
Define the critical internal processesDefine the critical internal processes
needed to capture and satisfyneeded to capture and satisfy
customerscustomers
What individual and organizationalWhat individual and organizational
8. KPIs: Four Strategic PerspectivesKPIs: Four Strategic Perspectives
CustomerCustomer
Marketing and SalesMarketing and Sales
Internal Business ProcessesInternal Business Processes
OperationsOperations
SuppliersSuppliers
FinancialFinancial
ResourcesResources
Vision and LeadershipVision and Leadership
9. Input versus Output:BalancedInput versus Output:Balanced
ScorecardScorecard
FINANCIAL
CUSTOMERS BUSINESS
SYSTEMS
RESOURCES
Plant and Equipment,
Working Capital;
Employee Satisfaction;
Knowledge and Skills
Costs; Timeliness; Rework
%; Returns
Net Profit, Turnover, etc.
Client Survey,
Customers Service,
Client Retention %,
Percentage of referring
Clients etc.
10. KPIs should look like a Balanced ScorecardKPIs should look like a Balanced Scorecard
11. KPIs should focus on a single strategyKPIs should focus on a single strategy
Linked to the strategyLinked to the strategy
ConsistentConsistent
Mutually reinforcingMutually reinforcing
12. Some Generic KPI MeasuresSome Generic KPI Measures
FinancialFinancial Return on Capital; CashReturn on Capital; Cash
Flow; Revenue; ProfitFlow; Revenue; Profit
CustomerCustomer Customer Satisfaction;Customer Satisfaction;
Customer Retention; marketCustomer Retention; market
shareshare
Internal Business ProcessInternal Business Process Quality; timeliness; costs;Quality; timeliness; costs;
returns; reworkreturns; rework
Learning and GrowthLearning and Growth Employee Retention;Employee Retention;
Employee Satisfaction;Employee Satisfaction;
Employee KnowledgeEmployee Knowledge
14. Cause and Effect: The BalancedCause and Effect: The Balanced
ScorecardScorecard
15. KPIs: Four Types ofKPIs: Four Types of
MeasuresMeasures
Short and Long TermShort and Long Term
Internal (business processes) andInternal (business processes) and
External (shareholders,customers)External (shareholders,customers)
Leading and LaggingLeading and Lagging
Objective (financial) and SubjectiveObjective (financial) and Subjective
(non-financial)(non-financial)
16. How should KPIs be used?How should KPIs be used?
CommunicationCommunication
InformingInforming
DiagnosticDiagnostic
LearningLearning
NOT controllingNOT controlling
17. Diagnostic versus StrategicDiagnostic versus Strategic
Diagnostic measurements:Diagnostic measurements: monitormonitor
whether something is in control.whether something is in control.
Strategic measurements:Strategic measurements: define adefine a
strategy for competitive excellence andstrategy for competitive excellence and
future successfuture success
A Balanced Scorecard is aA Balanced Scorecard is a
strategic measurement system.strategic measurement system.
18. Sample Balanced ScorecardSample Balanced Scorecard
PerspectivePerspective GoalsGoals Drivers (How)Drivers (How) MeasurementsMeasurements
(KPI(KPI’s)’s)
CustomerCustomer Improve customerImprove customer
satisfactionsatisfaction
Decrease lead timeDecrease lead time
Deliver on timeDeliver on time
Reduce complaintsReduce complaints
Average Lead TimeAverage Lead Time
% deliveries on time% deliveries on time
Number of ComplaintsNumber of Complaints
Internal BusinessInternal Business Continuously improveContinuously improve
business processesbusiness processes
Decrease Cycle TimeDecrease Cycle Time
Increase QualityIncrease Quality
Increase ProductivityIncrease Productivity
Average Cycle TimeAverage Cycle Time
# of Defects; % Rework# of Defects; % Rework
Output per employeeOutput per employee
FinancialFinancial Continuously ImproveContinuously Improve
Financial PerformanceFinancial Performance
Decrease CostsDecrease Costs
Increase Sales growthIncrease Sales growth
Increase Market ShareIncrease Market Share
Increase ROIIncrease ROI
Average Unit costsAverage Unit costs
Growth Rate in SalesGrowth Rate in Sales
Market ShareMarket Share
ROIROI
Innovation and LearningInnovation and Learning Deliver new Products andDeliver new Products and
ServicesServices
Increase sales of newIncrease sales of new
products and servicesproducts and services
Reduce development timeReduce development time
% of sales from new% of sales from new
products and servicesproducts and services
Time from design toTime from design to
implementationimplementation
19. KPIs: The Big PictureKPIs: The Big Picture
Marketing Sales Stake-
holders
Operations
Production
Suppliers
Finance
and Admin
Human
Resources
Innovation
and
Learning
Clients
Team
Share-
holders
Attract and retain clients
Build and maintain client relationships and loyalty
Provide services that satisfy client’s needs and lifestyle objectives
Provision of secure employment
Provision of enjoyable happy work environment, that’s aligned with corporate values
Provide career and professional development opportunities
Provide succession and exit plan for existing shareholders
Provide capital growth in asset and return on investment through dividend streams
20. How to implement KPIsHow to implement KPIs
Step 1: Define Strategic SpecificsStep 1: Define Strategic Specifics
Define Your StrategyDefine Your Strategy
Vision, Mission, Culture and Values reflectVision, Mission, Culture and Values reflect
strategystrategy
Set GoalsSet Goals
Most important business objectives (e.g. improveMost important business objectives (e.g. improve
customer satisfaction)customer satisfaction)
WhatWhat “drivers” are critical to success (e.g.“drivers” are critical to success (e.g.
