Overview of Key Performance Indicators

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Overview of Key Performance Indicators - Presentation Transcript

  1. Key performance indicators: How they work and how to use them
    Presented by: Micheal Axelsen Director Applied Insight Pty Ltd
  2. Agenda
    Introduction
    Key performance indicators defined
    Aligning KPIs with strategy
    Implementing KPIs
    Conclusion
  3. INTRODUCTION
  4. About this presentation
    Objectives
    To identify key performance indicators, their role in management and governance of the organisation, and how to implement key performance indicators for success.
  5. Case study: SME reporting gone wrong
    The client
    • Medium-sized business with specialist reporting needs, and a legacy information system.
    The reporting process
    • The Financial controller set up the monthly reports with this process:
    • CSV export on Unix
    • FTP to Novell
    • Import to Access
    • Data conversion
    • Export to CSV
    • Import to Cognos
    • Reporting Queries
    • Export to HTML
    • CEO swore because it rarely worked
    • Then the financial controller left...
    • ... and the CEO swore some more.
  6. Key performance indicators defined
  7. Definition of KPIs
    Key performance indicators
    focus on the aspects or areas of our organisation’s performance that are critical or vital for our ongoing and future success
    measure our success in key areas and processes that affect our customers, our employees, our shareholders or other stakeholders
    Source: AusIndustry KPI Manual
  8. The characteristics of KPIs
    Non-financial measures
    Measured frequently (for example, daily, weekly)
    Acted upon by CEO and the senior management team
    All staff understand the measure and what corrective action is required
    Responsibility can be tied down to the individual or team
    Significant impact – that it is addresses most of the top topeight Critical Success Factors and Balanced Score Card perspectives
    Has a positive impact – that is, it affects all other performance measures in a positive way
  9. Why do we need ‘key performance indicators’?
    Businesses are frequently accused of focussing on the ‘bottom line’ and the ‘short term’
    Kaplan and Norton (1996) promoted the use of the balanced scorecard to look at leading indicators of sustainable, longer-term performance
    It is a more ‘balanced’ view of organisational performance, and is focussed on monitoring these performance indicators
    Provides a more holistic view of the business’s progress
    KPIs for each business will depend very much on its subjective view of the world
  10. It’s all about perspective
    KPIs are usually drawn from four perspectives:
    Financial perspective: Does implementation and execution of strategy contribute to the bottom line?
    Customer perspective: What value proposition will the business apply to satisfy customers and thus generate more sales to the most profitable customer groups?
    Internal process perspective: concerned with the processes that create and deliver the customer value proposition – focuses on activities and key processes required in order for the company to excel at providing the value expected by the customers both productively and efficiently
    Innovation and learning perspective: Focuses on the intangible assets of an organisation, mainly on the internal skills and capabilities that are required to support the value-creating internal processes.
  11. Example Balanced Scorecard (Kaplan & Norton)
    Financial
    Customer
    Cash flow
    Return on investment
    Financial result
    Return on capital employed
    Return on equity
    Residual income
    Economic Value Added
    New customers acquired
    Status of existing customers
    Customer attrition
    Internal Process
    Innovation & Learning
    Number of activities
    Opportunity success rate
    Accident ratios & Environment compatibility
    Overall equipment effectiveness
    Investment Rate
    Illness rate
    Internal Promotions
    Employee Turnover
    Gender Ratios
  12. Uses of Balanced Scorecard & KPIs
    Frequently the balanced scorecard & KPIs approach is used to:
    Drive strategy execution
    Clarify strategy and make strategy operational
    Identify and align strategic initiatives
    Link budget with strategy
    Align the organisation with strategy
    Conduct periodic strategic performance reviews to learn about and improve strategy
    The purpose to which the balanced scorecard and its KPIs is put affects the KPIs to be monitored – leading indicators are preferred, as they show what future performance will be
  13. Criticisms
    A balanced scorecard is by definition ‘balanced’ – if you wish to achieve quick business growth then perhaps the inherent ‘balance’ is of less value, rather than an unbalanced focus on performance activities that grow the business
    Sometimes used inappropriately – can you really use Balanced Scorecard to govern internal processes?
    Subjective and KPIs are not based in actuarial ‘fact’
    Some criticise any effectiveness in operation as merely a placebo effect – that is, any other management approach might work equally as well
  14. Tips for success
    A KPI has to be suitable for the specific business, industry and organisation and related to the targets on the long run
    Make it possible to influence the results of the KPI
    Make the KPI easy to quantify
    Make the KPI linkable to other relevant data
    Make the KPI comparable over time.
    Make sure every KPI has a dedicated, committed owner
    There may be 80 performance indicators, but you should not exceed 10 KPIs (that’s about 2 per quadrant)
    These will build on each other and provide guidance on the strategies and initiatives pursued by the organisation in reaching its strategic goals
  15. Aligning kpi’s with strategy
    Conclusion
  16. A contribution to strategy
