Key performance indicators 2010


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Key performance indicators 2010

  1. 1. Key Performance Measures Arriffin Mansor
  2. 2. Contents• Definition of Key Performance Indicators• Purpose of KPI• Value Chain• Types of KPIs – Lead and lag indicators – Drivers and outcome
  3. 3. Purposes of performance measurement:To identify whether we are meeting customer requirementsTo help use understand our processesTo ensure decisions are based on facts, not on emotionTo show where improvements need to be madeTo show if improvements actually happenedTo identify whether our contractors or suppliers are meetingour requirements 3
  4. 4. Types of Measures• Input indicators• Process Indicators• Output indicators• Outcome indicators (c) Arriffin Mansor 012-2786282 4
  5. 5. Characteristics of good Key Performance Indicators• Meaningful• Measurable• Quantitative or qualitative• Routinely collected• Comparable - for benchmarking• Useful 5
  6. 6. Drivers and Outcome• KPIs are recorded along the value chain• KPIs at the higher levels are the drivers or causes• KPIs at the lower levels are outcome indicators which indicates whether objectives are being met. (c) Arriffin Mansor 012-2786282 6
  7. 7. Indicators of Performance  Measurable factors, falling logically within a given key result area, on which objectives may be set.  May be hard numbers, percentages, significant achievements, or problems to be overcome.  Identify what will be measured, not how much or in which direction.  Represent factors that can be measured on an ongoing basis.7
  8. 8. Example Indicators of Performance Key Results Areas Indicators of Performance • Return/ Profit • Return on Revenue Donations to Sales Ratio Net profit • Productivity • $ sales per employee Units produced/month • People development • Percent ethnic hire Days of training/employee • Market penetration • Percent of market share Percent growth by product8
  9. 9. Examples of Key Performance IndicatorsKey Results Areas Key Performance IndicatorsReturn/profit Return on investment Percentage of return on sales Net profit before taxes (dollars) Percentage of gross margin (by product line)Productivity Dollars of sales per employee Units per month (by product line) Output per work-hour Output per employee Overtime as percentage of payroll Downtime Turnaround time9
  10. 10. Examples of Key Performance Indicators (2)Key Results Areas Key Performance IndicatorsEmployee development Training investment as percentage of sales Number of employees on degree plan Cross-training plan Number of backups per position Number of employees with implemented development plan 10
  11. 11. Examples of Key Performance Indicators (3) Key Results Areas Key Performance Indicators Quality assurance Percentage of first-time acceptance Yield Cost of rework, scrap Percentage of error-free completions (per shift, per employee) Percentage of recidivism (in law enforcement) Cross-functional Percentage of on-time completions Integration Number of unresolved conflicts Average lead time on support requests Specific joint project agreements11
  12. 12. Examples of Key Performance Indicators (4) Examples of Key Performance Indicators (continued) Key Results Areas Key Performance Indicators Research and Number of new product ideas approved for development development Projected dollar value of approved product ideas Number of new applications for current products/services Cost of R&D investment: ratio to total budget12
  13. 13. Examples of Key Performance Indicators (5) Examples of Key Performance Indicators (continued)Key Results Areas Key Performance IndicatorsOrganizational Favorable mentions in mediaImage Public information programs Involvement in community Interorganizational cooperative effortsLegislative relations Response time to legislators Inquiries handled favorably Funding approved Major programs approved13
  14. 14. Measurement Basics A quick and basic understanding of different aspects of measurement. Measurement Form Advantage Disadvantage Numbers Simple and easy to understand Only as good as the strategic objective Index Allows combining several measurements Hard to understand what is happening Percentages Good measure for time span May be not be used correctly Ratings Good measure for qualitative information Can be subjective on how it was derived Ratios Measures critical relationships May require additional analysis to reach conclusion Rankings Close gaps for top ranked companies Not appropriate for lower ranked companies Measurement Type Advantage Disadvantage Outcomes Objective and easy to capture Focused on past, not current Drivers Predictive and leading the organization Difficult to derive and supportArriffin Corporate performance management 14
