Bi 7

“Fundamentals of Business Analytics”
RN Prasad and Seema Acharya
Copyright  2011 Wiley India Pvt. Ltd. All rights reserved.
Chapter 8
Measures, Metrics, KPIs, and
Performance Management

Learning Objectives and Learning Outcomes
Learning Objectives Learning Outcomes
Measures, Metrics, KPIs and Performance
Management
1. To introduce terminology associated with
measurement
2. Need for a system of measurement
3. Characteristics of measures
4. Process used for defining good measures
5. Relationship of these measures to individuals/
teams/departments and the entire company
(a) Ability to explain the role of
Metrics in the
Business/Functions
performance management
and decision making
(b) Ability to identify Metrics
and Indicators in a given
business scenario
(c) Ability to model a business
scenario, identify the
metrics, indicators and
make recommendations to
achieve the business goal

Session Plan
Lecture time : 90 minutes approx.
Q/A : 15 minutes

Agenda
• Measurement system terminology
• Salient attributes of a good metric
• SMART test for ensuring metric relevance to business
• Supply chain associated with the metric
• Fact-based decision making and KPIs
• Few sample KPIs used by Human Resource (HR) division
• Mapping metrics to business phases

Measurement System Terminology
Data – It is a collection of facts which have similar attributes or characteristics.
“Phone number” is a named collection of, say, mobile phone numbers of your friends.
Measure – Data with associated unit of measure (UOM) is typically termed as measure.
“Lab hours per month” has a numeric data associated with “time duration”.
Metric – It is a system of measures based on standard UOM with a business context. The term
business metric also refers to the same.
“Product defect rate” by city is an example of measuring “what percentage of goods
was returned by customers in different cities”.
.
Indicator – It is a business metric used to track business results or success/performance.
“Call drop frequency” for mobile phone users is an indicator of user dissatisfaction.
Index – It consists of a composite set of indicators used to address the overall health of business
operations.
“Customer satisfaction index” measured on a scale of 1 to 5.

Measurement System Terminology
A metric data when properly defined includes four components:
• Subject – This measure is about a customer, a product, a supplier, an
employee, etc.
• Quantum – It is the value of the measure, such as cost, frequency,
duration, amount, etc.
• Stratum – It is the grouping consideration expressed like By Location, By
Quarter, By Customer, etc.
• Application – Value compared with similar measurements like previous
month, forecast, target, etc.

Few Salient Attributes of a Good Metric
Metric Attribute Remarks Example
Name Metric should be assigned a simple, easy-
to-remember name. Do not include codes,
long words, and unit of measure.
1. eLearning Training Days
2. Average Lines of Code
Abbreviation Short form used inside the organization. eTD/ ALOC in above cases.
Description Provide explanation to help users
understand more contexts and comprehend
the metric unambiguously.
eLearning Days – Total number of full-time
days equivalent spent in training using
online course delivery system. Users may
log-in any number of times and duration of
each session is captured in minutes.
Unit of Measure
(For data capture)
The commonly measured base unit needs to
be included.
In the eLearning example, the unit is
“Minutes”.
Scale Commonly reported granularity of unit of
measure. We need to capture the conversion
formula. Simple multiples like 1000 (K) or
M (Million) are commonly used.
In the eLearning example as the data
storage granularity is “Days”, the scale is
“minutes/(60 * 8)” assuming 8 hours is a
standard training day.
Metric Owner Position/department responsible and
accountable for the metric
The training support manager in the training
department could be an owner.

SMART Test for Ensuring Metric Relevance to Business
Test Test Focus
Specific Metric is clearly defined, articulated, and understood by all
stakeholders, and is triggering action.
Measurable Someone in the organization must have the ability/instrumentation to
accurately, easily and regularly measure the actual value at reasonable
cost and technology. Think if a clinical thermometer would cost USD
1000!!
Attainable There will be no metric without target. This target may be stretched but
must be attainable with the current level of people efforts and
processes. Speed by cycle can’t be enhanced to 300 kmph no matter
whatever be the technology used!
Result-
oriented
The metric must motivate team members performing the work. In
businesses results are crucial.
Time-bound All actual values of metrics should be traceable to the date/time when
the actual value measurement was taken. The instrument used for
measurement also has a key role in sampling, accuracy, speed and
correctness that can be verified in other ways.

Supply Chain Associated with Metrics
Component of Measurement Supply Chain Contribution
Entities to be measured Includes employee, vendor, product, customer,
asset, expense category, sales promotion, service
feedback…
Instrumentation Measurement data, data capture and storage in
raw form
Raw material Reference data, definitions, benchmarks, limits …
Sub-assemblies Measures with unit, format, storage structure,
archives…
Product Business metrics approved, communicated and
measured, verified and analyzed with rigor
Metrics Delivery Reports, dashboards, scoreboards, alerts, Flash
updates

Supply Chain Associated with Metrics
Component of Measurement Supply Chain Contribution
Business Activity Areas
(Decisions/Actions)
Plan review, tracking project progress,
sales campaign analysis, profit
forecast
Business Application Budget control, quality improvement,
innovation projects
Business Value Business results meeting and
exceeding plan

Fact Based Decision Making and KPIs
KPIs are objective, measurable attributes of business performance, which
assist in informed decision-making.
KPIs should be:
– Relevance and functionality – The KPIs chosen should be directly related to
business results that the company is trying to produce in the specific business
function. Like, your body temperature measurement can only indicate whether
you have fever or not, but can say nothing about your blood pressure!
– Understandable – Chosen KPIs must be defined unambiguously. A KPI needs to
be understood in one and only one way by all stakeholders. It must be
documented, and its definition must be easily accessible to all users.
– Reliability and Credibility – The value of KPIs needs to be authentic and
should be validated as “trusted” or “dependable”. Someone is going to base an
important decision on the chosen metric. Adequate checks are needed to declare
data as trustworthy. This also means that the data must represent the “single
version of truth”.
– Abuse-proof – An abuse-proof measure is unlikely to be used against intended
purpose or individual(s) involved in the measurement process.

Few Sample KPIs Used by the Human Resources Division
• Average time to recruit.
• Average open time of job positions.
• No. of responses to open job positions.
• No. of interviews to fill up open job positions.
• No. of offers that were made.
• No. of responses to the offers made.
• % of vacancies that were filled within x time.
• % of new employees that remained after x time.
• % of new employee satisfaction rate.

Answer a Quick Question
How would you aggregate KPIs for selecting sports teams for tournaments
at college, state, regional, national and international levels?

Answer a Quick Question
You are the owner of a retail chain. You wish to enhance the productivity
of your store’s employees. What metrics will you define to achieve this
objective?

Mapping Metrics to Business Phases

Ask a few participants of the learning program to summarize the lecture.
Summary please…

Bi 7

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Bi 7

Similar to Bi 7 (20)

More from shivz3

More from shivz3 (17)

Recently uploaded

Recently uploaded (20)

Bi 7