kpi for the malaysian government


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My thoughts on measuring performance in the Malaysian government administration

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  • kpi for the malaysian government

    1. 1. Introducing the KPIs Hj Arriffin MansorArriffin KPI management 1
    2. 2. Contents of this talk 1. What is KPI 2. Key Result Areas or critical success factors 3. How to set performance targets 4. Bench markings to the best 5. Performance measuring system. 6. How could KPI improve performance; 7. Conduct Gap Analysis 8. Application of KPI system 9. Pitfalls in KPI implementation;Arriffin KPI management 2
    3. 3. Contents - continue1. Performance improvement framework2. Programs / initiatives3. Performance Framework4. Improvement cycle5. Business Strategies in metrics6. Departmental key performance indicators7. Input output performance analysis8. Performance management dashboards9. Action plan
    4. 4. What is Diagnosis?• Diagnosis is the process of understanding how the organization is currently functioning, and it provides information necessary to design change interventions.• It is also a collaborative process between organization members and the OD (organization development) consultant to collect pertinent information, analyze it, and draw conclusions for action planning and intervention.
    5. 5. Before Training • Build transfer of training into supervisoryManager performance standards • Collect baseline performance data • Involve supervisors and trainees in needs analysis process • Involve trainees in program planning • Brief trainees on the importance of the training (course objective, content, process, and application on the job) • Review instructional content and materials • Plan to participate in training sessions • Encourage trainees attendance at all sessions
    6. 6. Before Training • Align the training plan with the organizationsTrainer strategic plan • Systematically design instruction • Provide proactive opportunities • Design a peer coaching component for the program and its follow-up activities
    7. 7. Before Training • Provide input into program planningTrainee • Actively explore training options • Participate in advance activities
    8. 8. During Training • Prevent interruptionsManager • Transfer work assignment to others • Monitor attendance and attention to training • Recognize trainee participation • Participate in transfer action planning • Review information on employee in training • Plan assessment of transfer of new skills to the job
    9. 9. During Training • Develop application-oriented objectivesTrainer • Answer the “WIIFM” question • Manage the unlearning process • Provide realistic work-related tasks • Give individualized feedback • Provide job performance aid
    10. 10. During Training • Maintain an ideas and application notebookTrainee • Participate actively • Form support groups • Plan for applications • Create behavioral contracts
    11. 11. After Training • Plan trainees’ reentryManager • Provide opportunities to practice new skills • Have trainees participate in transfer-related decisions • Reduce job pressures initially • Give positive reinforcement • Schedule trainee briefings for co-workers • Set mutual expectations for improvement • Arrange proactive (refresher) sessions • Provide and support the use of job aids
    12. 12. After Training • Provide follow-up supportTrainer • Conduct evaluation surveys and provide feedback • Develop and administer recognition system • Provide refresher/problem-solving sessions
    13. 13. After Training • Practice self-managementTrainee • Review training content and learned skills • Develop a mentoring relationship • Maintain contact with training ‘buddies’
    14. 14. What is KPI? Stands for Key Performance Indicator Is a measure of efficiency or effectiveness Efficiency is a ratio of output divided by input which are generally financial in nature However there are also non-financial KPIsArriffin KPI management 15
    15. 15. Key Performance Indicators • KPI was introduced by Peter Drucker when he envisaged “management by objectives” a situation where defining a clear objective is paramount in effective management.Arriffin KPI management 16
    16. 16. What is a KPI system?• A framework consisting of processes, measures, and targets that are used to communicate, monitor and manage performance as well as align resources to achieve the objectives of the organisation "Arriffin KPI management 17
    17. 17. diagnosis MONITORING BOARD StrategyEvaluation Change © Arriffin Mansor 2010 ACTION PLANS
    18. 18. PERFORMANCE FRAMEWORK DiagnoseStrategise Goal setting and Objectives Performance Targets / STRATEGIC MAPPINGS Standards and Key Result Areas Benchmarkings Key Performance Indicators EvaluateChange19