    A key reason to adopt key performance indicators is to operationalise strategy at the coalface
    It turns the organisation’s lofty vision, expressed in the strategic plan, into cold hard numbers that can be used to guide everyone’s efforts
    Like many management measures and approaches, effectiveness will be dependent upon the emphasis placed upon the approach in the organisation – the manner in which it is used
  17. Strategy maps
    A central theme
    Successful approach to balanced scorecard understands organisational focus and strategic alignment
    Organisational focus points you to the KPIs to focus on
    Alignment places the perspectives in order and how they support your organisation
    Organisational strategy can be presented as a strategy map
    These strategy maps identify the organisation’s strategic objectives, which in turn assist with identifying key performance indicators
  18. Customer value proposition
  19. Strategy maps
  20. Linking the workface to the strategic objectives
  21. KPI Development & Implementation
    Enoma et al (2007)
  22. Implementing kPIS
  23. Reporting requirements
    Report key result indicators (lagging indicators) to the Board
    Management reporting of KPIs and Balanced Scorecard:
    daily
    weekly
    monthly
    Team reporting (team KPIs/Pis)
    Automated and real-time updating of staff of their performance via the intranet
    Design features should include:
    Cover all the six perspectives
    Show linkage to strategy and critical success factors
    A mix of KPIs and PIs
    No more than 20
    Show trend information (15+ months)
    No right answer (sculpture)
    Use a name that means something to staff
  24. How do we implement?
    Working out our response
    • Need to know what are the critical weaknesses and focus upon those – there is little point fixing non-critical weaknesses when, for instance, there's no validity
    • A combination of surveys and workshop might be useful to identify critical weaknesses and, perhaps, seek suggestions regarding possible responses
    Common mistakes
    • Jumping straight to the 'how' (technology solution) without knowing the 'why' (strategic alignment) and the 'what' (process needs)
    • Underestimating the riskiness of 'big bang' compared to an incremental approach
    • Producing accurate, timely and complete reports that are never used (poor validity) or are meaningless (low integrity & consistency)‏
    • Not being prepared to just walk away – to keep pursuing options that are clearly not viable
  25. Assess-Plan-Do-Advance
  26. The overall approach
  27. Factors in effective reporting
  28. Measuring effectiveness
  29. Improve or buy
    Why wouldn't I just buy a new system?
    • Buying a new system can be risky (although this may be the only way to create a new platform to build upon)‏
    • Frequently the problem is not technological – the problem is process or people-related (or even financial), and a new system won't fix that
    • Sometimes the effort required is just not worth it
    Other considerations
    • Sometimes though, no matter how much lipstick you put on it, a pig is still a pig
    • Some systems will just never work, or be too dangerous or unwieldy
    • Consider the enironment and the factors, with technology being your last consideration, before investing in a new system
  30. Respond to the 'why' - environment
    Strategic alignment
    • A statement of where the business is heading and what is important
    • Business growth plans – are we focussed on Operational Excellence, Customer Intimacy, or Product Excellence
    Regulatory compliance
    • Data governance framework
    • Role of the audit committee
    • Governance calendar
    • Compliance audit
    Financial
    • Fund software acquisition adequately
    • Don’t buy the software and cut down on the professional services – buy cheaper software if you need to and grow
    • Insist on ROI, BUT include the intangible benefits
  31. Respond to the 'what' – process
    Process
    • Information management
    • Quality control framework
    • Policies and procedures
    • Service delivery methods
    • Project management methods
    • Know what is to be done, and do it
    • This is about ensuring maturity and organisational readiness for the implementation of KPIs
  32. Now do the 'how' – people and technology
    People
    • Training
    • Reports Interpretation
    • Only write reports that are used and relevant
    • Attraction and retention strategies
    • Role sharing
    • Reduce technical complexity
    Technology
    • Common Technology Framework – fewer technologies is better
    • IT is often downside risk
    • Single view of the truth
    • Consistency and compatibility of technologies is most important
    • Role of in-house development
    • Technology to help automate or obliterate
  33. Conclusion
  34. Conclusion – meeting the challenges of IT
    Information Technology & Management Centre of Excellence
  35. Conclusion
    More information
    www.cpaaustralia.com.au
    www.isaca.org
    www.itgi.org
    Speaking Notes
    Speaking notes for this presentation may be downloaded from www.appliedinsight.com.au
    Questions and answers
    Questions from the audience
  36. Contact details
    Micheal AxelsenDirector, Applied Insight Pty Ltd
    m: 0412 526 375t: +61 7 3139 0325e: micheal.axelsen@appliedinsight.com.au
    blog: www.michealaxelsen.com
    Applied Insight Pty LtdPO Box 603Toowong DC 4066AUSTRALIA
  37. About the speaker
    Services
    Micheal Axelsen provides business systems consulting services in the governance of information technology, and development and implementation of IT business strategy
    Position and qualifications
    Director, Applied Insight Pty Ltd
    Chair, CPA Australia IT & Management Centre of Excellence
    Member of ISACA
    Qualifications
    Bachelor of Commerce (Hons)
    Masters of Information Systems
    FCPA

+ Micheal AxelsenMicheal Axelsen, 2 months ago

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