decrease lead time)decrease lead time)
What impactsWhat impacts “driver”“driver” results (leadership, training,results (leadership, training,
systems)systems)
21. How to implement KPIsHow to implement KPIs
Step 1: Define Strategic SpecificsStep 1: Define Strategic Specifics
(Cont)(Cont)
Clarify the strategyClarify the strategy
Align Team members on strategicAlign Team members on strategic
issuesissues
Identify BarriersIdentify Barriers
22. How to implement KPIsHow to implement KPIs
Step 2: Audit Existing MeasuresStep 2: Audit Existing Measures
Assess strategic fitAssess strategic fit
Identify what data is availableIdentify what data is available
Review Measurement ProcessesReview Measurement Processes
AccuracyAccuracy
TimelinessTimeliness
Identify GapsIdentify Gaps
23. How to implement KPIsHow to implement KPIs
Step 3: Develop New MeasuresStep 3: Develop New Measures
Bridge the gaps, examples of strategicBridge the gaps, examples of strategic
data often missing:data often missing:
Employee Satisfaction SurveyEmployee Satisfaction Survey
Customer Satisfaction SurveyCustomer Satisfaction Survey
Rework %Rework %
On-time Delivery %On-time Delivery %
24. How to implement KPIsHow to implement KPIs
Step 3: Develop New MeasuresStep 3: Develop New Measures
Measures must reflect performance and progressMeasures must reflect performance and progress
of the businessof the business
Must be quantifiableMust be quantifiable
Must be compared to another numberMust be compared to another number
last yearlast year
budget/goalbudget/goal
trendtrend
Can be acted uponCan be acted upon
25. How to implement KPIsHow to implement KPIs
Step 3: Develop New MeasuresStep 3: Develop New Measures
KPI title:KPI title: Employee TurnoverEmployee Turnover
Defined:Defined: number of employees who resign ornumber of employees who resign or
are terminated for any reason divided by theare terminated for any reason divided by the
number of employees at the beginning of thenumber of employees at the beginning of the
year. Reductions in force excludedyear. Reductions in force excluded
Measured:Measured: Payroll termination report byPayroll termination report by
reasonreason
Goal:Goal: Reduce turnover by 10% (from 16.6% toReduce turnover by 10% (from 16.6% to
15%); FY 2012 objective is to achieve an15%); FY 2012 objective is to achieve an
26. How to implement KPIsHow to implement KPIs
Step 4: Analyze and ReportStep 4: Analyze and Report
Easy to ReadEasy to Read
One Page SummaryOne Page Summary
GraphsGraphs
27. Sample KPI ReportSample KPI Report
TemplateTemplateKPI Template Curr Mth Sam e M LY Comparison % Sales Budget Mth YTD Actual %Sales YTD LY Act % Sales Com parison Budget YTD
Sales 1
Sales 2
Sales 3
Total Sales
Cost 1
Cost 2
Cost 3
Total COGS
Gross Profit
Gross Margin
Sales & Mktg.
Adm nin.