  15. 15. Drivers and Causes •Pricing 5% •Costs Profit 10% 20% •Expenses Margin Return on Return on •Product Mix Assets Equity (leverage)•Inventory & Receivable Asset Management Turnover•Fixed Asset 2.0 Management Arriffin Corporate performance management 15
  16. 16. Return on Assets (ROA) KPIAsset ROA Profit 16
  17. 17. The ROA based performance plan Assets ROAResources Profit Performance Target © Arriffin 2009 17
  18. 18. 100 FINANCIALINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency Quantity Average cost ratios produced per transactionResearch Productivity Value ROIdev expense ratios producedInventory Average RETURN ONturnover lead time EQUITY Waste Reduction 18
  19. 19. 500 MARKETINGINPUT PROCESS OUTPUT OUTCOMEMaterial Response rate No of customersLabour Marketing costs % Sales volumeOverhead Efficiency ratios Customers ProfitabilityResearch Productivity Product ROA marketingdev expense ratios profitability Average cost per Customer Return on Sales transaction acquisitionInventory turnover Average lead time Customer retentionPrice rel to comp Waste Reduction Revenue growth Delivery Channel 19
  20. 20. 400 INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency Quantity Average cost ratios produced per transactionResearch Productivity Value ROIdev expense ratios producedInventory Average Averageturnover lead time Prodn cost Waste Reduction 20
  21. 21. 900 HRMINPUT PROCESS OUTPUT OUTCOMEIncentives variances Turnover ratioHours Efficiency No Profit per employee ratios producedTraining Productivity Value ROI ratios producedSalary Average Turnover Revenue per lead time employeeSkill Waste Reduction Employee Value added percompetency productivity employee 21
  22. 22. There are five ways to increase ROA. . . Reduce Expenses Increase Reduce Sales Assets Increase Increase Price turnover 22
  23. 23. DuPont Analysis Sales COH 2005 $ 1,689,429,000 Cost of Goods Sold + Extra Taxes Net Profits $ 384,153,000 After Taxes $ 358,612,000 Net Profit Operating Margin Income Expenses 21.23%Statement $ 731,891,000 NI/SALES Sales Return on Interest $ 1,689,429,000 Total Assets Expense (ROA) $ 13,641,000 26.17% NPM X TAT Taxes $ 201,132,000 Sales $ 1,689,429,000 Total Asset Turnover 1.23 Return on Current SALES/TA Equity (ROE) Assets 33.96% $ 709,360,000 Total Assets ROA X FLM $ 1,370,157,000 Net Fixed Assets & Other Stockholders $ 660,797,000 EquityBalance $ 1,055,920,000 Financial Sheet Current Leverage Liabilities Multiplier (FLM) $ 265,661,000 Total 1.30 Liabilities Total Liabilities TA/EQUITY Long Term $ 314,237,000 & Stockholders Debt Equity = Total $ 3,270,000 Assets Stockholders $ 1,370,157,000 Other Equity Liabilities $ 1,055,920,000 23 $ 45,306,000
  24. 24. The ROA at various levels?  At corporate levelIt is easy to calculate ROA at corporate level. At departmental level Most likely At supervisory level It is still possible to arrive at the ROA at supervisor level At individual level Some employees has no assets attached to them 24 © Arriffin 2009
  25. 25. Steps in calculating ROA for employees1. Draw an income statement fo each employee2. Identify assets employed to each employee. (Assets allocated to the employee)3. ROA determine the viability of each job but not the fairness of the job pay.4. Use return on pay (ROP) to compare the performance of each employee with relation to their salary or compensation plan.5. Profits / Sales x Sales / pay = ROP 25 © Arriffin 2009
  26. 26. Layers of Measurement Performance Senior Management ManagementEnterprise Goals & Program Office Objectives Measurement Process Management (QP) Repository Improve Process .. Control Process Enterprise Define Execute Process Measure Measures Database • • Applications Projects • Employees • Client Project A Project B Project C Project Product Product X Product Y Project/Product Data Historical Measures 26
  27. 27. Common Misuse of Performance Measurement?• Behavior is influenced by measures – “You get what you measure because that is what you reveal as what you think is important.” (Sink and Tuttle, 1989)• But, are we measuring the right things? – How do we know the measure accurately reflects system performance? – How do we know that the measure is under the control of those it’s attributed to? – Are we measuring to control or to improve, or both? 27
  28. 28. A good KPI system are measures• At outcome level - performance level – Corporate Level• At output level - Production level• At process level – efficiency and productivity measures – Sales & Production• At input level - alternative labour, material and overhead choices
  29. 29. Questions & Answers 29