    19. 19. Arriffin KPI management 20
    20. 20. Definition of performance management An umbrella term used to describe the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise.*Arriffin KPI management 22
    21. 21. Another definition of PMS• It is a systematic, integrated management approach that links enterprise strategy to core processes and activities. By providing planning, budgeting, analysis and reporting capabilities, PMS allows the business to be "run by the numbers" and measurement to drive management decisions.Arriffin KPI management 23
    22. 22. Objective of PMS• The objectives of an effective performance management system are to realize improved performance -- increased profitability, growth, competitiveness, quality and customer satisfaction, to name a few.Arriffin KPI management 24
    23. 23. Components of PMSAt minimum, the critical components of PMS include the following:2. A set of well-defined, measurable, and published corporate performance objectives that act as the focal point for developing performance measures in functional areas within the company.3. A set of standard metrics that are used to define and describe the relative contribution or influence that business functions within the organization have on the performance objectives.4. The first two components provide a common framework for measurement, collaboration and cross- functional understanding of the effect of each areas performance on the overall company objectives, as well as the influence each organization has on the performance of other organizations within the enterprise.5. The ability to predict outcomes based on the common framework for understanding and collectively managing performance -- from high-level objectives to operational activities.Arriffin KPI management 25
    24. 24. The Star Tuesday May 17, 2005 Nor Mohamed wants GLCs to start implementing growth strategies SECOND Finance Minister Tan Sri Nor Mohamed Yakcop wants government-linked companies (GLCs) to start implementing growth strategies this year, saying that this is “the year of implementation for the GLCs”.Arriffin KPI management 27
    25. 25. Establishing goals – (1) 1. Targets have been established for improving current levels of performance. 2. Targets are achievable, but they may require changes to existing processes. 3. Targets are quantifiable so that the target communicates if the expected performance was met. 4. Longterm Targets (3 to 5 years) stretch the organization towards its strategic goals. 5. Longterm Targets are established first before short term targets. 6. Financial related targets are established first before non financial targets.Arriffin KPI management 28
    26. 26. Establish Goals and objectives Criteria for Define Goals Criteria Menu Defining GoalsMarketplaceIndustry TrendsTechnologyCompetitionPastPerformance____________________________________________ We will increase revenues by 40% over the Past PerformanceEXAMPLE -> next three yearsArriffin KPI management 29
    27. 27. SMART(ER) Objectives• Specific: clear, unambiguous, straightfordward, understandable• Measurable: can be related to quantified or qualitative performance measures• Achievable: Objective should be realistic and within known resources• Relevant: Linked to operational/service plan• Timebound: Building in target date & review dates• Extending Capabilities: Stretching team performance• Recognition: Acknowledgement of team achievement, reflection, learning Arriffin KPI management 30
    28. 28. The Challenge… Improving Performance Turning Management (PM) Data Into Actionable InformationArriffin KPI management 31
    29. 29. Strategic Focused Management Process Strategy Balanced Scorecard PMS Align organization to strategy Translate strategy into operating terms Mobilize change starting at the top Make strategy a continuous process Make strategy everyones jobArriffin KPI management 32
    30. 30. Key result areas• Drucker also introduced the concept of key result areas where minimum effort is directed and focus which would generate maximum impact to the objectives.• KRA has a strong causal relationship with the objectives.• Other ways of identifying KRA is sensitivity analysis, pareto and root cause analysisArriffin KPI management 33
    31. 31. What is a Key Result Areas? – (2)  A key area where satisfactory performance is required for the organization to achieve its goals  A means of identifying the tasks and requirements needed for success  At the lowest level, KRAs become concrete requirements  A means to prioritize requirementsArriffin KPI management 34
    32. 32. Michael Porter’s Business-Level Strategy Cost Differentiation Leadership FocusArriffin KPI management 35