Other 1
Other 2
Facilities
Total costs
EBITDA(Op.Inc)
Op. Margin
Interest/Dep/Amort
Net Profit
FTE 1
FTE 2
FTE Total
Inventory
Inventory Turover
Back Orders
Accts Rec
Av Coll. Days
Quality Meas.1
Quality Meas.2
Production Meas. 1
Production Meas.2
New Customers
Total Customers
Forecast this month F 30 out F 60 out F 90 out F 120 out F 150 out
Work in Progress
Projects Status Project 1 Mgr. Project 2 Mgr. Project 3 Mgr. Project 4 Mgr. Project 5 Mgr.
Budget and Delivery
30. How to implement KPIsHow to implement KPIs
Step 5: Continuous ImprovementStep 5: Continuous Improvement
Strategy based on set prioritiesStrategy based on set priorities
SMART GoalsSMART Goals
Assign AccountabilityAssign Accountability
Track ImprovementTrack Improvement
Set New GoalsSet New Goals
31. WorkshopWorkshop
Review your companyReview your company ’’s Vision ands Vision and
MissionMission
Write down the areas in your businessWrite down the areas in your business
that require KPIthat require KPI ’’ss
32. KPIs: The Big PictureKPIs: The Big Picture
Marketing Sales Stake-
holders
Operations
Production
Suppliers
Finance
and Admin
Human
Resources
Innovation
and
Learning
Clients
Team
Share-
holders
Attract and retain clients
Build and maintain client relationships and loyalty
Provide services that satisfy client’s needs and lifestyle objectives
Provision of secure employment
Provision of enjoyable happy work environment, that’s aligned with corporate values
Provide career and professional development opportunities
Provide succession and exit plan for existing shareholders
Provide capital growth in asset and return on investment through dividend streams
33. Sample Balanced ScorecardSample Balanced Scorecard
PerspectivePerspective
CustomerCustomer
Internal BusinessInternal Business
FinancialFinancial
Innovation and LearningInnovation and Learning
34. Sample Balanced ScorecardSample Balanced Scorecard
PerspectivePerspective GoalsGoals
CustomerCustomer Improve customerImprove customer
satisfactionsatisfaction
Internal BusinessInternal Business Continuously improveContinuously improve
business processesbusiness processes
FinancialFinancial Continuously ImproveContinuously Improve
Financial PerformanceFinancial Performance
Innovation and LearningInnovation and Learning Deliver new Products andDeliver new Products and
ServicesServices
35. Sample Balanced ScorecardSample Balanced Scorecard
PerspectivePerspective GoalsGoals Drivers (How)Drivers (How)
CustomerCustomer Improve customerImprove customer
satisfactionsatisfaction
Decrease lead timeDecrease lead time
Deliver on timeDeliver on time
Reduce complaintsReduce complaints
Internal BusinessInternal Business Continuously improveContinuously improve
business processesbusiness processes
Decrease Cycle TimeDecrease Cycle Time
Increase QualityIncrease Quality
Increase ProductivityIncrease Productivity
FinancialFinancial Continuously ImproveContinuously Improve
Financial PerformanceFinancial Performance
Decrease CostsDecrease Costs
Increase Sales growthIncrease Sales growth
Increase Market ShareIncrease Market Share
Increase ROIIncrease ROI
Innovation and LearningInnovation and Learning Deliver new Products andDeliver new Products and
ServicesServices
Increase sales of newIncrease sales of new
products and servicesproducts and services
Reduce development timeReduce development time
36. Sample Balanced ScorecardSample Balanced Scorecard
PerspectivePerspective GoalsGoals Drivers (How)Drivers (How) MeasurementsMeasurements
(KPI(KPI’s)’s)
CustomerCustomer Improve customerImprove customer
satisfactionsatisfaction
Decrease lead timeDecrease lead time
Deliver on timeDeliver on time
Reduce complaintsReduce complaints
Average Lead TimeAverage Lead Time
% deliveries on time% deliveries on time
Number of ComplaintsNumber of Complaints
Internal BusinessInternal Business Continuously improveContinuously improve
business processesbusiness processes
Decrease Cycle TimeDecrease Cycle Time
Increase QualityIncrease Quality
Increase ProductivityIncrease Productivity
Average Cycle TimeAverage Cycle Time
# of Defects; % Rework# of Defects; % Rework
Output per employeeOutput per employee
FinancialFinancial Continuously ImproveContinuously Improve
Financial PerformanceFinancial Performance
Decrease CostsDecrease Costs
Increase Sales growthIncrease Sales growth
Increase Market ShareIncrease Market Share