    33. 33. PMS ensures that performance is measured at all levels? Organizational Objectives Divisional Objectives Departmental Objectives Individual ObjectivesArriffin KPI management 36
    34. 34. More Difficult Specific Goals Goals Lead Lead to To Higher Better Results Performance Does PMS Work? Support from Top Participation Management Is Key Is CriticalArriffin KPI management 37
    35. 35. Measuring Performance Input output ratio analysisArriffin KPI management 38
    36. 36. Performance Analysis• Take input output data of before and after performance.• Using the ratio O/I calculate targeted KPI and compare against actual KPI.• Eliminate the impact of extra input.• Calculate the pure performance output as a result of efficiency or competency.Arriffin KPI management 39
    37. 37. Measures Measuring overall MARKETING DEPARTMENT Return on Sales Sales Turnover Return on assets Standard Standard Standard Assets Sales Assets Performed Performed Performed Profits Sales ProfitsArriffin KPI management 40
    38. 38. Efficiency indicator PROFIT MARGIN 10% ORIGINAL KPI LINE p SALES 12% IMPROVED KPI LINE 10 Input Change 4 12000 14400 16800 Profit RM Efficiency Volume impact Impact TOTAL IMPROVEMENT = Efficiency + volume improvement 4800 = 2400 2400 4800 = 16800 12000 © Arriffin MansorArriffin KPI management 41
    39. 39. Types of KPIs• Lead and lag• Input output process and outcomes• Drivers and enablersArriffin KPI management 42
    40. 40. Balanced Scorecard Chain of Causality of Performance Measures Drivers Moderators Outcomes(lead indicators) (lag indicators) Cycle Times Customer ROA Satisfaction EVA • Customer order fulfillment EPS • Product assembly cycle time ManufacturingQuality Unit Costs• Defect rate• Scrap rateArriffin KPI management 43
    41. 41. Internal Business Process Measures (Source: Kaplan & Norton, 1996)Model of Internal Business Process LogisticsCustomer Innovation Operations Post-Sale CustomerNeed Process Process Service Need SatisfiedIdentified Process Identify Create Build Deliver Service to Market Product Product Product the Customer • Development • Quality • Delivery • ServiceRelevant Cycle Time Defects Cycle SatisfactionMetrics: Time • MCE Arriffin KPI management 44
    42. 42. Corporate Goals & key variables •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 KPI management 45
    43. 43. Performance Network Profit/Capital Employed Profit/ Revenue Revenue from Sales/ from Sales × Capital Employed Revenue from Labor Cost/ Labor Cost/ Sales/ Total Cost ÷ Total Cost × Capital EmployedArriffin KPI management 46
    44. 44. What is so special about the PMS?Arriffin KPI management 48
    45. 45. What so special about PMS• It is personal yet organisational• Performance goal is objective yet collective• Leadership, teamwork and synergy• Learning and coaching take place at all times• Continous improvement through innovation and best practisesArriffin KPI management 49
    46. 46. Balanced Scorecard Perspectives New Focus: Balanced measurement of 4 equally important criterias or dimensions CUSTOMEREMPLOYEE & GROWINGRELATIONSHIP BIGGER & STRONGER / FINANCIAL ACHIEVE GOP INTERNAL PROCESSESArriffin KPI management 50
    47. 47. THE benefits of PMS?• Improve your organisation / structure• Improve communication (Internal / External)• Link strategy towards operation and towards measured performance• Focus on results• Strategies are integrated into total management• New approach to measure performance• Diverse / complete measurement with benefits for all stake holders• Use the PMS as a team-building toolArriffin KPI management 51
    48. 48. Reasons for PMS1. Focus on traditional financial accounting measures such as ROA, ROE, EPS gives misleading signals to executives with regards to quality and innovation. It is important to look at the means used to achieve outcomes such as ROA, not just focus on the outcomes themselves.Arriffin KPI management 52
    49. 49. Reasons for PMS2. Executive performance needs to be judged on success at meeting a mix of both financial and non-financial measures to effectively operate a business.3. Some non-financial measures are drivers offinancial outcome measures which give managersmore control to take corrective actions quickly. (Example: controls in jet cockpit for pilot)Arriffin KPI management 53
    50. 50. Reasons for PMS4. Too many measures, such as hundreds of possible cost accounting index measures, can confuse and distract an executive from focusing on important strategic priorities. The balanced scorecard disciplines an executive to focus on several important measures that drive the strategy.Arriffin KPI management 54