Increase ROIIncrease ROI
Average Unit costsAverage Unit costs
Growth Rate in SalesGrowth Rate in Sales
Market ShareMarket Share
ROIROI
Innovation and LearningInnovation and Learning Deliver new Products andDeliver new Products and
ServicesServices
Increase sales of newIncrease sales of new
products and servicesproducts and services
Reduce development timeReduce development time
% of sales from new% of sales from new
products and servicesproducts and services
Time from design toTime from design to
implementationimplementation
37. Sample KPI Measures:Sample KPI Measures:
Marketing and SalesMarketing and Sales
Market ShareMarket Share
Leads by SourceLeads by Source
Number of ProspectsNumber of Prospects
Conversion RatioConversion Ratio
Average Dollar SaleAverage Dollar Sale
Profit Per CustomerProfit Per Customer
Sales by Product LineSales by Product Line
Number ofNumber of
Transactions/CustomerTransactions/Customer
Customer SatisfactionCustomer Satisfaction
38. Sample KPI Measures:Sample KPI Measures:
Marketing and SalesMarketing and Sales
Number of newNumber of new
customerscustomers
Brand AwarenessBrand Awareness
Value of BrandValue of Brand
Number ofNumber of
CustomersCustomers
ReferralsReferrals
Sales MixSales Mix
CustomerCustomer
ProfitabilityProfitability
Number of OrdersNumber of Orders
Customer RetentionCustomer Retention
Reasons for lossesReasons for losses
Lifetime Value of aLifetime Value of a
39. Sample KPI Measure:Sample KPI Measure:
FinancialFinancial
DividendsDividends
Current RatioCurrent Ratio
Quick RatioQuick Ratio
Credit ratingCredit rating
Days Sales OutstandingDays Sales Outstanding
RevenueRevenue
Profit MarginProfit Margin
Gross marginGross margin
Revenue/Expense RatioRevenue/Expense Ratio
Variable vs non-variableVariable vs non-variable
expensesexpenses
Return on InvestmentReturn on Investment
40. Sample KPI Measures:Sample KPI Measures:
FinancialFinancial
Cash in BankCash in Bank
Retained EarningsRetained Earnings
Cost of Goods SoldCost of Goods Sold
Inventory Turns/YearInventory Turns/Year
Cash FlowCash Flow
Return on CapitalReturn on Capital
Bank OverdraftBank Overdraft
InventoryInventory
Aged AccountsAged Accounts
ReceivableReceivable
Aged Accounts PayableAged Accounts Payable
Sales Per Square FootSales Per Square Foot
EBITEBIT
Capital ExpendituresCapital Expenditures
Debt to Equity RatioDebt to Equity Ratio
42. Sample KPI Measures:Sample KPI Measures:
Operations/ProductionOperations/Production
Quality DataQuality Data
TimelinessTimeliness
Response TimeResponse Time
Re-work (#,%)Re-work (#,%)
Cost per unitCost per unit
Number ofNumber of
EmployeesEmployees
Capacity UtilizationCapacity Utilization
SafetySafety
# Workers Comp# Workers Comp
ClaimsClaims
Days lostDays lost
EnvironmentalEnvironmental
Back ordersBack orders
43. Sample KPI Measures:Sample KPI Measures:
Operations/ProductionOperations/Production
Post Sales ServicePost Sales Service
Warranty Claims (#,%)Warranty Claims (#,%)
RepairsRepairs
ReturnsReturns
DefectsDefects
Number of ComplaintsNumber of Complaints
Value of Customer ComplaintsValue of Customer Complaints
# orders failed before delivery# orders failed before delivery
# Orders not delivered on# Orders not delivered on
timetime
Work in ProcessWork in Process
Labour HoursLabour Hours
OvertimeOvertime
Cycle TimeCycle Time
DowntimeDowntime
Maintenance CostsMaintenance Costs
44. Sample KPI Measures:Sample KPI Measures:
PeoplePeople
Employee TurnoverEmployee Turnover
EmployeeEmployee
SatisfactionSatisfaction
Output per employeeOutput per employee
Sales per employeeSales per employee
Productivity perProductivity per
employeeemployee
Quality of OutputsQuality of Outputs
Drivers of PerformanceDrivers of Performance
Drivers of CapabilitiesDrivers of Capabilities
LearningLearning
Skills mixSkills mix
Core ValuesCore Values
Customer focusCustomer focus
InnovationInnovation
45. Sample KPI Measures:Sample KPI Measures:
PeoplePeople
Number ofNumber of
EmployeesEmployees
# of managers# of managers
Manager/employeeManager/employee
ratioratio
AbsenteeismAbsenteeism
# new employees# new employees
Hours or $ ofHours or $ of
training pertraining per
employeeemployee
Ratio direct toRatio direct to
overhead employeesoverhead employees
Cost per new hireCost per new hire
% employees fully% employees fully
trainedtrained
46. Sample KPI Measures:Sample KPI Measures:
InnovationInnovation
Revenue from new productsRevenue from new products
Revenue from new market segmentsRevenue from new market segments
Revenue from new geographyRevenue from new geography
Number of new customersNumber of new customers
Time to market for new products/serviceTime to market for new products/service
R&D expenseR&D expense
47. Sample KPI Measures:Sample KPI Measures:
SuppliersSuppliers
Satisfaction with SuppliersSatisfaction with Suppliers
ResponsivenessResponsiveness
Costs compared withCosts compared with
competitioncompetition
On-time DeliveryOn-time Delivery
Overall Satisfaction/ValueOverall Satisfaction/Value
Defects (#,%)Defects (#,%)
Credit termsCredit terms
Number of Suppliers
Supplier SatisfactionSupplier Satisfaction
Overall Satisfaction:Overall Satisfaction:
Opportunity for profitsOpportunity for profits
while providing qualitywhile providing quality
ResponsivenessResponsiveness
PaymentPayment
48. The Top Ten Drivers ofThe Top Ten Drivers of
Business Performance*Business Performance*
Low levels of lateLow levels of late
deliveries to customersdeliveries to customers
Higher employeeHigher employee
training expendituretraining expenditure
% of workforce trained% of workforce trained
Low absenteeism rateLow absenteeism rate
Higher MarketingHigher Marketing
ExpendituresExpenditures
Higher CapitalHigher Capital
ExpendituresExpenditures
Higher R&D ExpenditureHigher R&D Expenditure
Higher Stock TurnsHigher Stock Turns
Higher Cash BalancesHigher Cash Balances
Lower Debt Levels (moreLower Debt Levels (more
short term than longshort term than long
term)term)
49. Four Things Every OwnerFour Things Every Owner
Should KnowShould Know
The profitability of the businessThe profitability of the business
depends on how well the employeesdepends on how well the employees
consistently perform critical activities.consistently perform critical activities.
Employees perform best when theyEmployees perform best when they
understand how their performanceunderstand how their performance
affects the bottom line, and how theiraffects the bottom line, and how their
performance is measuredperformance is measured ..
50. Four Things Every OwnerFour Things Every Owner
Should KnowShould Know
Small changes in critical areas canSmall changes in critical areas can
have a great impact on the bottom line.have a great impact on the bottom line.
What gets measured gets done, andWhat gets measured gets done, and
what gets rewarded gets done again.what gets rewarded gets done again.
Editor's Notes
3 States going in Trusting exciting Engaged,
Bob Dataplex activity quota trusting
Working at the footy exciting
Learning to fly Engaged
Landing realised I can do this addicted
Decision to leave
Proved myself Motivated to act
Coming out motivated to act, Decisive, Determined
Quantifiable measurements that reflect critical success factors of a business.
Key Drivers that have a major impact on the performance of the business
A handful of numbers that give the owner an “at a glance” view of the business
Keep their finger on the pulse of the business
Identify hot spots that need attention
Act quickly to drive the business forward
KPI’s are very strategic. Before one can set KPI’s, the strategy of the business has to be clearly defined and understood. For a desired outcome, the things that get measured may not be obvious. Take the example of sales people. Most sales people are measured on turnover but the business objective is to make profit.
Eg sales rep: calls vs, # of sales, vs turnover, vs profit,
Can’t say “want more profit” and then say “make the sale whatever it takes”
If the strategy is to get more “A” customers, then the KPI can’t just be the number of orders, irrespective of the type of customer
Customer satisfaction/number of orders despatched on time/# of customer complaints
So cutting staff training, staff amenities and reducing the number of staff may make the business a less compelling place to work, a less compelling place to shop (as staff morale drops) and a less compelling place to invest.
Leading: test & Measure, forecasting
Lagging: Financials
Objective: figures eg no of call made
Subjective: forecast of % that will convert
Diagnostic = the number of calls made by the salesman in a week
Strategic = the quality of the calls made by the salesman