    51. 51. Key Result Areas 1. There are no more than five strategic themes. 2. Strategic themes are realistic and achievable within the organization 3. Themes support and connect with strategic goals. 4. Themes convey a positive impact upon the organization. 5. Themes place focus and direction on what is important. 6. Each theme is distinct and different. 8. Themes are strategic in scope and not tactical day to day. 9. Themes are consistent with the mission and vision of the organization. 10. Themes have an impact on the financial objectives of the organization.Arriffin KPI management 56
    52. 52. Key Result Areas Guidelines s Those 4 to 6 major areas wherein performance is essential during the coming year. s Include both financial and non-financial areas. s Will not cover the entire organization—will identify the critical few areas where priority efforts should be directed. s Most will require cross-functional effort. s Each will be limited, generally, to 2 or 3 words and will not be measurable as stated, but will contain factors that could be measurable.Arriffin KPI management 57
    53. 53. 4 key result areas Financial Customer ->• ROI • Quality• EVA• Revenue • Service• Earnings • Pricing• Capital • Time• Cash Flow • Image • RelationsArriffin KPI management 58
    54. 54. Key Result Areas• Internal Processes ->• Production Learning ->• Delivery Employee• Marketing• Operations HR Capital• Knowledge LEARNING Quality Control• Service Dept Technology• R&D Best Practices• Intangibles•Arriffin KPI management 59
    55. 55. The Benefits of KPIs • More clearly defined objectives • Better quality of services rendered • Objective evaluation of performance. • Strategies clearly communicated to all levels within the organisation. • Performance improvement strategies identified.Arriffin KPI management 61
    56. 56. Some example of KPIs Under the heading of the 4 perspectivesArriffin KPI management 62
    57. 57. KPIs in a typical private firms Customer Perspective: KPI or measures include: 1. % of revenue from new customers 2. Customer retention rate 3. Market share Financial Perspective: KPI or measures include: • Profit ÷ revenue • Revenue ÷ total cost • ROI and/or ROAArriffin KPI management 63
    58. 58. Relating to the Balanced Scorecard (typical private firms) Internal Business Perspective: KPI or measures include: 1. Inventory turnover 2. On-time delivery 3. Production yield Learning and Innovation Perspective: KPI or measures include: 1. % of staffs who have not been trained for the past 12 months 2. % of revenue from new products 3. Product mixArriffin KPI management 64
    59. 59. Types of Measurements or KPIs Measure Type Definition Example Intermediate outcomes that predicts or Leading Employee turnover rate drive bottom-line performance results Bottom-line performance results resulting Lagging Employee satisfaction rating from actions taken Amount of Investments, assets, equipment, Input Number of cashiers labor hours, or budget dollars used Units of a product or service rendered - a Output Number of Value Meal orders fulfilled measure of yield Resulting effect (benefit) of the use or Outcome Customer satisfaction rating application of an output Objective / Empirical indicators of performance Wait time Quantitative Subjective / Perceptions and evaluations of major Customer complaints received as a % of Qualitative customers and stakeholders total customers servedArriffin KPI management 65
    60. 60. Define the elements of the program or project in a table. WHAT and WHY - HOW - WHO Outcomes Resources/ Inputs Activities Outputs Customers Short-term Intermediate Long-term Reached (Changes in Attitude) (Changes in Behavior) (Changes in Condition) Program outcomes related to factor(s)Arriffin External Influences: KPI management 66
    61. 61. Comprehensive Model for Diagnosing Organization A. ORGANIZATIONAL LEVEL Inputs Design Components Outputs Strategy - General Structure Culture Organization Environment Effectiveness - Industry Structure Human Technology Resources B. GROUP LEVEL Inputs Design Components Outputs Goal Clarity Team Task Group - Organization Effectiveness Structure Functioning Design e.g., quality of Group Group work life, Composition Norms performance C. INDIVIDUAL LEVEL Inputs Design Components Outputs Skill Variety Individual - Organization Effectiveness Design Task Identity Autonomy e.g., job - Group Design - Personal satisfaction, Characteristics Task Feedback personal Significance about Results development
    62. 62. Types of Intervention Human Process Intervention Structural Intervention Types of Intervention Human Resource Management Intervention Strategic Intervention
    63. 63. InterventionCharacteristics: This involves the extent to which intervention Goal Specifity goals are specific rather than broad. This involves the degree to which theProgrammability changes can be programmed or the extent to which the different intervention characteristics can be specified early in advance to enable socialization, commitment, and reward allocation.
    64. 64. InterventionCharacteristics: This concerns the extent to which the change Level of target is the total organization, rather than a Change Target department or small work group. This refers to the degree to which there is an Internal internal support system to guide the change Support process.
    65. 65. InterventionCharacteristics: This concerns the presence of a powerful Sponsorship sponsor who can initiate, allocate, and legitimize resources for the intervention.
    66. 66. The Strategic Map Linking the 4 perspectivesArriffin KPI management 73
    67. 67. TRANSLATE THE STRATEGY TO OPERATIONAL TERMS The Strategy Financial Perspective Measurement is the "If we succeed, how will language that gives we look to our shareholders?” clarity to vague concepts. Customer Perspective "To achieve my vision, how must I look to my customers?” Measurement is used to communicate, not to Internal Perspective control. "To satisfy my customers, at which processes must I excel?” Strategy can be Organization Learning "To achieve my vision, described as a series of how must my organization cause and effect learn and improve?”Arriffin relationships KPI management 74
    68. 68. Basic Scorecard Terminology (Southwest Airlines Example) Strategy Map Strategic Theme: Objectives: Measures: Targets: Initiatives: Operating Efficiency What the How success The level of Key action Profits and strategy is or failure performance programsFinancial RONA trying to (performance) or rate of required to Grow achieve against improvement achieve Fewer planes Revenues objectives is needed targets Attract & monitoredCustomer Retain More Customers On-time Lowest Service pricesInternal Objectives Measures Targets Initiatives Fast ground • On Ground Time • 30 Minutes • Cycle time turnaround • Fast ground turnaround • On-Time • 90% optimization DepartureLearning Ground crew alignment Arriffin KPI management 75
    69. 69. Strategy Map: Capture a Cause Effect Relationship from the Bottom Up Stakeholder More rapid and Improved Returns on accessible services Investments Internal Process Economic Reduce Re-Activities Establish Web Based Model Process thru ABC/M Self Services& GrowthLearning Expand Global Leadership Knowledge Facility Reach Development Management Investments Facilities and IT Infrastructure Fixed Assets Human CapitalArriffin KPI management 76
    70. 70. Pitfall in implementing KPIs Some of them are ......Arriffin KPI management 78
    71. 71. Some pitfalls in installing KPIs• Goals and Objectives not clearly defined• Wrong Key Result Areas identified to achieve the goals set.• KPIs used are not suitable for proper performance evaluation• Performance targets are not achieveable and not integrated with that of the organisation.Arriffin KPI management 79
    72. 72. Organizational benefits of performance management • Common approach to setting goals and reviewing performance & development • Aligning individual plans with organizational goals • Ongoing dialogue between employees and supervisors on performance & development • Links to corporate learning & development, career & succession planning, rewards & recognitionArriffin KPI management 80
    73. 73. Integrated performance management framework - elements & linkages Gov’t Strategic Plan, Ministry Plan, Branch Plan Individual Start of year Performance Management Plan Review • Goal Setting CorporateOutcomes Opportunities•Recognition Review •Career Planmechanisms (e.g.informal and • Results Focus •High Potentialformal rewards and • Feedback to • Progress and •Succession Plan recognition,development, base develop new realignment •Learning Needs pay, pay for En plan g & Courses performance do oin fy ngArriffin ea KPI management O 81 r Competencies
    74. 74. PMS in summary • Define performance objectives • Establish Key Result Areas • Key Performance Indicators • Performance Targets and Standards • Performance Record Keeping • Variance or gap analysis • Strategic InterventionsArriffin KPI management 82
    75. 75. 400 INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency Quantity Average ratios produced cost per transactionResearch Productivity Value ROIdev ratios producedexpenseInventory Average Averageturnover lead time Prodn cost Waste Reduction 84
    76. 76. 900 HRMINPUT PROCESS OUTPUT OUTCOMEIncentives variances Turnover ratioHours Efficiency No Profit per ratios produced employeeTraining Productivity Value ROI ratios producedSalary Average Turnover Revenue per lead time employeeSkill Waste Reduction Employee Value added percompetenc productivity employeey 85
    77. 77. 500 MARKETINGINPUT PROCESS OUTPUT OUTCOMEMaterial Response rate No of customersLabour Marketing costs % Sales volumeOverhead Efficiency ratios Customers ProfitabilityResearch Productivity Product ROA marketingdev ratios profitabilityexpense Average cost per Customer Return on Sales transaction acquisitionInventory turnover Average lead time Customer retentionPrice rel to comp Waste Reduction Revenue growth 86
    78. 78. 400 INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency Quantity Average ratios produced cost per transactionResearch Productivity Value ROIdev ratios producedexpenseInventory Average Averageturnover lead time Prodn cost Waste Reduction 87
    79. 79. Arriffin KPI management 88
    80. 80. PERFORMANCE CYCLE Business objectives Critical Success Change Factors Performance Key Result Actuals Areas Strategic Performance initiatives Indicators Performance standards 89Arriffin KPI management
    81. 81. Training Need Analysis (TNA) TNA is a tool toExisting identify the gap Required• Skills • Skills• Knowledge • Knowledge• Attitudes • Attitudes 90
    82. 82. Strategy Map Framework Long-term Shareholder Value Cost Efficiency Revenue GrowthFinancial Price Quality Service Availability BrandCustomer Regulatory Operations Customer Innovation and Social Management Management Processes Processes Processes ProcessesInternal ProcessLearning & Growth Human Capital Organization Capital Information Capital
    83. 83. Strategic Objectives in Financial Long-term Shareholder Value Cost Efficiency Revenue Growth Improve Cost Structure Expand Revenue OpportunitiesIncrease Asset Utilization Enhance Customer Value
    84. 84. Strategic Objectives in Customer Customer Retention Customer Profitability Customer Satisfaction Market Share Customer Acquisition Price Quality Service Availability Brand
    85. 85. Strategic Objectives in Internal Process Operations Customer Regulatory Innovation Management Management and Social Processes Processes Processes Processes Processes that Processes that Processes that Processes that produce and enhance customer create new improve deliver products value products and communities and and services services the environment• Supply • Selection • New Ideas • Environment• Production • Acquisition • R&D Portfolio • Safety &• Distribution • Retention • Design/ Health • Growth Develop • Employment • Launch • Community
    86. 86. Strategic Objectives in Learning & Growth Organization InformationHuman Capital Capital Capital• Skills • Culture • Systems• Knowledge • Leadership • Database• Attitude • Organization • Networks Development
    87. 87. Strategy Map Template Enhance Long-term Shareholder Value Improve Increase Revenue Growth Cost EfficiencyFinancial Build High Expand Enhance Performance Products Market Share Brand ImageCustomer Achieve Drive Demand Implement Good Manage Dramatic Operational through Customer Environmental Growth through Excellence Relation Policy Innovation ManagementInternal ProcessLearning & Growth Develop Strategic Build Learning Expand Capabilities with Competencies Culture Technology
    88. 88. Action Plan FormatObjective:Action Feedback Accountability Schedule Resources MechanismSteps Primary Others Start Complete Money Time
    89. 89. THANK YOU FOR YOUR ATTENTION Questions pleaseArriffin KPI management 100